ELDERTRUST, S-11/A, 1997-11-18

ELDERTRUST
S-11/A, 1997-11-18
REAL ESTATE

Previous: SHOPPERS FOOD WAREHOUSE CORP, S-4/A, 1997-11-18

Next: AUL AMERICAN INDIVIDUAL VARIABLE LIFE UNIT TRUST, S-6/A, 1997-11-18

<PAGE>

As filed with the Securities and Exchange Commission on November 17, 1997
Registration No. 333-37451
===============================================================================

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

---------------------
AMENDMENT NO. 1
TO
FORM S-11

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------------
ElderTrust
(Exact name of registrant as specified in its governing instrument)

415 McFarlan Road, Suite 202
Kennett Square, PA 19348
(610) 925-0808
(Address of principal executive offices)
---------------------
EDWARD B. ROMANOV, JR.
President and Chief Executive Officer
ElderTrust
415 McFarlan Road, Suite 202
Kennett Square, PA 19348
(610) 925-0808
(Name and address of agent for service)
---------------------
Copies to:

J. Warren Gorrell, Jr. Michael F. Taylor
George P. Barsness BROWN & WOOD LLP
HOGAN & HARTSON L.L.P. One World Trade Center
555 Thirteenth Street, N.W. New York, New York 10048
Washington, D.C. 20004-1109 (212) 839-5300
(202) 637-5600

Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
---------------------
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ___________
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
---------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
===============================================================================

<PAGE>

EXPLANATORY NOTE

This Registration Statement contains a Prospectus relating to a public
offering in the United States and Canada (the "U.S. Offering") of an aggregate
of 5,440,000 of common shares of beneficial interest, $.01 par value per share,
of ElderTrust, a Maryland real estate investment trust (the "Common Shares"),
together with separate Prospectus pages relating to a concurrent offering
outside the United States and Canada of an aggregate of 1,360,000 Common Shares
(the "International Offering"). The complete Prospectus for the U.S. Offering
follows immediately. After such Prospectus are the following alternate pages for
the International Offering: a front cover page; an "Underwriting" section; and a
back cover page. All other pages of the Prospectus for the U.S. Offering are to
be used for both the U.S. Offering and the International Offering.

<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1997

PROSPECTUS
6,800,000 Common Shares

ElderTrust(SM)
Common Shares of Beneficial Interest
-------------------
ElderTrust (together with its subsidiaries, the "Company") has been formed
to invest in a diversified portfolio of healthcare-related real estate and
mortgages. The Company will be self-administered and self-managed and expects to
qualify as a real estate investment trust ("REIT") for federal income tax
purposes. Upon completion of this offering (the "Offering"), the Company will
invest in an initial portfolio of 21 assisted and independent living facilities,
skilled nursing facilities and medical office and other buildings, term mortgage
and construction loans totaling $19.7 million secured by six assisted living
facilities in lease-up or development and substantially all of the economic
interest in a $7.5 million second mortgage loan. The facilities and the
properties securing the loans are located in eight states in the eastern United
States. The Company has agreed or has the option to purchase the six assisted
living facilities that secure the term mortgage and construction loans, as well
as eight of the nine assisted living development and expansion projects
currently in the planning phase for which the Company will make loan commitments
totaling $53.3 million. The Company has agreed to make three additional term
mortgage and construction loans totaling $19.4 million and to purchase the
assisted living facilities securing these loans, subject to certain terms and
conditions. Approximately 48.4% of the Company's total assets upon completion of
the Offering (excluding the three additional term mortgage and construction
loans) will consist of properties leased to and loans made to consolidated
subsidiaries of Genesis Health Ventures, Inc. ("Genesis"), a leading provider of
healthcare and support services to the elderly. Subsidiaries of Genesis will
operate or manage substantially all of the properties initially being acquired
by the Company, as well as substantially all of the properties that secure the
loans being made by the Company. Approximately $79.3 million of the net proceeds
from the Offering, including initial draws under the proposed bank credit
facility, will be used to acquire properties and other assets from and to make
loans to Genesis.

<PAGE>

All of the common shares of beneficial interest, $.01 par value per share,
of the Company (the "Common Shares") offered hereby are being sold by the
Company and will represent approximately 92.5% of the Company's outstanding
common equity. The remaining common equity in the Company will be beneficially
owned by officers and trustees of the Company and other continuing investors. Of
the 6,800,000 Common Shares being offered hereby, 5,440,000 shares are being
offered initially in the United States and Canada by the U.S. Underwriters and
1,360,000 shares are being offered initially outside the United States and
Canada by the International Managers. See "Underwriting."

Prior to the Offering, there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price will
be $20.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company will
apply to list the Common Shares on the New York Stock Exchange.

See "Risk Factors" beginning on page 23 for certain factors relevant to an
investment in the Common Shares, including:

o The substantial dependence on a single operator in the highly regulated
healthcare industry;
o The possibility that the consideration to be paid by the Company for the
properties and other assets to be acquired by the Company may exceed their
fair market value and the absence of third-party appraisals;
o Risks inherent in real estate investments, including illiquidity of
ownership interests, fluctuations in values of real property, defaults under
or nonrenewals of leases, timely completion of development projects, and
nonpayment of construction and mortgage loans made by the Company, and the
lack of minimum rent payments in certain of the facility leases;
o Conflicts of interest in connection with the Company's formation, including
the receipt by trustees and officers of the Company of equity interests, and
conflicts of interest involving the Chairman of the Board of the Company in
business decisions affecting the Company;
o The Company has been recently organized and management of the Company has
no prior experience in the day-to-day operations of a REIT;
o Risks associated with rapid growth, including the ability of the Company
to manage its growth effectively;
o Exposure of the Company to possible increases in interest expense under its
proposed bank credit facility, and the possibility that the Company may not
be able to refinance outstanding debt upon maturity or that indebtedness
might be refinanced on less favorable terms;
o Limitations on shareholders' ability to change control of the Company,
including a prohibition on actual or constructive ownership of Common Shares
in excess of 8.6% of the Company's outstanding Shares; and
o Taxation of the Company as a regular corporation if it fails to qualify as
a REIT.
-------------------

<PAGE>

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
===============================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
Per Common Share ...... $ $ $
- --------------------------------------------------------------------------------
Total (3) ............... $ $ $
===============================================================================
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $_____________ payable by the
Company.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase up
to an additional 816,000 Common Shares, and has granted the International
Managers a 30-day option to purchase up to an additional 204,000 Common
Shares, on the same terms and conditions as set forth above, solely to cover
overallotments, if any. If such option is exercised in full, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
-------------------
The Common Shares are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel to the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares offered hereby will be made in New York, New York
on or about , 1997.
-------------------
Merrill Lynch & Co.
BT Alex. Brown
Goldman, Sachs & Co.
-------------------
The date of this Prospectus is , 1997.
<PAGE>
TABLE OF CONTENTS

Page
----
SUMMARY .......................................... 3
The Company .................................... 3
Risk Factors .................................... 5
Business and Growth Strategies .................. 6
The Initial Investments ........................ 9
Term Loans, Construction Loans and Florida
Facilities Note .............................. 12
Construction Loan Commitments .................. 13
Structure and Formation of the Company ......... 13
The Offering .................................... 19
Distributions ................................. 19
Tax Status of the Company ........................ 20
Summary Historical, Pro Forma and
Estimated Financial Information ............ 21
RISK FACTORS ....................................... 23
Substantial Dependence on Genesis ............... 23
Risks Relating to Healthcare Facilities ......... 23
Absence of Arm's Length Negotiations in
the Formation Transactions .................. 25
Real Estate Investment Risks ..................... 26
Risks Associated with Making Loans on
Development Projects ........................ 27
Debt Financing ................................. 27
Conflicts of Interest in Business Decisions
Affecting the Company ........................ 28
Lack of Operating History and Inexperience
of Management in the Day-to-Day
Operations of a REIT; Rapid Growth ......... 29
Risks of Limitations on Changes in Control
and of Ownership Limit ..................... 29
Federal Income Tax Risks ........................ 31
Possible Environmental Liabilities ............... 32
Competition .................................... 33
Shortage of Qualified Healthcare Personnel ....... 33
Board May Change Investment Policies ............ 34
Influence of Executive Officers and Trustees ..... 34
Dependence on Key Personnel ..................... 34
Immediate Dilution .............................. 34
Risks of Ownership of Common Shares ............ 34
Absence of Prior Public Market for Common
Shares ....................................... 35
ERISA Risks .................................... 35
THE COMPANY ....................................... 36
General ....................................... 36
BUSINESS AND GROWTH STRATEGIES ..................... 37
USE OF PROCEEDS .................................... 40
DISTRIBUTIONS .................................... 40
CAPITALIZATION .................................... 45
DILUTION .......................................... 46

<PAGE>

Page
----
SELECTED HISTORICAL AND PRO
FORMA FINANCIAL INFORMATION ..................... 48
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ..................... 49
BUSINESS AND PROPERTIES ........................... 53
General ....................................... 53
Initial Investments ........................... 54
Lessees and Initial Properties .................. 57
Genesis Initial Properties ..................... 57
Senior LifeChoice Corp Initial Properties ...... 61
CKHS Initial Properties ........................ 62
Other Initial Properties ........................ 63
Initial Property Acquisition Agreements ......... 64
Term Loans, Construction Loans and Florida
Facilities Note .............................. 66
Purchase Contracts and Options for Term
Loan, Construction Loan and Proposed
Multicare Loan Properties .................. 71
The Florida Facilities Note ..................... 72
Construction Loan Commitments and
Related Purchase Contracts .................. 73
Mortgage Debt ................................. 74
Leases .......................................... 75
Bank Credit Facility and Tax Exempt
Financing .................................... 79
Government Regulation ........................... 80
Competition .................................... 83
Legal Proceedings .............................. 83
Office Lease .................................... 83
Employees ....................................... 83
MANAGEMENT ....................................... 84
Trustees, Trustee Nominees And Executive
Officers .................................... 84
Committees of the Board of Trustees ............ 85
Compensation of the Board of Trustees ............ 86
Executive Compensation ........................ 86
Summary Compensation Table ..................... 86
Option Grants in Fiscal Year 1997 ............... 86
1997 Share Option and Incentive Plan ............ 87
Employment and Non-Competition
Agreements ................................. 88
Incentive Compensation ........................ 89
Limitation of Liability and Indemnification ...... 89
Indemnification Agreements ..................... 90
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS .................................... 90
STRUCTURE AND FORMATION OF THE
COMPANY ....................................... 92

i
<PAGE>

Page
----
POLICIES WITH RESPECT TO CERTAIN
ACTIVITIES ....................................... 97
Investment Policies ........................... 97
Financing Policies .............................. 98
Lending Policies .............................. 98
Conflict of Interest Policies .................. 98
Policies With Respect to Other Activities ...... 99
PARTNERSHIP AGREEMENT .............................. 100
Management .................................... 100
Sales of Assets ................................. 100
Removal of the General Partner; Transfer of
the Company's Interests ..................... 100
Reimbursement of the Company;
Transactions with the Company and its
Affiliates ................................. 100
Redemption of Units ........................... 101
Restrictions on Transfer of Units by Limited
Partners .................................... 101
Issuance of Additional Units and Preference
Units ....................................... 101
Capital Contributions ........................... 102
Distributions; Allocations of Income and
Loss ....................................... 102
Exculpation and Indemnification of the
Company .................................... 102
Amendment of the Operating Partnership
Agreement .................................... 102
Term .......................................... 103
PRINCIPAL SHAREHOLDERS ........................... 104
SHARES OF BENEFICIAL INTEREST ..................... 105
General ....................................... 105
Common Shares ................................. 105
Preferred Shares .............................. 106
Power To Issue Additional Common Shares
and Preferred Shares ........................ 106
Restrictions on Ownership and Transfer ......... 106
Transfer Agent and Registrar .................. 108
CERTAIN PROVISIONS OF MARYLAND
LAW AND THE COMPANY'S
DECLARATION OF TRUST AND
BYLAWS .......................................... 109
Classification and Removal of Board of
Trustees; Other Provisions .................. 109

<PAGE>

Page
----
Changes in Control Pursuant to Maryland
Law .......................................... 110
Amendments to the Declaration of Trust and
Bylaws ....................................... 110
Advance Notice of Trustee Nominations and
New Business ................................. 111
Anti-Takeover Effect of Certain Provisions
of Maryland Law and of the Declaration
of Trust and Bylaws ........................ 111
Maryland Asset Requirements ..................... 111
SHARES AVAILABLE FOR FUTURE SALE .................... 112
General ....................................... 112
Registration Rights ........................... 112
FEDERAL INCOME TAX
CONSIDERATIONS ................................. 113
Taxation of the Company ........................ 113
Requirements for Qualification as a REIT ...... 115
Failure of the Company to Qualify as a
REIT ....................................... 122
Taxation of Taxable US Shareholders of the
Company Generally ........................... 122
Backup Withholding for Company
Distributions .............................. 123
Taxation of Tax-Exempt Shareholders of the
Company .................................... 124
Taxation of Non-US Shareholders of the
Company .................................... 124
Tax Aspects of the Company's Ownership of
Interests in the Operating Partnership ...... 127
Other Tax Consequences for the Company
and its Shareholders ........................ 128
ERISA CONSIDERATIONS .............................. 129
Employment Benefit Plans, Tax-Qualified
Pension, Profit Sharing or Stock Bonus
Plans and IRAs .............................. 129
Status of the Company and the Operating
Partnership under ERISA ..................... 129
UNDERWRITING ....................................... 132
EXPERTS .......................................... 134
LEGAL MATTERS .................................... 134
ADDITIONAL INFORMATION ........................... 134
GLOSSARY .......................................... 136

ii
<PAGE>

[INSERT MAP, CHARTS AND/OR PICTURES]

Certain persons participating in this Offering may engage in transactions that
stabilize, maintain or otherwise affect the price of the Common Shares. Such
transactions may include stabilizing, the purchase of Common Shares to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."

Information contained in or delivered in connection with this Prospectus
contains "forward-looking statements" relating to, without limitation, future
economic performance, plans and objectives of management for future operations
and projections of revenue and other financial items, which can be identified by
the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The cautionary statements
set forth under the caption "Risk Factors" and elsewhere in the Prospectus
identify important factors with respect to such forward-looking statements,
including certain risks and uncertainties, that could cause actual results to
differ materially from those in such forward-looking statements.
<PAGE>

SUMMARY

The following summary is qualified in its entirety by the more detailed
information included elsewhere in the Prospectus. Unless otherwise indicated,
the information contained in this Prospectus assumes that (i) the initial public
offering price is $20.00 per share, (ii) the transactions described under
"Structure and Formation of the Company" are consummated, and (iii) the
Underwriters' overallotment option is not exercised. As used herein, (i)
"Company" means ElderTrust, a Maryland real estate investment trust, and one or
more of its subsidiaries (including ElderTrust Operating Limited Partnership, a
Delaware limited partnership (the "Operating Partnership") and ET Capital Corp.,
a Delaware corporation), or, as the context may require, ElderTrust only or the
Operating Partnership only and (ii) "Genesis" means Genesis Health Ventures,
Inc., a Pennsylvania corporation, and its subsidiaries that will lease or manage
a substantial portion of the properties and other assets acquired by the Company
in its formation or, as the context may require, Genesis only or such
subsidiaries of Genesis only. See "Glossary" for the meanings of other terms
used herein. The Company will be the sole general partner of, will own a
substantial majority interest in, and will conduct all of its operations
through, the Operating Partnership and its subsidiaries.

The Company

The Company has been formed to invest in a diversified portfolio of
healthcare-related real estate and mortgages. The Company will be
self-administered and self-managed and expects to qualify as a REIT for federal
income tax purposes. Upon completion of the Offering, the Company intends to
invest in an initial portfolio of 21 assisted and independent living facilities,
skilled nursing facilities and medical office and other buildings (the "Initial
Properties"), term mortgage loans (the "Term Loans") and construction loans (the
"Construction Loans") totaling $19.7 million secured by six assisted living
facilities in lease-up or development and substantially all of the economic
interest in a $7.5 million second mortgage loan (the "Florida Facilities Note").
The Company also has agreed to or has the option to purchase the six assisted
living facilities that secure the Term Loans and the Construction Loans, as well
as eight of the nine assisted living development and expansion projects
currently in the planning stage for which the Company will make loan commitments
totaling $53.3 million (the "Construction Loan Commitments"). The Company has
agreed to make three additional term mortgage and construction loans totaling
$19.4 million and to purchase the assisted living facilities securing these
loans, subject to certain terms and conditions. The Initial Properties and
properties securing the loans are located in eight states in the eastern United
States. Approximately 48.4% of the Company's total assets upon completion of the
Offering (excluding the three additional term mortgage and construction loans)
will consist of properties leased to or loans made to consolidated subsidiaries
of Genesis, a leading provider of healthcare and support services to the
elderly. Subsidiaries of Genesis will operate or manage substantially all of the
Initial Properties, as well as substantially all of the properties that secure
loans being made by the Company. For the month ended June 30, 1997, the
occupancy of the assisted and independent living facilities (excluding three
assisted living facilities in lease-up), skilled nursing facilities and medical
office and other buildings included in the Initial Properties was 88.2%, 92.9%
and 100.0%, respectively. Approximately $79.3 million of the net proceeds from
the Offering, including initial draws under a proposed bank credit facility,
will be used to acquire properties and other assets from and to make loans to
Genesis.

The Company will lease the Initial Properties pursuant to percentage rent
leases ("Percentage Rent Leases") or minimum rent leases ("Minimum Rent Leases")
(other than the medical office and other buildings, which will be acquired by
the Company subject to the existing tenant leases). Percentage Rent Leases will
be based on a specified percentage of facility revenues with no required minimum
rent. Minimum Rent Leases will provide for base rent, plus scheduled base rent
step-ups and, in the case of certain of the Minimum Rent Leases, additional rent
based upon incremental revenues over the base year. Both types of leases are
triple net leases that require the lessees to pay all operating expenses, taxes,
insurance and other costs, and have initial terms of 10 or 12 years, subject to
renewal. Tenant

3
<PAGE>

leases of the medical office and other buildings provide for specified annual
rent, subject to increases in rent in certain of the leases ("Fixed Rent
Leases"). The Company expects to realize an initial annual yield of
approximately 10.4% on its investment in Initial Properties that are subject to
Minimum Rent Leases and an initial yield of approximately 10.4% on its
investment in Initial Properties that are subject to Fixed Rent Leases, based
upon the minimum or fixed rent provisions of those leases. The expected initial
annual yield on the Company's investment in Initial Properties that are subject
to Percentage Rent Leases also is approximately 10.4% based upon pro forma rent
for the properties subject to such leases for the month ended June 30, 1997,
annualized. The Term Loans and Construction Loans to be made by the Company will
have fixed rates of interest based on a spread over the three-year U.S. Treasury
Note rate in effect as of the closing of the Offering except for one
Construction Loan which will have a fixed rate of interest of 10.5%.

The Company's principal business objective is to maximize growth in cash
available for distribution and to enhance the value of its portfolio in order to
maximize total return to shareholders. The Company's business and growth
strategies to achieve this objective are: (i) to invest in a high quality
portfolio of healthcare-related properties operated or managed by established
operators or in mortgages secured by such properties located in close proximity
to complementary healthcare services and facilities; (ii) to pursue aggressively
opportunities for portfolio growth by providing traditional and innovative REIT
financing to established operators in the healthcare industry, particularly in
the fast growing assisted living segment; (iii) to provide shareholders the
opportunity for increased distributions from annual increases in rental income
and interest income and from portfolio growth; and (iv) to provide shareholders
with stock price appreciation resulting from potential increases in the value of
the Company's investments. There can be no assurance, however, that these
investment objectives will be realized.

The Company intends to focus initially on the acquisition and financing of
assisted living, independent living and skilled nursing facilities and, to a
lesser extent, medical office and other buildings, located in the eastern United
States, although the Company also may make investments in other types of
healthcare facilities and in other geographical areas. The Company believes that
there currently is significant demand for REIT financing capital in the
healthcare industry, particularly in the assisted living segment.

Annual expenditures in the assisted living industry are estimated to exceed
$16 billion in 1997. Sale/leaseback financing is generally viewed as an
effective financing tool for companies whose business includes a combination of
healthcare services and housing for the elderly. Among other benefits, the
lessee typically does not record long-term debt on its balance sheet and the
real estate depreciation expense related to owning the facility is eliminated
from the lessee's financial statements. In general, assisted living represents a
combination of housing, meals and 24-hour a day personal support services
designed to aid elderly residents with activities of daily living, such as
bathing, eating, personal hygiene, grooming and dressing. Certain assisted
living facilities may also provide assistance to residents with low acuity
medical needs, or may offer higher levels of personal assistance for incontinent
residents or residents with Alzheimer's disease or other forms of memory
impairment. In the Company's view, the assisted living industry is emerging as a
preferred alternative to meet the growing demand for a cost-effective setting in
which to care for the elderly who do not require intensive medical attention but
are unable to live independently due to physical or cognitive frailties.
Consumer preferences, the aging of the population, lengthening of life
expectancies and a corresponding larger population of frail elderly are several
factors driving the demand for assisted living.

Upon completion of the Offering, the Company expects to have a secured bank
credit facility of up to $110.0 million (the "Bank Credit Facility"), which will
be used to fund $13.2 million of the purchase price for the Initial Properties,
the Term Loans and the initial draws under the Construction Loans ($29.2 million
if the Proposed Multicare Loans are made). The Bank Credit Facility also will be
used for one or more of the following purposes: (i) to fund the remaining draws
under the Construction

4
<PAGE>

Loans; (ii) to fund the Construction Loan Commitments; (iii) to facilitate
possible acquisitions or future developments; (iv) to repay indebtedness; and
(v) for working capital and other general corporate purposes. The Company
anticipates rapid growth and, accordingly, may fund the purchase of additional
properties and other investments from future equity or debt financings,
including mortgage indebtedness, or by reinvestment of proceeds from the sale of
properties (subject to any required distributions under the tax requirements
applicable to REITs). The Company does not have a policy limiting the amount of
indebtedness that the Company may incur.

Risk Factors

An investment in the Common Shares involves various risks, and prospective
investors should carefully consider these and other matters discussed under
"Risk Factors" prior to making an investment in the Company. Such risks include:

o the substantial dependence on Genesis for the successful operation of the
Company's properties, since approximately 48.4 % of the Company's total
assets upon completion of the Offering will consist of properties leased to
and loans made to Genesis. Genesis will operate or manage substantially all
of the Initial Properties, as well as the properties that secure the loans
initially made by the Company. In addition, the Company will make
Construction Loan Commitments totaling $42.9 million to Genesis;

o extensive federal, state and local regulation of the healthcare industry,
including reimbursement policies, regulations concerning capital and other
expenditures, licensing and certification requirements, facility
inspections and transfer restrictions, and the possibility that the Company
will encounter delays in exercising its remedies under leases and loans
made by the Company in the event of defaults because the facility licenses
will be held by lessees or borrowers and not by the Company;

o the possibility that the consideration to be paid by the Company for the
Initial Properties and other assets being acquired by the Company may
exceed their fair market value due to the absence of arm's length
negotiations with respect to certain of the Initial Properties and the
other assets to be acquired by the Company and the absence of third-party
appraisals;

o risks inherent in real estate investments, including illiquidity of
ownership interests, fluctuations in values of real property, defaults
under or renewal or replacement of leases, timely completion of development
projects, nonpayment of construction and mortgage loans made by the Company
and potential environmental risks of owning or making loans secured by real
property, and the lack of minimum rent payments in certain of the facility
leases;

o conflicts of interest in connection with the Company's formation, including
the receipt by officers and trustees of the Company of equity interests in
the Company, and conflicts of interest involving Michael R. Walker,
Chairman of the Board of the Company and Chairman of the Board and Chief
Executive Officer of Genesis, in business decisions affecting the Company;

o the Company has been recently organized and has no operating history; the
Company will be self-administered and self-managed, however, management of
the Company has not had prior experience in the day-to-day operation of a
REIT;

o risks associated with rapid growth, including the ability of the Company to
manage its growth effectively;

o exposure of the Company to possible increases in interest expense under its
proposed Bank Credit Facility, and the possibility that the Company may not
be able to refinance outstanding debt upon maturity or that indebtedness
might be refinanced on less favorable terms;

5
<PAGE>

o the possible anti-takeover effect of the Company's ability to limit, for
purposes of maintaining its REIT status, the actual or constructive
ownership of Common Shares to 8.6% of the outstanding Common Shares and
certain other provisions contained in the organizational documents of the
Company and the Operating Partnership, any of which could have the effect
of delaying or preventing a transaction or change in control of the Company
that might involve a premium price for the Common Shares or otherwise would
be in the best interests of the Company's shareholders;

o taxation of the Company as a corporation if it fails to qualify as a REIT
for federal income tax purposes, the Company's liability for certain
federal, state and local income taxes in such event, and the resulting
decrease in cash available for distribution;

o immediate dilution of $2.04 in the net tangible book value per Common Share
purchased in the Offering (based on the assumed offering price of $20.00
per share); and

o the absence of a prior public market for the Common Shares and no assurance
that a public market will develop or be sustained.

Business and Growth Strategies

The Company's strategy includes aligning its investments with healthcare
networks, such as the Genesis ElderCare(SM) Network described below, and
investing in facilities near other complementary healthcare services and
facilities. The Company believes its strategy will result in a marketing
advantage for operators of its facilities, which may result in higher occupancy
rates and revenues. Substantially all of the initial assisted and independent
living facilities and development projects are located in close proximity to
complementary healthcare services and facilities, such as skilled nursing
facilities operated by Genesis and other healthcare providers. Genesis intends
for residents of assisted living facilities owned by the Company to have access
to long-term care at Genesis-operated skilled nursing facilities located near
the assisted living facility. In addition, since all of the Initial Properties
leased to or managed by Genesis will be part of a Genesis ElderCare(SM) Network,
Genesis will be available to provide ancillary services needed from time to time
by residents of the facilities leased or managed by Genesis.

6
<PAGE>

Florida) and include 155 skilled nursing facilities with approximately 21,600
beds; 16 primary care physician clinics; approximately 96 physicians, physician
assistants and nurse practitioners; 12 institutional pharmacies and five medical
supply distribution centers serving over 52,000 beds; 28 community based
pharmacies; certified rehabilitation agencies providing services through over
375 contracts; and eight home healthcare agencies. Genesis' networks also
include relationships with healthcare providers contracting with Genesis for
clinical information, managed care expertise and brand name recognition.

In June 1997, Genesis ElderCare Acquisition Corp. ("Acquisition Corp."), a
wholly owned subsidiary of Genesis ElderCare Corp. which is owned 44% by Genesis
and owned 56% by The Cypress Group L.L.C. and TPG Partners II, L.P., commenced a
tender offer (the "Tender Offer") for all of the outstanding shares of common
stock of The Multicare Companies, Inc. (together with its subsidiaries,
"Multicare"). Consummation of the Tender Offer is subject to, among other
things, at least a majority of the outstanding Multicare common stock being
tendered and receipt of all regulatory approvals and other consents. As of June
30, 1997, Multicare operated, among other assets, 124 skilled nursing
facilities, 19 hospital-based subacute units and 11 assisted living facilities.
If the Tender Offer is consummated, Acquisition Corp. will be merged into
Multicare and Multicare, as the surviving entity in the merger, will become a
wholly owned subsidiary of Genesis ElderCare Corp., and all of these facilities
will be managed by Genesis and become part of the Genesis ElderCare(SM) Network
which will add a sixth principal geographic market (Ohio/Western Pennsylvania).
Genesis' long-term strategy is to provide comprehensive eldercare services, in
collaboration with other providers, in a managed care environment. As part of
its long term strategy, Genesis has established the Genesis ElderCare(SM) brand
name and has increased awareness of Genesis' eldercare services in the
healthcare market.

The Company expects to achieve growth as follows:

Internal Growth. Management believes the Company's future internal growth
will come from (i) potentially higher occupancy and associated increased rental
income under the Percentage Rent Leases and Minimum Rent Leases due, in part, to
the ability of facility residents to participate in the Genesis ElderCare(SM)
Network, (ii) future price increases to facility residents and resulting
increases in rental income payable under the Percentage Rent Leases and Minimum
Rent Leases and (iii) adjustments to rents under certain of the Fixed Rent
Leases.

Growth from Draws Under Construction Loans, Construction Loan Commitments
and Facility Purchase Contracts and Options. The Company anticipates additional
growth from (i) increasing draws under the Construction Loans, which are
expected to increase from an initial $5.2 million to approximately $22.2 million
in 18 months, (ii) funding of the Construction Loan Commitments, which are
expected to total approximately $44.8 million in 18 months and (iii) the
purchase and leaseback to Genesis, pursuant to purchase contracts that will be
in place as of the closing of the Offering, of the three facilities in lease-up
(the "Lease-up Assisted Living Facilities") and one of the three facilities in
development (the "Initial Assisted Living Development Projects") upon the
earlier of the maturity of the related Term Loan or Construction Loan or at such
time as the facility reaches average monthly occupancy of at least 90% for three
consecutive months ("Stabilized Occupancy"). The Company has an option to
purchase the two remaining Initial Assisted Living Development Projects for
which Construction Loans will be made at the closing of the Offering. The
Company also expects to make three additional Term Loans and Construction Loans
to Multicare and to purchase the three properties that will secure such loans,
if the Multicare acquisition occurs and certain terms and conditions are
satisfied. In addition, the Company has agreed to purchase or has the option to
purchase eight of the nine assisted living development and expansion projects
currently in the preliminary planning phase. See "Business and Properties."

7
<PAGE>

investments in other types of healthcare facilities and in other geographic
regions. The Company believes that there currently is significant demand for
REIT financing capital in the healthcare industry, particularly in the assisted
living segment. Annual expenditures in the assisted living industry are
estimated to exceed $16 billion in 1997, with an estimated compound annual
growth rate of 17%, which should create a significant market opportunity for
REIT financing of new assisted living facilities. The Company also intends to
offer units of limited partnership interest in the Operating Partnership
("Units") to sellers who would otherwise recognize a taxable gain upon a sale of
assets, which also may facilitate sale/leaseback transactions on a tax-deferred
basis. The Company believes that the substantial healthcare industry experience
and numerous relationships of its management and trustees will help the Company
identify, evaluate and complete additional investments.

In making future investments, the Company intends to focus on established
healthcare operators which meet the Company's standards for facility quality,
proximity to complementary healthcare services and facilities and experience of
management. In the assisted living area, the Company intends to develop
relationships with public and privately held third party operators of assisted
living facilities, many of which are known by the Company to have significant
capital requirements for assisted living projects. In the near term, the Company
anticipates that a significant portion of new investments will involve Genesis
as lessee or manager. In this regard, the Company and Genesis have entered into
an agreement for a period of three years from the closing of the Offering
(subject to annual renewal thereafter), pursuant to which Genesis has granted
the Company a right of first refusal to purchase and leaseback to Genesis any
assisted or independent living facility which Genesis determines to sell and
leaseback. The agreement also provides the Company with a right to offer
financing to Genesis and other developers of assisted and independent living
facilities which, once developed, will be operated by Genesis. The Company
believes that its agreement with Genesis will provide it with opportunities to
acquire, and finance the development of, additional assisted and independent
living facilities within the Genesis ElderCare(SM) healthcare network. If the
Multicare acquisition is completed, Genesis will own or operate approximately
265 skilled nursing facilities located in 16 states, in addition to an
additional 11 assisted living facilities owned by Multicare. In turn, the
Company has provided Genesis a right of first refusal to lease or manage any
assisted or independent living facility financed or acquired by the Company
within Genesis' markets unless the facility will be leased or managed by the
developing or selling company or an affiliate. Although there are no current
commitments or agreements to do so, the Company also may acquire from and
leaseback to Genesis or Genesis affiliates other skilled nursing facilities in
addition to the four Genesis-owned skilled nursing facilities included in the
Initial Properties.

8
<PAGE>

The Initial Investments

The following tables set forth certain information regarding the Initial
Properties, the Term and Construction Loans and the Florida Facilities Note
(collectively, the "Initial Investments"). All of the Initial Properties will be
leased to or managed by Genesis except for The Woodbridge and the medical office
and other buildings. The Company will hold a fee interest in each of the Initial
Properties except for the Windsor Clinic which is subject to a long-term ground
lease. The initial lessees include various wholly owned subsidiaries of Genesis,
Crozer/Genesis ElderCare Limited Partners ("Crozer/Genesis"), a Pennsylvania
limited partnership which is owned 50% by Genesis and 50% by Crozer-Keystone
Health System, a Pennsylvania nonprofit corporation ("CKHS"), Senior LifeChoice,
LLC ("SLC"), a privately held Pennsylvania limited liability company, or a
wholly owned subsidiary of SLC, and a wholly owned subsidiary of the Age
Institute of Florida, Inc., a Florida not-for-profit corporation ("Age Institute
of Florida"). See "Business and Properties -- Leases."

Initial Properties
<TABLE>
<CAPTION>
Number Year Built/
Property Location of Beds(1) Occupancy(2) Renovated
- ------------------------------- ------------------- ------------ -------------- --------------------
<S> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods Agawam, MA 122 1.6% 1997
Willowbrook Clarks Summit, PA 70 68.3 1996
Riverview Ridge Wilkes-Barre, PA 105 93.7 1993
Highgate at Paoli Pointe Paoli, PA 82 81.1 1995
The Woodbridge Kimberton, PA 90 51.7 1996
------- --------
Subtotal/Weighted Avg. 469 55.7(8)
------- --------
Independent Living Facility:
Pleasant View Concord, NH 72 89.4 1926
------- --------
Skilled Nursing Facilities(9):
Rittenhouse CC Philadelphia, PA 183 91.0 1930/1993(10)
Lopatcong CC Phillipsburg, NJ 153 95.3 1984/1992(12)
Phillipsburg CC Phillipsburg, NJ 94(13) 87.2 1930/1993(14)
Wayne NRC Wayne, PA 118 90.9 1920/1989(15)
Belvedere NRC Chester, PA 147(16) 92.2 1960/1983(17)
Chapel Manor NRC Philadelphia, PA 240 94.5 1973
Harston Hall NCH Flourtown, PA 196(18) 89.8 1977/1991(19)
Pennsburg Manor NRC Pennsburg, PA 120 96.3 1982
Silverlake NRC Bristol, PA 174 97.4 1969/1988(20)
------- --------
Subtotal/Weighted Avg. 1,425 92.9
------- --------

% of
Purchase Initial Initial Rent
Property Price(3) Investments Lease Term(4) Type(5) Lessee
- ------------------------------- ---------------- ------------- --------------- ------------ ---------------------
(in thousands) (Years)
Assisted Living Facilities:
Heritage Woods $ 11,001 6.3% 10.0 (6) Genesis(7)
Willowbrook 5,894 3.4 10.0 Percentage Genesis(7)
Riverview Ridge 5,720 3.3 10.0 Percentage Genesis(7)
Highgate at Paoli Pointe 11,115 6.4 10.0 Minimum Genesis(7)
The Woodbridge 11,668 6.7 10.0 Minimum SLC(7)
--------- ----- -----
Subtotal/Weighted Avg. 45,398 26.1 10.0
--------- ----- -----
Independent Living Facility:
Pleasant View 3,742 2.2 10.0 Percentage Genesis(7)
--------- ----- -----
Skilled Nursing Facilities(9):
Rittenhouse CC 8,855 5.1% 10.0 Minimum Genesis(11)
Lopatcong CC 13,778 7.9 10.0 Minimum Genesis(11)
Phillipsburg CC 6,266 3.6 10.0 Minimum Genesis(11)
Wayne NRC 6,065 3.5 10.0 Minimum Genesis(11)
Belvedere NRC 8,754 5.0 12.0 Minimum Crozer/Genesis
Chapel Manor NRC 14,689 8.4 12.0 Minimum Crozer/Genesis
Harston Hall NCH 6,849 3.9 12.0 Minimum Crozer/Genesis
Pennsburg Manor NRC 8,755 5.0 12.0 Minimum Crozer/Genesis
Silverlake NRC 8,000 4.6 10.0 Minimum Age Inst. of Fl.(21)
--------- ----- -----
Subtotal/Weighted Avg. 82,011 47.0 11.0
--------- ----- -----
</TABLE>

9
<PAGE>
<TABLE>
<CAPTION>
Rentable
Property Location Sq. Feet Occupancy(2)
- ------------------------------ ------------------ ----------------- --------------
<S> <C> <C> <C>
Medical Office and Other Buildings:
Professional Off. Bldg. I Upland, PA 39,972 100.0
DCMH Med. Off. Bldg.(23) Drexel Hill, PA 60,706(24) 100.0
Salisbury Med. Off. Bldg. Salisbury, MD 10,961 100.0
Windsor Off. Bldg. Windsor, CT 2,100 100.0
Windsor Clinic/Trg. Fac.(29) Windsor, CT 9,662 100.0
Lacey Branch Off. Bldg. Forked River, NJ 4,100 100.0
---------- -----
Subtotal/Weighted Avg. 127,501 100.0
---------- -----
Total Initial Properties

% of
Year Built/ Purchase Initial Remaining Rent
Property Renovated Price(3) Investments Lease Term(22) Type(5) Lessee
- ------------------------------ -------------------- ---------------- ------------- ---------------- --------- ------------
(in thousands) (Years)
<S> <C> <C> <C> <C> <C> <C>
Medical Office and Other Buildings:
Professional Off. Bldg. I 1977 4,000 2.3 1.2 Fixed Physicians
DCMH Med. Off. Bldg.(23) 1984/1987/1997(25) 7,923 4.6 3.9 Fixed Physicians
Salisbury Med. Off. Bldg. 1984 1,349 0.8 1.0(26) Fixed Genesis(26)
Windsor Off. Bldg. 1934/1965(27) 325 0.2 5.0(28) Fixed Genesis
Windsor Clinic/Trg. Fac.(29) 1996 1,493 0.8 5.0(28) Fixed Genesis
Lacey Branch Off. Bldg. 1996 545 0.2 18.0 Fixed Ocean FSB
---------- ------ --------
Subtotal/Weighted Avg. 15,635 9.0 3.6
---------- ------ --------
Total Initial Properties $ 146,786 84.3%
========== ======
</TABLE>

- --------
(1) Based on the operational configuration of the facility.
(2) Represents the average occupancy for the month ended June 30, 1997. The
weighted average occupancy for each property type and for all Initial
Properties is based on the purchase prices for the Initial Properties.
(3) Does not include estimated net capitalized acquisition costs aggregating
approximately $1.0 million. Includes, for certain of the Initial
Properties, mortgage indebtedness being repaid at the closing of the
Offering and assumed mortgage indebtedness totaling $34.2 million as of
December 1, 1997. See "Use of Proceeds" and "Business and Properties --
Mortgage Debt."
(4) Represents the initial lease term under each of the leases for these
facilities, which leases will be entered into as of the closing of the
Offering. The weighted average initial lease term for each facility type is
based on the purchase prices for the facilities.
(5) For the six months ended June 30, 1997, on a pro forma basis, the lease
coverage ratios (net operating income before interest, depreciation, rent
and the subordinated portion of management fees (if any) divided by rent
payments) for the assisted living facility and four skilled nursing
facilities to be leased to Genesis under Minimum Rent Leases was 0.72x,
1.57x, 1.55x, 1.77x and 0.71x, respectively; the lease coverage ratio for
the facility to be leased to SLC under a Minimum Rent Lease was 0.09x; the
lease coverage ratios for the four facilities to be leased to
Crozer/Genesis under Minimum Rent Leases were 1.63x, 1.37x, 2.11x and
1.62x, respectively; and the lease coverage ratio for the facility to be
leased to the Age Institute of Florida under a Minimum Rent Lease was
1.38x. Lease coverage ratios are not provided for facilities that will be
subject to Percentage Rent Leases because rental revenues for those
facilities are based on a fixed percentage of the facility's revenues. See
"Business and Properties -- Leases" for additional information.
(6) Initially, rent equals a fixed base rent with no revenue participation. At
the time the facility reaches Stabilized Occupancy, the lease will
automatically convert into a Percentage Rent Lease.
(7) Genesis will guarantee the performance of its subsidiaries under the
Genesis leases. The Highgate facility initially may be leased by SLC. If
subsequently leased by a subsidiary of SLC, SLC will guarantee the
performance of its subsidiary under such lease.
(8) At June 30, 1997, Heritage Woods, Willowbrook and The Woodbridge were in
the initial lease-up phase. Excluding these facilities, the assisted living
facilities included in the Initial Properties had an average occupancy of
88.2%.
(9) "NRC" means a nursing and rehabilitation center, "NCH" means a nursing and
convalescent home and "CC" means a care center.
(10) The facility was originally built in the 1930's with two expansions in the
1970's. A renovation of interior finishes was completed in 1993. The
Company has agreed to finance an expansion of this facility to be
undertaken by Genesis. See "Business and Properties -- Construction Loan
Commitments."

<PAGE>

(11) These facilities initially will be leased by wholly owned subsidiaries of
Genesis, and Genesis will guarantee the obligations of its wholly owned
subsidiaries under these Minimum Rent Leases. However, in the event Genesis
assigns one or more of the leases to a non-wholly owned subsidiary or a
third party, Genesis may not continue to guarantee the applicable leases.
Any such assignment of a Minimum Rent Lease would require the consent of
the Company which may not be unreasonably withheld. The Company will
evaluate the creditworthiness of any assignee in determining whether to
provide its consent. Genesis is currently negotiating an arrangement with a
Philadelphia-based hospital system. If the arrangement is negotiated
successfully, the hospital system would lease-back the Wayne skilled
nursing facility following its sale to the Company and Genesis would manage
the facility. In addition, Genesis would not guarantee the lease.
(12) This facility was originally built in 1984 with an addition of three
skilled nursing beds in 1992. The Company has agreed to finance an
expansion of this facility to be undertaken by Genesis. See "Business and
Properties -- Construction Loan Commitments."
(13) Includes 34 assisted living units.

10
<PAGE>

(14) This facility was originally built during the 1930's with an addition in
1988. A renovation of interior finishes was completed in 1993.
(15) This facility is estimated to have been built circa 1920. Additions were
completed in 1966, 1974 and 1989. During 1989, there was a complete
renovation of the building.
(16) Includes 27 assisted living units.
(17) This facility was built in 1960 and was expanded in 1983.
(18) Includes 76 assisted living units.
(19) This facility was built in 1977 and was expanded in 1991.
(20) This facility opened in 1969, was expanded in 1977 and was renovated in
1988.
(21) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.
(22) For each building, represents the weighted average remaining lease term for
all rentable space in the applicable building as of June 30, 1997. For all
medical office and other buildings, the weighted average remaining lease
term is based on the purchase prices for the buildings.
(23) The property consists of a condominium unit containing six of the eight
floors in the building which is located on the campus of the Delaware
County Memorial Hospital ("DCMH").
(24) The DCMH Medical Office Building is currently undergoing expansion,
including an expansion of two of the six floors included in the condominium
unit which the Company will acquire. This expansion is expected to be
completed in the first quarter of 1998 and will increase the rentable
square feet in the Company's condominium unit to 65,740 square feet. All of
the rentable space to be added to the Company's condominium unit has been
pre-leased.
(25) This building was built in 1984, and a renovation of interior finishes was
completed in 1987. This building is currently undergoing expansion.
(26) Two subsidiaries of Genesis lease approximately 83% of the rentable space
in the Salisbury Medical Office Building. The remaining approximately 17%
of the rentable space in the building is leased by Quest Diagnostics, Inc.,
a corporation unaffiliated with Genesis or the Company. At the closing of
the Offering, Genesis will enter into a new lease with the Company with
respect to the space leased by Genesis in the building. Each of these
leases will have an initial term of five years, subject to renewals. The
lease with Quest Diagnostics, Inc. expires on November 30, 1997. The
Company expects to enter into a new two-year lease with Quest Diagnostics.
(27) This building was originally constructed in 1934 with an addition in 1965.
(28) At the closing of the Offering, Genesis will enter into a new lease with
the Company with respect to all of the rentable space in the Windsor Office
Building and the Windsor Clinic and Training Facility. Each of these leases
will have an initial term of five years, subject to renewals.

(29) The Windsor Clinic and Training Facility are connected to each other. The
Windsor Clinic consists of 5,490 rentable square feet, and the Windsor
Training Facility includes 4,172 rentable square feet.

11
<PAGE>

Term Loans, Construction Loans and Florida Facilities Note

The following table sets forth certain information regarding the Term
Loans, the Construction Loans and substantially all of the economic interest in
the Florida Facilities Note. Facility developments are subject to various risks
and uncertainties. The project owner/borrowers include various wholly owned
subsidiaries of Genesis, Lake Washington, Ltd., a Florida limited partnership in
which Genesis holds a 49% interest ("Lake Washington"), wholly owned
subsidiaries of SLC and a wholly owned subsidiary of the Age Institute of
Florida. There can be no assurance that any of the Initial Assisted Living
Development Facilities that secure the Construction Loans will be completed on a
timely basis or at all. See "Risk Factors -- Risks Associated with Making Loans
on Development Projects." The Company has agreed or has the option to purchase
the six facilities that secure the Term Loans and the Construction Loans at the
end of the loan terms or at such time as each facility achieves Stabilized
Occupancy. See "Business and Properties -- Purchase Contracts and Options for
Term Loan, Construction Loan and Proposed Multicare Loan Properties" for
additional information.
<TABLE>
<CAPTION>
Loan Amount
Expected to be
Number of Funded at % of Initial Interest
Security Property Location Beds(1) Closing Investments Rate
- ------------------------------- ------------------ ----------- ---------------- -------------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities
Harbor Place Melbourne, FL 120 $ 4,728 2.7% (2)
Mifflin Shillington, PA 67 5,164 3.0 (2)
Coquina Center Ormond Beach, FL 80 4,577 2.6 (2)
------ --------- ------
Subtotal/Weighted Avg. 267 14,469 8.3
------ --------- ------
Construction Loans - Initial Assisted Living Development Projects:
Oaks Wyncote, PA 52 1,500 0.9 (2)
Montchanin Wilmington, DE 92 2,000 1.2 10.50%
Mallard Landing Salisbury, MD 60 1,702 1.0 (2)
------ --------- ------
Subtotal/Weighted Avg. 214 5,202 3.1
------ --------- ------
Florida Facilities Note(6):
11 skilled nursing facilities Florida 1,219 7,406 4.3 13.00%
--------- ------
Total Loan Investments 1,690 27,077 15.7
------ --------- ------
Total Initial Investments $173,863 100.0%
========= ======

Purchase
Initial Development Contract/ Project/Owner
Security Property Maturity Loan Amount(3) Status Option Borrower
- ------------------------------- ---------- ---------------- ------------- ----------- ---------------------
(years) (in thousands)
<S> <C> <C> <C> <C> <C>
Term Loans - Lease-up Assisted Living Facilities
Harbor Place 2 $ 4,728 Lease-up Contract Lake Washington
Mifflin 2 5,164 Lease-up Contract Genesis (4)
Coquina Center 2 4,577 Lease-up Contract Genesis (4)
--------
Subtotal/Weighted Avg. 14,469
--------
Construction Loans - Initial Assisted Living Development Projects:
Oaks 3 5,380 Constr. Contract Genesis (4)
Montchanin 3 9,500 Constr. Option SLC (5)
Mallard Landing 3 7,564 Zoned Option SLC (5)
--------
Subtotal/Weighted Avg. 22,444
--------
Florida Facilities Note(6):
11 skilled nursing facilities 10 7,406 N/A N/A Age Inst. of Fl. (7)
--------
Total Loan Investments $44,319
--------
Total Initial Investments
</TABLE>

<PAGE>

- --------
(1) Based on the operational configuration of the facility.
(2) The interests rates on these loans will be set at the time of closing of
the Offering at a fixed rate of interest equal to 400 basis points over the
then applicable three-year U.S. Treasury Note rate, except for the
Construction Loan for the Oaks development project which will have a fixed
interest rate equal to 350 basis points over the then applicable three-year
U.S. Treasury Note rate.
(3) Represents the total committed loan amount under the applicable Term Loan
or Construction Loan.
(4) The project owner/borrower of these projects will be a wholly owned
subsidiary of Genesis. Genesis will guarantee the loans made to such
subsidiaries.
(5) The project owner/borrower of these projects will be wholly owned
subsidiaries of SLC. SLC will guarantee the loans made to such
subsidiaries.
(6) See "Business and Properties -- The Florida Facilities Note" for additional
information. The amount shown in the table represents the Company's
economic interest in the Florida Facilities Note on a pre-tax basis.
(7) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.
The above table excludes two additional Term Loans (the "Proposed Multicare
Term Loans") and one Construction Loan (the "Proposed Multicare Construction
Loan," and, together with the Proposed Multicare Term Loans, the "Proposed
Multicare Loans") totaling $19.4 million which the Company expects to make to
wholly owned subsidiaries of Multicare. Multicare will guarantee 20% of the
principal amount of such loans. See "Business and Properties -- Proposed
Multicare Term Loans" and "-- Proposed Multicare Construction Loan."

12
<PAGE>

Construction Loan Commitments

In addition to the foregoing, the Company has entered into Construction
Loan Commitments totaling $42.9 million with Genesis and $10.4 million with SLC
to provide financing for an additional nine assisted living development and
expansion projects which are in the planning stage. The resident capacity of
these facilities is expected to total approximately 700 to 800. Eight of these
projects will be owned by subsidiaries of Genesis and one will be owned by a
subsidiary of SLC. The Company's obligation to fund the Construction Loan
Commitments for these projects is subject to a number of conditions, including
receipt by Genesis and SLC of all necessary zoning, land use, building,
occupancy, licensing and other required governmental approvals and
authorizations. The Company has contracted to purchase the projects to be owned
by Genesis. See "Business and Properties -- Construction Loan Commitments and
Related Purchase Contracts." There can be no assurance that any of these
development projects will be completed on a timely basis or at all. See "Risk
Factors -- Risks Associated with Making Loans on Development Projects."

Structure and Formation of the Company

Company Structure. At the completion of the Offering all of the Company's
assets will be owned by, and its operations conducted through, the Operating
Partnership and its subsidiaries. The Company will be the sole general partner
of the Operating Partnership and will contribute the net proceeds of the
Offering to the Operating Partnership in exchange for a number of Units equal to
the number of Common Shares sold in the Offering.

Formation of the Company. The formation transactions ("Formation
Transactions") include the following transactions which will have occurred prior
to the Closing of the Offering:

o ElderTrust Realty Group, Inc., a Maryland corporation owned by Messrs.
Michael R. Walker, Chairman of the Board of Trustees of the Company and
Chairman of the Board and Chief Executive Officer of Genesis, and Edward
B. Romanov, Jr., President and Chief Executive Officer and a trustee of
the Company and until recently a Senior Vice President of Genesis, was
formed in June 1997 as the organizational general partner of the
Operating Partnership. The Operating Partnership was formed in July
1997. The organizational limited partners of the Operating Partnership
were Mr. Romanov, D. Lee McCreary, Jr., Vice President and Chief
Financial Officer of the Company, and ET Partnership, a Pennsylvania
general partnership. The partners of ET Partnership consist of Genesis,
Mr. Romanov and MGI Limited Partnership, a Delaware limited partnership
whose general partner is a corporation owned by Mr. Walker and whose
limited partners consist of Mr. Walker and other executive officers of
Genesis.

o The Company was formed in September 1997.

o ET Capital Corp. was formed as a Delaware corporation. The Operating
Partnership owns all of the nonvoting stock of ET Capital Corp.
(representing a 95% equity interest) and Mr. Romanov owns all of the
voting stock of ET Capital Corp. (representing a 5% equity interest).

o The Operating Partnership entered into purchase agreements to acquire
for cash from Genesis and certain other persons their direct or indirect
interests in certain of the 21 Initial Properties and, through ET
Capital Corp., substantially all of the economic interest in the Florida
Facilities Note.

o The Operating Partnership entered into contribution agreements to
acquire for Units from certain other persons (the "Continuing
Investors") the remaining interests in the Initial Properties.

o The Operating Partnership agreed to make Term Loans and a Construction
Loan secured by four assisted living facilities in lease-up or
development to Genesis (including a Term Loan for a facility in which
Genesis has a 49% interest), and to acquire the four facilities that
secure such loans at the end of the loan term or at such time as each
such facility reaches Stabilized Occupancy.

13
<PAGE>

o The Operating Partnership agreed to make Construction Loans secured by
two facilities to subsidiaries of SLC, and entered into option
agreements granting it an option to acquire from such subsidiaries of
SLC for cash the facilities that secure such loans at the end of the
loan term or at such time as each such facility reaches Stabilized
Occupancy.

o The Operating Partnership has made Construction Loan Commitments with
respect to nine assisted living development and expansion projects in
the planning phase. Pursuant to these Construction Loan Commitments, the
Operating Partnership will agree to purchase for cash eight of these
projects which are owned by Genesis upon the earlier of the maturity of
the related loan or at such time following completion of development as
each such facility reaches Stabilized Occupancy.

o The Operating Partnership agreed to make the Proposed Multicare Loans
secured by three properties in lease-up or development and to purchase
the assisted living facilities securing these loans, subject to certain
terms and conditions.

The following transactions will occur at or immediately prior to the closing of
the Offering:

o The Company will be admitted to the Operating Partnership as an
additional general partner, and ElderTrust Realty Group, Inc. will
withdraw as a general partner of the Operating Partnership.

o The Company will sell 6,800,000 Common Shares in the Offering and will
contribute the net proceeds therefrom to the Operating Partnership in
exchange for Units.

o The Operating Partnership will consummate the acquisition of the Initial
Properties, the funding of the Term Loans and the initial draws under
the Construction Loans and the purchase of substantially all of the
economic interest in the Florida Facilities Note by investing an
aggregate amount of approximately $199.0 million in the form of (i)
approximately $139.6 million in cash paid to Genesis and certain other
investors to purchase certain of the Initial Properties or interests
therein, to fund the Term Loans and to acquire the Florida Facilities
Note, (ii) 220,030 Units issued to the Continuing Investors to purchase
interests in certain of the Initial Properties, (iii) approximately $7.5
million in cash paid to lenders to repay mortgage indebtedness secured
by certain of the Initial Properties, (iv) approximately $13.2 million
in cash drawn under the Bank Credit Facility and paid to Genesis and
certain other investors to purchase certain of the Initial Properties or
interests therein and to fund the initial draws under the Construction
Loans and (v) approximately $34.2 million in assumed mortgage
indebtedness secured by certain of the Initial Properties. Subsequent
advances under the Construction Loans, the funding of the Construction
Loan Commitments and the subsequent purchases of the Lease-up Assisted
Living Facilities and the Initial Assisted Living Development Project
owned by Genesis, and of the two remaining Initial Assisted Living
Development Projects owned by subsidiaries of SLC, if the Company elects
to purchase such facilities, also will be made through borrowings under
the Bank Credit Facility. In addition, if certain terms and conditions
are satisfied, the Company will fund the Proposed Multicare Term Loans
and the initial draw under the Proposed Multicare Construction Loan, as
well as subsequent advances under the Proposed Multicare Construction
Loan and the subsequent purchases of the assisted living facilities that
secure the Proposed Multicare Loans, if the Company elects to purchase
such facilities, through borrowings under the Bank Credit Facility.

o Messrs. Walker and Romanov will purchase the interest of Genesis in ET
Partnership at a purchase price equivalent to $20.00 per Unit. ET
Partnership will be liquidated and Messrs. Walker and Romanov and MGI
Limited Partnership will receive direct interests in the Operating
Partnership in respect of their respective interests in ET Partnership.

o The Operating Partnership will be recapitalized to reflect the ownership
of interests in the Operating Partnership by the Company, the Continuing
Investors, Messrs. Walker, Romanov and

14
<PAGE>

McCreary and MGI Limited Partnership, and the Operating Partnership will
issue Units to each of its partners to represent these interests. The
Units issued to Mr. Walker and to Mr. Romanov in respect of the Genesis
interest in ET Partnership purchased by Messrs. Walker and Romanov prior
to the liquidation of ET Partnership will be exchanged for Common Shares
on a one-for-one basis.

o Mr. Walker will enter into a non-competition agreement with the Company
(which will not limit in any way any activities related to Mr. Walker's
employment by or interest in Genesis), and Mr. Romanov will enter into
an employment and non-competition agreement with the Company. See
"Management -- Employment and Non-Competition Agreements."

o The Operating Partnership will acquire all of the assets and liabilities
of ElderTrust Realty Group, Inc., which will consist of a lease, a bank
account and certain contract rights and obligations, for cash in the
amount of $100,000. ElderTrust Realty Group, Inc. will then be
dissolved.

o As a result of the foregoing transactions, the Company will own
7,012,600 Units, which will represent an approximate 95.4% interest in
the Operating Partnership after the Offering.

No third-party determination of the value was sought or obtained in
connection with the acquisition by the Company of the Initial Properties, the
Term Loans, the Construction Loans or substantially all of the economic interest
in the Florida Facilities Note. There can be no assurance that the aggregate
value of the cash and Units received by the participants in the Formation
Transactions does not exceed the fair market value of the properties and other
assets acquired by the Company.

Benefits to Related Parties. Genesis and certain affiliates of the Company
will realize certain material benefits in connection with the Formation
Transactions, including the following:

o Genesis will receive $60.6 million in cash from the Company for the nine
Initial Properties or interests therein transferred by Genesis to the
Company in the Formation Transactions. The estimated purchase price for
these facilities and interests is $61.1 million, including $500,000 of
assumed indebtedness. The aggregate book value reflected on Genesis'
financial statements of the Initial Properties to be acquired from
Genesis as of June 30, 1997 was approximately $41.3 million. The Company
does not believe that the book values of the Initial Properties being
acquired from Genesis (which reflect the historical cost of such Initial
Properties, net of accumulated depreciation, where applicable) are
equivalent to the fair market values of such Initial Properties.

o Genesis or an entity in which Genesis owns a 49% interest will receive
$16.0 million in cash from the Company as a result of the funding of the
Term Loans and the initial draw under one of the Construction Loans to
be made by the Company. The Company will be obligated to fund
approximately $3.9 million in subsequent advances under the Construction
Loan made to Genesis.

o The Company also agreed to purchase from Genesis for cash two Lease-up
Assisted Living Facilities and the Initial Assisted Living Development
Project owned by Genesis. The estimated aggregate purchase price of
these facilities is $20.1 million.

o If certain terms and conditions are satisfied, Multicare, in which
Genesis will own indirectly 44% of the interests, will receive
approximately $15.9 million in cash from the Company as a result of the
funding of the Proposed Multicare Term Loans and the initial draw under
the Proposed Multicare Construction Loan by the Company. In addition, if
such terms and conditions are satisfied, the Company will be obligated
to fund approximately $3.5 million in subsequent advances under the
Proposed Multicare Construction Loan, and the Company will acquire
options to purchase from Multicare for cash the assisted living
facilities that secure the Proposed Multicare Loans for an estimated
aggregate purchase price of $23.8 million.

15
<PAGE>

o The Company has made Construction Loan Commitments to Genesis totaling
$42.9 million for eight assisted living development and expansion
projects which are owned by Genesis and which are in the planning stage.
Pursuant to these Construction Loan Commitments, the Operating
Partnership will agree to purchase for cash these projects from Genesis
upon the earlier of the maturity of the related loan or at such time
following completion of development as each such project reaches
Stabilized Occupancy. The estimated aggregate purchase price of these
facilities upon completion of development is $50.3 million.

o As a result of the funding by the Company of the initial draw under the
Construction Loan for one of the Initial Assisted Living Development
Projects, Genesis will receive approximately $2.0 million from a
subsidiary of SLC as a repayment by such subsidiary of SLC of a
construction mortgage loan made by Genesis to such subsidiary of SLC
with respect to such Initial Assisted Living Development Project.

o Genesis will receive $7.5 million from ET Capital Corp. as payment of
the purchase price for the Florida Facilities Note.

o As a result of the repayment of debt secured by certain of the Initial
Properties or Lease-up Assisted Living Facilities, Genesis will be
released from guarantees of such indebtedness totaling $4.8 million.

o It is estimated that Genesis will receive approximately $2.0 million in
cash from the Company as reimbursement for expenses incurred by Genesis
on behalf of the Company in connection with the Formation Transactions.

o Genesis will receive $100,000 in cash or notes from Messrs. Walker and
Romanov for the interest owned by Genesis in ET Partnership. Mr. Walker
and Mr. Romanov will receive 5,000 Units in respect of this interest
upon recapitalization of the Operating Partnership, which Units will be
exchanged for Common Shares on a one-for-one basis substantially
simultaneously with the Closing of the Offering.

o Mr. Walker will receive cash distributions totaling approximately
$357,000 from certain entities in which he owns interests and which own
three of the Initial Properties. Mr. Walker also will receive a direct
or indirect interest in 88,877 Units in exchange for his ownership
interests in certain of the Initial Properties that are not owned by
Genesis. Such Units, together with Mr. Walker's interest in the Units to
be distributed to MGI Limited Partnership upon the recapitalization of
the Operating Partnership, will have a total value of approximately $1.8
million based on the assumed initial public offering price of the Common
Shares. In addition, Mr. Walker will receive approximately $1.9 million
in cash from the Company as repayment of indebtedness. The aggregate
book value as of June 30, 1997 of Mr. Walker's ownership interests in
the Initial Properties being transferred to the Company in which he
holds interests was approximately negative $251,000.

o Messrs. Romanov and McCreary will receive a total of 112,600 Units upon
the recapitalization of the Operating Partnership (not including the
Units distributed to Mr. Romanov with respect to the Operating
Partnership interest acquired by Mr. Romanov from Genesis), which Units
will have a total value of approximately $2.3 million based on the
assumed initial public offering price of the Common Shares.

o Mr. Walker and Mr. Romanov each will receive $50,000 in cash
(representing a return of their initial investment) indirectly from the
Operating Partnership upon the dissolution of ElderTrust Realty Group,
Inc. following the sale by ElderTrust Realty Group, Inc. of all of its
assets and liabilities to the Operating Partnership.

o Kent P. Dauten, a trustee nominee, will receive a cash distribution
totaling approximately $90,500 from one of the entities in which he owns
interests and which owns one of the Initial Properties.

16
<PAGE>

He also will receive an indirect interest in 19,144 Units in exchange
for his ownership interests in certain of the Initial Properties that
are not owned by Genesis. Such Units will have a total value of
approximately $383,000 based on the assumed initial public offering
price of the Common Shares. The aggregate book value as of June 30, 1997
of Mr. Dauten's ownership interests in the Initial Properties being
transferred to the Company in which he holds interests was approximately
negative $63,000.

o Three other executive officers of Genesis will receive direct or
indirect interests in 24,359 Units in exchange for their ownership
interests in certain of the Initial Properties that are not owned by
Genesis. Such Units will have a total value of approximately $487,000
based on the assumed initial public offering price of the Common Shares.
The aggregate book value as of June 30, 1997 of the three executive
officers' ownership interests in the Initial Properties being
transferred to the Company in which they hold interests was
approximately negative $80,000. In addition, these three executive
officers and another executive officer of Genesis will have an interest
in the Units to be distributed to MGI Limited Partnership upon the
recapitalization of the Operating Partnership, which interest will
consist of 3,200 Units having a total value of approximately $64,000
based on the assumed initial public offering price of the Common Shares.

o The Company will issue and sell to Mr. Romanov 200,000 Common Shares in
a private placement at a per share purchase price equal to the initial
public offering price. Mr. Romanov will pay for such shares with a
10-year recourse promissory note, with interest only payable until
maturity at an annual rate of 7%.

o The three trustee nominees will each receive an award of 2,500 Common
Shares each under the Company's 1997 Share Option and Incentive Plan.
The Company also will grant options to purchase 7,500 Common Shares to
each of the three trustee nominees of the Company under the Company's
1997 Share Option and Incentive Plan. The options will have an exercise
price equal to the initial public offering price and will vest over
three years.

o The Company will grant to Messrs. Walker, Romanov and McCreary options
to purchase 150,000 Common Shares, 300,000 Common Shares, and 25,000
Common Shares, respectively, under the Company's 1997 Share Option and
Incentive Plan. The options will have an exercise price equal to the
initial public offering price. The options to be granted to Mr. Walker
will vest over three years, one-half of the options to be granted to Mr.
Romanov will vest immediately and one-half will vest over three years
and the options to be granted to Mr. McCreary will vest over five years.

o Mr. Romanov will enter into an employment and non-competition agreement
with the Company. Mr. Walker will enter into a non-competition agreement
with the Company. See "Management -- Employment and Non-Competition
Agreements."

o Commencing 14 months after the Offering, Messrs. Dauten, Walker, Romanov
and McCreary will have registration rights with respect to the Common
Shares issued to them and that may be issued to them in exchange for
Units they receive in the Formation Transactions, as well as, in the
case of Messrs. Walker and Romanov, with respect to the Common Shares to
be acquired by them upon the exchange of the Units distributed to them
in respect of the interest in ET Partnership purchased by them from
Genesis.

17
<PAGE>

Organization Chart. As a result of the Offering and the Formation
Transactions, the structure of the Company and the ownership of equity in the
Company will be as shown in the following chart:

Shareholders:
97.0% Public Shareholders
3.0% Other Shareholders(1)
|
|
-------------------
ElderTrust
-------------------
|
|

- ------------
(1) Includes (i) 100 Common Shares issued at the time of the Company's
formation, (ii) 5,000 Common Shares to be acquired by Messrs. Walker and
Romanov upon exchange of certain Units received by them following the
liquidation of ET Partnership, (iii) 200,000 Common Shares to be issued and
sold to Mr. Romanov in a private placement and (iv) Common Share awards
totaling 2,500 shares each to be made upon completion of the Offering to the
Company's three trustee nominees under the Company's 1997 Share Option and
Incentive Plan. See "Structure and Formation of the Company."

(2) Includes 117,000 Units to be issued to Messrs. Romanov and McCreary and MGI
Limited Partnership in connection with the Formation Transactions.

(3) The Operating Partnership also owns a promissory note of ET Capital Corp.
with an initial principal balance of approximately $5.6 million. As a result
of the Operating Partnership's ownership of nonvoting stock and debt of ET
Capital Corp., the Company, through the Operating Partnership, expects to
receive most of the after-tax economic benefits of ET Capital Corp. See
"Business and Properties -- The Florida Facilities Note."

18
<PAGE>

The Offering

All of the Common Shares offered hereby are being offered by the Company.

Common Shares Offered by the
Company ..................... 6,800,000 shares

Common Shares Outstanding

After the Offering(1)..... 7,012,600 shares

Common Shares and Units
Outstanding After the
Offering (1)(2).............. 7,349,630 shares and Units

Use of Proceeds ............... To acquire certain of the Initial Properties
and substantially all of the economic
interest in the Florida Facilities Note, to
fund Term Loans and Construction Loans, to
repay mortgage indebtedness secured by
certain of the Initial Properties and
Lease-up Assisted Living Facilities and for
working capital and other general corporate
purposes.

Proposed NYSE Symbol .......... "ETT"

- ------------
(1) Includes (i) 100 Common Shares issued at the time of the Company's
formation, (ii) 5,000 Common Shares to be acquired by Messrs. Walker and
Romanov upon exchange of certain Units received by them following the
liquidation of ET Partnership, (iii) 200,000 Common Shares to be issued and
sold to Mr. Romanov in a private placement and (iv) Common Share awards
totaling 2,500 shares each to be made to the Company's three trustee
nominees under the Company's 1997 Share Option and Incentive Plan upon
completion of the Offering. See "Structure and Formation of the Company."

(2) Includes 117,000 Units to be issued to Messrs. Romanov and McCreary and MGI
Limited Partnership in connection with the Formation Transactions. All Units
are exchangeable on a one-for-one basis for Common Shares or, at the option
of the Company, cash, subject to certain exceptions and limitations.
Excludes 727,613 Common Shares reserved for issuance pursuant to the 1997
Share Option and Incentive Plan.

Distributions

Subsequent to the completion of the Offering, the Company intends to make
regular quarterly distributions to the holders of its Common Shares. The initial
distribution, covering a partial quarter commencing on the date of completion of
the Offering and ending on December 31, 1997, is expected to be $____ per share,
which represents a pro rata distribution based on a full quarterly distribution
of $0.39 per share and an annual distribution of $1.54 per share (or an annual
distribution rate of 7.7%). The Company does not intend to reduce the
expected distribution per share if the Underwriters' overallotment option is
exercised. The following discussion and the information set forth in the table
and footnotes below should be read in conjunction with the Pro Forma Estimated
Revenues Less Estimated Expenses and notes thereto and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources" included elsewhere in this Prospectus.

19
<PAGE>

certain known events and/or contractual commitments that either have occurred or
will occur as of the date of closing of the Offering (including giving effect to
the use of the net proceeds from the Offering described elsewhere herein as of
such date) and (ii) for certain items not in accordance with Generally Accepted
Accounting Principles ("GAAP") consisting of (A) revisions to estimated rent
revenues from a GAAP basis to amounts currently being paid or due from lessees
or tenants, (B) pro forma amortization of financing costs and (C) pro forma
amortization of organization costs. No effect was given to any changes in
working capital resulting from changes in current assets and current liabilities
(which changes are not anticipated to be material) or the amount of cash
estimated to be used for (i) investing activities (other than for medical office
building tenant improvements and purchases of office equipment) and (ii)
financing activities (other than scheduled loan principal payments on existing
indebtedness). The estimate of Cash Available for Distribution is being made
solely for the purpose of setting the initial distribution and is not intended
to be a projection or forecast of the Company's results of operations or its
liquidity, nor is the methodology upon which such estimate was made necessarily
intended to be a basis for determining future distributions. Future
distributions by the Company will be at the discretion of the Board of Trustees.
There can be no assurance that any distributions will be made or that the
estimated level of distributions will be maintained by the Company.

The Company anticipates that its distributions will exceed earnings and
profits for federal income tax reporting purposes due to non-cash expenses,
primarily depreciation and amortization, to be incurred by the Company.
Therefore, it is expected that approximately 48% (or $0.74 per share) of the
distributions anticipated to be paid by the Company for the 12-month period
following the completion of the Offering will represent a return of capital for
federal income tax purposes and in such event will not be subject to federal
income tax under current law to the extent such distributions do not exceed a
shareholder's basis in his Common Shares. The nontaxable distributions will
reduce the shareholder's tax basis in the Common Shares and, therefore, the gain
(or loss) recognized on the sale of such Common Shares or upon liquidation of
the Company will be increased (or decreased) accordingly. The percentage of
shareholder distributions that represents a nontaxable return of capital may
vary substantially from year to year.

The Code generally requires that a REIT distribute annually at least 95% of
its net taxable income (excluding any net capital gain). See "Federal Income Tax
Consequences--Requirements for Qualification as a REIT--Annual Distribution
Requirements." The estimated Cash Available for Distribution is anticipated to
be in excess of the annual distribution requirements applicable to REITs under
the Code. Under certain circumstances, the Company may be required to make
distributions in excess of Cash Available for Distribution in order to meet such
distribution requirements. For a discussion of the tax treatment of
distributions to holders of Common Shares, see "Federal Income Tax
Consequences."

Tax Status of the Company

The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1997, and believes its
organization and proposed method of operation will enable it to meet the
requirements for qualification as a REIT. To maintain REIT status, an entity
must meet a number of organizational and operational requirements. In addition,
in order to maintain its qualification as a REIT under the Code, the Company
generally will be required each year to distribute at least 95% of its net
taxable income. As a REIT, the Company generally will not be subject to federal
income tax on net income it distributes currently to its shareholders. If the
Company fails to qualify as a REIT in any taxable year, it will be subject to
federal income tax at regular corporate rates. See "Federal Income Tax
Considerations -- Taxation of the Company -- Failure to Qualify" and "Risk
Factors -- Tax Risks -- Failure to Qualify as a REIT." Even if the Company
qualifies for taxation as a REIT, the Company will be subject to certain
federal, state and local taxes on its income and property.

20
<PAGE>

Summary Historical, Pro Forma and Estimated Financial Information

The following table sets forth financial information for the Company which
is derived from the Balance Sheet and the Pro Forma Balance Sheet and Statements
of Estimated Revenues Less Estimated Expenses included elsewhere in this
Prospectus. The adjustments for the Offering assume an initial public offering
price of $20.00 per share and that the Underwriters' overallotment option is not
exercised.

Pro forma estimated revenues less estimated expenses is presented for the
year ended December 31, 1996, and the six months ended June 30, 1997, as if the
Offering and the acquisitions of the Initial Investments and related
transactions had occurred, and as if the respective leases had been in effect at
January 1, 1996. The pro forma balance sheet data is presented as of June 30,
1997, as if the Offering and the acquisitions of the Initial Investments and
related transactions had occurred, and as if the respective leases had been in
effect at that date. The pro forma and estimated information incorporates
certain assumptions that are included in the notes to the Pro Forma Balance
Sheet and Statements of Estimated Revenues Less Estimated Expenses included
elsewhere in this Prospectus. The pro forma information does not purport to
represent what the actual financial position or results of operations of the
Company would have been as of or for the periods indicated nor does it purport
to represent the financial position or results of operations for any future
period.

<TABLE>
<CAPTION>
Without Proposed Multicare Loans With Proposed Multicare Loans
------------------------------------- ------------------------------------
Pro Forma at Pro Forma at Pro Forma at Pro Forma at
or for the Six or for the or for the Six or for the
Months Ended Year Ended Months Ended Year Ended
Historical(1) June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996
--------------- ---------------- ------------------- ---------------- ------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Estimated revenues less estimated
expenses:
Revenues .................. $ -- $ 8,278 $ 14,752 $ 8,641 $ 14,847
Estimated revenues less
estimated expenses after
minority interest ......... -- 2,776 3,814 2,900 3,845
Estimated revenues less
estimated expenses per
share ..................... -- 0.40 0.54 0.41 0.55
Common shares
outstanding ............... 100 7,012,600 7,012,600 7,012,600 7,012,600
Pro forma balance sheet
data:
Initial Properties ......... $ -- $ 140,908 N/A $ 140,908 N/A
Investment in ET Capital
Corp. ..................... -- 7,406 N/A 7,406 N/A
Loans receivable ......... -- 13,647 N/A 23,096 N/A
Other assets ............... -- 3,641 N/A 3,641 N/A
Total assets ............... -- 178,927 N/A 188,376 N/A
Mortgages payable ......... -- 34,391 N/A 34,391 N/A
Bank Credit Facility ...... -- 13,224 N/A 22,673 N/A
Minority interest in
Operating Partnership ... -- 6,741 N/A 6,741 N/A
Total shareholders' equity 100 121,240 N/A 121,240 N/A
</TABLE>

21
<PAGE>

- ------------
(1) The Company was formed on September 23, 1997 and was capitalized with the
issuance of 100 Common Shares for a purchase price of $100.
(2) The White Paper on Funds from Operations approved by the Board of Governors
of the National Association of Real Estate Investment Trusts ("NAREIT") in
March 1995 defines "Funds from Operations" as net income (loss) (computed in
accordance with GAAP), excluding gains (or losses) from debt restructuring
and sales of properties, plus real estate related depreciation and
amortization and after adjustments for unconsolidated partnerships and joint
ventures ("Funds from Operations"). 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 in accordance with standards established by NAREIT
which may not be comparable to Funds from Operations reported by other REITs
that do not define the term in accordance with 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 in accordance with GAAP and should not be considered as
an alternative to net income (determined in accordance with GAAP) as an
indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) 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.

22
<PAGE>

RISK FACTORS

An investment in the Common Shares involves various risks. Prospective
investors should carefully consider the following information in conjunction
with the other information contained in this Prospectus before making a decision
to purchase Common Shares in the Offering.

Substantial Dependence on Genesis

Approximately 48.4% of the Company's total assets upon completion of the
Offering will consist of Initial Investments leased to and loans made to
Genesis. Genesis will operate or manage substantially all of the Initial
Properties, as well as substantially all of the properties that secure loans
being made by the Company upon completion of the Offering. In addition, the
Company will make Construction Loan Commitments totaling $42.9 million to
Genesis. The Company's revenues, therefore, will depend in significant part upon
the revenues derived from, and Genesis' successful operation of, the facilities
leased to or managed by Genesis, as well as the ability of Genesis to complete
successfully and on schedule the development projects securing Construction
Loans and Construction Loan Commitments made to Genesis.

Risks Relating to Healthcare Facilities

Government Regulation of Healthcare Industry. 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 and 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. 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 lessees of skilled nursing facilities
owned by the Company, or the Age Institute of Florida as the obligor on the
Florida Facilities Note, or the provision of services and supplies by such
lessees or the Age Institute of Florida, will meet or continue to meet the
requirements for participation in the Medicaid or Medicare programs or state
licensing 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.

23
<PAGE>

legal title, the amount of Medicare reimbursement received by the provider will
be limited. Medicare will begin 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 of 1997, which establish a prospective
payment system for skilled nursing facilities that will factor capital-related
costs into the facility's per diem rates for resident care. There can be no
assurance that reimbursement of the costs of skilled nursing facilities included
in the Initial Properties under current or future reimbursement methodologies
will be adequate to cover the rental payments owed to the Company.

Although not currently regulated at the federal level (except under laws of
general applicability to businesses, such as work place safety and income tax
requirements), assisted living facilities are increasingly becoming subject to
more stringent regulation and licensing by state and local health and social
service agencies and other regulatory authorities. In general, these assisted
living requirements address, among other things: personnel education, training
and records; facility services, including administration of medication,
assistance with self-administration of medication and limited nursing services;
monitoring of wellness; physical plant inspections; furnishing of resident
units; food and housekeeping services; emergency evacuation plans; and resident
rights and responsibilities, including in certain states the right to receive
certain healthcare services from providers of a resident's choice. In several
states, assisted living facilities also require a Certificate of Need before the
facility can be opened, expand or reduce its resident capacity or make other
significant capital expenditures. Certain of the Initial 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 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 Medicare/Medicaid
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 Medicare and Medicaid patients or the purchasing, leasing, ordering or
arranging for any goods, facilities, services or items for which payment can be
made under Medicare or Medicaid. 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. 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; accordingly, these areas
may come under closer scrutiny by the government. Furthermore, some states
restrict certain business corporations from providing, or holding themselves out
as a provider of, medical care. 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 the Age Institute of Florida.

24
<PAGE>

such facilities. The Medicare program is highly regulated and subject to
frequent and substantial changes. In recent years, changes in the Medicare
program have resulted in reduced levels of payment for a substantial portion of
healthcare services. There can be no assurance that reimbursement levels will
not be further reduced in future periods. The Medicaid program is a
federally-mandated, state-run program providing benefits to low income and other
eligible persons and is funded through a combination of state and federal
funding. The method of reimbursement for skilled nursing care under Medicaid
varies from state to state, but is typically based on rates set by the state.
Under Medicare and many state Medicaid programs, rates for skilled nursing
facilities are based on facilities costs as reported to the applicable federal
or state agency. The facilities costs for services purchased from an
organization related by ownership or control are limited to the costs (not
charges) of the related organization. Any failure to comply with these
requirements could have a variety of adverse consequences on the operator of the
skilled nursing facility, including recoupment of amounts overpaid and other
sanctions under false claim laws. Although lease and loan payments to the
Company 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 from such facilities, such changes could have a material adverse impact
on the ability of the lessees of the skilled nursing facilities included in the
Initial Properties, and the Age Institute of Florida as the borrower under the
Florida Facilities Note, to make lease and loan payments. Healthcare facilities
also have experienced increasing pressures from private payors attempting to
control healthcare costs that in some instances have reduced reimbursement to
levels approaching that of government payors. There can be no assurance that
future actions by private third party payors, including cost control measures
adopted by managed care organizations, will not result in further reductions in
reimbursement levels, or that future reimbursements from any payor will be
sufficient to cover the costs of the facilities' operations.

Potential Delays in Substituting Lessees or Operators. A loss of license or
Medicare/Medicaid certification by a lessee of the Company or by the Age
Institute of Florida, or a default by lessees or borrowers under loans made by
the Company, could result in the Company having to obtain another lessee or
substitute operator for the affected facility or facilities. Because the
facility licenses for the Initial Properties will be held by lessees or
borrowers and not the Company and because under the REIT tax rules the Company
would have to find a new "unrelated" lessee to operate the properties, the
Company may encounter delays in exercising its remedies under leases and loans
made by the Company 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. No assurances can be given that the Company could contract with a new
lessee or successor operator on a timely basis or on acceptable terms and a
failure of the Company to do so could have a material adverse effect on the
Company's financial condition and results of operations.

Limitation on Transfers and Alternative Uses of Healthcare Facilities.
Transfers of operations of certain healthcare facilities are subject to
regulatory approvals not required for transfers of other types of commercial
operations and other types of real estate. In addition, substantially all of the
Initial Properties are special purpose facilities that may not be easily
adaptable to non-healthcare-related uses.

Proximity to Hospitals or Other Healthcare Facilities. Many of the assisted
living facilities, skilled nursing facilities and medical office buildings
included in the Initial Properties are in close proximity to one or more
hospitals. The relocation or closure of a hospital could make the Company's
assisted living facilities, skilled nursing facility or medical office building
in such area less desirable and affect the Company's ability to renew leases and
attract new tenants. See "Business and Properties -- Government Regulation."

Absence of Arm's Length Negotiations in the Formation Transactions

There have been no arm's length negotiations with respect to the valuation
of certain of the Initial Properties and other assets to be acquired by the
Company and there have been no third party appraisals of any of the Initial
Properties. As a result, the consideration to be paid by the Company for such
properties and assets may exceed their fair market value and the market value of
the Common Shares held by a shareholder may exceed such shareholder's
proportionate share of the aggregate fair value of the Company's net assets.
See "Structure and Formation of the Company."

25
<PAGE>

Real Estate Investment Risks

General Risks. The Initial Properties and subsequently acquired properties,
including properties subject to purchase contracts and options, will be subject
to various real estate-related risks. The acquisition of additional properties
may be subject to the ability of the Company to borrow amounts sufficient to pay
the purchase price therefor. There can be no assurance that the value of any
property acquired by the Company will appreciate or that the value of properties
securing the Term Loans, the Construction Loans or the Florida Facilities Note
will not depreciate. Additional risks of investing in real estate include the
possibilities that the real estate will not generate income sufficient to meet
operating expenses, will generate income and capital appreciation, if any, at
rates lower than those anticipated or will yield returns lower than those
available through investment in comparable real estate or other investments.
Income from properties and yields from investments in such properties may be
affected by many factors, including changes in government regulation (such as
zoning laws), general or local economic conditions (such as fluctuations in
interest rates and employment conditions), the available local supply of and
demand for improved real estate, a reduction in rental income as the result of
the inability to maintain occupancy levels, natural disasters (such as
earthquakes and floods) or similar factors. Further, equity investments in real
estate are relatively illiquid, and, therefore, the ability of the Company to
vary its portfolio in response to changed conditions will be limited.

Risk of Uninsurable Loss. It is the intention of the Company to secure, or
to require Genesis and other lessees, tenants and borrowers to secure, adequate
comprehensive property and liability insurance that covers the Company as well
as the lessee, tenant or borrower. Certain risks may, however, be uninsurable or
not economically insurable, and there can be no assurance that the Company or a
lessee, tenant or borrower will have adequate funds to cover all contingencies
itself. Should such an uninsurable loss occur, the Company could lose both its
invested capital, including its equity interests, and any anticipated profits
relating to such property.

Lease and Loan Defaults and Failure to Renew Lease Terms. Any lease
arrangement, such as the leases between the Company and lessees and tenants of
the Initial Properties and subsequently acquired properties, creates the
possibility that a lessee or tenant may either default on the lease or fail to
exercise an option to renew the lease, and, in such event, the Company may be
unable to lease such property to another lessee or tenant on a timely basis or
at all. Even if the Company could lease such property to another lessee or
tenant, any such replacement lease may be on less favorable terms than those of
the original lease. In such an instance, the Company would continue to be
responsible for payment of any indebtedness it had incurred with respect to such
property. Any such default or non-renewal could result in a reduction in revenue
derived from the affected lease and defaults or non-renewals under several
leases at the same time or defaults under one or more of the Term Loans, the
Construction Loans, the Construction Loan Commitments (once funded) or the
Florida Facilities Note could have a material adverse effect on the Company's
financial condition and results of operations.

Risks Associated with Florida Facilities Note. The Florida Facilities Note
is non-recourse to the Age Institute of Florida and is not guaranteed by any
person or entity. Thus, in the event of a default, ET Capital Corp. will have no
recourse for satisfaction of the debt other than to look to the collateral.
Genesis holds a first priority security interest in all of the collateral
securing the Florida Facilities Note. As of the Offering, the outstanding
balance on the first-position obligation to Genesis will be in the approximate
amount of $40.0 million. In the event of a default on the $40.0 million Age
Institute of Florida senior debt held by Genesis, it is possible that if the
collateral were liquidated there would be insufficient equity after satisfaction
of the $40.0 million obligation available to repay the Florida Facilities Note.
Further, the subordination agreement between Genesis and the Age Institute of
Florida relating to the Florida Facilities Note and a $2.5 million pari passu
working capital term note (together, the "Subordinated Notes") will require the
Subordinated Note holders to "standstill" in their exercise of remedies under
certain circumstances. Even if the payment obligations on the $40.0 million debt
are not in default, any default on a Subordinated Note or any other indebtedness
of the Age Institute of Florida would cause a cross default under the senior
loan documents and would allow Genesis or other holder of the $40.0 million of
senior indebtedness to enforce the standstill provisions of the subordination
agreement and to foreclose upon the $40.0 million of senior debt. The Age
Institute of Florida has limited financial resources. The principal source of
repayment of the principal amount

26
<PAGE>

of the Florida Facilities Note, therefore, is likely to be from a sale of the 11
skilled nursing facilities that collateralize the $40.0 million of senior debt
and the Subordinated Notes or from a refinancing of the $40.0 million of senior
debt and the Subordinated Notes. There can be no assurance that the Florida
Facilities Note will be repaid in full or that interest payments on the Note
will be paid when due. See "Business and Properties -- The Florida Facilities
Note."

Risks Associated with Percentage Rent Leases. The Percentage Rent Leases do
not require any minimum rent. The revenues to be derived by the Company under
the Percentage Rent Leases, therefore, will depend upon the ability of Genesis
as lessee to operate successfully properties subject to such leases. See
"Conflicts of Interest in Business Decisions Affecting the Company -- Ongoing
Competition from and Conflicts with Genesis."

Lack of Industry Diversification. While the Company is authorized to invest
in various types of income-producing real estate, its current strategy is to
acquire and hold, for long-term investment, healthcare-related properties only.
Consequently, the Company currently has chosen not to include in the Initial
Properties any significant non-healthcare related real estate assets, and,
therefore, will be subject to the risks associated with investments in a single
industry.

Risks Associated with Making Loans on Development Projects

The Company has agreed to make the Term and Construction Loans totaling
$36.9 million, of which $19.7 million will be funded at the closing of the
Offering. In addition, the Company has made Construction Loan Commitments
totaling $53.3 million and has agreed to fund the Proposed Multicare Loans
totaling $19.4 million, subject to certain terms and conditions. Lending on
development projects is generally considered to involve greater risks than the
purchase and leaseback of operating properties. Risks associated with such
lending activities include that development activities may be abandoned,
construction costs of a facility may exceed original estimates possibly making
the facility uneconomical, occupancy rates and rents at a completed facility may
not be sufficient to cover loan or lease payments, permanent financing may not
be available on favorable terms and 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 will
require a substantial portion of management's time and attention. Such
activities also are subject to risks relating to the borrower's inability to
obtain, or delays in obtaining, all necessary zoning, land-use, building,
occupancy and other required governmental permits and operations. Further, there
can be no assurance that any of the Term Loans, Construction Loans, the Proposed
Multicare Loans, if made, or the Construction Loan Commitments (once funded)
will be repaid.

Debt Financing

Debt Financing and Existing Debt Maturities. The Company will be subject to
risks normally associated with debt financing, including the risk that the
Company's cash flow will be insufficient to pay distributions at expected levels
and meet required payments of principal and interest, the risk that existing
indebtedness on the Initial Properties or subsequently acquired properties
(which in all cases will not have been fully amortized at maturity) will not be
able to be refinanced or that the terms of such refinancing will not be as
favorable as the terms of existing indebtedness. Upon consummation of the
Offering, the Company expects to have $34.2 million of outstanding indebtedness
which will be secured by certain of the Initial Properties and an additional
$13.2 million outstanding under its Bank Credit Facility ($29.2 million if the
Company makes the Proposed Multicare Loans). See "Business and Properties
- --Mortgage Debt." If principal payments due at maturity cannot be refinanced,
extended or paid with proceeds of other capital transactions, such as new equity
capital, the Company expects that its cash flow will not be sufficient in all
years to pay distributions at expected levels and to repay such maturing debt.
Furthermore, if prevailing interest rates or other factors at the time of
refinancing (such as the reluctance of lenders to make commercial real estate
loans) result in higher interest rates upon refinancing, the interest expense
relating to such refinanced indebtedness would increase, which would adversely
affect the Company's cash flow and the amount of distributions it can make to
investors. If a property or properties are mortgaged to secure payment of
indebtedness and the Company is unable to meet mortgage payments, the property
could be foreclosed by or otherwise transferred to the mortgagee with a

27
<PAGE>

consequent loss of income and asset value to the Company. Finally, the fact that
a significant number of the leases that the Company has entered into and expects
to enter into in the future will not require payment of minimum rent may
adversely affect the Company's ability to obtain additional or replacement
financing in the future.

No Limitations on Indebtedness. Upon completion of the Offering, the
Company's debt to market capitalization ratio including amounts expected to be
drawn under the Bank Credit Facility is expected to be approximately 29.3%
(19.3% if the Underwriters' overallotment option is exercised in full). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." The Company does not have a
policy limiting the amount of debt that the Company may incur. Accordingly, the
Company could become more highly leveraged, resulting in an increase in debt
service that could adversely affect the Company's cash flow and, consequently,
the amount available for distribution to shareholders, and could increase the
risk of default on the Company's indebtedness.

Risk of Rising Interest Rates and Variable Rate Debt. Upon consummation of
the Offering, the Company, through the Operating Partnership, expects to enter
into the Bank Credit Facility. Advances under the Bank Credit Facility totaling
$13.2 million at the Closing of the Offering ($29.2 million if the Company makes
the Proposed Multicare Loans) and further increasing as draws are made under
outstanding Construction Loans and Construction Loan Commitments are expected to
bear interest at variable rates based upon a specified spread over the
Eurodollar rate. In addition, the Company will assume debt totaling
approximately $486,000 subject to a variable interest rate. The Company, through
the Operating Partnership, may incur other variable rate indebtedness in the
future. Increases in interest rates on such indebtedness could increase the
Company's interest expense, which would adversely affect the Company's cash flow
and its ability to pay expected distributions to investors. Accordingly, the
Company may in the future engage in other transactions to further limit its
exposure to rising interest rates as appropriate and cost effective. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Tax Exempt Financing. The Company's indebtedness includes approximately
$21.4 million in connection with tax-exempt bond financings (the "Series 1994
Bonds" and the "Series 1995 Bonds") relating to the Highgate and Woodbridge
assisted living facilities. The underlying Series 1994 and Series 1995 Bonds are
subject to various restrictions, conditions and requirements under the Code and
its implementing regulations. In addition, the Series 1994 and Series 1995 Bond
financing documents impose certain requirements and restrictions in connection
with the operation of the facilities, including a requirement that at all times
at least 20% of the rental units in the facilities will be occupied by tenants
whose adjusted gross family income does not exceed 50% of the median gross
income for the relevant geographic area. If these requirements and restrictions
are not complied with, the tax-exempt status of the bonds could be terminated
and/or the bond obligations under the bond documents could be accelerated. In
the event of a default under the bonds used to finance the Highgate and
Woodbridge facilities, the Company's interest in the relevant property would be
subordinate to the interests of the bondholders.

Conflicts of Interest in Business Decisions Affecting the Company

Failure to Enforce Terms of Agreements and Leases with Genesis. Michael R.
Walker, the Company's Chairman of the Board, is Chairman of the Board and Chief
Executive Officer of Genesis and will continue to serve in such capacity
following completion of the Offering. At June 30, 1997, Mr. Walker beneficially
owned approximately 2.2% of the outstanding common stock of Genesis. Because he
serves as Chairman of both Genesis and the Company, Mr. Walker will have a
conflict of interest with respect to his obligations as a trustee of the Company
with respect to enforcing (i) the terms of the contribution, loan, purchase and
right of first refusal agreements relating to the various properties and other
assets owned by Genesis or in which it holds interests being transferred by it
to the Company or that will be acquired by the Company from Genesis in the
future and (ii) the related leases entered into by the Company and Genesis. The
failure to enforce material terms of these agreements and leases could result in
a monetary loss to the Company, which loss could have a material adverse effect
on the Company's financial condition and results of operations. The Company's
ongoing dependence on Genesis as a lessee and/or manager of a substantial
portion of its

28
<PAGE>

properties may deter the Company from vigorously enforcing the terms of such
agreements and operating leases. Edward B. Romanov, Jr., the Company's President
and Chief Executive Officer and a member of the Company's Board of Trustees,
served as Senior Vice President, Development of Genesis from June 1990 until
August 1997. Mr. Romanov has a loan outstanding from Genesis in the amount of
$450,000, which he expects to repay within 90 days of the closing of the
Offering. In addition, Mr. Walker, Mr. Dauten, a trustee nominee, and three
executive officers of Genesis hold interests in certain properties being
transferred to the Company by third parties other than Genesis.

Tax Consequences Upon Prepayment or Refinancing of Debt or Sale of
Properties. Certain Continuing Investors, including Messrs. Walker and Dauten,
may incur adverse tax consequences upon the prepayment or refinancing of certain
debt securing the Initial Properties or a sale of a property which are different
from the tax consequences to the Company and persons who purchase Common Shares
in the Offering. Consequently, such Continuing Investors may have different
objectives regarding the appropriate timing of such actions. While the Company
will have the exclusive authority under the Agreement of Limited Partnership of
the Operating Partnership (the "Operating Partnership Agreement") to determine
whether, when and on what terms to prepay or refinance debt or to sell a
property, any such decision would require the approval of the Board of Trustees.
Messrs. Walker and Dauten will have substantial influence with respect to any
such decision, and such influence could be exercised in a manner not consistent
with the interests of some, or a majority, of the Company's shareholders.

Conflicts Relating to the Operating Partnership. After the Offering, the
Company, as the sole general partner of the Operating Partnership, will have
fiduciary obligations to the other limited partners in the Operating
Partnership, the discharge of which may conflict with the interests of the
Company's shareholders. In addition, those persons holding beneficial interests
in Units (including Messrs. Walker, Dauten, Romanov and McCreary and the three
executive officers of Genesis), as limited partners, will have the right to vote
on amendments to the Operating Partnership Agreement (most of which require
approval by a majority in interest of the limited partners, including the
Company) and such individuals may exercise their voting rights in a manner that
conflicts with the interests of the Company's shareholders.

Ongoing Competition from and Conflicts with Genesis. The Company's
facilities (whether or not operated by Genesis) may compete with facilities
owned and operated by Genesis in certain markets. As a result, Genesis will have
a conflict of interest due to its ownership of certain competing facilities and
its operation and management of a substantial portion of the facilities owned by
the Company. Because the Percentage Rent Leases to be entered into with Genesis
provide for lower operating margins for Genesis than Minimum Rent Leases,
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.

Lack of Operating History and Inexperience of Management in the Day-to-Day
Operations of a REIT; Rapid Growth

The Company has been recently organized and has no operating history. The
Company will be self-administered and self-managed. The Company's Board of
Trustees and executive officers will have overall responsibility for management
of the Company. Although certain of the Company's executive officers and
trustees have extensive experience in the acquisition, development and financing
of real properties and in the operation of healthcare facilities and
publicly-owned corporations, none of the management of the Company has prior
experience in operating a business in accordance with the Code requirements for
maintaining REIT qualification. Failure to maintain REIT status would have an
adverse effect on the Company's ability to make anticipated distributions to
shareholders. There can be no assurance that the past experience of management
will be appropriate to the business of the Company. See "Management." The
Company also anticipates rapid growth. The Company's ability to manage its
growth effectively will require it successfully to identify, structure and
manage new investments.

Risks of Limitations on Changes in Control and of Ownership Limit

Limitations on Changes in Control Contained in the Declaration of Trust
and Bylaws. Certain provisions of the Company's Declaration of Trust and Bylaws
may have the effect of delaying, deferring or

29
<PAGE>

preventing a change in control of the Company or other transaction that could
provide the holders of Common Shares with the opportunity to realize a premium
over the then-prevailing market price of such Common Shares. The Ownership Limit
(described under "-- Possible Adverse Consequences of Ownership Limit") also may
have the effect of delaying, deferring or preventing a change in control of the
Company or other transaction even if such a change in control or transaction
were in the best interests of some, or a majority, of the Company's
shareholders. The Board of Trustees will consist of five members as of the
closing of the Offering who will be classified into three classes with each
class serving a three-year term. The staggered terms of the members of the Board
of Trustees may adversely affect the shareholders' ability to effect a change in
control of the Company, even if a change in control were in the best interests
of some, or a majority, of the Company's shareholders. See "Management --
Trustees and Executive Officers." The Declaration of Trust authorizes the Board
of Trustees to cause the Company to issue up to 20,000,000 preferred shares of
beneficial interest, $0.01 par value per share ("Preferred Shares"), in series,
and to establish the preferences, rights and other terms of any series of
Preferred Shares so issued. Such Preferred Shares may be issued by the Board of
Trustees without shareholder approval, and the preferences, rights and other
terms of any such Preferred Shares may adversely affect the shareholders'
ability to effect a change in control of the Company, even if a change in
control were in the best interests of some, or a majority, of the Company's
shareholders. See "Shares of Beneficial Interest."

Possible Limitations on Changes in Control Pursuant to Maryland Law. Under
provisions of the Maryland General Corporation Law, as amended ("MGCL"), as
applicable to REITs, certain "business combinations" (including certain
issuances of equity securities) between a Maryland REIT and any person who
beneficially owns ten percent or more of the voting power of the REIT's then
outstanding shares or an affiliate of the trust who, at any time within the
two-year period prior to the date in question, was the beneficial owner of ten
percent or more of the voting power of the then outstanding voting shares of
beneficial interest of the trust (an "Interested Shareholder"), or an affiliate
of the Interested Shareholder, are prohibited for five years after the most
recent date on which the Interested Shareholder becomes an Interested
Shareholder. Thereafter, any such business combination must be approved by the
affirmative vote of at least (i) 80% of all the votes entitled to be cast by
holders of the outstanding voting shares and (ii) two-thirds of the votes
entitled to be cast by holders of voting shares held by the Interested
Shareholder who is (or whose affiliate is) a party to the business combination
unless, among other conditions, the REIT's common shareholders receive a minimum
price (as defined in the MGCL) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Shareholder for its common shares. The Board of Trustees of the Company has not
opted out of the business combination provisions of the MGCL. Consequently, the
five-year prohibition and the super-majority vote requirements will apply to a
business combination involving the Company.

Possible Adverse Consequences of Ownership Limit. To maintain its
qualification as a REIT for federal income tax purposes, not more than 50% in
value of the outstanding shares of beneficial interest of the Company may be
owned, directly or indirectly, by five or fewer individuals (as defined in the
Code, to include certain entities). See "Federal Income Tax Considerations --
Taxation of the Company -- Requirements for Qualification." In addition, for the
Company to maintain REIT status, neither Genesis nor any shareholder who
actually or constructively owns 10% or more of the outstanding stock of Genesis
or any other tenant entity may own actually or constructively 10% or more, in
value or voting rights, of the outstanding shares of beneficial interest of the
Company. To facilitate maintenance of its qualification as a REIT for federal
income tax purposes, the Declaration of Trust generally will prohibit ownership,
directly or by virtue of the attribution provisions of the Code, by any single
shareholder of more than 8.6% of the issued and outstanding Common Shares and
generally will prohibit ownership, directly or by virtue of the attribution
provisions of the Code, by any single shareholder of more than 9.9% of the
issued and outstanding shares of any class or series of the Company's Preferred
Shares (collectively, the "Ownership Limit"). Mr. Romanov may own up to 15.0% of
the Common Shares (the "Excluded Holder Limit"). The Board of Trustees, in its
sole discretion, may waive the ownership limitations with respect to a holder if
the Board is satisfied, based on the advice of counsel or a ruling from the
Internal Revenue Service, that such holder's ownership will not then or in the
future jeopardize the Company's status as a REIT. In view, however, of the
potential risks posed to the Company if a shareholder who owned 10% or more of
the Company also were considered to own 10% or more of Genesis or any other
tenant entity, the Board of Trustees will have less flexibility, as a practical

30
<PAGE>

matter, to grant waivers and exemptions than would be the case if a substantial
portion of the Company's properties were not leased to a single tenant. Absent
any such exemption or waiver, Common Shares acquired or held in violation of the
Ownership Limit will be transferred to a trust for the benefit of a designated
charitable beneficiary, with the person who acquired such Common Shares in
violation of the Ownership Limit not entitled to receive any distributions
thereon, to vote such Common Shares, or to receive any proceeds from the
subsequent sale thereof in excess of the lesser of the price paid therefor or
the amount realized from such sale. A transfer of Common Shares to a person who,
as a result of the transfer, violates the Ownership Limit may be void under
certain circumstances. See "Shares of Beneficial Interest -- Restrictions on
Ownership and Transfer." The Ownership Limit may have the effect of delaying,
deferring or preventing a change in control and, therefore, could adversely
affect the shareholder's ability to realize a premium over the then-prevailing
market price for the Common Shares in connection with such a transaction.

Federal Income Tax Risks

Adverse Consequences of the Company's Failure to Qualify as a REIT. The
Company intends to operate so as to qualify as a REIT under the Code, commencing
with its taxable year ending December 31, 1997. Although management believes
that the Company will be organized and will operate in such a manner, no
assurance can be given that the Company will be organized or will be able to
operate in a manner so as to qualify or remain so qualified. 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 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 the Company's control. For example, in order
to qualify as a REIT, at least 95% of the Company's gross income in any year
must be derived from qualifying sources, and the Company must pay distributions
to shareholders aggregating annually at least 95% of its REIT taxable income
(excluding capital gains and certain noncash income). The complexity of these
provisions and of the applicable regulations that have been promulgated under
the Code (the "Treasury Regulations") is greater in the case of a REIT, such as
the Company, that holds its assets in partnership form. No assurance can be
given 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 such
qualification. The Company, however, is not aware of any pending tax legislation
that would adversely affect the Company's ability to operate as a REIT.

Hogan & Hartson L.L.P., tax counsel to the Company, has rendered an opinion
to the effect that the Company is organized in conformity with the requirements
for qualification as a REIT and its proposed method of operation will enable it
to meet the requirements for qualification and taxation as a REIT. See "Federal
Income Tax Considerations -- Taxation of the Company." Such legal opinion,
however, is based on various assumptions and factual representations by the
Company regarding the Company's business and assets and the Company's ability to
meet the various requirements for qualification as a REIT, and no assurance can
be given that actual operating results will meet these requirements. Such legal
opinion is not binding on the Internal Revenue Service (the "IRS") or any court.
Moreover, the Company's qualification and taxation as a REIT will depend upon
the Company's ability to meet (through actual annual operating results,
distribution levels and diversity of stock ownership) the various qualification
tests imposed under the Code, the results of which will not be reviewed by tax
counsel to the Company.

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates.
Moreover, unless entitled to relief under certain statutory provisions, the
Company also would be disqualified from treatment as a REIT for the four taxable
years following the year during which qualification was lost. This treatment
would significantly reduce the net earnings of the Company available for
investment or distribution to shareholders because of the additional tax
liability to the Company for the years involved. In addition, distributions to
shareholders would no longer be required to be made. See "Federal Income Tax
Considerations -- Taxation of the Company -- Failure of the Company to Qualify
as a REIT."

Special Considerations Related to the Nature of the Company's Assets. The
manner in which the Company will derive income from the assisted and
independent living facilities and skilled nursing facilities

31
<PAGE>

will be governed by special considerations in satisfying the requirements for
REIT qualification. Because the Company would not qualify as a REIT if it
directly operated an assisted or independent living facility, or a skilled
nursing facility, the Company will lease such facilities to a healthcare
provider, such as Genesis, that will operate the facility. It is essential to
the Company's qualification as a REIT that these arrangements be respected as
leases for federal income tax purposes and that the lessees (including Genesis
and SLC) not be regarded as "related parties" of the Company (as determined
under the applicable Code provisions). See "Federal Income Tax Considerations --
Requirements for Qualification as a REIT -- Income Tests." In the event the
leases expire and are not renewed, the Company will have to find a new
"unrelated" lessee to lease and operate the properties in order to continue to
qualify as a REIT. 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, the Company, to maintain its REIT qualification, would have to engage
a new healthcare provider (which could not include Genesis or its subsidiaries
or SLC) to operate the facility after the Company takes possession of the
facility. This requirement could deter the Company from exercising its remedies
in the event of a default even though such exercise otherwise would be in the
Company's best interests. Although the Company would be permitted to operate the
facility for 90 days after taking possession of the facility pursuant to
applicable Treasury Regulation without jeopardizing its REIT status, the fact
that the facility licenses will be held by lessees or borrowers may preclude the
Company from doing so under applicable healthcare regulatory requirements.

Other Tax Liabilities. Even if the Company qualifies as a REIT, it will be
subject to certain federal, state and local taxes on its income and property
and ET Capital Corp. will be subject to corporate level tax. See "Federal
Income Tax Considerations -- Other Tax Consequences for the Company and Its
Shareholders."

Possible Environmental Liabilities

Under federal, state and local laws and regulations relating to protection
of the environment ("Environmental Laws"), a current or previous owner or
operator of real estate may be required to investigate and clean up hazardous or
toxic substances or petroleum product releases at such property and may be held
liable to a governmental entity or to third parties for property damage and for
investigation and clean-up costs incurred by such parties in connection with the
contamination. Such laws typically impose clean-up responsibility and liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants, and the liability under such laws has been interpreted to
be joint and several unless the harm is divisible and there is a reasonable
basis for allocation of responsibility. In addition, the owner or operator of a
site may be subject to claims by third parties based on damages and costs
resulting from environmental contamination emanating from a site.

Environmental Laws also govern the presence, maintenance and removal of
asbestos-containing building materials ("ACBM"). Such laws require that ACBM be
properly managed and maintained, that those who may come into contact with ACBM
be adequately apprised or trained and that special precautions, including
removal or other abatement, be undertaken in the event ACBM would be disturbed
during renovation or demolition of a building. Such laws may impose fines and
penalties on building owners or operators for failure 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
comprehensive environmental assessments at the Initial Properties, the Lease-up
Assisted Living Facilities and the 11 skilled nursing facilities that secure the
Florida Facilities Note. These assessments have included, at a minimum, 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, additional testing has been conducted,
including sampling for asbestos, for lead in drinking water, for soil
contamination where underground storage tanks are or were located or where other
past site usages create a potential for site impact, and for contamination in
groundwater.

These environmental assessments have not revealed any environmental
liabilities that the Company believes would have a material adverse effect on
the Company's business, financial condition or results of

32
<PAGE>

operations taken as a whole, nor is the Company aware of any such material
environmental liability. ACBM is suspected in approximately one-third of the
properties based on visual inspection and isolated sampling. Most of these
buildings contain only minor amounts of ACBM in good condition and nearly all of
it is non-friable. All ACBM is currently being properly managed and maintained
and other requirements relating to ACBM are being followed. The presence of ACBM
should not present a significant risk as long as compliance with these
requirements continues. For a few of the Initial Properties, potential offsite
sources of contamination, such as nearby underground storage tanks ("USTs"), are
noted. For some of the properties, previous uses, such as the former presence of
USTs, have been noted; in these cases, documented USTs subject to regulatory
requirements were either removed, replaced, or otherwise brought into
compliance.

The Company believes that the Initial Properties, the Lease-up Assisted
Living Facilities and the 11 skilled nursing facilities that secure the Florida
Facilities Note are in compliance in all material respects with applicable
Environmental Laws. The Company believes that the issues identified in the
environmental reports will not have a material adverse effect on the Company if
it continues to comply with Environmental Laws and with the recommendations set
forth in these reports.

Ancillary to the operation of healthcare facilities are, in various
combinations, the handling, use, storage, transportation, disposal and/or
discharge of hazardous, infectious, toxic, radioactive, flammable and other
hazardous materials, wastes, pollutants or contaminants. Such activities may
result in damage to individuals, property or the environment; may interrupt
operations and/or increase their costs; may result in legal liability, damages,
injunctions or fines; may result in investigations, administrative proceedings,
penalties or other governmental agency actions; and may not be covered by
insurance. There can be no assurance that lessees or borrowers of the Company
will not encounter such risks, and such risks may have a material adverse effect
on their ability to make lease or loan payments to the Company.

Competition

The Company will compete 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 will own or that secure loans to be 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. The Company will
purchase, or make loans with an obligation to purchase, all of the assisted
living facilities owned by Genesis as of June 30, 1997 (except for a 32-bed
facility as to which the Company will have an option to purchase at fair market
value in cash exercisable within one year after the facility reaches Stabilized
Occupancy).

Shortage of Qualified Healthcare Personnel

The healthcare industry has at times experienced a shortage of qualified
healthcare personnel. The Company's lessees compete with other healthcare
providers and with non-healthcare providers for both professional and
non-professional employees. While the Company believes that its lessees and
borrowers have been able to retain the services of an adequate number of
qualified personnel to staff the facilities included in the Initial Properties
appropriately and maintain standards of quality care, there can be no assurance
that shortages will not in the future affect the ability of the Company's
lessees or borrowers to attract and maintain an adequate staff of qualified
healthcare personnel. A lack of qualified personnel at a facility could result
in significant increases in labor costs at such facility or otherwise adversely
affect operations at such facility. Any of these developments could adversely
affect the ability of lessees or borrowers to make required lease or loan
payments.

33
<PAGE>

Board May Change Investment Policies

The Company's Board of Trustees may change the investment and other
policies of the Company without shareholder approval. Such policy changes may
have adverse consequences to the Company.

Influence of Executive Officers and Trustees

None of the trustees and executive officers of the Company are selling any
Common Shares in the Offering. Upon completion of the Offering, Messrs. Walker
and Romanov will beneficially own approximately 0.4% and 6.2%, respectively, of
the total issued and outstanding Common Shares and approximately 12.8% and
29.8%, respectively of the Units (which after 14 months following completion of
the Offering will be redeemable by the holder for cash or, at the option of the
Company, Common Shares on a one-for-one basis). All trustees and executive
officers as a group will beneficially own approximately 8.3% of the total issued
and outstanding Common Shares and approximately 41.2% of the Units to be
outstanding upon completion of the Offering. Accordingly, such persons will have
substantial influence on the Company, which influence might not be consistent
with the interests of other shareholders, and may in the future have a
substantial influence on the outcome of any matters submitted to the Company's
shareholders for approval if all of their Units are exchanged for Common Shares.
See "Principal Shareholders."

Dependence on Key Personnel

The Company is dependent on the efforts of its Chairman, Mr. Walker, and
its two executive officers, Messrs. Romanov and McCreary. The loss of their
services could have an adverse effect on the operations of the Company. Mr.
Walker will enter into a non-competition agreement with the Company (which will
not limit in any way activities related to Mr. Walker's employment by or
interest in Genesis), and Mr. Romanov will enter into an employment and
non-competition agreement with the Company. See "Management -- Employment and
Non-Competition Agreements."

Immediate Dilution

As set forth more fully under "Dilution," the pro forma net tangible book
value per share of the assets of the Company after the Offering will be
substantially less than the estimated initial public offering price per share in
the Offering. Accordingly, purchasers of the Common Shares offered hereby will
experience immediate dilution of $2.04 in the net tangible book value of the
Common Shares from the estimated initial public offering price. See "Dilution."

Risks of Ownership of Common Shares

Effect on Price of Common Shares Available for Future Sale. Sales of a
substantial number of restricted Common Shares, or the perception that such
sales could occur, could adversely affect prevailing market prices of the Common
Shares. Subsequent to the Offering, approximately 212,600 restricted Common
Shares will be issued and outstanding and 337,030 Units will be issued and
outstanding. The restricted Common Shares and Common Shares issued upon
redemption of Units may be sold in the public market pursuant to registration
rights (subject to the terms and conditions thereof) that the Company has
granted or pursuant to Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). In addition, the Company intends to reserve 727,613
Common Shares for issuance pursuant to the Company's 1997 Share Option and
Incentive Plan, and these Common Shares will be available for sale from time to
time pursuant to exemptions from registration requirements or upon registration.
Options to purchase a total of 497,500 Common Shares are expected to be granted
to the Company's executive officers and trustees upon the completion of the
Offering. See "Management." No prediction can be made about the effect that
future sales of Common Shares will have on the market prices of the Common
Shares. See "Shares Available for Future Sale."

Effect on Common Share Price of Market Conditions. As with other publicly
traded equity securities, the value of the Common Shares will depend upon
various market conditions, which may change from time to time. Among the market
conditions that may affect the value of the Common Shares are the following: the

34
<PAGE>

extent to which a secondary market develops for the Common Shares following the
completion of the Offering; the extent of institutional investor interest in the
Company; the general reputation of healthcare REITs and the attractiveness of
their equity securities in comparison to other equity securities (including
securities issued by other real estate-based companies); the Company's financial
performance; the financial performance of Genesis and other lessees of the
Company's facilities; and general stock and bond market conditions. Although the
offering price of the Common Shares will be determined by the Company in
consultation with the Underwriters, there can be no assurance that the Common
Shares will not trade below the offering price following the completion of the
Offering.

Effect on Common Share Price of Earnings and Cash Distributions. It is
generally believed that the market value of the equity securities of a REIT is
based primarily upon the market's perception of the REIT's growth potential and
its current and potential future cash distributions, whether from operations,
sales or refinancings, and is secondarily based upon the value of the underlying
assets. For that reason, Common Shares may trade at prices that are higher or
lower than the net asset value per Common Share. To the extent the Company
retains operating cash flow for investment purposes, working capital reserves or
other purposes, these retained funds, while increasing the value of the
Company's underlying assets, may not correspondingly increase the market price
of the Common Shares. The failure of the Company to meet the market's
expectation with regard to future earnings and cash distributions likely would
adversely affect the market price of the Common Shares.

Effect on Common Share Price of Market Interest Rates. One of the factors
that will influence the price of the Common Shares will be the dividend yield on
the Common Shares (as a percentage of the price of the Common Shares) relative
to market interest rates. Thus, an increase in market interest rates may lead
prospective purchasers of Common Shares to expect a higher dividend yield, which
would adversely affect the market price of the Common Shares.

Dependence on External Sources of Capital. In order to qualify as a REIT
under the Code, the Company generally is required each year to distribute to its
shareholders at least 95% of its net taxable income (excluding any net capital
gain). See "Federal Income Tax Considerations -- Taxation of the Company --
Annual Distribution Requirements." Because of these distribution requirements,
it is unlikely that the Company will be able to fund all future capital needs,
including capital needs in connection with financing of additional development
projects and acquisitions, from cash retained from operations. As a result, to
fund future capital needs, the Company likely will have to rely on third-party
sources of capital, which may or may not be available on favorable terms or at
all. The Company's access to third-party sources of capital will depend upon a
number of factors, including the market's perception of the Company's growth
potential and its current and potential future earnings and cash distributions
and the market price of the Common Shares. Moreover, additional equity offerings
may result in substantial dilution of shareholders' interests in the Company,
and additional debt financing may substantially increase the Company's leverage.
See "Policies with Respect to Certain Activities -- Financing Policies."

Absence of Prior Public Market for Common Shares

Prior to the completion of the Offering, there has been no public market
for the Common Shares and there can be no assurance that an active trading
market will develop or be sustained or that Common Shares will be resold at or
above the assumed initial public offering price. The offering price of the
Common Shares will be determined by agreement among the Company and the
Underwriters and may not be indicative of the market price for the Common Shares
after the completion of the Offering. The market value of the Common Shares
could be substantially affected by general market conditions, including changes
in interest rates. Moreover, numerous other factors, such as governmental
regulatory action and changes in tax laws, could have a significant impact on
the future market price of the Common Shares.

ERISA Risks

Depending upon the particular circumstances of an ERISA Plan (as
hereinafter defined), an investment by an ERISA Plan in the Common Shares may
not be appropriate under Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). In deciding whether to purchase 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 Code and the effect of regulations issued by
the U.S. Department of Labor defining what constitutes assets of an ERISA Plan.

35
<PAGE>

THE COMPANY

General

The Company has been formed to invest in a diversified portfolio of
healthcare-related real estate and mortgages. The Company will be
self-administered and self-managed and expects to qualify as a REIT for federal
income tax purposes. Upon completion of the Offering, the Company intends to
invest in an initial portfolio of 21 Initial Properties, the Term Loans totaling
$14.5 million secured by three assisted living facilities in lease-up,
Construction Loans totaling $5.2 million secured by three assisted living
facilities in development and in ET Capital Corp., which will own the Florida
Facilities Note. The Company also agreed to or has the option to purchase the
six assisted living facilities that secure the Term Loans and Construction
Loans, as well as eight of the nine assisted living development and expansion
projects currently in the planning stage for which the Company will make
Construction Loan Commitments totaling $53.3 million. The Initial Properties and
properties securing the loans are located in eight states in the eastern United
States. Approximately 48.4% of the Company's total assets upon completion of the
Offering will consist of properties leased to and loans made to subsidiaries of
Genesis, a leading provider of healthcare and support services to the elderly.
Subsidiaries of Genesis also will operate or manage substantially all of the
Initial Properties, as well as properties that secure loans made by the Company.
For the month ended June 30, 1997, the occupancy of the assisted and independent
living facilities (excluding three assisted living facilities in lease-up),
skilled nursing facilities and medical office and other buildings included in
the Initial Properties was 88.2%, 92.9% and 100.0%, respectively. Approximately
$79.3 million of the net proceeds from the Offering, including initial draws by
the Company under the Bank Credit Facility, will be used to acquire properties
and other assets from and to make loans to Genesis.

The Operating Partnership is the vehicle through which the Company will own
the Initial Properties, the Term Loans and the Construction Loans. The Florida
Facilities Note will be owned by ET Capital Corp., an entity in which the
Operating Partnership will hold all of the non-voting stock representing 95% of
the economic interest in ET Capital Corp. The ownership and management structure
of the Company is intended to enable the Company to acquire assets in
transactions that may defer some or all of the sellers' tax consequences,
including those acquired in connection with the Company's formation.

The principal executive offices of the Company and the Operating
Partnership are located at ElderTrust, 415 McFarlan Road, Suite 202, Kennett
Square, PA 19348 and its telephone number is (610) 925-0808.

36
<PAGE>

BUSINESS AND GROWTH STRATEGIES

The Company's strategy includes aligning its investments with healthcare
networks, such as the Genesis ElderCare(SM) Network, and investing in facilities
near other complementary healthcare services and facilities. The Company
believes its strategy will result in a marketing advantage for operators of its
facilities, which may result in higher occupancy rates and revenues.
Substantially all of the initial assisted and independent living facilities and
development projects are located in close proximity to complementary healthcare
services and facilities, such as skilled nursing facilities operated by Genesis
and other healthcare providers. Genesis intends for residents of assisted living
facilities owned by the Company to have access to long-term care at a Genesis
owned skilled nursing facility located near the assisted living facility. In
addition, since all of the Initial Properties leased to or managed by Genesis
will be part of a Genesis ElderCare(SM) Network, Genesis will be available to
provide ancillary services needed from time to time by residents of the
facilities leased or managed by Genesis.

The Genesis ElderCare(SM) Network. Genesis has developed the Genesis
ElderCare(SM) delivery model of integrated healthcare networks to provide
cost-effective, outcomes-oriented services to the elderly. All of the Initial
Properties leased to or managed by Genesis will be part of a Genesis
ElderCare(SM) Network. Through these integrated healthcare networks, Genesis
provides basic healthcare and specialty medical services to more than 100,000
customers in five regional markets in the eastern United States in which over 3
million people over the age of 65 reside. The networks are located in five
principal geographic markets (Massachusetts/Connecticut/New Hampshire; Eastern
Pennsylvania/Delaware Valley; Southern Delaware/Eastern Shore of Maryland;
Baltimore, Maryland/Washington, D.C.; and Central Florida) and include 155
skilled nursing facilities with approximately 21,600 beds; 16 primary care
physician clinics; approximately 96 physicians, physician assistants and nurse
practitioners; 12 institutional pharmacies and five medical supply distribution
centers serving over 52,000 beds; 28 community based pharmacies; certified
rehabilitation agencies providing services through over 375 contracts; and eight
home healthcare agencies. Genesis' networks also include relationships with
healthcare providers contracting with Genesis for clinical information, managed
care expertise and brand name recognition.

In June 1997, Acquisition Corp., a wholly owned subsidiary of Genesis
ElderCare Corp. which is owned 44% by Genesis and owned 56% by The Cypress Group
L.L.C. and TPG Partners II, L.P., commenced the Tender Offer for all of the
outstanding shares of common stock of Multicare. Consummation of the Tender
Offer is subject to, among other things, at least a majority of the outstanding
Multicare common stock being tendered and receipt of all regulatory approvals
and other consents. As of June 30, 1997, Multicare operated, among other assets,
124 skilled nursing facilities, 19 hospital-based subacute units and 11 assisted
living facilities. If the Tender Offer is consummated, Acquisition Corp. will be
merged into Multicare and Multicare, as the surviving entity in the merger, will
become a wholly owned subsidiary of Genesis ElderCare Corp., and all of these
facilities will be managed by Genesis and become part of the Genesis
ElderCare(SM) Network which will add a sixth principal geographic market
(Ohio/Western Pennsylvania). Genesis' long-term strategy is to continue to
expand and develop its networks and establish new eldercare networks in markets
deemed attractive, to achieve improved outcomes at lower cost via
community-based programs, strategic partnerships, clinical approach/outcomes and
information systems and to provide comprehensive eldercare services in
collaboration with other providers in a managed care environment.

37
<PAGE>

The Company expects to achieve growth as follows:

Internal Growth. Management believes the Company's future internal growth
will come from (i) potentially higher occupancy and associated increased rental
income under the Percentage Rent Leases and Minimum Rent Leases due, in part, to
the ability of facility residents to participate in the Genesis ElderCare(SM)
network; (ii) future price increases to facility residents and resulting
increases in rental income payable under the Percentage Rent Leases and Minimum
Rent Leases and (iii) adjustments to rents under certain of the Fixed Rent
Leases.

Growth from Draws Under Construction Loans, Construction Loan Commitments
and Facility Purchase Contracts and Options. The Company anticipates additional
growth from (i) increasing draws under the Construction Loans, which are
expected to increase from an initial $5.2 million to approximately $22.2 million
in 18 months, (ii) funding of the Construction Loan Commitments, which are
expected to total approximately $44.8 million in 18 months and (iii) the
purchase and leaseback to Genesis, pursuant to purchase contracts that will be
in place as of the closing of the Offering, of the three Lease-up Assisted
Living Facilities and one Initial Assisted Living Development Project upon the
earlier of the maturity of the related Term Loan or Construction Loan or at such
time as the facility reaches Stabilized Occupancy. The Company has an option to
purchase the two remaining development facilities for which Construction Loans
will be made as of the closing of the Offering. The Company also expects to make
three additional Term Loans and Construction Loans to Multicare and to purchase
the three properties that will secure such loans, if the Multicare acquisition
occurs and certain terms and conditions are satisfied. In addition, the Company
has agreed to purchase or has the option to purchase eight of the nine assisted
living development and expansion projects, currently in the preliminary planning
phase.

External Growth. The Company's external growth strategy is to become a
significant source of healthcare industry capital. The Company intends to focus
initially on the acquisition and financing of assisted and independent living
and skilled nursing facilities and, to a lesser extent, medical office and other
buildings, located in the eastern United States, although the Company may also
make investments in other types of healthcare facilities and in other geographic
regions. The Company believes that there currently is significant demand for
REIT financing capital in the healthcare industry, particularly in the assisted
living segment. In general, assisted living represents a combination of housing,
meals and 24-hour a day personal support services designed to aid elderly
residents with activities of daily living, such as bathing, eating, personal
hygiene, grooming and dressing. Certain assisted living facilities may also
provide assistance to residents with low acuity medical needs, or may offer
higher levels of personal assistance for incontinent residents or residents with
Alzheimer's disease or other forms of memory impairment. In the Company's view,
the assisted living industry is emerging as a preferred alternative to meet the
growing demand for a cost-effective setting in which to care for the elderly who
do not require intensive medical attention but are unable to live independently
due to physical or cognitive frailties.

Annual expenditures in the assisted living industry are estimated to exceed
$16 billion in 1997, with an estimated compound annual growth rate of 17%, which
should create a significant market opportunity for REIT financing of new
assisted living facilities. The United States Department of Health and Human
Services estimates that 56.8% of the population 85 and older need help with at
least one activity of daily living and approximately 35% need help with two or
more activities of daily living. This age group is projected to double in
population by the year 2000. According to a recent study, the average resident
of an assisted living facility is 84 years of age and 96% of resident fees are
provided by personal or family funds. The industry is still highly fragmented
but there are now 13 public companies whose primary focus is the development
and/or operation of assisted living facilities. Many of the publicly traded
assisted living companies, as well as assisted living companies that continue to
be privately held, have plans for rapid growth through the development of a
significant number of new-assisted living facilities over the next several
years. Several healthcare companies, such as Genesis, whose focus has been on
the ownership and operation of skilled nursing facilities, have also recognized
the opportunity provided by assisted living and have begun development of
assisted living facilities. All but one of the 13 public assisted living
companies generally have leased between 40% and 60% of their properties from
REITs or development partners. Sale/leaseback financing is generally viewed as
an effective financing tool for companies whose business includes a

38
<PAGE>

combination of healthcare services and housing for the elderly. Among other
benefits, the lessee typically does not record long term debt on its balance
sheet and real estate depreciation expense related to owning the facility is
eliminated from the lessee's financial statements. The Company also intends to
offer Units to sellers who would otherwise recognize a taxable gain upon a sale
of assets, which also may facilitate sale/leaseback transactions on a
tax-deferred basis. The Company believes that the substantial healthcare
industry experience and numerous relationships of its management and trustees
will help the Company identify, evaluate and complete additional investments.

In making future investments, the Company intends to focus on established
healthcare operators which meet the Company's standards for facility quality,
proximity to complementary healthcare services and facilities and experience of
management. In the assisted living area, the Company intends to develop
relationships with public and privately-held third party operators of assisted
living facilities. In the near term, the Company anticipates that a significant
portion of new investments will involve Genesis as lessee or manager. In this
regard, the Company and Genesis have entered into an agreement for a period of
three years from the closing of the Offering (subject to annual renewal),
pursuant to which Genesis has granted the Company a right of first refusal to
purchase and leaseback to Genesis any assisted or independent living facility
which Genesis determines to sell and leaseback. The agreement also provides the
Company with a right to offer financing to Genesis and other developers of
assisted and independent living facilities which, once developed, will be
operated by Genesis. The Company believes that its agreement with Genesis will
provide it with opportunities to acquire, and finance the development of,
additional assisted and independent living facilities within the Genesis
ElderCare(SM) healthcare network. If the Multicare acquisition is completed,
Genesis will own or operate approximately 265 skilled nursing facilities located
in 16 states, in addition to an additional 11 assisted living facilities owned
by Multicare. In turn, the Company has provided Genesis a right of first refusal
to lease or manage any assisted or independent living facility financed or
acquired by the Company within Genesis' markets unless the facility will be
leased or managed by the developing or selling company or an affiliate. Although
there are no current commitments or agreements to do so, the Company also may
acquire from and leaseback to Genesis or Genesis affiliates other skilled
nursing facilities in addition to the four Genesis-owned skilled nursing
facilities included in the Initial Properties.

39
<PAGE>

USE OF PROCEEDS

The net cash proceeds to the Company from the Offering, after deducting the
estimated underwriting discount and estimated Offering expenses of $12.5
million, are estimated to be approximately $123.5 million (approximately $142.5
million if the Underwriters' overallotment option is exercised in full), based
upon the assumed initial public offering price.

The net cash proceeds of the Offering, together with $13.2 million of
borrowings under the Bank Credit Facility, will be used by the Company, as
follows: (i) approximately $100.9 million to acquire 21 of the Initial
Properties or interests therein; (ii) approximately $14.5 million to fund the
Term Loans; (iii) approximately $7.5 million to repay mortgage indebtedness;
(iv) approximately $7.4 million to acquire substantially all of the economic
interest in the Florida Facilities Note and (v) approximately $5.2 million to
fund the Construction Loans. See "Structure and Formation of the Company" and
"Business and Properties -- Bank Credit Facility and Tax-Exempt Financing." The
remaining net proceeds of approximately $1.2 million will be used for working
capital and other general corporate purposes. If the Company makes the Proposed
Multicare Loans, the Company will borrow an additional $15.9 million under the
Bank Credit Facility.

If the Underwriters' overallotment option is exercised in full, the Company
expects to use the additional proceeds (which will be approximately $19.0
million) to reduce the amounts initially borrowed under the Bank Credit
Facility.

Pending application of the net proceeds of the Offering, the Company will
invest such portion of the net proceeds in interest-bearing accounts and/or
short-term, interest-bearing securities which are consistent with the Company's
intention to qualify for taxation as a REIT.

Certain information regarding the indebtedness to be repaid is set forth as
follows:

Debt to be Repaid with a Portion of the Offering Proceeds
<TABLE>
<CAPTION>
Amount to be
Property Maturity Date Interest Rate (1) Repaid (1) (2)
- -------- ----------------- ------------------- ---------------
(in thousands)
<S> <C> <C> <C>
Silverlake NRC .............................. July 1, 1998 7.50% $ 5,356
Windsor Off. Bldg. and Windsor Clinic/Training
Facility ................................. May 1, 2005 10.25 1,144
Salisbury Med. Off. Bldg. .................. July 30, 2000 10.25 718
Highgate at Paoli Pointe .................. January 1, 2001 11.00 250
--------
Total .................................... $ 7,468
========
</TABLE>
- ------------
(1) The Company estimates that the indebtedness to be repaid with a portion of
the proceeds of the Offering will have a weighted average interest rate of
approximately 8.3% and a weighted average maturity of approximately 1.9
years as of December 1, 1997. Repayment amounts assume that the indebtedness
is repaid on December 1, 1997. Exact repayment amounts may differ due to
amortization.
(2) Represents prepayment of principal only.

DISTRIBUTIONS

40
<PAGE>

should be read in conjunction with the Pro Forma Estimated Revenues Less
Estimated Expenses and notes thereto and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" included elsewhere in this Prospectus.

The Company intends initially to distribute annually approximately 92.1% of
estimated Cash Available for Distribution based upon the assumed initial public
offering price of $20.00 per share. The estimate of Cash Available for
Distribution for the 12 months following the closing of the Offering is based
upon pro forma Funds from Operations for the 12 months ended June 30, 1997,
adjusted for certain known events and/or contractual commitments that either
have occurred or will occur as of the date of closing of the Offering (including
giving effect to the use of the net proceeds from the Offering described
elsewhere herein as of such date) and (ii) for certain non-GAAP items consisting
of (A) revisions to estimated rent revenues from a GAAP basis to amounts
currently being paid or due from lessees or tenants, (B) pro forma amortization
of financing costs and (C) pro forma amortization of organization costs. No
effect was given to any changes in working capital resulting from changes in
current assets and current liabilities (which changes are not anticipated to be
material) or the amount of cash estimated to be used for (i) investing
activities (other than for medical office building tenant improvements and
purchases of office equipment) and (ii) financing activities (other than
scheduled loan principal payments on existing indebtedness). The estimate of
Cash Available for Distribution is being made solely for the purpose of setting
the initial distribution and is not intended to be a projection or forecast of
the Company's results of operations or its liquidity, nor is the methodology
upon which such estimate was made necessarily intended to be a basis for
determining future distributions. Future distributions by the Company will be at
the discretion of the Board of Trustees. There can be no assurance that any
distributions will be made or that the estimated level of distributions will be
maintained by the Company.

The Code generally requires that a REIT distribute annually at least 95% of
its net taxable income (excluding any net capital gain). See "Federal Income Tax
Consequences -- Requirements for Qualification as a REIT -- Annual Distribution
Requirements." The estimated Cash Available for Distribution is anticipated to
be in excess of the annual distribution requirements applicable to REITs under
the Code. Under certain circumstances, the Company may be required to make
distributions in excess of Cash Available for Distribution in order to meet such
distribution requirements. For a discussion of the tax treatment of
distributions to holders of Common Shares, see "Federal Income Tax Consequences
- -- Taxation of Taxable U.S. Shareholders of the Company Generally," " --
Taxation of Tax-Exempt Shareholders of the Company," "-- Taxation of Non-U.S.
Shareholders of the Company."

The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis for setting the initial distribution, and the
Company intends to maintain its initial distribution rate for the 12-month
period following the completion of the Offering unless actual results of
operations, economic conditions or other factors differ materially from the
assumptions used in its estimate. The Company's actual results of operations
will be affected by a number of factors, including the revenue and interest
income received from its properties and loans, interest and dividend income from
ET Capital Corp., the operating expenses of the Company, interest expense, the
ability of lessees, tenants and borrowers to meet their financial obligations
and unanticipated capital expenditures. Variations in the net proceeds from the
Offering as a result of a change in the initial public offering price or the
exercise of the Underwriters' overallotment option may affect Cash Available for
Distribution, the payout ratio based on Cash Available for Distribution and
available reserves. No assurance can be given that the Company's estimate will
prove accurate. Actual results may vary substantially from the estimate.

41
<PAGE>

The following table describes the calculation of pro forma Funds from
Operations for the 12 months ended June 30, 1997 and the adjustments to pro
forma Funds from Operations for the 12 months ended June 30, 1997 in estimating
initial Cash Available for Distribution for the 12 months following the closing
of the Offering:

<TABLE>
<CAPTION>
Without Proposed With Proposed
Multicare Loans Multicare Loans
------------------ ----------------
(in thousands, except per share data)
<S> <C> <C>
Pro forma estimated revenues less estimated expenses before minority
interest for the year ended December 31, 1996 ..................... $ 3,997 $ 4,030
Plus: Pro forma estimated revenues less estimated expenses before
minority interest for the six months ended June 30, 1997. ......... 2,910 3,040
Less: Pro forma estimated revenues less estimated expenses before
minority interest for the six months ended June 30, 1996. ......... (1,196) (1,198)
-------- --------
Pro forma estimated revenues less estimated expenses before minority
interest for the 12 months ended June 30, 1997 ..................... $ 5,711 $ 5,872
Plus: Pro forma real estate depreciation for the 12 months ended June
30, 1997 (1). ...................................................... 3,773 3,773
-------- --------
Pro forma Funds from Operations for the 12 months ended June 30,
1997 (2) ............................................................ $ 9,484 $ 9,645
Adjustments:
Net increases in rental income (3). ................................. 717 717
Net increase in interest income (4) ................................. 1,451 2,730
Net increase in equity in earnings of ET Capital Corp. (5). ......... 147 147
Interest expense adjustment (6) .................................... 73 (741)
-------- --------
Estimated adjusted pro forma Funds from Operations for the 12 months
following the completion of the Offering ........................... $ 11,873 $ 12,498
Net effect of straight-line rents (7) .............................. 84 84
Pro forma amortization of financing costs for the 12 months ended
June 30, 1997 (8) ................................................ 458 458
Non-real estate amortization (9). ................................. 5 5
-------- --------
Estimated pro forma Cash Flow from Operating Activities for the 12
months following completion of the Offering ........................ $ 12,420 $ 13,045
Investment Activities:
Estimated recurring medical office building tenant improvements
and purchases of office equipment (10). ........................... (126) (126)
Financing Activities:
Scheduled loan principal payments (11). ........................... (630) (630)
-------- --------
Estimated Cash Available for Distribution for the 12 months following
the closing of the Offering ....................................... $ 11,664 $ 12,289
Company's share of estimated Cash Available for Distribution (12)... 11,127 11,724
Minority interest's share of estimated Cash Available for
Distribution ...................................................... 537 565
Total estimated initial annual cash distributions .................. $ 10,799 $ 10,799
Estimated initial annual distribution per share (13). ............... $ 1.54 $ 1.54
Payout ratio based on estimated Cash Available for Distribution (14). . 97.1% 92.1%
</TABLE>

42
<PAGE>

- ------------
(1) Pro forma real estate depreciation for the year ended December 31, 1996 of
$3.6 million plus pro forma real estate depreciation for the six months
ended June 30, 1997 of $1.9 million minus pro forma real estate
depreciation for the six months ended June 30, 1996 of $1.7 million.

(2) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related
depreciation and amortization and after adjustments for unconsolidated
partnerships and joint ventures. 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 in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by
other REITs that do not define the term in accordance with 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 in accordance with GAAP and should not
be considered as an alternative to net income (determined in accordance
with GAAP) as an indication of the Company's financial performance or to
cash flow from operating activities (determined in accordance with GAAP) 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.

(3) Represents the net increase in rental income for the 12-month period
following the closing of the Offering from Minimum Rent Leases and
Percentage Rent Leases that will be in effect as of the closing of the
Offering but were not in effect for all or part of the pro forma 12-month
period ended June 30, 1997. Rent derived from Percentage Rent Leases was
computed based on facility revenues for August 1997 annualized.

(4) Represents the net increase in interest income for the 12-month period
following the closing of the Offering of (a) $925,000 (without the two
proposed Multicare Term Loans) and of $1.9 million (with the two proposed
Multicare Term Loans) relating to Term Loans that will be in effect as of
the closing of the Offering but either were not in existence during the
entire 12-month period ended June 30, 1997 or were or would have been
funded at lower levels than will be the case upon the closing of the
Offering and (b) $526,000 (without the proposed Multicare Construction
Loan) and $806,000 (with the proposed Multicare Construction Loan) relating
to Construction Loan draws which the Company is obligated to fund as of the
closing of the Offering. The interest rate on Term Loan and Construction
Loans will be fixed at the time of closing of the Offering based on a
spread of 350 or 400 basis points over the then applicable three-year U.S.
Treasury Note rate, except for the Construction Loan on the Montchanin
development project will have a fixed rate of interest equal to 10.5%. The
net increase in interest income included in the table was calculated based
on the applicable spread of 350 to 400 basis points over the three-year
U.S. Treasury Note rate in effect on August 26, 1997 for the loans whose
interest rate will be fixed at the time of closing of the Offering and
10.5% for the Construction Loan for the Montchanin facility. No effect is
given for additional Construction Loan draws of approximately $15.1 million
(without the proposed Multicare Construction Loan) and of $18.2 million
(with the proposed Multicare Construction Loan) which are expected to be
drawn by borrowers during the 12-month period immediately following the
closing of the Offering.

(5) Represents the net increase in the Company's equity in the net earnings of
ET Capital Corp. for the 12-month period following the closing of the
Offering due to the Florida Facilities Note not being in existence for the
entire period ended June 30, 1997.

(6) Represents a reduction in interest expense due to amortization of the
related indebtedness over the 12-month period following the closing of the
Offering offset by the additional interest expense incurred on the Bank
Credit Facility to fund the proposed Multicare Construction Loan.

(7) Represents the effect of adjusting straight-line rental revenue included in
pro forma estimated revenues from the straight-line accrual basis to
amounts currently being paid or due from tenants.

43
<PAGE>

(8) Represents pro forma amortization on a straight-line basis over three years
of the $1.4 million commitment fee for the Bank Credit Facility. See
"Business and Properties -- Bank Credit Facility and Tax-Exempt
Financing."
(9) Represents pro forma amortization of $25,000 of organization costs on a
straight-line basis over five years.
(10) Represents estimated recurring medical office building tenant improvements
and office equipment purchases.
(11) Represents scheduled loan principal payments for the 12 months following
the closing of the Offering.

(12) The Company's share of estimated Cash Available for Distribution and
estimated initial annual cash distribution to shareholders of the Company
is based on its approximate 95.4% aggregate partnership interest in the
Operating Partnership.
(13) Based on a total of 7,012,600 Common Shares to be outstanding after the
Offering (6,800,000 shares to be sold in the Offering, assuming no exercise
of the Underwriters' overallotment option, and 212,600 additional Common
Shares to be issued in the Formation Transactions.)
(14) Calculated as estimated initial annual cash distributions to shareholders
of the Company divided by the Company's share of estimated Cash Available
for Distribution for the 12 months following the closing of the Offering.
The payout ratio based on estimated adjusted pro forma Funds from
Operations is 93.0%.

44
<PAGE>

CAPITALIZATION

The following table sets forth the historical capitalization of the Company
as of September 23, 1997, and on a pro forma basis, as adjusted to give effect
to the Formation Transactions, the Offering and use of the net proceeds from the
Offering as set forth under "Use of Proceeds." The information set forth in the
table should be read in conjunction with the financial statements and notes
thereto, the pro forma financial information and notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
September 23, 1997
----------------------------------------------------
Without Proposed With Proposed
Multicare Loans Multicare Loans
------------------ ----------------
Pro Forma, Pro Forma,
Historical As Adjusted As Adjusted
------------ ------------------ ----------------
(in thousands)
<S> <C> <C> <C>
Debt:
Mortgages payable (1) ........................... $ -- $ 34,239 $ 34,239
Bank Credit Facility (1) ........................ -- 13,224 29,158
Minority interest in Operating Partnership ...... -- 6,741 6,741
Shareholders' equity:
Preferred Shares, $.01 par value per share,
20,000,000 shares authorized; none issued and
outstanding ................................. -- -- --
Common Shares, $.01 par value per share,
100,000,000 shares authorized; 100 issued and
outstanding; 7,012,600 issued and outstanding,
as adjusted (2) .............................. -- 70 70
Additional Paid-In Capital ..................... -- 121,170 121,170
-------- --------- ---------
Shareholders' Equity ........................ -- 121,240 121,240
-------- --------- ---------
Total Capitalization ........................ $ -- $175,444 191,378
======== ========= =========
</TABLE>

- ------------
(1) See notes 7 and 8 of the notes to the pro forma financial statements for
additional information.

(2) Includes (i) 100 Common Shares issued at the time of the Company's
formation, (ii) 5,000 Common Shares to be acquired by Messrs. Walker and
Romanov upon exchange of certain Units received by them following the
liquidation of ET Partnership, (iii) 200,000 Common Shares to be issued to
Mr. Romanov in a private placement and (iv) Common Share awards totaling
2,500 shares each to be made upon completion of the Offering to the
Company's three trustee nominees under the Company's 1997 Share Option and
Incentive Plan. See "Structure and Formation of the Company." Does not
include (i) 337,030 Common Shares that may be issued upon the exchange of
Units issued in connection with the Formation Transactions, (ii) 1,020,000
Common Shares subject to the Underwriters' overallotment option or (iii)
497,500 Common Shares subject to options to be granted under the Company's
1997 Share Option and Incentive Plan.

45
<PAGE>

DILUTION

As of September 23, 1997, the Company had 100 Common Shares issued and
outstanding. After giving effect to the sale of the Common Shares offered hereby
(at an assumed initial public offering price of $20.00 per Common Share) and the
receipt by the Company of approximately $123.5 million in net proceeds from the
Offering (after deducting the Underwriters' discounts and commissions and other
estimated expenses of the Offering), the pro forma net tangible book value at
September 23, 1997 would have been approximately $131.9 million, or $17.95 per
Common Share. This amount represents an immediate increase in net tangible book
value of $4.50 per Common Share to the holders of restricted Common Shares and
Units to be issued in connection with the Formation Transactions and an
immediate dilution in pro forma net tangible book value of $2.05 per Common
Share to new investors. The following table illustrates this dilution:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share .............................. $20.00
Net tangible book value per share prior to the Offering (1) .................. $ 15.65
--------
Increase in net tangible book value per share attributable to the Offering (2) 2.31
--------
Pro forma net tangible book value after the Offering (3) ..................... 17.96
------
Dilution in net tangible book value per Common Share to purchasers in the
Offering (4) ............................................................... $ 2.04
======
</TABLE>

- ------------
(1) Tangible book value per share prior to the Offering is determined by
dividing net tangible book value of the Operating Partnership (based on the
September 23, 1997 net book value of the tangible net assets) by the sum of
the number of Common Shares (i) issued and outstanding and (ii) issuable
(including upon the exchange of all Units to be issued) to investors in the
Formation Transactions.

(2) Based upon the assumed initial public offering price of $20.00 per Common
Share and after deducting Underwriters' discounts and commissions and
estimated expenses of the Offering and the Formation Transactions.

(3) Based on total pro forma net tangible book value of $131.9 million divided
by the total number of Common Shares outstanding after the completion of the
Offering (7,012,600 Common Shares) and Common Shares issuable in exchange
for Units 337,030 Common Shares), and excluding Common Shares that may be
issuable upon exercise of share options. There is no dilution attributable
to the issuance of Common Shares in exchange for Units to be issued to the
Continuing Investors in the Formation Transactions because such Units would
be exchanged for Common Shares on a one-for-one basis.

(4) Dilution is determined by subtracting net tangible book value per Common
Share after the Offering from the assumed initial public offering price of
$20.00 per Common Share.

46
<PAGE>

The following table summarizes, on a pro forma basis giving effect to the
Offering and the Formation Transactions, the number of Common Shares to be sold
by the Company in the Offering and the number of restricted Common Shares and
Units to be outstanding upon completion of the Formation Transactions, the net
tangible book value as of September 23, 1997 of the assets contributed by the
investors in the Formation Transactions and the net tangible book value of the
average contribution per share based on total contributions.

<TABLE>
<CAPTION>
Cash/
Common Shares/ Book Value of
Units Issued Contributions Book Value
---------------------- ----------------------------------- of
Average
Common Contribution
Shares/ Per Share/
Units Percent $ Percent Unit
----------- --------- ------------------ --------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Purchasers in the Offering ..................... 6,800,000 92.5% $ 136,000(1) 94.1%(1) $ 20.00
Common Shares issued in the Formation
Transactions ................................. 212,600 2.9 4,100(2) 2.8(2) 19.29
Units issued in the Formation Transactions ...... 337,030 4.6 4,501 3.1 13.35
---------- ------ ------------- --------- ---------
Total ....................................... 7,349,630 100.0% $ 144,601 100.0% $ 19.67
========== ====== ============= ========= =========
</TABLE>

- ------------
(1) Before deducting Underwriters' discounts and commissions and other estimated
expenses of the Offering.

(2) Based on the September 23, 1997 net book value of the assets, adjusted for
the Formation Transactions.

47
<PAGE>

SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

Pro forma estimated revenues less estimated expenses is presented for the
year ended December 31, 1996, and the six months ended June 30, 1997, as if the
Offering and the acquisitions of the Initial Investments and related
transactions had occurred, and as if the respective leases had been in effect at
January 1, 1996. The pro forma balance sheet data is presented as of June 30,
1997, as if the Offering and the acquisitions of the Initial Investments and
related transactions had occurred, and as if the respective leases had been in
effect at that date. The pro forma and estimated information incorporates
certain assumptions that are included in the notes to the Pro Forma Balance
Sheet and Statements of Estimated Revenues Less Estimated Expenses included
elsewhere in this Prospectus. See "Pro Forma Balance Sheet and Statements of
Estimated Revenues Less Estimated Expenses." The pro forma information does not
purport to represent what the actual financial position or results of operations
of the Company would have been as of or for the periods indicated nor does it
purport to represent the financial position or results of operations for any
future period.

<TABLE>
<CAPTION>
Without Proposed Multicare Loans
--------------------------------------
Pro Forma at Pro Forma at
or for the Six or for the
Months Ended Year Ended
Historical(1) June 30, 1997 December 31, 1996
--------------- ---------------- --------------------
(dollars in thousands, except per
share data)
<S> <C> <C> <C>
Estimated revenues less estimated
expenses:
Revenues ........................ $ -- $ 8,278 $ 14,752
Estimated revenues less estimated
expenses after minority interest -- 2,776 3,814
Estimated revenues less estimated
expenses per share ............... -- 0.40 0.54
Common shares outstanding ...... 100 7,012,600 7,012,600
Pro forma balance sheet data:
Initial Properties ............... $ -- $ 140,908 N/A
Investment in ET Capital Corp. . -- 7,406 N/A
Loans receivable ............... -- 13,647 N/A
Other assets ..................... -- 3,641 N/A
Total assets ..................... -- 178,927 N/A
Mortgages payable ............... -- 34,391 N/A
Bank Credit Facility ............ -- 13,224 N/A
Minority interest in Operating
Partnership ..................... -- 6,741 N/A
Total shareholders' equity ...... 100 121,240 N/A
Other data:
Funds from Operations (2) ...... $ -- $ 4,799 $ 7,597
Weighted average number of
Common Shares and Units
outstanding ..................... 100 7,349,630 7,349,630
</TABLE>

<PAGE>

With Proposed Multicare Loans
-------------------------------------
Pro Forma at Pro Forma at
or for the Six or for the
Months Ended Year Ended
June 30, 1997 December 31, 1996
---------------- -------------------
(dollars in thousands, except per
share data)
<S> <C> <C>
Estimated revenues less estimated
expenses:
Revenues ........................ $ 8,641 $ 14,847
Estimated revenues less estimated
expenses after minority interest 2,900 3,845
Estimated revenues less estimated
expenses per share ............... 0.41 0.55
Common shares outstanding ...... 7,012,600 7,012,600
Pro forma balance sheet data:
Initial Properties ............... $ 140,908 N/A
Investment in ET Capital Corp. . 7,406 N/A
Loans receivable ............... 23,096 N/A
Other assets ..................... 3,641 N/A
Total assets ..................... 188,376 N/A
Mortgages payable ............... 34,391 N/A
Bank Credit Facility ............ 22,673 N/A
Minority interest in Operating
Partnership ..................... 6,741 N/A
Total shareholders' equity ...... 121,240 N/A
Other data:
Funds from Operations (2) ...... $ 4,929 $ 7,630
Weighted average number of
Common Shares and Units
outstanding ..................... 7,349,630 7,349,630
</TABLE>

<PAGE>

- ------------
(1) The Company was formed on September 23, 1997 and was capitalized with the
issuance of 100 Common Shares for a purchase price of $100.

(2) The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation
and amortization and after adjustments for unconsolidated partnerships and
joint ventures. 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 in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with 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
in accordance with GAAP and should not be considered as an alternative to
net income (determined in accordance with GAAP) as an indication of the
Company's financial performance or to cash flow from operating activities
(determined in accordance with GAAP) 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.

48
<PAGE>

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

Overview

The Company was formed in Maryland on September 23, 1997, and intends to
make an election and to qualify under the Code as a REIT commencing with its
taxable year ending December 31, 1997.

Substantially all of the Company's revenues are expected to be derived
from: (i) rents received under Percentage, Minimum and Fixed Rent Leases of
healthcare-related real estate; (ii) interest earned from Term and Construction
Loans and the Florida Facilities Note; and (iii) interest earned from the
temporary investment of funds in short-term instruments. The Percentage Rent
Leases provide for rents based on a specified percentage of facility operating
revenues with no required minimum rent. The Minimum Rent Leases provide for (i)
base rent (increasing each year by 1.5%) and additional rent based upon a
specified percentage of annual revenues over revenues for the first year of the
lease, (ii) 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
increase in the Consumer Price Index for the immediately preceding year, or
(iii) in the case of the assisted living facilities secured by the Proposed
Multicare Loans, if the Company makes such loans and purchases and leases back
such facilities to Multicare, base rent, increasing each year by 2.5%. Both
types of leases are triple net leases that require the lessees to pay all
operating expenses, taxes, insurance and other costs (including a portion of
capitalized expenditures). The Fixed Rent Leases are with existing tenants in
the medical office and other buildings included in the Initial Properties and
provide for specified annual rents, subject to increase in certain of the
leases. Interest on the Term and Construction Loans will be at a fixed rate of
10.5% or at rates based on the three-year U.S. Treasury Note rate plus 350 or
400 basis points. The Company has agreed to or has options to purchase the
assisted living facilities securing the Term and Construction Loans included in
the Initial Investments, and these facilities also will be leased back to the
sellers (or to Genesis in the case of the Lease-up Assisted Living Facility in
which Genesis holds a 49% interest) pursuant to Percentage Rent Leases or
Minimum Rent Leases. In addition, subject to certain terms and conditions, the
Company expects to make the Proposed Multicare Loans at fixed interest rates of
10.5%. The Company has agreed to purchase the assisted living facilities
securing the Proposed Multicare Loans, subject to certain terms and conditions,
and these facilities will be leased back to Multicare pursuant to Minimum Rent
Leases.

The Company will incur operating and administrative expenses, including
principally compensation expense for its executive officers and other employees,
office rental and related occupancy costs. The Company will be self-administered
and managed by its executive officers and staff, and will not engage a separate
advisor or pay an advisory fee for administrative or investment services,
although the Company will engage legal, accounting, tax and financial advisors
as needed from time to time.

The Company also expects to leverage its portfolio of real estate equity
investments and will incur long and short-term indebtedness, and related
interest expense, from time to time. The Board of Trustees will consider a
number of factors when evaluating the Company's level of indebtedness and when
making decisions regarding the incurrence of indebtedness. See "Risk Factors --
No Limitations on Debt."

The Company intends to declare and pay distributions to its shareholders in
amounts not less than the amounts required to maintain REIT status under the
Code and, in general, in amounts exceeding taxable income. The Company's ability
to pay distributions will depend upon its cash available for distribution.

Nonrecurring Compensation Expense

With respect to the issuance of Units to certain officers of the Company in
connection with the formation of the Company (see "Structure and Formation of
the Company"), the Company has recognized compensation expense of approximately
$2.2 million based on the fair market value of such Units, which will be
reported in the Company's statement of operations for the period from September
23, 1997 (the date of its formation) to December 31, 1997. This expense is a
nonrecurring item and, accordingly, has not been reflected in the pro forma
statements of estimated revenues less estimated expenses.

49
<PAGE>

Results Of Operations

The Company has had no operations prior to September 23, 1997 (the date of
its formation) through the date of this Prospectus. The Company's future results
of operations will depend upon the acquisition of the Initial Investments and
the terms of any subsequent investments the Company may make.

Pro Forma Estimated Revenues Less Estimated Expenses

Year Ended December 31, 1996

The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Investments and related transactions, revenues would
have been $14.8 million and net income would have been $3.8 million, or $0.55
per share, for the year ended December 31, 1996. Depreciation, amortization and
other non-cash expenses would have been $3.8 million.

Six Months Ended June 30, 1997

The Company estimates that after giving effect to the Offering and the
acquisition of the Initial Investments and related transactions, revenues would
have been $8.3 million and net income would have been $2.8 million, or $0.41 per
share, for the six months ended June 30, 1997. Depreciation, amortization and
other non-cash expenses would have been $2.0 million.

Certain of the Initial Properties were under development or in the lease-up
phase during the year ended December 31, 1996 and/or the six months ended June
30, 1997. The pro forma statements of estimated revenues less estimated expenses
have been prepared assuming the Company made Term or Construction Loans on these
properties; however, these properties are now operational and will be acquired
at the time of the Offering and leased back to the sellers under Minimum Rent
Leases or Percentage Rent Leases. In addition, the Term and Construction Loans
the Company will fund either would not have been in existence during part of the
periods or would have been funded at lower levels (due to the earlier stage of
development of the related facilities) than will be the case upon closing of the
Offering, and the Florida Facilities Note was not in existence until September
1, 1996. For these and other reasons, the pro forma estimated revenues less
estimated expenses do not purport to present what the Company's results of
operations or cash available for distribution would actually have been if the
Offering and related transactions had occurred on January 1, 1996 or to project
the Company's results of operations for any future period.

Liquidity And Capital Resources

Management believes that the net proceeds of this Offering, together with
the Bank Credit Facility, will be sufficient to consummate the purchase of the
Initial Investments, to fund the Term Loans, to fund the initial and subsequent
draws under the Construction Loans, to fund the Construction Loan Commitments
and to fund the Proposed Multicare Loans. Management believes the Company will
have adequate remaining credit under the Bank Credit Facility to meet its
liquidity needs for the twelve-month period following the Offering. See
"Business and Properties -- Initial Investments," "-- Loans," "-- Construction
Loan Commitments" and "-- Bank Credit Facility and Tax-Exempt Financing."

The Company may, under certain circumstances, borrow additional amounts in
connection with the renovation or expansion of its Initial Properties, the
acquisition of additional properties or funding of additional loans, or, as
necessary, to meet certain distribution requirements imposed on REITs under the
Code. See "Policies with Respect to Certain Activities -- Investment Policies"
and "-- Financing Policies." The Company may raise additional capital by
issuing, in public or private transactions, equity or debt securities, but the
availability and terms of any such issuance will depend upon market and other
conditions. There can be no assurance that such additional financing or capital
will be available on terms acceptable to the Company.

Under the terms of the Percentage Rent and Minimum Rent Leases, the lessees
are responsible for all operating expenses taxes, property and casualty
insurance and other costs. See "Business and Properties -- Initial Investments."
As a result of these arrangements, the Company does not believe it will be
responsible for any major expenses in connection with the Initial Properties
subject to Percentage Rent Leases or

50
<PAGE>

Minimum Rent Leases during the terms of the respective leases. The Company
anticipates entering into similar leases with respect to additional properties.
After the expiration or termination of the terms of the respective leases, or in
the event a lessee is unable to meet its obligations, the Company anticipates
that any expenditures it might become responsible for in maintaining the Initial
Properties subject to Percentage Rent Leases or Minimum Rent Leases will be
funded by cash from operations and, in the case of major expenditures, possibly
by borrowings. To the extent that unanticipated expenditures or significant
borrowings are required, the Company's cash available for distribution and
liquidity may be adversely affected.

The Company is negotiating with a commercial bank to obtain the Bank Credit
Facility which would be used to pay a portion of the purchase price for the
Initial Properties, the Term Loans and the initial draws under the Construction
Loans and which would be available to fund the remaining draws under the
Construction Loans, to fund the Construction Loan Commitments, to facilitate
possible acquisitions or future developments, to repay indebtedness and for
working capital needs and other general corporate purposes. Based on the
Company's expected needs, management is seeking a secured facility for up to
$110.0 million on terms and conditions that are customary in the industry for
such arrangements and considered appropriate based on the Company's anticipated
capital structure and operations. Management believes that the Company will be
able to obtain the necessary Bank Credit Facility on acceptable terms and that
the full amount of the Bank Credit Facility will be available upon closing of
the Offering. While the terms of the facility will not be determined until
negotiations are completed and a commitment is obtained, it is expected that
interest under the Bank Credit Facility will be based on short-term Eurodollar
rates, plus a margin that will be determined by the Company's debt to asset
ratio at certain times. In addition, it is expected that the Company will pay an
annual fee on the unused portion of funds available for borrowing under the Bank
Credit Facility and that the Bank Credit Facility will have a term of thirty-six
months. The Company intends to renew the Bank Credit Facility or to repay the
outstanding balance at maturity from the proceeds of a refinancing or from the
sale of debt or equity securities. There can be no assurance, however, that the
lenders will renew the Bank Credit Facility on terms favorable to the Company or
that the Company will be able to sell debt or equity securities at that time.
See "Risk Factors -- Risks of Leverage and Default." The Company may enter into
interest rate swaps in order to mitigate the effect of a rising interest rate
environment on the cost of the Bank Credit Facility.

In addition to the purchase of the Initial Investments, the Company has
agreements or options to purchase the six assisted living facilities in lease-up
or in development, as well as eight of the nine assisted living development and
expansion projects currently in the planning stage for which the Company will
make Construction Loan Commitments totaling $53.3 million. The Company expects
to use draws on the Bank Credit Facility to fund these commitments, as well as
subsequent draws under the Construction Loans which are expected to increase by
approximately $61.9 million to approximately $67.1 million in 18 months after
the Offering. There can be no assurance that the nine development and expansion
projects in the planning stage will be completed on a timely basis or at all or
that the Company will be able to purchase or make construction loans on any
additional properties.

Management believes that inflation should not have a material adverse
effect on the operating expenses of the Company because such expenses are
relatively insignificant as a percentage of revenues.

Funds from Operations

The White Paper on Funds from Operations approved by the Board of Governors
of NAREIT in March 1995 defines Funds from Operations as net income (loss)
(computed in accordance with GAAP), excluding gains (or losses) from debt
restructuring and sales of properties, plus real estate related depreciation and
after adjustments for unconsolidated partnerships and joint ventures. 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 in accordance with standards established by
NAREIT which may not be comparable to Funds from Operations reported by other
REITs that do not define the term in accordance with the current NAREIT
definition or that interpret the current NAREIT definition

51
<PAGE>

differently than the Company. Funds from Operations does not represent cash
generated from operating activities in accordance with GAAP and should not be
considered as an alternative to net income (determined in accordance with GAAP)
as an indication of the Company's financial performance or to cash flow from
operating activities (determined in accordance with GAAP) 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.

On a pro forma basis after giving effect to the Offering, pro forma Funds
from Operations for the six months ended June 30, 1997 and for the year ended
December 31, 1996, respectively, are as follows:
<TABLE>
<CAPTION>
Pro Forma
-------------------------------------------------------------------------------
Without Multicare Proposed Loans With Multicare Proposed Loans
--------------------------------------- --------------------------------------
Six Months Ended Year Ended Six Months Ended Year Ended
June 30, 1997 December 31, 1996 June 30, 1997 December 31, 1996
------------------ ------------------- ------------------ ------------------
(in thousands)
<S> <C> <C> <C> <C>
Estimated revenues less estimated
expenses before minority interest . $2,910 $3,997 $3,040 $4,030
Add:
Real estate depreciation ......... 1,889 3,600 1,889 3,600
------- ------- ------- -------
Funds from Operations ............... $4,799 $7,597 $4,929 $7,630
======= ======= ======= =======
</TABLE>

52
<PAGE>

BUSINESS AND PROPERTIES

General

The Company has been formed to invest in a diversified portfolio of
healthcare-related real estate and mortgages. As part of the Formation
Transactions, the Company will acquire or fund the 21 Initial Properties, the
Term Loans, the Construction Loans and substantially all of the economic
interest in the Florida Facilities Note. The Initial Properties (other than the
medical office and other buildings, which will each be acquired subject to
existing leases) will each be leased to Genesis, SLC, Crozer/Genesis or the Age
Institute of Florida, directly or through one or more subsidiaries, pursuant to
long-term, triple net leases. The Company also has agreed or has the option to
purchase the six assisted living facilities in lease-up or development, as well
as eight of the nine assisted living development and expansion projects
currently in the planning phase for which the Company will make Construction
Loan Commitments totaling $53.3 million. In addition, the Company has agreed to
make the Proposed Multicare Loans totaling $19.4 million, subject to certain
terms and conditions.

53
<PAGE>

Initial Investments

The Initial Investments consist of the Initial Properties, the Term Loans
and Construction Loans, the Construction Loan Commitments and substantially all
of the Florida Facilities Note. The following table sets forth certain
information regarding the Initial Properties. All of the Initial Properties will
be leased to or managed by Genesis except for The Woodbridge and the medical
office and other buildings. The Company will hold a fee interest in each of the
Initial Properties except for the Windsor Clinic which is subject to a long-term
ground lease.

Initial Properties
<TABLE>
<CAPTION>
Number Year Built/
Property Location of Beds(1) Occupancy(2) Renovated
- -------- -------- ----------------- -------------- --------------------
<S> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods ............... Agawam, MA 122 1.6% 1997
Willowbrook .................. Clarks Summit, PA 70 68.3 1996
Riverview Ridge ............ Wilkes-Barre, PA 105 93.7 1993
Highgate at Paoli Pointe ... Paoli, PA 82 81.1 1995
The Woodbridge ............... Kimberton, PA 90 51.7 1996
---------- ---------
Subtotal/Weighted Avg. ...... 469 55.7(8)
---------- ---------
Independent Living Facility:
Pleasant View ............... Concord, NH 72 89.4 1926
---------- ---------
Skilled Nursing Facilities(9):
Rittenhouse CC ............... Philadelphia, PA 183 91.0 1930/1993(10)
Lopatcong CC ............... Phillipsburg, NJ 153 95.3 1984/1992(12)
Phillipsburg CC ............ Phillipsburg, NJ 94(13) 87.2 1930/1993(14)
Wayne NRC .................. Wayne, PA 118 90.9 1920/1989(15)
Belvedere NRC ............... Chester, PA 147(16) 92.2 1960/1983(17)
Chapel Manor NRC ............ Philadelphia, PA 240 94.5 1973
Harston Hall NCH ............ Flourtown, PA 196(18) 89.8 1977/1991(19)
Pennsburg Manor NRC ......... Pennsburg, PA 120 96.3 1982
Silverlake NRC ............... Bristol, PA 174 97.4 1969/1988(20)
---------- ---------
Subtotal/Weighted Avg. ...... 1,425 92.9
---------- ---------

Rentable
Sq. Feet
------------
Medical Office and Other Buildings:
Professional Off. Bldg. I ... Upland, PA 39,972 100.0 1977
DCMH Med. Off.
Bldg.(23) .................. Drexel Hill, PA 60,706(24) 100.0 1984/1987/1997(25)
Salisbury Med. Off. Bldg. Salisbury, MD 10,961 100.0 1984
Windsor Off. Bldg. ......... Windsor, CT 2,100 100.0 1934/1965(27)
Windsor Clinic/Trg.
Fac.(29) .................. Windsor, CT 9,662 100.0 1996
Lacey Branch Off. Bldg. ..... Forked River, NJ 4,100 100.0 1996
---------- ---------
Subtotal/Weighted Avg. ...... 127,501 100.0
---------- ---------
Total Initial Properties ....
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
Purchase % of Initial Initial Rent
Property Price(3) Investments Lease Term(4) Type(5) Lessee
- -------- ---------------- -------------- --------------------- ------------ ---------------------
(in thousands) (Years)
<S> <C> <C> <C> <C> <C>
Assisted Living Facilities:
Heritage Woods ............... $ 11,001 6.3% 10.0 (6) Genesis(7)
Willowbrook .................. 5,894 3.4 10.0 Percentage Genesis(7)
Riverview Ridge ............ 5,720 3.3 10.0 Percentage Genesis(7)
Highgate at Paoli Pointe ... 11,115 6.4 10.0 Minimum Genesis(7)
The Woodbridge ............... 11,668 6.7 10.0 Minimum SLC(7)
---------- ----- --------------
Subtotal/Weighted Avg. ...... 45,398 26.1 10.0
---------- ----- --------------
Independent Living Facility:
Pleasant View ............... 3,742 2.2 10.0 Percentage Genesis(7)
---------- ----- --------------
Skilled Nursing Facilities(9):
Rittenhouse CC ............... 8,855 5.1% 10.0 Minimum Genesis(11)
Lopatcong CC ............... 13,778 7.9 10.0 Minimum Genesis(11)
Phillipsburg CC ............ 6,266 3.6 10.0 Minimum Genesis(11)
Wayne NRC .................. 6,065 3.5 10.0 Minimum Genesis(11)
Belvedere NRC ............... 8,754 5.0 12.0 Minimum Crozer/Genesis
Chapel Manor NRC ............ 14,689 8.4 12.0 Minimum Crozer/Genesis
Harston Hall NCH ............ 6,849 3.9 12.0 Minimum Crozer/Genesis
Pennsburg Manor NRC ......... 8,755 5.0 12.0 Minimum Crozer/Genesis
Silverlake NRC ............... 8,000 4.6 10.0 Minimum Age Inst. of Fl.(21)
---------- ----- --------------
Subtotal/Weighted Avg. ....... 82,011 47.0 11.0
---------- ----- --------------

Remaining
Lease Term (22)
----------------
(Years)
Medical Office and Other Buildings:
Professional Off. Bldg. I ... 4,000 2.3 1.2 Fixed Physicians
DCMH Med. Off.
Bldg.(23) .................. 7,923 4.6 3.9 Fixed Physicians
Salisbury Med. Off. Bldg. 1,349 0.8 1.0(26) Fixed Genesis(26)
Windsor Off. Bldg. ......... 325 0.2 5.0(28) Fixed Genesis
Windsor Clinic/Trg.
Fac.(29) .................. 1,493 0.8 5.0(28) Fixed Genesis
Lacey Branch Off. Bldg. ...... 545 0.2 18.0 Fixed Ocean FSB
---------- ----- --------------
Subtotal/Weighted Avg. ...... 15,635 9.0 3.6
---------- ----- --------------
Total Initial Properties .... $ 146,786 84.3%
========== =====
</TABLE>

54
<PAGE>

- --------
(1) Based on the operational configuration of the facility.
(2) Represents the average occupancy for the month ended June 30, 1997. The
weighted average occupancy for each property type and for all Initial
Properties is based on the purchase prices for the Initial Properties.
(3) Does not include estimated net capitalized acquisition costs aggregating
approximately $1.0 million. Includes, for certain of the Initial
Properties, mortgage indebtedness being repaid at the closing of the
Offering and assumed mortgage indebtedness totaling $34.2 million as of
December 1, 1997. See "Use of Proceeds" and "-- Mortgage Debt."
(4) Represents the initial lease term under each of the leases for these
facilities, which leases will be entered into as of the closing of the
Offering. The weighted average initial lease term for each facility type
is based on the purchase prices for the facilities.
(5) For the six months ended June 30, 1997, on a pro forma basis, the lease
coverage ratios (net operating income before interest, depreciation, rent
and the subordinated portion of management fees (if any) divided by rent
payments) for the assisted living facility and four skilled nursing
facilities to be leased to Genesis under Minimum Rent Leases was 0.72x,
1.57x, 1.55x, 1.77x and 0.71x, respectively; the lease coverage ratio for
the facility to be leased to SLC under a Minimum Rent Lease was 0.09x;
the lease coverage ratios for the four facilities to be leased to
Crozer/Genesis under Minimum Rent Leases were 1.63x, 1.37x, 2.11x and
1.62x, respectively; and the lease coverage ratio for the facility to be
leased to the Age Institute of Florida under a Minimum Rent Lease was
1.38x. Lease coverage ratios are not provided for facilities that will be
subject to Percentage Rent Leases because rental revenues for those
facilities are based on a fixed percentage of the facility's revenues.
See "-- Leases" for additional information.
(6) Initially, rent equals a fixed base rent with no revenue participation. At
the time the facility reaches Stabilized Occupancy, the lease will
automatically convert into a Percentage Rent Lease.
(7) Genesis will guarantee the performance of its subsidiaries under the
Genesis leases. The Highgate facility initially may be leased by SLC. If
subsequently leased by a subsidiary of SLC, SLC will guarantee the
performance of its subsidiary under such lease.
(8) At June 30, 1997, Heritage Woods, Willowbrook and The Woodbridge were in
the initial lease-up phase. Excluding these facilities, the assisted
living facilities included in the Initial Properties had an average
occupancy of 88.2%.
(9) "NRC" means a nursing and rehabilitation center, "NCH" means a nursing and
convalescent home and "CC" means a care center.
(10) The facility was originally built in the 1930's with two expansions in the
1970's. A renovation of interior finishes was completed in 1993. The
Company has agreed to finance an expansion of this facility to be
undertaken by Genesis. See "-- Construction Loan Commitments."
(11) These facilities initially will be leased by wholly owned subsidiaries of
Genesis, and Genesis will guarantee the obligations of its wholly owned
subsidiaries under these Minimum Rent Leases. However, in the event
Genesis assigns one or more of the leases to a non-wholly owned subsidiary
or a third party, Genesis may not continue to guarantee the applicable
leases. Any such assignment of a Minimum Rent Lease would require the
consent of the Company which may not be unreasonably withheld. The Company
will evaluate the creditworthiness of any assignee in determining whether
to provide its consent. Genesis is currently negotiating an arrangement
with a Philadelphia-based hospital system. If the arrangement is
negotiated successfully, the hospital system would lease-back the Wayne
skilled nursing facility following its sale to the Company and Genesis
would manage the facility. In addition, Genesis would not guarantee the
lease.

<PAGE>

(12) This facility was originally built in 1984 with an addition of three
skilled nursing beds in 1992. The Company has agreed to finance an
expansion of this facility to be undertaken by Genesis. See
"--Construction Loan Commitments."
(13) Includes 34 assisted living units.
(14) This facility was originally built during the 1930's with an addition in
1988. A renovation of interior finishes was completed in 1993.
(15) This facility is estimated to have been built circa 1920. Additions were
completed in 1966, 1974 and 1989. During 1989, there was a complete
renovation of the building.
(16) Includes 27 assisted living units.
(17) This facility was built in 1960 and was expanded in 1983.
(18) Includes 76 assisted living units.
(19) This facility was built in 1977 and was expanded in 1991.
(20) This facility opened in 1969, was expanded in 1977 and was renovated in
1988.
(21) This facility will be leased to a wholly owned subsidiary of the Age
Institute of Florida.
(22) For each building, represents the weighted average remaining lease term
for all rentable space in the applicable building as of June 30, 1997. For
all medical office and other buildings, the weighted average remaining
lease term is based on the purchase prices for the buildings.
(23) The property consists of a condominium unit containing six of the eight
floors in the building which is located on the campus of DCMH.
(24) The DCMH Medical Office Building is currently undergoing expansion,
including an expansion of two of the six floors included in the
condominium unit which the Company will acquire. This expansion is
expected to be completed in the first quarter of 1998 and will increase
the rentable square feet in the Company's condominium unit to 65,740
square feet. All of the rentable space to be added to the Company's
condominium unit has been pre-leased.
(25) This building was built in 1984, and a renovation of interior finishes was
completed in 1987. This building is currently undergoing expansion.
(26) Two subsidiaries of Genesis lease approximately 83% of the rentable space
in the Salisbury Medical Office Building. The remaining approximately 17%
of the rentable space in the building is

55
<PAGE>

leased by Quest Diagnostics, Inc., a corporation unaffiliated with Genesis
or the Company. At the closing of the Offering, Genesis will enter into a
new lease with the Company with respect to the space leased by Genesis in
the building. Each of these leases will have an initial term of five
years, subject to renewals. The lease with Quest Diagnostics, Inc. expires
on November 30, 1997. The Company expects to enter into a new two-year
lease with Quest Diagnostics.
(27) This building was originally constructed in 1934 with an addition in 1965.
(28) At the closing of the Offering, Genesis will enter into a new lease with
the Company with respect to all of the rentable space in the Windsor
Office Building and the Windsor Clinic and Training Facility. Each of
these leases will have an initial term of five years, subject to renewals.
(29) The Windsor Clinic and Training Facility are connected to each other. The
Windsor Clinic consists of 5,490 rentable square feet, and the Windsor
Training Facility includes 4,172 rentable square feet.

56
<PAGE>

Lessees and Initial Properties

The following is a description of the lessees of the Initial Properties to
be acquired by the Company. Unless otherwise indicated, all information is given
as of June 30, 1997. Genesis and Multicare are subject to the reporting
requirements of the Securities and Exchange Commission (the "SEC") and file
annual reports containing audited financial information and quarterly reports
for the first three quarters of each fiscal year containing unaudited financial
information with the SEC. With respect to such companies, the information
provided is derived, for the limited purposes of this Prospectus, from filings
made with the SEC or has been furnished to the Company by Genesis or Multicare.
Privately held companies have provided the Company with the information
contained herein about each company. The Company has evaluated the
creditworthiness of the lessees based on a review of financial and other
information made available to it. While the Company believes the information has
been provided in good faith and has no reason to believe that any of such
information is inaccurate in any material respect, the Company has not made and
will not make an independent investigation of such information.

Genesis Initial Properties

Genesis, headquartered in Kennett Square, Pennsylvania, is a leading
provider of healthcare and support services to the elderly. Genesis has
developed the Genesis ElderCareSM delivery model of integrated healthcare
networks to provide cost-effective, outcomes-oriented services to the elderly.
Through these integrated healthcare networks, Genesis provides basic healthcare
and specialty medical services to more than 100,000 customers in five regional
markets in the eastern United States in which over 3 million people over the age
of 65 reside. As of June 30, 1997, the networks included: 155 skilled nursing
facilities with approximately 21,600 beds; 16 primary care physician clinics;
approximately 96 physicians, physician assistants and nurse practitioners; 12
institutional pharmacies and five medical supply distribution centers serving
over 52,000 beds; 28 community based pharmacies; certified rehabilitation
agencies providing services through over 375 contracts; and eight home
healthcare agencies. Genesis ElderCare(SM) services focus on the central medical
and physical issues facing the more medically demanding elderly. By integrating
the talents of physicians with case management, comprehensive discharge planning
and, where necessary, home support services, Genesis provides cost-effective
care management to achieve superior outcomes and return customers to the
community. Genesis believes that its orientation toward achieving improved
customer outcomes through its eldercare networks has resulted in increased
utilization of specialty medical services, high occupancy of available beds,
enhanced quality payor mix and a broader base of repeat customers.

Of the total 21 Initial Properties, two assisted living facilities and one
independent living facility are being acquired from and will be leased-back to
wholly owned subsidiaries of Genesis pursuant to Percentage Rent Leases and four
skilled nursing facilities are being acquired from and leased-back to wholly
owned subsidiaries of Genesis pursuant to Minimum Rent Leases. Genesis initially
will guarantee the performance of its wholly owned subsidiaries under these
leases. However, in the event Genesis assigns one or more of the leases to a
non-wholly owned subsidiary or a third party, Genesis will not continue to
guarantee the applicable lease. Any such assignment would require the consent of
the Company which may not be unreasonably withheld. The Company will evaluate
the creditworthiness of any assignee in determining whether to provide its
consent. The obligations of Genesis under the guarantees are not subordinated to
any indebtedness of Genesis, but the guarantees are unsecured and may be
structurally subordinated to secured indebtedness of Genesis to the extent of
the assets securing such indebtedness. In addition, the guarantees do not limit
Genesis' ability to incur additional secured indebtedness. The Company also will
lease back to Crozer/Genesis four skilled nursing facilities being acquired from
CKHS. These leases will not be guaranteed by Genesis. See " -- Leases." The
Company will acquire the Lacey Branch Office Building and Professional Office
Building I from Genesis. Genesis also is the principal tenant of three of the
office buildings being acquired by the Company.

57
<PAGE>

Summary Consolidated Financial Data of Genesis

The following table sets forth certain summary consolidated financial data
for Genesis at and for the periods indicated.
<TABLE>
<CAPTION>
At or For the
Nine Months Ended At or For the
June 30, Year Ended September 30,
----------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
------------- ------------- -------------- ------------- -------------
(in thousands, except ratio, per share and operating data)
<S> <C> <C> <C> <C> <C>
Summary of Operations Data
Net revenues ........................ $ 816,270 $ 460,354 $ 671,469 $ 486,393 $ 388,616
Income from operations before
depreciation, amortization, lease
expense, interest and debenture
conversion expense .................. 145,500 87,313 128,269 93,253 69,373
Depreciation and amortization ...... 31,618 17,883 25,374 18,793 14,982
Lease expense ........................ 21,506 11,948 18,638 13,798 11,376
Interest expense, net ............... 28,506 19,104 24,926 20,366 15,305
Debenture conversion expense ......... -- 1,245 1,245 -- --
Earnings before extraordinary
items, cumulative effect of an
accounting change and
debenture conversion expense ...... 40,558 24,556 37,966 25,531 17,691
Net income ........................... $ 40,005 $ 23,759 $ 37,169 $ 23,608 $ 17,673
Per common share data (fully
diluted): (1)
Earnings before extraordinary
items, cumulative effect of an
accounting change and
debenture conversion expense ...... $ 1.13 $ 0.91 $ 1.31 $ 1.03 $ 0.84
Net income ........................... $ 1.11 $ 0.88 $ 1.29 $ 0.97 $ 0.84
Weighted average shares of
common stock and equivalents ......... 36,275 29,359 31,130 28,452 24,820
Other Financial Data
Operating income before capital
costs as a percent of revenue (2) .... 17.8% 19.0% 19.1% 19.2% 17.8%
Earnings before income taxes,
extraordinary items, cumulative
effect of an accounting change
and debenture conversion
expense as a percent of revenue ...... 7.8% 8.3% 8.8% 8.3% 7.1%
Long-term debt to equity ratio ...... 1.08 .59 .66 1.4 1.3
Capital Expenditures ............... $ 47,138 $ 26,151 $ 38,645 $ 24,719 $ 18,784
Operating Data
Payor mix (as a percent of patient service
revenue):
Private and other .................. 39% 39% 39% 38% 41%
Medicare ........................... 24 23 25 21 16
Medicaid ........................... 37 38 36 41 43
Average owned/leased health
center beds ........................ 15,168 9,062 9,429 8,268 7,530
Occupancy percentage in owned /
leased eldercare centers ............ 90.9% 92.5% 92.6% 91.9% 91.9%
Average managed life care units
and health center beds ............ 6,101 5,195 5,030 10,374 9,922
Balance Sheet Data
Working capital ..................... $ 220,827 $ 227,599 $ 155,491 $ 132,274 $ 66,854
Total assets ........................ 1,375,151 878,348 950,669 600,389 511,698
Long-term debt ..................... 644,725 295,897 338,933 308,052 250,807
Shareholders' equity ............... 599,530 500,238 514,608 221,548 195,466
</TABLE>

58
<PAGE>

- ------------
(1) Reflects a three for two stock split on the common stock effective March 29,
1996.
(2) Capital costs include depreciation and amortization, lease expense, interest
expense and debenture conversion expense.

The consolidated financial statements of Genesis as of September 30, 1996
and 1995 and for each of the years in the three-year period ended September 30,
1996, appear in Genesis' 1996 Annual Report to Shareholders which is
incorporated by reference in its Annual Report on Form 10-K for the year ended
September 30, 1996. The unaudited consolidated financial statements of Genesis
as of June 30, 1997, and for the three-and nine-month periods ended June 30,
1997 and 1996 appear Genesis' quarterly report on Form 10-Q for the quarterly
period ended June 30, 1997. The Company will provide without charge to each
person to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person, a copy of the financial statements of Genesis referred
to above. Written requests for such copies should be directed to ElderTrust,
Attention: D. Lee McCreary, Jr., Vice President and Chief Financial Officer, 415
McFarlan Road, Suite 202, Kennett Square, PA 19348.

In June 1997, Acquisition Corp., a wholly owned subsidiary of Genesis
ElderCare Corp. which is owned 44% by Genesis and owned 56% by The Cypress Group
L.L.C. and TPG Partners II, L.P., commenced the Tender Offer for all of the
outstanding shares of common stock of Multicare. Consummation of the Tender
Offer is subject to, among other things, at least a majority of the outstanding
Multicare common stock being tendered and receipt of all regulatory approvals
and other consents. As of June 30, 1997, Multicare operated, among other assets,
124 skilled nursing facilities, 19 hospital-based subacute units and 11 assisted
living facilities. If the Tender Offer is consummated, Acquisition Corp. will be
merged into Multicare and Multicare, as the surviving entity in the merger, will
become a wholly owned subsidiary of Genesis ElderCare Corp., and all of these
facilities will be managed by Genesis and become part of the Genesis ElderCareSM
Network which will add a sixth principal geographic market (Ohio/Western
Pennsylvania). The total net revenues and net income of Genesis for the nine
months ended June 30, 1997 adjusted on a pro forma basis for the merger of
Acquisition Corp. and Multicare, if consummated, are approximately $1.3 billion
and $38.0 million, respectively.

Set forth below is information regarding the Initial Properties being
acquired from Genesis.

Genesis -- Assisted Living Facilities

Heritage Woods. Heritage Woods is a two-story, apartment style 78,226
square foot assisted living facility located on 16.7 acres of land in Agawam,
Massachusetts. The Heritage Woods facility was developed by Genesis and has an
operational configuration for 122 residents. The Heritage Woods facility is
located adjacent to a Genesis "campus" containing four skilled nursing
facilities, each of which is owned and operated by Genesis and which include in
excess of 500 beds for skilled nursing patients. The facility opened in May 1997
and is in the initial lease-up phase.

Willowbrook. Willowbrook is a three-story, apartment style 39,300 square
foot assisted living facility located on approximately two acres of land in
Clarks Summit, Pennsylvania. The Willowbrook facility was developed by Genesis
and has an operational configuration for 70 residents. The facility is adjacent
to an existing Genesis skilled nursing facility containing 120 beds. The
Willowbrook facility opened in June 1996.

Riverview Ridge. Riverview Ridge is a two-story, apartment style
approximately 33,000 square foot assisted living facility located on 2.2 acres
of land in Wilkes-Barre, Pennsylvania. The facility is located adjacent to a
Genesis skilled nursing facility containing 122 beds. The Riverview Ridge
facility is currently leased by a partnership which is owned 51% by Genesis and
49% by a third party, which third party also owns the fee interest in the land
on which the Riverview Ridge facility is located. Prior to the closing of the
Offering, Genesis will acquire the remaining 49% interest in the partnership
which holds the leasehold interest in the land and the facility, and the Company
will purchase the entire leasehold interest from Genesis and will purchase the
fee interest from the third party. The facility has an operational configuration
for 105 residents and opened in 1993.

59
<PAGE>

Genesis -- Independent Living Facility

Pleasant View. Pleasant View is a four-story, 93,724 square foot
independent living facility located on approximately 12 acres of land in
Concord, New Hampshire. The facility is located adjacent to a Genesis skilled
nursing facility containing 180 beds. The Pleasant View facility is a converted
mansion built in 1926, and the property includes a 3,284 square foot carriage
house. The facility has an operational configuration for 72 residents and was
acquired by Genesis in 1995.

Genesis -- Skilled Nursing Facilities

Rittenhouse Care Center. The Rittenhouse Care Center is a five-story, 183
bed, 88,450 square foot skilled nursing facility located on 0.4 acres of land in
Philadelphia, Pennsylvania. This facility was originally constructed during the
1930's with two expansions in the 1970's. A renovation of interior finishes was
completed in 1993. The Company has agreed, pursuant to one of the Construction
Loan Commitments, to finance a renovation and expansion of the Rittenhouse Care
Center. Upon completion of this renovation and expansion, the Rittenhouse
facility will have 150 skilled nursing beds which will be leased to Genesis
pursuant to a Minimum Rent Lease and 45 assisted living units which will be
leased to Genesis pursuant to a Percentage Rent Lease. See "-- Construction Loan
Commitments." At June 30, 1997, the payor mix for this facility was
approximately 7% Medicare, 90% Medicaid and 3% private and other. This facility
competes for patients with other facilities in the Philadelphia metropolitan
area including several skilled nursing facilities operated by Genesis and not
owned by the Company.

Lopatcong Care Center. Lopatcong Care Center is a two-story, 57,152 square
foot skilled nursing facility located on 2.5 acres of land in Phillipsburg, New
Jersey. This facility was built in 1984 and has 153 beds. At June 30, 1997, the
payor mix for this facility was approximately 5% Medicare, 78% Medicaid and 17%
private and other. The Lopatcong Care Center competes for patients with several
other facilities including the Phillipsburg Care Center as well as with two
other Genesis skilled nursing facilities in Phillipsburg, New Jersey.

Phillipsburg Care Center. Phillipsburg Care Center is a three-story, 46,741
square foot skilled nursing facility located on 1.4 acres of land in
Phillipsburg, New Jersey. This facility was built in the 1930's with an addition
in 1988 and has 94 beds, including 34 beds licensed for assisted living. A
renovation of interior finishes was completed in 1993. At June 30, 1997, the
payor mix for this facility was approximately 12% Medicare, 44% Medicaid, 5% SSI
and 39% private pay and other. The Phillipsburg Care Center competes for
patients with several other facilities including the Lopatcong Care Center and
two other Genesis skilled nursing facilities located in Phillipsburg, New
Jersey.

Wayne Nursing and Rehabilitation Center. Wayne Nursing and Rehabilitation
Center is a one-story, 118 bed, skilled nursing facility located in Wayne,
Pennsylvania. The facility is estimated to have been built circa 1920 with
additions completed in 1966, 1974 and 1989. During 1989, there was a complete
renovation of the building. At June 30, 1997, the payor mix of this facility was
approximately 5% Medicare, 67% Medicaid and 28% private pay or other. The Wayne
facility competes for patients with the Harston Hall Nursing and Convalescent
Center and several other facilities in its market area including at least five
other skilled nursing facilities operated by Genesis and not owned by the
Company.

Genesis -- Medical Office and Bank Buildings

Professional Office Building I. Professional Office Building I ("POB I") is
a 39,972 square foot medical office building located on 0.7 acres of land in
Upland, Pennsylvania adjacent to the Crozer-Chester Medical Center, an acute
care hospital. POB I is 100% leased and its primary tenants consist of resident
physicians with Crozer-Chester Medical Center.

The Company will acquire the building and a leasehold interests in the land
on which POB I is located from Genesis for $4.0 million in cash. Genesis
acquired the building in June 1997 from CKHS for $4.0 million and entered into a
40-year ground lease with Crozer-Chester Medical Center, a Pennsylvania
nonprofit organization ("CCMC") which is an affiliate of CKHS and which owns the
land on which POB I is located as well as the adjacent hospital.

60
<PAGE>

Annual rent under the ground lease with CCMC is fixed at $75,000 per year,
net to CCMC. Pursuant to its terms, the ground lease will be automatically
extended for an additional 40 years, unless the Company gives at least 12 months
prior written notice that it does not wish to extend the term. CCMC and the
Company also may mutually agree to extend the term of the ground lease for an
additional 40 years. If the term is not so extended and the ground lease
expires, CCMC is obligated to pay the Operating Partnership the then book value
(i.e., cost less depreciation) of all improvements then existing on the
property.

POB I will be managed by CKHS pursuant to a ten-year management agreement
between the Company and CKHS (subject to renewal). CCMC has a right of first
refusal, exercisable for 30 days, if the Company receives and pursues a written,
bona fide offer from a third party to purchase its interest in the building and
leasehold. If CCMC receives and pursues an offer to purchase the land or any
portion of the overall tract which includes not more than POB I, POB II (which
is adjacent to POB I) and/or the parking garage adjacent to POB II, the Company
has the right to elect to purchase such property within 30 days of receipt of
such offer from CCMC upon the same terms and conditions as offered by the third
party.

Lacey Branch Office Building. The Lacey branch office building is a 4,100
square foot building located on 2.0 acres of land in Forked River, New Jersey.
Ocean Federal Savings Bank, a federally chartered savings bank, is the sole
tenant of the building which was constructed in 1996. The Lacey branch office
building is subject to a mortgage held by Ocean Federal Savings Bank, which will
be assumed by the Company.

Senior LifeChoice Corp. Initial Properties

Senior LifeChoice Corp. ("Senior LifeChoice") is a privately held
Pennsylvania corporation whose principal stockholders include Michael R. Walker
and Gregory M. Stevens, who served as chief financial officer of Genesis from
1989 to 1992. Three other executive officers of Genesis also hold interests in
Senior LifeChoice. Senior LifeChoice currently owns an 88% interest in the
Highgate at Paoli Pointe assisted living facility and a 97.5% interest in The
Woodbridge assisted living facility. The Company will acquire 100% of the
interests in these two facilities, which will be leased-back to and operated by
SLC, which is an affiliate of Senior LifeChoice and of which Mr. Stevens is the
managing member, pursuant to Minimum Rent Leases. None of Genesis' current
directors or executive officers has an interest in SLC. At June 30, 1997, SLC
had total assets of $3.2 million and members' equity of $500,000. For the six
months ended June 30, 1997, SLC had a net loss of $277,000.

Set forth below is certain information regarding the Initial Properties
being acquired from Senior LifeChoice.

SLC -- Assisted Living Facilities

Highgate at Paoli Pointe. Highgate at Paoli Pointe is a four-story,
apartment style assisted living facility located on 2.0 acres of land in Paoli,
Pennsylvania. The facility is located adjacent to a condominium retirement
community and is located within approximately three miles of a Genesis skilled
nursing facility. The facility is recently constructed, has an operational
configuration for 82 residents and opened in 1995. Pursuant to the terms of a
regulatory agreement entered into between the partnership which owns Highgate at
Paoli Point and the Chester County Industrial Development Authority, SLC is
required to lease at least 20% of the residential units in the facility to
persons whose adjusted family income does not exceed 50% of the median gross
income for families in the geographic region surrounding the facility.

The Woodbridge. The Woodbridge is a four-story, apartment style assisted
living facility located on 8.5 acres of land in Kimberton, Pennsylvania. The
facility is located adjacent to a condominium retirement community and is
located within fifteen miles of a Genesis skilled nursing facility. The facility
is recently constructed and has an operational configuration for 90 residents.
The facility opened in 1996 and is in the initial lease-up phase. Pursuant to
the terms of a regulatory agreement entered into between the partnership which
owns Highgate at Paoli Point and the Chester County Industrial Development
Authority, SLC is required to lease at least 20% of the residential units in the
facility to persons whose adjusted family income does not exceed 50% of the
median gross income for families in the geographic region surrounding the
facility.

61
<PAGE>

SLC or a subsidiary of SLC will lease The Woodbridge from the Company. A
subsidiary of Genesis will lease Highgate at Paoli Pointe from the Company. See
"-- Leases."

CKHS Initial Properties

Set forth below is certain information regarding the Initial Properties
being acquired from CKHS.

Crozer/Genesis -- Skilled Nursing Facilities

In August 1997, Genesis and CKHS formed Crozer/Genesis, which is 50% owned
by each of Genesis and CKHS. As part of the Formation Transactions, the Company
will purchase from CKHS and lease back to Crozer/Genesis four skilled nursing
facilities included in the Initial Properties pursuant to a single Minimum Rent
Lease covering all four facilities.

Belvedere Nursing and Rehabilitation Center. The Belvedere Nursing and
Rehabilitation Center is a two-story, 53,000 square foot skilled nursing
facility located on 4.4 acres of land in Chester, Pennsylvania. This facility
was built in 1960 and expanded in 1983 and has 147 beds, including 27 beds
licensed for assisted living. This facility competes for patients with other
facilities in the Philadelphia metropolitan area including several skilled
nursing facilities operated by Genesis and not owned by the Company. At June 30,
1997, the payor mix for this facility was approximately 8% Medicare, 49%
Medicaid and 43% private pay and other.

Chapel Manor Nursing and Rehabilitation Center. Chapel Manor Nursing and
Rehabilitation Center is a three-story, 88,000 square foot skilled nursing
facility located on 3.7 acres of land in Philadelphia, Pennsylvania. This
facility was built in 1973 and has 240 beds. This facility competes for patients
with other facilities in the Philadelphia metropolitan area including several
skilled nursing facilities operated by Genesis and not owned by the Company. At
June 30, 1997, the payor mix for this facility was approximately 9% Medicare,
76% Medicaid and 15% private pay and other.

Harston Hall Nursing and Convalescent Home. Harston Hall Nursing and
Convalescent Home is a three-story, 58,600 square foot skilled nursing facility
located on 9.9 acres of land in Flourtown, Pennsylvania. This facility was built
in 1977 and expanded in 1991 and has 196 beds, including 76 beds licensed for
assisted living. The Harston Hall facility competes for patients with the Wayne
Nursing and Rehabilitation Center and several other facilities in its market
including at least one other skilled nursing facilities operated by Genesis and
not owned by the Company. At June 30, 1997, the payor mix for this facility was
approximately 6% Medicare, 51% Medicaid, 16% SSI and 27% private pay and other.

Pennsburg Manor Nursing and Rehabilitation Center. Pennsburg Manor Nursing
and Rehabilitation Center is a three-story, 42,831 square foot skilled nursing
facility located on 6.1 acres of land in Pennsburg, Pennsylvania. This facility
was built in 1982 and has 120 beds. The Pennsburg Manor facility competes for
patients with several other facilities in its market area including at least six
skilled nursing facilities operated by Genesis and not owned by the Company. At
June 30, 1997, the payor mix for this facility was approximately 8% Medicare,
61% Medicaid and 31% private pay and other.

Genesis will operate these facilities pursuant to a 12-year management
contract (with renewal if Crozer/Genesis continues to lease the facilities)
between Genesis and Crozer/Genesis. Commencing on September 1, 1997, Genesis
will receive a management fee with respect to the Chapel Manor and Harston Hall
facilities equal to 2.5% of the net revenues from such facilities. Following
completion of the Offering, Genesis will receive a fee equal to 5.4% of the net
operating revenues generated by all four of the facilities leased to
Crozer/Genesis. Commencing in the sixth year of the term, the management fee
will equal 5% of the net operating revenues generated by all four of the
facilities leased by Crozer/Genesis. Commencing on September 1, 1997 with
respect to the Chapel Manor and Harston Hall facilities and on the date of the
closing of the Offering with respect to the Belvedere and Pennsburg Manor
facilities, and continuing for a period of 24 months from such date for each
such facility, up to 30% of the management fee payable to Genesis with respect
to each such facility will be subordinated to lease payments due to the Company
with respect to such facility. In the event that the financial covenants for any
facility are not met or satisfied at the end of the 24-month period applicable
to such facility, then up to 30% of the management fee payable with respect to

62
<PAGE>

such facility shall continue to be subordinated to lease payments due to the
Company with respect to such facility, and such subordination shall continue
until such time as the financial covenants for the applicable facility are met
or satisfied. See "-- Leases -- Crozer/Genesis Minimum Rent Leases." Any
management fees deferred pursuant to the subordination provisions of the
management agreement between Crozer/Genesis and Genesis shall thereafter be paid
monthly from monies generated by the applicable facility (provided that
following such payments, the financial covenants for such facility will be met
or satisfied) until the deferred fees are paid in full.

Pursuant to an agreement between Genesis and CKHS, Genesis will make
available to Crozer/Genesis a line of credit of up to $5 million until such time
as Crozer/Genesis receives new licenses for the four facilities to be leased by
Crozer/Genesis from the Company, at which time the obligation of Genesis to fund
such line of credit will be reduced to $3 million. Any amounts payable to
Genesis by Crozer/Genesis under this line of credit will not be subordinated to
the lease payment obligations of Crozer/Genesis under its Minimum Rent Lease
with the Company and will be secured by a first lien on accounts receivable.

Crozer/Genesis also will enter into Network Services Agreements with
Genesis for the four facilities for a term of 12 years (with renewal if
Crozer/Genesis continues to lease the facilities). Pursuant to the terms of
these agreements, Genesis, among other things, will make available to the
facilities admissions through contracts negotiated by Genesis with health
maintenance organizations and other insurers. Genesis will receive a fee equal
to $50 per month (subject to adjustment for inflation) for each bed in these
facilities provided that the total amount of such fees together with the amount
payable to Genesis under the management agreement between Crozer/Genesis and
Genesis may not exceed 6% of the total net operating revenues for the four
facilities. Fees payable to Genesis under the Network Services Agreement will
not be subordinated to lease payments payable to the Company.

CKHS -- Medical Office Building Condominium Unit

Delaware County Memorial Office Building. The Company will acquire a
condominium unit containing six of the eight floors of a medical office building
located on the campus of DCMH. The condominium unit initially will contain
60,740 square feet of rentable office space and will increase to 65,700 rentable
square feet upon completion of the current expansion of the DCMH medical office
building in the first quarter of 1998 In addition to the expansion project, a
portion of the rentable space in the planned condominium unit is currently
undergoing renovation, and all such renovations are expected be completed within
18 months. All of the office space in the planned condominium unit which is
currently rentable is leased, primarily to resident physicians with DCMH, and it
is expected that all additional space that becomes available in the DCMH medical
office building upon completion of the expansion and the renovations will be
fully leased to new or existing tenants as such space becomes available.

Pursuant to the condominium declaration and bylaws, the Company, as the
owner of approximately 65% of the space in the condominium building, will
control the DCMH medical office building condominium association, subject to
certain rights of CKHS, as the minority owner in the condominium, to approve
certain major transactions. The DCMH medical office building (including the
Company's condominium unit) will be managed by CKHS pursuant to a ten-year
management agreement between the condominium association (subject to renewals).
CKHS has a right of first refusal, exercisable for 30 days, if the Company
receives and pursues a written, bona fide offer from a third party to purchase
the condominium unit. If CKHS receives and pursues an offer to purchase the land
or any part of the DCMH medical office building not included in the Company's
condominium unit, the Company has the right to elect to purchase such property
within 30 days of receipt of such offer from CKHS upon the same terms and
conditions as offered by the third party.

Other Initial Properties

The Initial Properties also include one skilled nursing facility, two
medical office buildings and a clinic being acquired from third parties other
than Genesis. Each of the medical office buildings and clinic will be acquired
by the Company subject to the existing leases. Genesis is the principal tenant
in each of these buildings. Messrs. Walker and Stevens and one other current
executive officer of Genesis each own a one-sixth interest in the Salisbury
Medical Office Building and Mr. Walker owns a 50% managing partner interest in
the entity which owns the Windsor Office Building and the Windsor Clinic. Set
forth below is certain information regarding these properties.

63
<PAGE>

Other Initial Properties -- Skilled Nursing Facility

Silverlake Nursing and Rehabilitation Center. Silverlake Nursing and
Rehabilitation Center is a two-story, 174 bed skilled nursing facility located
in Bristol, Pennsylvania. This facility was built in 1969, expanded in 1977 and
renovated in 1988. This facility is owned by a wholly-owned subsidiary of The
AGE Institute, a Pennsylvania nonprofit corporation, with which Genesis has had
a long-standing relationship. The Company will purchase the stock of The AGE
Institute subsidiary that owns the Silverlake Facility and lease the facility to
a newly formed subsidiary of The Age Institute of Florida, which is also a
subsidiary of The AGE Institute, under a Minimum Rent Lease. The facility will
continue to be managed by Genesis pursuant to a long-term management contract
between Genesis and the Age Institute of Florida. All but 3 1/2% of the 6%
management fee payable to Genesis will be subordinated to the lease payment
obligations under the Minimum Rent Lease entered into by the Age Institute of
Florida subsidiary and the Company. The Silverlake facility competes for
patients with several other facilities in its market area, including at least
five skilled nursing facilities operated by Genesis and not owned by the
Company. At June 30, 1997, the payor mix for this facility was approximately 8%
Medicare, 80% Medicaid and 12% private pay and other.

Other Initial Properties -- Medical Office Buildings

Salisbury Medical Office Building. The Salisbury Medical Office Building
is a 10,961 square foot office building located on 1.4 acres of land in
Salisbury, Maryland. Messrs. Walker and Stevens and one other current executive
officer of Genesis each own a one-sixth interest in the Salisbury Medical
Office Building, which was built in 1984. Mr. Walker holds a note which is
secured by the Salisbury Medical Office Building Property in the amount of
approximately $733,000. This note will be paid off by the Operating Partnership
in connection with the acquisition of the property. In addition, the entity
which owns the Salisbury Medical Office Building made two loans to Mr. Romanov
totaling $450,000. One of these loans was previously repaid by Mr. Romanov and
the other will be repaid by Mr. Romanov at or prior to the closing of the
Offering. See "Certain Relationships and Related Transactions."

Windsor Office Building. The Windsor Office Building is a 2,100 square foot
office building located on 0.3 acres of land in Windsor, Connecticut which
serves as a regional headquarters office of Genesis. The office building was
built in 1934. Mr. Walker owns a 50% managing partner interest in the Windsor
Office Building. In addition, Mr. Walker is the lender under a $1.2 million loan
secured by the Windsor Office Building and Windsor Clinic properties. This loan
will be repaid by the Operating Partnership in connection with the acquisition
of these properties.

Windsor Clinic and Training Facility. The Windsor Clinic and Training
Facility are connected buildings located on a piece of land adjacent to the
Windsor Office Building. The Windsor Clinic and Training Facility include 9,662
rentable square feet and were built in 1996. Mr. Walker owns a 50% managing
partner interest in the Windsor Clinic and Training Facility. The lessees in
these buildings are two subsidiaries of Genesis. A portion of land on which the
Windsor Clinic building is situated is leased from Genesis pursuant to a
long-term, triple net ground lease at an annual rent of $1.00, and the Company
will acquire this leasehold interest and assume the ground lease obligations.

Initial Property Acquisition Agreements

The Company will acquire each of the Initial Properties pursuant to an
acquisition agreement between the Company and the current owner of an Initial
Property or one or more acquisition agreements among the Company and the holders
of all interests in the current owner of an Initial Property (each an "Initial
Property Acquisition Agreement"). These acquisitions are subject to all of the
terms and conditions of such agreements. The following is a summary of certain
provisions of such agreements, does not purport to be complete and is qualified
in its entirety by reference to such agreements. Copies of the forms of the
Initial Property Acquisition Agreements, along with the Initial Property
Acquisition Agreements entered into with Genesis, have been filed as exhibits to
the Registration Statement of which this Prospectus forms a part.

The transfer of the ownership of each Initial Property is subject to the
completion of the Offering as well as the normal and customary conditions to the
closing of business transactions. In the case of the four Initial Properties
which are skilled nursing facilities being acquired from CKHS and leased to
Crozer/Genesis, the

64
<PAGE>

closing of the acquisition of such facilities by the Company is not expected to
occur until December 1, 1997. In the case of the six Initial Properties with
respect to which the Company will assume outstanding mortgage indebtedness, the
consents of the mortgagees are also required. The Company believes that all such
consents will be obtained prior to the consummation of the Offering. However,
there is a possibility that the transfer of title to such properties may have to
be delayed for a short period while documents are finalized. The Operating
Partnership will assume certain debt obligations relating to specific Initial
Properties and all obligations relating to each Initial Property which arise
after the transfer thereof to the Company. The acquisition of the ownership of
three of the Initial Properties is structured as a purchase by the Operating
Partnership of ownership interests in the current owners thereof, rather than
the transfer of assets by such owners. As a result of this structure, the
Operating Partnership will succeed to all liabilities, whether known or unknown,
contingent or otherwise, of the current owners.

The Initial Property Acquisition Agreements contain representations and
warranties from each transferor of an Initial Property or an interest in an
Initial Property, as applicable, regarding matters such as title to the
applicable Initial Property and, where applicable, the interest being
transferred, the absence of liens and encumbrances thereon, title to personal
property utilized at the Initial Property, leases or other occupancy agreements
and the rents payable thereunder, environmental matters and other
representations and warranties customarily found in similar documents. These
representations and warranties will survive the closing of the Offering for a
period of at least one year except for representations and warranties relating
to environmental matters which will survive the closing of the Offering for a
period of at least two years. With respect to those Initial Properties to be
acquired from Genesis, Genesis will indemnify the Company against a breach of a
representation and warranty contained in the Initial Property Acquisition
Agreements relating to such Initial Properties, provided that Genesis'
indemnification obligations will be limited, on an aggregate basis, to 20% of
the purchase price of such properties. With respect to the Initial Property
known as Salisbury Medical Office Building, the liability of the six current
holders of equity interests in this Initial Property for a breach of a
representation and warranty will be several and not joint and will also be
limited to 20% of the aggregate purchase price of such property. With respect to
the Initial Properties known as Windsor Office Building and Windsor Clinical
Training Facility, the current owner of these properties will be liable for a
breach of a representation and warranty; this liability will be limited to 20%
of the purchase price of each such property on a property by property basis.

65
<PAGE>

Term Loans, Construction Loans and Florida Facilities Note

The following table sets forth certain information regarding the Term
Loans, the Construction Loans and the Florida Facilities Note. Facility
developments are subject to various risks and uncertainties. The project/owner
borrowers include subsidiaries of Genesis, Lake Washington, subsidiaries of SLC
and a subsidiary of the Age Institute of Florida. There can be no assurance that
any of the Initial Assisted Living Development Facilities that secure the
Construction Loans will be completed on a timely basis or at all. See "Risk
Factors -- Risks Associated with Making Loans on Development Projects." The
Company has agreed or has the option to purchase five of the six facilities that
secure the Term Loans and the Construction Loans at the end of the loan terms or
at such time as each facility achieves Stabilized Occupancy. See "-- Purchase
Contracts and Options for Term Loan, Construction Loan and Proposed Multicare
Loan Properties."
<TABLE>
<CAPTION>
Loan Amount
Expected to be
Number of Funded at % of Initial
Security Property Location Beds(1) Closing Investments
- ----------------- ------------------ ----------- ---------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Term Loans -- Lease-up Assisted Living Facilities
Harbor Place .................. Melbourne, FL 120 $ 4,728 2.7%
Mifflin ........................ Shillington, PA 67 5,164 3.0
Coquina Center ............... Ormond Beach, FL 80 4,577 2.6
------ --------- ------
Subtotal/Weighted Avg. ...... 267 14,469 8.3
------ --------- ------
Construction Loans -- Initial Assisted Living Development Projects:
Oaks ........................... Wyncote, PA 52 1,500 0.9
Montchanin ..................... Wilmington, DE 92 2,000 1.2
Mallard Landing ............... Salisbury, MD 60 1,702 1.0
------ --------- ------
Subtotal/Weighted Avg. ...... 214 5,202 3.1
------ --------- ------
Florida Facilities Note(6):
11 skilled nursing facilities Florida 1,219 7,406 4.3
--------- ------
Total Loan Investments ...... 1,690 27,077 15.7%
------ --------- ------
Total Initial Investments ... $173,863 100.0%
========= ======

Purchase
Interest Initial Development Contract/ Project/Owner
Security Property Rate Maturity Loan Amount(3) Status Option Borrower
- --------------------------------- ---------- ---------- ---------------- ------------- ----------- --------------------
(years) (in thousands)
Term Loans -- Lease-up Assisted Living Facilities
Harbor Place .................. (2) 2 $ 4,728 Lease-up Contract Lake Washington
Mifflin ........................ (2) 2 5,164 Lease-up Contract Genesis (4)
Coquina Center ............... (2) 2 4,577 Lease-up Contract Genesis (4)
--------
Subtotal/Weighted Avg. ...... 14,469
--------
Construction Loans -- Initial Assisted Living Development Projects:
Oaks ........................... (2) 3 5,380 Constr. Contract Genesis (4)
Montchanin ..................... 10.50% 3 9,500 Constr. Option SLC (5)
Mallard Landing ............... (2) 3 7,564 Zoned Option SLC (5)
--------
Subtotal/Weighted Avg. ...... 22,444
--------
Florida Facilities Note(6):
11 skilled nursing facilities 13.00% 10 7,406 N/A N/A Age Inst. of Fl.(7)
--------
Total Loan Investments ...... $44,319
--------
Total Initial Investments ...
</TABLE>
<PAGE>

The above table excludes the Proposed Multicare Loans totaling $19.4
million which the Company expects to make to wholly owned subsidiaries of
Multicare. Multicare will guarantee 20% of the principal amount of such loans.
There can be no assurance that the Company will fund the Proposed Multicare
Loans. See "-- Proposed Multicare Term Loans" and "-- Proposed Multicare
Construction Loan."

66
<PAGE>

Term Loans - Lease-up Assisted Living Facilities

The Company will make the Term Loans with respect to the three Lease-up
Assisted Living Facilities owned by Genesis or in which Genesis has an interest
upon completion of the Offering. The three Lease-up Assisted Living Facilities
are recently completed or nearly complete development projects. The notes
relating to the Term Loans will bear interest at fixed rates equal to the rate
on three-year U.S. Treasury Notes in effect at the closing of the Offering plus
400 basis points. The Term Loans will be fully secured by the real estate, as
improved, as well as by related collateral. Each Term Loan will be due and
payable upon the maturity of the Term Loan (which will occur two years from the
date of the Term Loan, subject to the right of Genesis, upon payment of a 0.5%
fee, to extend the term in each case for up to one additional year) or at such
time as the facility reaches Stabilized Occupancy. The Company has agreed to
purchase from and leaseback to Genesis the three properties securing the Term
Loans. See "-- Purchase Contracts and Options for Term Loan, Construction Loan
and Proposed Multicare Loan Properties." Genesis will guarantee these loans.

Set forth below is information regarding the Lease-up Assisted Living
Facilities that secure the Term Loans.

Genesis - Lease-up Assisted Living Facilities

Harbor Place. Harbor Place is a two-story, apartment style 40,000 square
foot assisted living facility located on 6.0 acres of land in Melbourne,
Florida. The facility is located within approximately three miles of a 179 bed
skilled nursing facility owned and operated by Genesis. The Harbor Place
facility is 49% owned by Genesis and 51% owned by a third party who developed
the property. The facility has an operational configuration for 120 residents
and opened in December 1996.

Mifflin. Mifflin is a three-story, apartment style approximately 43,000
square foot assisted living facility located on approximately 12 acres of land
in Shillington, Pennsylvania. The facility is adjacent to an existing Genesis
skilled nursing facility containing 136 beds. The facility is currently located
on the same parcel of land as the adjacent skilled nursing facility, which
parcel will be subdivided by Genesis prior to the purchase of the Mifflin
facility by the Company. The Mifflin facility is being developed by Genesis. The
facility, which has an operational configuration for 67 residents, is scheduled
to open in October 1997.

Coquina Center. Coquina Center is a two-story, apartment style 44,716
square foot assisted living facility located on 6.9 acres of land in Ormond
Beach, Florida. The facility is located adjacent to a 120-bed skilled nursing
facility owned and operated by Genesis. The Coquina Center facility is being
developed by Genesis. The facility, which has an operational configuration for
80 residents, is scheduled to open in October 1997.

Proposed Multicare Term Loans

Each of the two Proposed Multicare Term Loans will have a fixed annual rate
of interest of 10.5% and will mature two years from the date of the loan for the
facility, subject to the right of Multicare to extend the term for up to two
one-year extension periods in the event the facility has not reached Stabilized
Occupancy as of the second anniversary of the loan (or at the end of the first
one-year extension period, if applicable). Multicare will guarantee 20% of the
principal amount of the Proposed Multicare Term Loans. Pursuant to the Proposed
Multicare Term Loans to be made with respect to two assisted living facilities
owned by subsidiaries of Multicare, the Company will have the obligation to
acquire each such assisted living facility from Multicare during the term of the
applicable Proposed Multicare Term Loan at such time as the applicable facility
reaches Stabilized Occupancy. See "-- Purchase Contracts and Options for Term
Loan, Construction Loan and Proposed Multicare Properties."

In the event Genesis' acquisition of Multicare is consummated, Genesis will
manage all Multicare assisted living facilities, including the two facilities
which secure the Proposed Multicare Term Loans, pursuant to a management
agreement between Multicare and Genesis. Genesis will receive a fee in the
amount of 6% of the net operating revenues generated by all the Multicare
facilities managed by it, subject to certain subordination provisions in favor
of creditors of Multicare other than the Company. The management fee will not be
subordinated to lease payments or loan payments payable by Multicare to the
Company.

67
<PAGE>

Set forth below is information regarding the assisted living facilities
owned by subsidiaries of Multicare that will secure the Proposed Multicare Term
Loans, if they are made by the Company.

Lehigh Manor. Lehigh Manor is a two-story, apartment style 58,618 square
foot assisted living facility located on 8.5 acres of land in Macungie,
Pennsylvania. The facility will have an operational configuration for 70 units,
including 14 beds in an Alzheimer's unit. The facility is located adjacent to a
130-bed skilled nursing facility owned by Multicare. The Lehigh Manor facility
is being developed by Multicare and opened in September 1997.

Berkshire Manor. Berkshire Manor is a two-story, apartment style 54,554
square foot assisted living facility located on 9.8 acres of land in Reading,
Pennsylvania. The facility will have an operational configuration for 64 units,
including 14 beds in an Alzheimer's unit. The facility is located adjacent to a
130-bed skilled nursing facility owned by Multicare. The Berkshire Manor
facility is being developed by Multicare and opened in September 1997.

Construction Loans - Initial Assisted Living Development Projects

Construction Loans

The Company through the Operating Partnership will make Construction Loans
to develop three assisted living facilities, one of which the Company has agreed
to acquire from Genesis and two of which the Company has an option to purchase
from SLC. In each case, the Construction Loan will be in the amount of 90% of
the total project costs, based on an approved budget for each project. The
remaining 10% of the budgeted costs will be covered by an owner's equity
contribution in land, cash or other form acceptable to the Company. Each
Construction Loan will be evidenced by a Construction Mortgage Note, and will be
secured by the property, as improved, as well as by other assets of the borrower
in connection with the project, such as, but not limited to, assignments of
agreements affecting real estate as well as an assignment of the Residential
Living Agreements entered into in connection with the project.

Genesis - Initial Assisted Living Development Project

Genesis formed its own development group in 1990. The development group
currently has four project managers who provide various development services in
the areas of land acquisition, zoning, oversight of design, bidding and
construction management. The Genesis development group has developed over $170
million of construction projects, including eight assisted living facilities,
three continuing care retirement communities, the Genesis corporate headquarters
currently under construction, two regional, institutional pharmacy buildings and
certain capital improvements at Genesis' facilities. Genesis' construction of
assisted living facilities has generally focused on locations in close proximity
to Genesis' skilled nursing facilities. In developing assisted living
facilities, Genesis considers various factors, including population, income and
age demographics, the estimated level of market need, the breadth of Genesis'
existing strategic relationships in the primary market area, target site
visibility, proximity to complementary healthcare services, availability of
adequately trained personnel and probability of acquiring an acceptable site and
receiving zoning approval. The primary milestones in the development process are
(i) marketing study and financial feasibility analysis, (ii) site acquisition,
(iii) subdivision and/or zoning and site plan approval and (iv) completion of
construction and licensing approval. Following site acquisition, subdivision and
zoning approvals generally take six months to nine months to receive, and
facility construction and licensing generally take one year. Depending on the
size of a facility and market conditions a facility should reach Stabilized
Occupancy within 12 to 24 months following opening. The timing and cost of a
facility varies considerably based on a variety of site-specific and regional
cost factors.

The Company will make one Construction Loan to Genesis to fund construction
of the Initial Assisted Living Development Project owned by Genesis. The note
will bear interest at a fixed rate equal to the rate on three-year U.S. Treasury
Notes in effect as of the closing of the Offering plus 350 basis points, and
will mature on the third anniversary of the Construction Loan, subject to the
right of Genesis, upon payment of a 0.5% fee, to extend the term for up to two
one-year extension periods in the event the facility has not reached Stabilized
Occupancy as of such third anniversary (or at the end of the first one-year
extension period, if applicable). Payment of all sums due under the Construction
Loan, as well as the full and timely performance of the borrower's obligations
and completion of the improvements on the property will be guaranteed by
Genesis.

68
<PAGE>

Pursuant to the Construction Loan, the Company will be obligated to acquire
the Initial Assisted Living Development Project owned by Genesis upon the
earlier of the maturity of the Construction Loan (as extended if Genesis elects
to extend the maturity of the Construction Loan as described above) or at such
time as the facility reaches Stabilized Occupancy. See "-- Purchase Contracts
and Options for Term Loan, Construction Loan and Proposed Multicare Loan
Properties."

Set forth below is information regarding the Initial Assisted Living
Development Project owned by Genesis.

The Oaks. The Oaks assisted living development project consists of two,
two-story, 27 foot high wings which are being added to an existing three-story
mansion located on 4.5 acres of land in Wyncote, Pennsylvania. Upon completion,
the Oaks facility will include approximately 40,400 square feet of space and
will have an operational configuration for 52 residents, including residents
with Alzheimer's disease or other forms of memory impairment. The mansion will
be used as the main entrance and will be renovated to include common living
areas and staff offices. The Oaks is located within ten miles of three skilled
nursing facilities owned and operated by Genesis. Construction of this project
commenced in August 1997 and is expected to be completed in July 1998. The
estimated cost of this project is $5.2 million, and the Company's loan
commitment is $4.7 million.

SLC - Initial Assisted Living Development Projects

To date, SLC or affiliated entities have developed and completed
construction of two assisted living development projects, both of which are
being acquired by the Company as Initial Properties.

Genesis recently made a construction loan to a subsidiary of SLC to fund
the construction of the Montchanin Initial Assisted Living Development Project.
At the closing of the Offering, the Company will make a Construction Loan to
this subsidiary of SLC which will use the funds provided in the initial draw
under such Construction Loan to repay the loan made by Genesis, and the Company
also will make a Construction Loan to another subsidiary of SLC to fund
construction of the Mallard Landing Initial Assisted Living Development Project.
The notes for the Construction Loans will bear interest at a fixed rate equal to
10 1/2%, in the case of the Montchanin facility, and at a fixed rate of interest
equal to the rate on three-year U.S. Treasury Notes in effect as of the closing
of the Offering plus 400 basis points, in the case of the Mallard Landing
facility, and each of these notes will mature on the third anniversary of each
Construction Loan, subject to the right of the applicable subsidiary of SLC,
upon payment of a 0.5% fee, to extend the term for up to two one-year extension
periods in the event the applicable facility has not reached Stabilized
Occupancy as of such third anniversary (or at the end of the first one-year
extension period, if applicable). Payment of all sums due under the Construction
Loans, as well as the full and timely performance of the borrowers' obligations
and completion of the improvements on the properties, will be guaranteed by SLC.

Pursuant to the Construction Loans, the Company will have the option to
acquire each of the two Initial Assisted Living Development Projects owned by
subsidiaries of SLC upon the maturity of the applicable Construction Loan for
the project (as extended if the applicable subsidiary of SLC elects to extend
the maturity of such Construction Loan as described above) or at any time prior
to such maturity after the facility reaches Stabilized Occupancy. In the event
the Company exercises its option to acquire either of these facilities during an
extension period, the Company will rebate to the applicable subsidiary of SLC a
pro rata portion of the 0.5% extension fee for such extension period. Upon
acquisition of either of the Initial Living Development Projects owned by
subsidiaries of SLC, the Company will leaseback the facility to SLC or a
subsidiary of SLC under a Minimum Rent Lease and SLC will manage the facility.
All management fees payable to SLC with respect to these facilities will be
subordinated to the obligations of such subsidiaries of SLC under the leases
with the Company. See "-- Leases -- SLC Minimum Rent Leases."

Certain of the funds used by SLC to pursue these Initial Assisted Living
Development Projects were provided by Genesis pursuant to one or more loans to
SLC. Sources of funds available to SLC to make payments on or to repay these
loans will be its operating income from the two Initial Properties that it will
lease from the Company and the gain after repayment of a portion of the Genesis
loan, if any, realized by SLC upon the sale to the Company of the two Initial
Assisted Living Development Projects owned by SLC and any other assisted living
development projects sold by SLC in the future. In addition, the Minimum Rent

69
<PAGE>

Leases with subsidiaries of SLC will include covenants requiring SLC to maintain
a net worth equal to at least $5 million, including any Units received by SLC
from its members and any subordinated loans outstanding to SLC from Genesis for
development purposes under the subordinated loans and valuing SLC's assets at
fair market value net of taxes.

Set forth below is information regarding the Initial Assisted Living
Development Projects owned by subsidiaries of SLC.

Montchanin. This assisted living development project, located on 6.1 acres
of land in Wilmington, Delaware, consists of a three-story, apartment style
facility with an operational configuration for 92 residents, including residents
with Alzheimer's disease or other forms of memory impairment. The facility is
located adjacent to a condominium retirement community which is under
construction and is located within ten miles of a Genesis skilled nursing
facility. Construction of this project commenced in June 1997 and is expected to
be completed in the second quarter of 1998. The estimated cost of this project
is $10.5 million, and the Company's loan commitment is $9.5 million.

Mallard Landing. The Mallard Landing assisted living development project is
an apartment style assisted living facility, together with a 15,000 square foot
attached community center, to be located on 8.7 acres of land in Salisbury,
Maryland. The facility will have an operational configuration for 60 residents.
The Mallard Landing facility is located within three miles of a Genesis skilled
nursing facility containing approximately 300 beds. The Company has committed to
finance the development of the assisted living facility and the community
center, which will be used by residents of the assisted living facility and an
independent living condominium project to be located on an adjoining 20 acre
tract of land. The independent living condominium project, as well as a medical
office building to be constructed on two acres to be subdivided from the
original 30 acre parcel and occupied by Genesis following completion of
construction, will be financed by a third party lender. Zoning approvals for
this project were obtained in July 1997 and construction of the assisted living
facility and the attached community center are expected to commence in the first
or second quarter of 1998. The estimated cost of the assisted living facility
and the community center is $6.7 million, and the Company's loan commitment is
$6.0 million.

Proposed Multicare Construction Loan

The Company expects to make one construction loan to Multicare to fund
construction of an assisted living facility being developed by Multicare. The
note will bear interest at a fixed annual rate of 10.5%, and will mature on the
third anniversary of the loan, subject to the right of Multicare to extend the
term for up to three one-year extension periods in the event the facility has
not reached Stabilized Occupancy as of such third anniversary (or at the end of
the first one-year extension period, if applicable). Multicare will guarantee
20% of the principal amount of the Proposed Multicare Construction Loan.
Pursuant to the Proposed Multicare Construction Loan, the Company will have the
obligation to acquire the assisted living facility being developed by a
subsidiary of Multicare at any time prior to maturity of the Proposed Multicare
Construction Loan (as extended if the subsidiary of Multicare elects to extend
the maturity of the loan as described above) after the facility reaches
Stabilized Occupancy. See "-- Purchase Contracts and Options for Term Loan,
Construction Loan and Proposed Multicare Loan Properties."

Genesis will manage all Multicare assisted living facilities, including the
facility securing the Proposed Multicare Construction Loan, pursuant to a
management agreement between Multicare and Genesis. Genesis will receive a fee
in the amount of 6% of the net operating revenues generated by all the Multicare
facilities managed by Genesis, subject to certain subordination provisions in
favor of creditors of Multicare other than the Company. The management fee will
not be subordinated to lease payments or loan payments payable by Multicare to
the Company.

Set forth below is information regarding the assisted living facility being
developed by a subsidiary of Multicare.

Sanatoga Manor. Sanatoga Manor will be a two-story, apartment style 58,618
square foot assisted living facility located on 4.09 acres of land in Pottstown,
Pennsylvania. The facility will have an operational configuration for 70
residents, including 14 beds in an Alzheimer's unit. The facility is located
adjacent to a

70
<PAGE>

130-bed skilled nursing facility owned by Multicare. Construction of this
project commenced in the second quarter of 1997 and is expected to be completed
in the second quarter of 1998. The estimated cost of this project is $7.2
million, and the Company's loan commitment is $6.5 million.

Purchase Contracts and Options for Term Loan, Construction Loan and Proposed
Multicare Loan Properties

The Company has agreed to purchase and leaseback the four assisted living
facilities that will secure Term and Construction Loans made to Genesis and to
Lake Washington in which Genesis owns a 49% interest (i) upon the earlier of the
maturity of the applicable Term Loan (which maturity shall occur on the second
anniversary of the date of such Term Loan, subject to the right of Genesis, upon
payment of a 0.5% fee, to extend the term for one additional year in the event
the applicable Lease-up Assisted Living Facility has not reached Stabilized
Occupancy as of such second anniversary of the date of such Term Loan), or at
such time as the applicable Lease-up Assisted Living Facility reaches Stabilized
Occupancy, for the Lease-up Assisted Living Facilities, and (ii) upon the
earlier of the maturity of the Construction Loan for the Initial Assisted Living
Development Project (which maturity shall occur on the third anniversary of the
date of the Construction Loan for such project, subject to the right of Genesis,
upon payment of a 0.5% fee, to extend the term for up to one-year extension
periods in the event the project has not reached Stabilized Occupancy as of such
third anniversary of the date of the Construction Loan (or at the end of the
first one-year extension period, if applicable)) or at such time as the facility
reaches Stabilized Occupancy, for the Initial Assisted Living Development
Project. The cash purchase price for each Lease-up Assisted Living Facility will
be an amount which will result in an initial annual yield of 12.0% to the
Company (determined by capitalizing at such rate either (i) in the case of a
facility which has reached Stabilized Occupancy as of the date of purchase by
the Company, an assumed net operating income for such facility, based on actual
gross revenues and operating expenses for such facility during the three months
ended immediately prior to the purchase of such facility by the Company,
annualized and adjusted to reflect a long-term occupancy of 92%, less an assumed
5% management fee, or (ii) in the case of a facility which has not reached
Stabilized Occupancy as of the date of purchase by the Company, the actual net
operating income for such facility for the three months ended immediately prior
to the purchase of such facility by the Company, annualized, less an assumed 5%
management fee). The cash purchase price for the Initial Assisted Living
Development Project to be acquired by the Company from Genesis will be an amount
which will result in an annual yield to the Company equal to the rate on
ten-year U.S. Treasury Notes as of the date of the purchase of such Initial
Assisted Living Development Project plus 525 basis points (determined by
capitalizing at such rate either (i) if the facility has reached Stabilized
Occupancy as of the date of purchase by the Company, an assumed net operating
income for the facility, based on actual gross revenues and operating expenses
for the facility for the three months ended immediately prior to the purchase of
the facility by the Company, annualized and adjusted to reflect a long-term
occupancy of 92%, less an assumed 5% management fee, or (ii) if the facility has
not reached Stabilized Occupancy as of the date of purchase by the Company, the
actual net operating income for such facility for the three months ended
immediately prior to the purchase of the facility by the Company, annualized,
less an assumed 5% management fee). The purchase agreements for each of these
facilities will be substantially similar to the purchase agreements entered into
by the Company and Genesis with respect to the assisted living facilities being
acquired for Genesis which are Initial Properties. See "-- Initial Property
Acquisition Agreements." The facility leases for each of the facilities
leased-back to Genesis will be Percentage Rent Leases. See "-- Leases --
Percentage Rent Leases."

The Company also has an option to purchase from and leaseback the two
facilities that will secure Construction Loans made to subsidiaries of SLC on
the maturity of the applicable Construction Loan (which maturity shall occur on
the third anniversary of the date of such Construction Loan, subject to the
right of such subsidiaries of SLC, upon payment of a 0.5% fee, to extend the
term for up to two one-year extension periods in the event the applicable
Initial Assisted Living Development Project has not reached Stabilized Occupancy
as of such third anniversary of the date of such Construction Loan (or at the
end of the first one-year extension period, if applicable)) or at such time
prior to maturity of the Construction Loan for the project (as extended as
described above, if applicable) as the facility reaches Stabilized Occupancy.
The option agreements provide for a cash purchase price of $13.0 million for the
Montchanin facility and $9.0 million for

71
<PAGE>

the Mallard Landing facility. The option agreements for each of these facilities
will be substantially similar to the purchase agreements entered into by the
Company and Senior LifeChoice with respect to the assisted living facilities
being acquired from Senior LifeChoice which are Initial Properties. See "--
Initial Property Acquisition Agreements." If acquired by the Company, these
facilities would be leased to subsidiaries of SLC under Minimum Rent Leases. See
"-- Leases -- SLC Minimum Rent Leases."

The Company will have an obligation to purchase from and leaseback the
three facilities that will secure the Proposed Multicare Loans, if the Company
makes such loans to Multicare, (i) for the facilities in lease-up, at or prior
to the maturity of the Proposed Multicare Term Loan for the applicable facility
(which maturity shall occur on the third anniversary of the date of the Proposed
Multicare Term Loan for such facility, subject to the right of the applicable
subsidiaries of Multicare to extend the term for up to three one-year extension
periods in the event the applicable facility has not reached Stabilized
Occupancy as of such third anniversary of the date of the Proposed Multicare
Term Loan (or the end of the first one-year extension period, if applicable),
but not earlier than such time as the applicable facility reaches Stabilized
Occupancy, and (ii) for the project under development, at or prior to the
maturity of the Proposed Multicare Construction Loan for the project (which
maturity shall occur on the third anniversary of the date of the Proposed
Multicare Construction Loan for such project, subject to the right of the
applicable subsidiary of Multicare to extend the term for up to three one-year
extension periods in the event the project has not reached Stabilized Occupancy
as of such third anniversary of the date of the Proposed Multicare Construction
Loan (or the end of the first one-year extension period if applicable), but not
earlier than such time as the facility reaches Stabilized Occupancy; provided,
however, that Multicare will not be obligated to sell any facility if the
purchase price for the facility would be less than the applicable loan amount.
The purchase agreements provide for a cash purchase price in an amount which
will result in an annual yield of 10.5% to the Company (based on actual gross
revenues and operating expenses for such facility during the three months ended
immediately prior to the purchase of such facility by the Company, annualized
and adjusted to reflect a long-term occupancy of 92%, less an assumed 5%
management fee). Other terms of the purchase agreements for each of these
facilities will be substantially similar to the purchase agreements entered into
by the Company and Genesis with respect to the assisted living facilities being
acquired from Genesis which are Initial Properties. See "-- Initial Property
Acquisition Agreements." If acquired by the Company, these facilities would be
leased to Multicare under Minimum Rent Leases. See "-- Leases -- Multicare
Minimum Rent Leases."

The Florida Facilities Note

Upon completion of the Offering, ET Capital Corp. will purchase the Florida
Facilities Note, which is a $7.5 million working capital term note, from
Genesis. The maker of the Florida Facilities Note is the Age Institute of
Florida. ET Capital Corp. will borrow 75% of the funds to purchase the Florida
Facilities Note from the Operating Partnership, and will execute a term note in
favor of the Operating Partnership in the original principal amount of $5.625
million. The remaining funds required to purchase the Florida Facilities Note
will be contributed to ET Capital Corp. by the Operating Partnership and Mr.
Romanov in exchange for nonvoting stock (representing 95% of the equity in ET
Capital Corp.) and voting stock (representing 5% of the equity in ET Capital
Corp.), respectively. ET Capital Corp.'s note to the Company will bear interest
at a rate of 13% per annum with interest only payable quarterly until the note
is paid in full. As a result of its ownership of all of the nonvoting stock in
ET Capital Corp., the Company will have a 95% economic interest in the Florida
Facilities Note, and Mr. Romanov will have a 5% economic interest in the Florida
Facilities Note through his ownership of all of the outstanding voting stock of
ET Capital Corp.

The Florida Facilities Note is a non-recourse obligation of the Age
Institute of Florida, secured by a second lien on 11 Florida skilled nursing
facilities owned by the Age Institute of Florida and a second lien on accounts
receivable and other working capital assets. These lien positions will be
shared, pari passu, by Genesis with respect to a separate, $2.5 million working
capital term note made by the Age Institute of Florida and retained by Genesis
(the "Retained Note"). The Florida Facilities Note matures on November 1, 2007.
Payments of interest only, at a fixed annual rate of 13% are due quarterly from
the Age Institute of Florida until the Florida Facilities Note is paid in full.
The Florida Facilities Note contains a yield maintenance provision in the event
of prepayment. ET Capital Corp. and its assignees will have an option to
purchase the Retained Note from Genesis, at par, for one year following the
closing of the Offering.

72
<PAGE>

The first lien on the 11 skilled nursing facilities is held by Genesis to
secure a $45.0 million loan made by Genesis in August 1996 to finance the Age
Institute of Florida's acquisition of 11 skilled nursing facilities (the
"Acquisition Loan"), which Genesis manages pursuant to a long-term management
contract. The Acquisition Loan matures on August 31, 2001 (subject to extension
by the Age Institute of Florida for five years). Interest only is payable until
maturity, with interest and a portion of principal payable during any extension
period. Effective as of the closing of the Offering, the principal amount of the
Acquisition Loan will be reduced from $45.0 million to $40.0 million and the
interest rate will be reduced from 10 1/4% (subject to cost-of-living
adjustment) to a fixed rate of 8 1/4%. Genesis then intends to sell the $40.0
million Acquisition Loan to a third party. After giving effect to the foregoing,
the debt service coverage ratio on the Florida Facilities Note and the Retained
Note for the six months ended June 30, 1997 (after debt service on the $40.0
million Acquisition Loan and the subordination of 2 1/2% of the 6% management
fee) would have been 1.68x. After giving effect to the full 6% management fee,
the debt service coverage ratio would have been .78x, or a short-fall of
$510,000. Genesis has agreed not to terminate its management agreement as long
as at least 3 1/2% of its 6% management fee is being paid on a current basis.
Any portion of the management fee not paid would accrue and be payable in full
at such time as the Age Institute of Florida is current on both the Florida
Facilities Note and the Retained Note. At June 30, 1997, the payor mix for the
11 Age Institute of Florida owned skilled nursing facilities was approximately
11% Medicare, 73% Medicaid and 16% private pay and other, and such facilities
had a weighted average occupancy of 89.8%. See "Risk Factors -- Risks Associated
with Florida Facilities Note."

Construction Loan Commitments and Related Purchase Contracts

In addition to the current Term and Construction Loans, the Company has
entered into the Construction Loan Commitments totaling $42.9 million with
Genesis and $10.4 million with SLC to provide financing for an additional nine
assisted living development or expansion projects which are in the planning
phase. The estimated cost of completion of these projects is $59.2 million. Of
these nine assisted living development or expansion projects, four are located
in Pennsylvania, two are located in New Jersey, two are located in Florida and
one is located in New Hampshire. The resident capacity of these facilities is
expected to total approximately 700 to 800. One of the projects involves the
addition of assisted living units to an existing skilled nursing facility owned
by the Company and operated by Genesis. Six of these projects are located
adjacent to existing skilled nursing facilities owned and operated by Genesis.
The remaining two projects are located within five miles of one or more Genesis
skilled nursing facilities. The Construction Loan Commitments provide for a
fixed rate of interest equal to 350 basis points over the three-year U.S.
Treasury Note rate in effect at the time the closing of the loan occurs.

One of the projects for which Construction Loan Commitments will be made
consists of an $8.2 million renovation and expansion of the 183 bed Rittenhouse
skilled nursing facility, which is one of the Initial Properties. Upon
completion of the planned renovation and expansion, the Rittenhouse facility
will contain 150 skilled nursing beds and 45 assisted living units. The assisted
living units will be located on the top two floors of the facility, segregated
from the skilled nursing beds. During construction, Genesis will continue to
operate the facility as a skilled nursing facility pursuant to a Minimum Rent
Lease entered into by the Company and Genesis. During the term of the
construction loan made by the Company pursuant to the Construction Loan
Commitment, the minimum rent payable by Genesis under such Minimum Rent Lease
will increase by 1.5% each year without regard to the revenues for such
facility. Upon completion of the renovation and expansion of Rittenhouse, the
Company will be obligated to purchase the improvements. The purchase price of
the improvements relating to the assisted living units will result in an initial
annual yield on the Company's investment equal to 525 basis points over the
ten-year U.S. Treasury Note rate as of the date the Company becomes obligated to
acquire such improvements. The purchase agreement for these improvements will be
substantially similar to the purchase agreements entered into by the Company and
Genesis with respect to the assisted living facilities being acquired from
Genesis which are Initial Properties. See "-- Initial Properties Acquisition
Agreements." After the Company purchases the improvements, it will enter into
two new, separate leases with Genesis with respect to the Rittenhouse facility.
One of these leases will be a Percentage Rent Lease with respect to the assisted
living units which will provide for the payment of percentage rent by Genesis at
a rate based on the purchase price paid by the Company for the improvements. The
second lease will be a new Minimum Rent Lease with respect to the skilled
nursing beds.

73
<PAGE>

In addition to Rittenhouse, seven of the projects will be new assisted
living facilities developed by Genesis and one will be a new assisted living
facility developed by SLC. Upon completion of development, the Company will be
obligated to purchase the seven facilities being developed by Genesis. The
purchase price for each of these facilities will be an amount which will result
in an annual yield on the Company's investment equal to 525 basis points over
the ten-year U.S. Treasury Note rate as of the date the Company becomes
obligated to acquire such facility (determined by capitalizing at such rate
either (i) in the case of a facility which has reached Stabilized Occupancy as
of the date of purchase by the Company, an assumed net operating income for such
facility, based on actual gross revenues for such facility during the three
months ended immediately prior to the purchase of such facility by the Company,
annualized and adjusted to reflect a long-term average occupancy level of 92%,
less an assumed 5% management fee, or (ii) in the case of a facility which has
not reached Stabilized Occupancy as of the date of purchase by the Company, the
actual net operating revenues for such facility for the three months ended
immediately prior to the purchase of such facility by the Company, annualized
less an assumed 5% management fee). The purchase agreements for each of the
facilities to be acquired from Genesis will be substantially similar to the
purchase agreements entered into by the Company and Genesis with respect to the
assisted living facilities being acquired from Genesis which are Initial
Properties. See "-- Initial Properties Acquisition Agreements." Upon acquisition
of any such project from Genesis, the Company will leaseback the facility to a
subsidiary of Genesis under a Percentage Rent Lease at a percentage rate based
on the purchase price paid by the Company for the facility. See "-- Leases --
Genesis Percentage Rate Leases." The Company does not have a contract to acquire
the assisted living project being developed by SLC.

The Company's obligation to fund the Construction Loan Commitments for
these projects is subject to a number of conditions, including approval of
project budgets and operating projections, approval of acceptable contracts for
Construction and receipt by Genesis or SLC of all necessary zoning, land use,
building, occupancy, licensing and other required governmental approvals and
authorizations. See "Risk Factors -- Risks Associated with Making Loans on
Development Projects."

Mortgage Debt

The following table sets forth certain information regarding the debt
obligations that will be assumed by the Company upon completion of the Offering.
<TABLE>
<CAPTION>
Interest Rate as Principal
of June 30, Balance as of Annual Debt Balance Due
Property 1997 (1) June 30, 1997 Service Maturity Date on Maturity
- -------- ------------------ ---------------- ---------------- ------------------- ---------------
(in thousands) (in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
The Woodbridge (2)
Bonds Due 2005 ............ 8.00%(F) $ 885 $ 71 September 1, 2005 $ 170
Bonds Due 2025 ............ 8.50 (F) 9,060 770 September 1, 2025 880
Belvedere NRC/
Chapel NRC (3) ............ 11.00 (F) 11,483 1,524 August 1, 2009 --
Highgate at Paoli Pointe
Series A Bonds (4) ...... 8.05 (F) 9,680 823 January 1, 2024 840
Riverview Ridge (5) ...... 9.00 (F) 2,750 248 December 31, 2002 2,540
Lacey Bank Bldg. (6) ...... 8.25 (V)(7) 486 -- July 1, 2017 --
--------- -------- --------
Total .................. $ 34,344 $ 3,436 $ 4,430
========= ======== ========
</TABLE>
- ------------
(1) "F" denotes fixed rate and "V" denotes variable rate.
(2) The bonds may be redeemed with the bond issuer's approval upon payment of a
3%, 2% and 1% redemption premium of the balance prepaid during the years
ending August 31, 2006, 2007 and 2008, respectively, and no premium
thereafter. The bonds due 2025 are subject to sinking fund redemption prior
to maturity at a redemption price equal to certain specified principal
amounts (commencing on September 1, 1999 at $50,000 increasing to $880,000
on September 1, 2025) plus accrued interest.
(3) The loan may be prepaid upon payment of a prepayment penalty calculated
under yield maintenance agreement based upon the rate payable on U.S.
Treasury obligations due closest to the maturity date.
(4) The Series A bonds may be redeemed with the bond issuer's approval upon
payment of a 3%, 2% and 1% redemption premium of the balance prepaid during
the years ending July, 2005, 2006 and 2007, respectively, and no premium
thereafter. The Series A Bonds are subject to sinking fund redemption prior
to maturity at a redemption price equal to certain specified principal
amounts (commencing on January 1, 2000 at $130,000 increasing to $840,000 on
January 1, 2024) plus accrued interest.

74
<PAGE>

(5) The note may be prepaid in full upon payment of a prepayment penalty. During
the period ending October 18, 2005, a prepayment penalty will be assessed
equal to the greater of 1% of the outstanding balance or a yield maintenance
amount based upon the U.S. Treasury securities bearing interest at 9 3/9%
due February 2006. A penalty equal to 3%, 2% and 1% of the prepaid balance
will be payable if prepayment occurs in the years ending October 18, 2006,
2007 and 2008, respectively.
(6) The note may be prepaid upon payment of a penalty equal to 3%, 2% and 1% of
the original balance if prepayment occurs in the first through
twenty-fourth, twenty-fifth through thirty-sixth and thirty seventh through
sixtieth months, respectively, from June 7, 1996.
(7) The interest rate on the note is adjusted after each 60 month period. The
new rate is made by reference to the weekly 5-year U.S. Treasury Constant
Maturities Index. The maximum rate adjustment is 3% at any change date with
a maximum rate adjustment of 6% over the loan term.

Leases

The leases for three of the four assisted living facilities and the one
independent living facility being acquired from and leased-back to wholly owned
subsidiaries of Genesis will be Percentage Rent Leases with no minimum rent. The
lease for the remaining assisted living facility being acquired from and
leased-back to a wholly owned subsidiary of Genesis will provide for the payment
of minimum rent until such facility reaches Stabilized Occupancy, at which time
the lease will convert automatically into a Percentage Rent Lease with no
minimum rent. The leases to be entered into with subsidiaries of Genesis for the
two Lease-up Assisted Living Facilities and the Initial Assisted Living
Development Projects that the Company has agreed to acquire from Genesis also
will be Percentage Rent Leases. The leases for the four skilled nursing
facilities being acquired from and leased-back to wholly owned subsidiaries of
Genesis will be Minimum Rent Leases, as well as the lease for the Highgate
facility which will be acquired from Senior LifeChoice and leased-back to
Genesis. The leases for the remaining seven Initial Properties (other than the
medical office and other buildings) being leased to third parties other than
Genesis, as well as the remaining Initial Assisted Living Development Projects,
if the Company elects to purchase such facilities, also will be Minimum Rent
Leases. The medical office and other buildings included in the Initial
Properties will be acquired by the Company subject to the existing leases with
various tenants. If the Company elects to purchase the three assisted living
facilities which secure the Proposed Multicare Loans, then the leases for these
facilities will be Minimum Rent Leases. Copies of the forms of the Percentage
Rent Leases and Minimum Rent Leases have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part. The following is a
summary of certain provisions of such agreements, does not purport to be
complete and is qualified in its entirety by reference to such agreements.

Genesis Percentage Rent Leases

The initial terms of the Percentage Rent Leases are ten years, and Genesis
(through one or more wholly owned subsidiaries), as the tenant under each such
Percentage Rent Lease, has the option to extend the term for up to two
consecutive five-year periods, provided that Genesis must exercise its option to
extend with respect to all, but not less than all, of the facilities which are
subject to Percentage Rent Leases or Minimum Rent Leases with the Company and
which commence on the same date. No assurance can be given that the options to
extend the lease terms will be exercised by Genesis. Genesis also will have a
right of first refusal with respect to any facility, on a facility-by-facility
basis, which is subject to a Percentage Rent Lease or a Minimum Rent Lease and
for which the Company receives an offer to purchase or lease which the Company
is prepared to accept during the term of the lease (as extended) and for one
year thereafter.

The Percentage Rent Leases provide for the payment of Percentage Rent at a
rate equal to between approximately 21% and 42% of gross revenues derived from
each property (excluding any revenues derived from ancillary healthcare services
provided by Genesis or its affiliates to residents of the applicable facility)
subject to a Percentage Rent Lease. Genesis is required to use reasonable
efforts to produce maximum revenues at each facility subject to a Percentage
Rent Lease by designing and implementing a comprehensive marketing strategy
program to attain the highest occupancy level compatible with a competitive rate
structure.

Each Percentage Rent Lease is a "triple net" lease, and Genesis, directly
or indirectly, is responsible thereunder, in addition to the Percentage Rent,
for all additional charges, including every fine, penalty, interest and cost
which may be added for non-payment or late payment thereof, all taxes,
assessments, levies, fees, water and sewer rents and charges, all governmental
charges with respect to the applicable property and all utility and other
charges incurred in the operation of the applicable property. Each Percentage
Rent Lease

75
<PAGE>

requires the Genesis subsidiary to maintain adequate insurance on the applicable
leased property, naming the Company or its affiliates and any mortgagees as
additional insureds. In addition, each Percentage Rent Lease requires the
Genesis subsidiary to indemnify the Company and its affiliates against certain
liabilities in connection with the applicable leased property. The Percentage
Rent Leases with Genesis will include default provisions customary for leases
for facilities of the types to be leased by Genesis, including defaults for the
failure to pay rent or otherwise satisfy all obligations under the applicable
Percentage Rent Lease. The Percentage Rent Leases also will include a default
for any failure by the lessee to maintain an average occupancy of 78% or greater
for four consecutive quarters. Certain of the Percentage Rent Leases and Minimum
Rent Leases with Genesis will be cross-defaulted with respect to monetary
defaults.

Each Genesis subsidiary is required, at its expense, to maintain each
property leased by it in good order and repair, in accordance with standards
promulgated in each Percentage Rent Lease. In addition, during the last four
years of the term (as extended, if applicable), each Genesis subsidiary is
required to expend a minimum of $3,000 per residential unit in each assisted
living or independent living facility covered by a Percentage Rent Lease as
capital expenditures to maintain the applicable property. The Company is not
required to repair, rebuild or maintain any leased property or to pay for any
addition, modification or improvement.

The obligations of each Genesis subsidiary under the Percentage Rent Leases
and the Highgate Minimum Rent Lease are guaranteed by Genesis. The Genesis
guarantees are unsecured and may be structurally subordinated to secured
indebtedness of Genesis. The guarantees do not limit Genesis' ability to incur
additional secured indebtedness. In addition, Genesis will deposit with the
Company as a security deposit an amount equal to one-sixth of the estimated
Percentage Rent payable with respect to the first year under each Percentage
Rent Lease based on the operating budget for such year. Interest on the security
deposit will be paid quarterly to Genesis at rate equal to the rate on 90-day
U.S. Treasury Bills for the applicable period. A Percentage Rent Lease may not
be assigned by Genesis without the consent of the Company, which the Company may
withhold in its sole discretion. Genesis will operate and self-manage each of
the facilities it leases from the Company.

Genesis Minimum Rent Leases

The initial term of each of the Minimum Rent Leases with Genesis is ten
years, and Genesis (through one or more wholly owned subsidiaries), as the
tenant under each such Minimum Rent Lease, has the option to extend the term for
up to two consecutive five-year periods, provided that Genesis must exercise its
option to extend with respect to all, but not less than all, of the facilities
which are subject to Minimum Rent Leases or Percentage Rent Leases with the
Company and which commence on the same date. No assurance can be given that the
options to extend the lease terms will be exercised by Genesis. Genesis also
will have a right of first refusal with respect to any facility, on
facility-by-facility basis which is subject to a Minimum Rent Lease or a
Percentage Rent Lease and for which the Company receives an offer to purchase or
lease which the Company is prepared to accept during the term of the lease (as
extended) and for one year thereafter.

Each Minimum Rent Leases with Genesis (other than with respect to Highgate
at Paoli Pointe) provides for the payment of Minimum Rent during the first lease
year at an amount based on an annual yield for the Company equal to the rate on
ten-year U.S. Treasury Notes as of the first day of such Minimum Rent Lease plus
350 basis points for each facility. The Minimum Rent Lease for Highgate provides
for the payment of minimum rent during the first lease year of $1.2 million.
Minimum Rent for each facility will increase each year by an amount equal to the
lesser of (i) 5% of the increase in the gross revenues for such facility
(excluding any revenues derived from ancillary healthcare services provided by
Genesis or its affiliates to residents of the applicable facility) during the
immediately preceding year or (ii) one-half of the increase in the Consumer
Price Index during the immediately preceding year.

Each Minimum Rent Lease is a "triple net" lease, and Genesis, directly or
indirectly, is responsible thereunder, in addition to the Minimum Rent, for all
additional charges, including every fine, penalty, interest and cost which may
be added for non-payment or late payment thereof, all taxes, assessments,
levies, fees, water and sewer rents and charges, all governmental charges with
respect to the applicable property and all utility and other charges incurred
in the operation of the applicable property. Each Minimum Rent Lease

76
<PAGE>

requires the Genesis subsidiary to maintain adequate insurance on the applicable
leased property, naming the Company or its affiliates and any mortgagees as
additional insureds. In addition, each Minimum Rent Lease requires the Genesis
subsidiary to indemnify the Company and its affiliates against certain
liabilities in connection with the applicable leased property. The Minimum Rent
Leases with Genesis will include default provisions customary for leases of
skilled nursing facilities, including defaults for the failure to pay rent or
otherwise satisfy all obligations under the applicable Minimum Rent Lease.
Certain of the Minimum Rent Leases and Percentage Rent Leases with Genesis will
be cross-defaulted with respect to monetary defaults.

Each Genesis subsidiary is required, at its expense, to maintain each
property leased by it in good order and repair, in accordance with standards
promulgated in each Minimum Rent Lease. In addition, during the last four years
of the term (as extended, if applicable), each Genesis subsidiary is required to
expend a minimum of $2,000 per skilled nursing bed and $3,000 per assisted
living unit in each skilled nursing facility covered by a Minimum Rent Lease as
capital expenditures to maintain the applicable property. The Company is not
required to repair, rebuild or maintain any leased property or to pay for any
addition, modification or improvement.

The obligations of each Genesis subsidiary under the Minimum Rent Leases
are guaranteed by Genesis. However, in the event Genesis assigns one or more of
its Minimum Rent Leases to a non-wholly owned subsidiary or a third party,
Genesis may not continue to guarantee the applicable lease. Any such assignment
of a Minimum Rent Lease by Genesis would require the consent of the Company
which may not be unreasonably withheld. Genesis is currently negotiating an
arrangement with a Philadelphia-based hospital system. If the arrangement is
negotiated successfully, the hospital system would lease-back the Wayne skilled
nursing facility following its sale to the Company and Genesis would manage the
facility. In addition, Genesis would not guarantee the lease. The Genesis
guarantees are unsecured and may be structurally subordinated to secured
indebtedness of Genesis. The guarantees do not limit Genesis' ability to incur
additional secured indebtedness. In addition, Genesis will deposit with the
Company as a security deposit an amount equal to one-sixth of the estimated
Minimum Rent payable with respect to the first year under each Minimum Rent
Lease. Interest on the security deposit will be paid quarterly to Genesis at
rate equal to the rate on 90-day U.S. Treasury Bills for the applicable period.
Genesis will operate and self-manage each of the facilities it leases from the
Company.

For the six months ended June 30, 1997, on a pro forma basis, the lease
coverage ratios (net operating income before interest, depreciation and rent
divided by rent payments) for the skilled nursing facilities to be leased to
Genesis under Minimum Rent Leases (Rittenhouse CC, Lopatcong CC, Phillipsburg CC
and Wayne NRC) were 1.57x, 1.55x, 1.77x and 0.71x, respectively. For such
period, the lease coverage ratio for Highgate was 0.72x.

SLC Minimum Rent Leases

The initial term of the Minimum Rent Lease for the Woodbridge facility with
the subsidiary of SLC that will lease the facility is ten years, and the lessee,
under such Minimum Rent Lease, has the option to extend the term for an
additional ten-year term, provided that such lessee exercises its option by
giving notice to the Company during the eighth lease year. No assurance can be
given that the lessee will exercise its option to extend the lease term. The
Minimum Rent Lease for the Woodbridge facility provides for the payment of
minimum rent during the first lease year of $1.2 million, which will increase by
1.5% annually. The Minimum Rent Lease for the Woodbridge facility also provides
for the payment of incremental percentage rent beginning in the second lease
year at a rate equal to 5% of increased gross revenues during any lease year
over the gross revenues during the first lease year for each facility
("Incremental Percentage Rent"). The Minimum Rent Lease for the Woodbridge
facility will include default provisions customary for leases of assisted living
facilities, including defaults for the failure to pay rent or otherwise satisfy
all obligations under the applicable Minimum Rent Lease.

Under the Minimum Rent Lease for The Woodbridge, the lessee is required, at
its expense, to maintain each leased property in good order and repair, in
accordance with standards set forth in each Minimum Rent Lease. In addition, in
the event that the terms of such Minimum Rent Lease are not extended, then,
during each of the last two years of the term, the lessee will be required to
make minimum capital expenditures equal

77
<PAGE>

to the greater of (i) the average of capital expenditures made during the sixth
through eighth lease years and (ii) $750 per residential unit in the facility to
maintain the property or to restore such property to the condition in which it
was leased to such lessee at the beginning of the term. The lessee, at its
expense and subject to certain approval rights of the Company, may make
additions, modifications or improvements to each property covered by the Minimum
Rent Lease. Any such addition, modification or improvement will become the
property of the Company upon expiration or termination of the Minimum Rent
Lease. The Company may, in certain circumstances, require the lessee to remove
any such addition, modification or improvement and restore the applicable
property to the condition in which it was leased to such lessee at the beginning
of the term. The Company and its affiliates are not required to repair, rebuild
or maintain any leased property or to pay for any addition, modification or
improvement proposed by any lessee.

The Minimum Rent Lease for the Woodbridge facility provides that SLC must
maintain a net worth equal to at least $5 million, including any Units
contributed to SLC by its members and the amounts under the subordinated loans
made by Genesis to SLC to fund development activities by SLC. SLC will deposit
with the Company as a security deposit an amount equal to six months of the
Minimum Rent payable with respect to the first year under each Minimum Rent
Lease. This amount may be reduced to an amount equal to three months of the
then-applicable Minimum Rent at such time as the operating income (after
deducting an assumed 6% management fee) produced by the Woodbridge facility for
four consecutive quarters exceeds 120% of the Minimum Rent payable with respect
to each quarter for the first lease year for such facility. The remaining terms
of the Minimum Rent Leases with SLC will be substantially similar to the terms
of the Minimum Rent Leases with Genesis.

For the six months ended June 30, 1997, on a pro forma basis, the lease
coverage ratio (net operating income before interest, depreciation and rent
divided by rent payments) for the Woodbridge facility was 0.09x.

The Company has an option to acquire the Mallard Landing and Montchanin
facilities for which the Company will make Construction Loans as of the closing
of the Offering. If the Company exercises its option to purchase these
facilities, the Company will lease-back the facilities to subsidiaries of SLC
under Minimum Rent Leases. The minimum rent payable during the first year of
each lease will be fixed to yield the Company a return on its investment equal
to 400 basis points over the ten-year U.S. Treasury Note rate in effect at the
time each lease is entered into. The rent payment will increase by 1.5% per
year. The Minimum Rent Leases also will provide for the payment of incremental
percentage rent beginning in the second lease year at a rate equal to 5% of
incremental gross revenues over the gross revenues during the first lease year
for each facility. Other terms of the Minimum Rent Leases for the Mallard
Landing and Montchanin facilities would be substantially the same as those
contained in the Minimum Rent Lease for the Woodbridge facility.

Crozer/Genesis Minimum Rent Lease

The initial term of the Minimum Rent Lease with Crozer/Genesis is 12 years,
which term may be extended for one or more additional five-year terms by the
mutual agreement of the Company and Crozer/Genesis made at least ten months
prior to the expiration of the then-existing term. No assurance can be given
that Crozer/Genesis will agree to extend the lease term for the facilities.

The Minimum Rent Lease with Crozer/Genesis provides for the payment of
Minimum Rent during the first lease year of $4.2 million. Minimum Rent will
increase each year by an amount equal to the lesser of (i) 5% of the increase in
the aggregate gross revenues for the facilities during the immediately preceding
year or (ii) one-half of the increase in the Consumer Price Index during the
immediately preceding year. Crozer/Genesis will deposit with the Company as a
security deposit an amount equal to one-fourth of the Minimum Rent payable with
respect to the first year under each Minimum Rent Lease, which security deposit
will bear interest at rate equal to the rate on 90-day U.S. Treasury Bills.
During the last four years of the lease term (as extended) the lessee is
required to make capital expenditures of at least $2,000 per skilled nursing bed
and $3,000 per assisted living unit to maintain the applicable property or to
restore such property to the condition in which it was leased to the tenant at
the beginning of the term. The remaining terms of the Minimum Rent Lease with
Crozer/Genesis will be substantially similar to the terms of the Minimum Rent
Leases with Genesis. Each facility leased to Crozer/Genesis will be managed by
Genesis. See "-- CKHS Initial Properties -- Crozer/Genesis Skilled Nursing
Facilities."

78
<PAGE>

For the six months ended June 30, 1997, on a pro forma basis, the lease
coverage ratios (net operating income before interest, depreciation, rent and
the subordinated portion of management agreements to be entered into with
Genesis as of the closing of the Offering divided by rent payments) for the
facilities to be leased to Crozer/Genesis under the Minimum Rent Lease
(Belvedere NRC, Chapel Manor NRC, Harston Hall NCH and Pennsburg Manor NRC) were
1.63x, 1.37x, 2.11x and 1.62x, respectively.

Age Institute of Florida Minimum Rent Lease

The initial term of the Minimum Rent Lease with the Age Institute of
Florida is ten years, and the Age Institute of Florida has the option to extend
the term for up to two consecutive five-year periods. No assurance can be given
that the options to extend the lease terms will be exercised by the Age
Institute of Florida. The Age Institute of Florida also will have a right of
first refusal with respect to the facility in the event the Company receives an
offer to purchase or lease the facility which the Company is prepared to accept
during the term of the lease (as extended) and for one year thereafter.

The Minimum Rent Lease with the Age Institute of Florida provides for the
payment of Minimum Rent during the first lease year at an amount based on
achieving an annual yield for the Company equal to the rate on ten-year U.S.
Treasury Notes as of the first day of such Minimum Rent Lease plus 400 basis
points. Minimum Rent will increase each year by an amount equal to the lesser of
(i) 5% of the increase in the gross revenues for the facility during the
immediately preceding year or (ii) one-half of the increase in the Consumer
Price Index during the immediately preceding year. The remaining terms of the
Minimum Rent Lease with the Age Institute of Florida will be substantially
similar to the terms of the Minimum Rent Leases with Genesis.

For the six months ended June 30, 1997, on a pro forma basis, the lease
coverage ratio (net operating income before interest, depreciation, rent and the
subordinated portion of management agreement to be entered into with Genesis as
of the closing of the Offering divided by rent payments) for the facility to be
leased to a subsidiary of the Age Institute of Florida under a Minimum Rent
Lease (Silverlake NRC) was 1.38x.

Multicare Minimum Rent Leases

The initial term of any Minimum Rent Lease with Multicare will be ten
years, and Multicare will have the option to extend the term for up to two
five-year extension periods upon 12 months notice to the Company. No assurance
can be given that Multicare will exercise the option to extend the lease terms.
Minimum Rent for the first lease year under any Minimum Rent Lease with
Multicare will be established by multiplying the purchase price for the
applicable facility times 10.5%, and Minimum Rent under each of the Minimum Rent
Leases with Multicare will increase by 2.5% annually. During each of the last
four years of the term (as extended, if applicable), the applicable subsidiary
of Multicare is required to make minimum capital expenditures equal to $3,000
per residential unit in each assisted living facility covered by a Minimum Rent
Lease. The remaining terms of the Minimum Rent Lease with Multicare will be
substantially similar to the terms of the Minimum Rent Leases with Genesis.

Medical Office and Other Building Leases

The Company will acquire each of the medical office and other buildings
included in the Initial Properties subject to existing leases. The existing
leases generally provide for the payment of a fixed amount as base rent during
each year, subject to increases in rent in certain of the leases. Genesis is the
principal tenant of three of the medical office and other buildings included in
the Initial Properties.

Bank Credit Facility and Tax Exempt Financing

The Bank Credit Facility. Concurrently with the completion of the Offering,
the Company expects to have in place revolving line of credit of up to $110.0
million. The Bank Credit Facility is expected to consist of two $55.0 million
tranches (the "Tranche A Facility" and the "Tranche B Facility"), to be a senior
secured obligation of the Company and to have a term of three years. The Tranche
A Facility would be available to fund the acquisition of certain of the Initial
Properties and additional growth opportunities, to refinance

79
<PAGE>

existing indebtedness, to fund the Term Loans and for working capital purposes
and general corporate purposes (subject to a maximum of 25% of the unused
commitments under the Bank Credit Facility from time to time). The Tranche B
Facility would be available to fund Construction Loans which are guaranteed by
Genesis. At the closing of the Offering, the Company expects to draw down
approximately $29.2 million under the Bank Credit Facility.

The Company's ability to borrow under the Tranche A Facility would be
governed by a borrowing base calculation. The borrowing base would be equal to
55% of the appraised value or purchase price of unencumbered properties plus
cash and cash equivalents and less unsecured indebtedness. The Tranche A
Facility would be secured by the Tranche A investments included in the borrowing
base. The Company's ability to borrow under the Tranche B Facility also would be
governed by a borrowing base calculation. The borrowing base would be equal to
90% of the Tranche B Construction Loans. The Tranche B Facility would be secured
by the Construction Loans. The Bank Credit Facility would be subject to the
Company's compliance with a number of customary financial and other covenants on
an ongoing basis, including liability to gross asset value of the borrowing base
and related net asset value ratios, debt service coverage ratios, limitations on
additional indebtedness and shareholder distributions and a minimum net worth
requirement. The Bank Credit Facility documentation would also contain customary
defaults, and would include cross-defaults to other debt of the Operating
Partnership and the Company in excess of $5 million in the aggregate. The Bank
Credit Facility would bear interest at variable rates at specified spreads over
Eurodollar rates based on different levels of borrowings.

The lender has not yet issued a commitment to provide the Bank Credit
Facility. In the event a commitment is so issued, the Company's acceptance of
this credit undertaking will be subject to final approval and satisfactory
completion of the Offering, completion by the lender of its due diligence and
preparation and execution of an acceptable credit agreement and related
documentation.

Tax Exempt Financing. The Company's indebtedness includes approximately
$19.6 million of Series 1994 Bonds and Series 1995 Bonds relating to the
Highgate and Woodbridge assisted living facilities. The underlying Series 1994
and Series 1995 Bonds are subject to various restrictions, conditions, and
requirements under the Code and its implementing regulations. In addition, the
Series 1994 and Series 1995 Bond financing documents impose certain requirements
and restrictions in connection with the operation of the facilities, including a
requirement that at all times at least 20% of the rental units in the facilities
will be occupied by tenants whose adjusted gross family income does not exceed
50% of the median gross income for the relevant geographic area.

Government Regulation

80
<PAGE>

the Company, or the Age Institute of Florida as the obligor on the Florida
Facilities Note, or the provision of services and supplies by such lessees or
the Age Institute of Florida, will meet or continue to meet the requirements for
participation in the Medicaid or Medicare programs or state licensing
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 program (which constituted
14.1% and 62.4% of the revenues for the month ended June 30, 1997, respectively,
of the nine skilled nursing facilities included in the Initial Properties)
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. The
Pennsylvania Medicaid program imposes a similar limitation, 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. 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 will begin 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 of 1997, which
establish a prospective payment system for skilled nursing facilities that will
factor capital-related costs into the facility's per diem rates for resident
care. There can be no assurance that reimbursement of the costs of skilled
nursing facilities included in the Initial Properties under current or future
reimbursement methodologies will be adequate to cover the rental payments owed
to the Company.

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

81
<PAGE>

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; accordingly, these areas may come under closer
scrutiny by the government. Furthermore, some states restrict certain business
corporations from providing, or holding themselves out as a provider of, medical
care. 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 the Age Institute of Florida.

Reliance on Government and Other Third Party Reimbursement. Assisted living
services currently are not generally reimbursable under government reimbursement
programs, such as Medicare and Medicaid. A significant portion of the revenue
derived from the nine skilled nursing facilities included in the Initial
Properties and the 11 skilled nursing facilities securing the Florida Facilities
Note, however, is attributable to government reimbursement programs such as
Medicare and Medicaid. Future budget reductions in government-financed programs
could significantly reduce reimbursement payments, and there can be no assurance
that future payment rates will be sufficient to cover the costs of providing
services to residents of such facilities. The Medicare program is highly
regulated and subject to frequent and substantial changes. In recent years,
changes in the Medicare program have resulted in reduced levels of payment for a
substantial portion of healthcare services. There can be no assurance that
reimbursement levels will not be further reduced in future periods. The Medicaid
program is a federally-mandated, state-run program providing benefits to low
income and other eligible persons and is funded through a combination of state
and federal funding. The method of reimbursement for skilled nursing care under
Medicaid varies from state to state, but is typically based on rates set by the
state. Under Medicare and many state Medicaid programs, rates for skilled
nursing facilities are based on facilities costs as reported to the applicable
federal or state agency. The facilities costs for services purchased from an
organization related by ownership or control are limited to the costs (not
charges) of the related organization. Any failure to comply with these
requirements could have a variety of adverse consequences on the operator of the
skilled nursing facility, including recoupment of amounts overpaid and other
sanctions under false claim laws. Although lease and loan payments to the
Company 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 from such facilities, such changes could have a material adverse impact
on the ability of the lessees of the skilled nursing facilities included in the
Initial Properties, and the Age Institute of Florida as the borrower under the
Florida Facilities Note, to make lease and loan payments. Healthcare facilities
also have experienced increasing pressures from private payors attempting to
control healthcare costs that in some instances have reduced reimbursement to
levels approaching that of government payors. There can be no assurance that
future actions by private third party payors, including cost control measures
adopted by managed care organizations, will not result in further reductions in
reimbursement levels, or that future reimbursements from any payor will be
sufficient to cover the costs of the facilities operations.

82
<PAGE>

Competition

The Company will compete 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 the
Company will own or that secure loans to be 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 to experience
decreased occupancy, depressed margins and lower operating results. The Company
will purchase, or make loans with an obligation to purchase, all of the assisted
living facilities owned by Genesis as of June 30, 1997 (except for a 32-bed
facility as to which the Company will have an option to purchase at fair market
value in cash exercisable within one year after the facility achieves Stabilized
Occupancy). See "Risk Factors -- Conflicts of Interest in Business Transactions
Affecting the Company -- Ongoing Competition from and Conflicts with Genesis."

Legal Proceedings

Neither the Company nor any of the Initial Properties is presently subject
to any material litigation nor, to the Company's knowledge, is any litigation
threatened against the Company, or any of the Initial Properties, other than
routine actions for negligence arising in the ordinary course of business, some
of which are expected to be covered by liability insurance and all of which
collectively are not expected to have a material adverse effect on the
liquidity, results of operations, or business or financial condition of the
Company.

Office Lease

The Company has entered into a lease with an unaffiliated third party with
respect to certain office space occupied by the Company as its headquarters at
415 McFarlan Road, Suite 202, Kennett Square, Pennsylvania. This lease has a
term of one year and provides for a monthly rental payment by the Company equal
to $1,662.50 per month. The Company has the option to lease additional space in
the same building (which option may only be exercised for a lease to include at
least an additional 50% of space) for a term of three years. The lease provides
that the Company's landlord is responsible for all taxes, utilities and other
charges associated with the leased property, and the lease contains certain
other provisions which are standard for leases of its type.

Employees

Upon completion of the Offering, the Company expects to have five
employees.

83
<PAGE>

MANAGEMENT

Trustees, Trustee Nominees And Executive Officers

Pursuant to an amendment to the Company's Declaration of Trust to be
adopted immediately prior to the completion of the Offering, the Board of
Trustees of the Company will be expanded effective immediately following the
completion of the Offering to include the trustee nominees named below, each of
whom has been nominated for election and has consented to serve. Upon election
of the trustee nominees, a majority of trustees will not be employees or
affiliates of the Company or Genesis. In connection with the expansion of the
Board of Trustees, and upon completion of the offering, the Board of Trustees
will be divided into three classes of trustees. The initial terms of the first,
second and third classes will expire in 1998, 1999 and 2000, respectively.
Beginning in 1998, trustees of each class will be chosen for three-year terms
upon the expiration of their current terms and each year one class of trustees
will be elected by the shareholders. The Company believes that classification of
the Board of Trustees will help to assure the continuity and stability of the
Company's business strategies and policies as determined by the Board of
Trustees. Holders of Common Shares will have no right to cumulative voting in
the election of trustees. Consequently, at each annual meeting of shareholders,
the holders of a majority of the Common Shares will be able to elect all of the
successors of the class of trustees whose term expires at that meeting.

Information concerning the current trustees, trustee nominees and executive
officers of the Company is set forth below.
<TABLE>
<CAPTION>
Name Age Position Term
- ---- ----- -------- -----
<S> <C> <C> <C>
Michael R. Walker ............ 48 Chairman of the Board of Trustees 2000
Edward B. Romanov, Jr. ...... 45 President, Chief Executive Officer and Trustee 1999
D. Lee McCreary, Jr. ......... 40 Vice President and Chief Financial Officer
Kent P. Dauten ............... 42 Trustee Nominee 1998
Rodman W. Moorhead, III ...... 54 Trustee Nominee 1999
Timothy T. Weglicki ......... 46 Trustee Nominee 2000
</TABLE>

Michael R. Walker is the Chairman of the Board of Trustees of the Company.
Mr. Walker currently serves as the Chairman and Chief Executive Officer of
Genesis, and he has served in those capacities since he founded Genesis in
1985. In 1981, Mr. Walker co-founded Health Group Care Centers ("HGCC"). At
HGCC, he served as Chief Financial Officer and, later, as President and Chief
Operating Officer. Prior to its sale in 1985, HGCC operated nursing homes with
4,500 nursing beds in 12 states. From 1978 to 1981, Mr. Walker was the Vice
President and Treasurer of AID Healthcare Centers, Inc. ("AID"). AID, which
owned and operated 20 nursing centers, was co-founded in 1977 by Mr. Walker as
the nursing home division of Hospital Affiliates International. Mr. Walker
holds a Master of Business Administration from Temple University and a Bachelor
of Arts in Business Administration from Franklin and Marshall College. Mr.
Walker serves on the Board of Directors of Renal Treatment Centers, Inc. and on
the Board of Trustees of Universal Health Realty Income Trust, a real estate
investment trust focused on healthcare-related investments.

Edward B. Romanov, Jr. is the President and Chief Executive Officer and a
Trustee of the Company. Mr. Romanov served as Senior Vice President,
Development of Genesis from June 1990 until June 1997. From January 1994 until
June 1997, Mr. Romanov also had responsibility for merger and acquisition
activity by Genesis. During such period, he successfully negotiated the
acquisition of several healthcare companies by Genesis with total assets in
excess of $500 million. From June 1990 through May 1995, Mr. Romanov was a
financial consultant to Genesis, pursuant to a consulting and services
agreement between Genesis and American Community Environments Corporation of
which he was an employee. Prior to joining Genesis, Mr. Romanov was founder and
President of WesTerra Construction, WesTerra Capital Company and WesTerra
Development, through which Mr. Romanov developed and financed real estate
projects. Mr. Romanov holds both a Master of Business Administration and a
Bachelor of Science degree from Lehigh University.

D. Lee McCreary, Jr. is Vice President and Chief Financial Officer of the
Company. From September 1994 until May 1997, Mr. McCreary was Vice
President-Tax Services at Siegfried Schieffer & Seitz, a Wilmington,
Delaware-based regional accounting firm ("Siegfried"). Prior to joining
Siegfried, he was a partner at Price Waterhouse LLP, where he worked for over
14 years providing tax consulting services for

84
<PAGE>

companies in the healthcare, real estate and financial services industries. Mr.
McCreary is a certified public accountant and a member of both the American
Institute of Certified Public Accountants and the Maryland Association of
Certified Public Accountants. He holds a Bachelor of Science degree from the
University of Delaware.

Kent P. Dauten has served as President of Keystone Capital, Inc., a
venture capital firm, and as President of HIMSCORP, INC., a medical records
company, since March 1994. From January 1993 to March 1994, he was Senior Vice
President of Madison Dearborn Partners, Inc. and from September 1979 to
December 1992, he was Senior Vice President of First Chicago Venture Capital.
Mr. Dauten currently serves as a director of Health Management Associates, Inc.
of Naples, Florida, a NYSE-listed health management firm and formerly was a
director of Genesis. Mr. Dauten holds a Master of Business Administration from
the Harvard Business School and a Bachelor of Arts in Economics from Dartmouth
College.

Rodman W. Moorhead, III has been employed since 1973 by E. M. Warburg,
Pincus & Co., LLC, a specialized financial services firm in New York, where he
currently serves as Senior Managing Director. He is a director of Coventry
Corporation, a multi-market health maintenance organization, NeXstar
Pharmaceuticals, Inc., a novel human therapy and drug delivery company,
Transkaryotic Therapies, Inc., a gene therapy company, Xomed Surgical Products,
a surgical sponge and wound care products company and several private companies.
He is a Trustee of The Taft School and a member of the Overseers' Committee on
University Resources, Harvard College. Mr. Moorhead holds a Master of Business
Administration from the Harvard Business School and a Bachelor of Arts in
Economics from Harvard University.

Timothy T. Weglicki has been with ABS Partners, L.P., and ABS Capital
Partners, a private equity fund as a general partner since December 1993. Prior
to joining ABS Partners, he was a Managing Director of Alex. Brown & Sons Inc.,
where he established and headed its Capital Markets Group and prior thereto
headed the firm's Equity Division, Corporate Finance Department, and Health Care
Investment Banking Group. He is a director of VitalCom, Inc., a wireless patient
monitoring company, and several privately held companies. Mr. Weglicki holds an
M.B.A. from the Wharton Graduate School of Business and a Bachelor of Arts
degree from The Johns Hopkins University.

Committees of the Board of Trustees

Audit Committee. The Audit Committee will make recommendations concerning
the engagement of independent public accountants, review with the independent
public accountants the plans and results of the audit engagement, approve
professional services provided by the independent public accountants, review the
independence of the independent public accountants, consider the range of audit
and non-audit fees and review the adequacy of the Company's internal accounting
controls. The membership of the Audit Committee will consist of only Independent
Trustees as long as they continue in office. An individual is deemed an
"Independent Trustee" if such individual is not an affiliate of the Company and
is not an employee of the Company. Upon completion of the Offering, the members
of the Audit Committee will be Messrs. Dauten, Moorhead and Weglicki.

Executive Committee. The Executive Committee will have the authority within
certain parameters to acquire, dispose of and finance investments for the
Company (including the issuance by the Operating Partnership of additional Units
or other equity interests) and approve the execution of contracts and
agreements, including those related to the borrowing of money by the Company,
and generally exercise all other powers of the Board of Trustees except as
prohibited by law. Upon completion of the Offering, the members of the Executive
Committee will be Messrs. Walker and Romanov.

Compensation Committee. The Compensation Committee will determine
compensation for the Company's executive officers. The Compensation Committee
will review and make recommendations concerning proposals by management with
respect to compensation, bonus, employment agreements and other benefits and
policies respecting such matters for the executive officers of the Company. Upon
completion of the Offering the members of the Compensation Committee will be
Messrs. Walker, Moorhead and Weglicki.

Share Option Committee. The Share Option Committee will administer the
ElderTrust 1997 Share Option and Incentive Plan, including the grant of options
and bonus shares thereunder. Upon completion of the Offering, the members of
the Share Option Committee will be Messrs. Moorhead and Weglicki.

85
<PAGE>

The Board of Trustees will not have a nominating committee and the entire
Board of Trustees will perform the function of such a committee.

Compensation of the Board of Trustees

The Company will reimburse the trustees for travel expenses incurred in
connection with attending meetings of the Board of Trustees and committee
meetings. In lieu of trustees' fees, each of the non-employee trustees of the
Company (other than the Chairman of the Board) will receive share bonus awards
of 2,500 Common Shares upon completion of the Offering. Each of the non-employee
trustees of the Company (other than the Chairman of the Board) also will receive
ten-year share option grants for 7,500 Common Shares at a per share option
exercise price equal to the initial public offering price, effective upon
completion of the Offering. These options will vest over three years. The
Chairman of the Board will be granted a ten-year share option for 150,000 Common
Shares at a per share option exercise price equal to the initial public offering
price, effective upon completion of the Offering. The options granted to the
Company's chairman will vest over three years. Mr. Walker will enter into a
non-competition agreement with the Company. See "-- Employment and
Non-Competition Agreements."

Executive Compensation

The following table sets forth the annual base salary levels and other
compensation expected to be paid in 1997 following completion of the Offering to
the Company's Chief Executive Officer and to the Company's other executive
officer (the "Named Executive Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
Annual Long Term
Compensation Compensation
-------------- ---------------
1997 Base Share Unit All Other
Name Principal Position(s) Salary($)(1) Options(#)(2) Awards(#)(3) Compensation($)
- ---- --------------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Edward B. Romanov, Jr. ...... President, Chief Executive $ 250,000 300,000 100,000 $ 2,200(4)
Officer and Trustee
D. Lee McCreary, Jr. ......... Vice President and Chief 120,000 25,000 12,000 $ 1,100(4)
Financial Officer
</TABLE>

- ------------
(1) Does not include bonuses that may be paid to the above individuals. See "--
Incentive Compensation."
(2) Represents Units issued to Messrs. Romanov and McCreary in the Formation
Transactions.
(3) These options will be granted effective upon the closing of the Offering
under the Company's 1997 Share Option and Incentive Plan at an exercise
price equal to the initial public offering price. See "-- 1997 Share Option
and Incentive Plan."
(4) Represents the estimated amount of dividends to be credited to the executive
officer's account in 1997 on dividend equivalent rights to be granted to the
executive officer upon completion of the Offering under the 1997 Share
Option and Incentive Plan for a number of Common Shares equal to three times
the executive officer's 1997 base salary divided by the initial public
offering price. See " -- 1997 Share Option and Incentive Plan."

<PAGE>

Option Grants in Fiscal Year 1997
<TABLE>
<CAPTION>
Potential Realizable
Value
At Assumed Annual Rates
Of
Share Price Appreciation
Individual For Option Period
Grants -------------------------
Percent Of ----------------
Shares of Total Options
Common Stock to be Granted Exercise or
Underlying Options To Employees Base Price Expiration
Name to be Granted(1) In Fiscal Year ($/Sh)(2) Date 5%($) 10%($)
- ---- -------------------- ---------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Edward B. Romanov, Jr. ...... 300,000 92.3% $ 20.00 (3) $3,773,500 $9,562,500
D. Lee McCreary, Jr. ......... 25,000 7.7 20.00 (3) 314,500 797,000
</TABLE>
- ------------
(1) Of the 300,000 options to be granted to Mr. Romanov, options for 150,000
shares will vest immediately and options for 150,000 shares will vest over
three years. The options to be granted to Mr. McCreary will vest over five
years.
(2) Based on the assumed initial public offering price. The exercise price per
share will equal the initial public offering price.
(3) The expiration date of the options is the ten year anniversary of the
closing date of the Offering.

86
<PAGE>

1997 Share Option and Incentive Plan

Prior to the completion of the Offering, the Company will adopt the
ElderTrust 1997 Share Option and Incentive Plan (the "Plan") to provide
incentives to attract and retain executive officers, trustees, employees and
other key personnel. The Plan will be administered by the Share Option Committee
of the Board of Trustees (the "Committee"). The maximum number of shares
available for issuance under the Plan will be 9.9% of the total number of Common
Shares and Units (other than Units owned by the Company) outstanding from time
to time (initially, 727,613 shares).

Share Options. The Plan permits the granting of (i) options to purchase
Common Shares intended to qualify as incentive options ("Incentive Options")
under Section 422 of the Code and (ii) options that do not so qualify
("Non-Qualified Options"). The option exercise price of each option will be
determined by the Committee but may not be less than 100% of the fair market
value of the Common Shares on the date of grant in the case of Incentive
Options, and may not be less than 25% of the fair market value of the Common
Shares on the date of grant in the case of Non-Qualified Options. Plan
participants may elect, with the consent of the Committee, to receive discounted
Non-Qualified Options in lieu of cash compensation.

The term of each option will be fixed by the Committee and may not exceed
ten years from the date of grant in the case of an Incentive Option. The
Committee will determine at what time or times each option may be exercised and,
subject to the provisions of the Plan, the period of time, if any, after
retirement, death, disability or termination of employment during which options
may be exercised. Options may be made exercisable in installments, and the
exercisability of options may be accelerated by the Committee.

Upon exercise of options, the option exercise price must be paid in full
either in cash or by certified or bank check or other instrument acceptable to
the Committee or, if the Committee so permits, by delivery of Common Shares
already owned by the optionee or delivery of a promissory note. The exercise
price may also be delivered to the Company by a broker pursuant to irrevocable
instructions to the broker from the optionee.

At the discretion of the Committee, options granted under the Plan may
include a "re-load" feature pursuant to which an optionee exercising an option
by the delivery of shares of Common Shares would automatically be granted an
additional option (with an exercise price equal to the fair market value of the
Common Shares on the date the additional option is granted) to purchase that
number of Common Shares equal to the number delivered to exercise the original
option.

To qualify as Incentive Options, options must meet additional federal tax
requirements, including limits on the value of shares subject to Incentive
Options which first become exercisable in any one calendar year, and a shorter
term and higher minimum exercise price in the case of certain large
shareholders.

Restricted Shares. The Committee may also award Common Shares to
participants, subject to such conditions and restrictions as the Committee may
determine. These conditions and restrictions may include the achievement of
certain performance goals and/or continued employment with the Company through a
specified restricted period. If the performance goals and any other restrictions
are not attained, the participants would forfeit their restricted Common Shares.
The purchase price of restricted Common Shares will be determined by the
Committee.

Deferred Common Shares. The Committee may also award deferred Common Share
units which are ultimately payable in the form of unrestricted Common Shares.
The deferred Common Share may be subject to such conditions and restrictions as
the Committee may determine. These conditions and restrictions may include the
achievement of certain performance goals and/or continued employment with the
Company through a specified restricted period. If the performance goals and
other restrictions are not attained, the participants will forfeit their
deferred Common Share units. During the deferral period, subject to terms and
conditions imposed by the Committee, the deferred Common Share units may be
credited with dividend equivalent rights.

Unrestricted Common Shares. The Committee may also grant shares (at no cost
or for a purchase price determined by the Committee) which are free from any
restrictions under the Plan. Unrestricted Common Shares may be issued to
participants in recognition of past services or other valid consideration, and
may be issued in lieu of cash compensation to be paid to such participants.

87
<PAGE>

Performance Share Awards. The Committee may also grant performance shares
awards to participants entitling the participants to receive Common Shares upon
the achievement of individual or Company performance goals and such other
conditions as the Committee shall determine.

Dividend Equivalent Rights. The Committee may grant dividend equivalent
rights, which entitle the recipient to receive credits for dividends that would
be paid if the recipient had held a specified number of Common Shares. Dividend
equivalent rights may be granted as a component of another award or as a
freestanding award. Dividend equivalent rights credited under the Plan may be
paid currently or be deemed to be reinvested in additional Common Shares, and
may thereafter accrue additional dividend equivalent rights at fair market value
at the time of deemed reinvestment. Dividend equivalent rights may be settled in
cash, shares or a combination thereof, in a single installment or installments,
as specified in the award. Awards payable in cash on a deferred basis may
provide for crediting and payment of interest equivalents.

Adjustments for Share Dividends, Mergers and Similar Events. The Committee
will make appropriate adjustments in outstanding awards to reflect Common Share
dividends, splits and similar events. In the event of a merger, liquidation,
sale of the Company or similar event, the Committee, in its discretion, may
provide for substitution or adjustment of outstanding awards, or may terminate
all awards with payment of cash or in-kind consideration.

Change of Control. The Committee may provide in each award agreement that
the award becomes fully vested and non-forfeitable if, after a Change of Control
of the Company (as defined in the Plan), the participant's employment is
terminated by the Company (or its successor) without cause, or if the
participant voluntarily resigns for "good reason" (as defined in the Plan).

Amendments and Termination. The Board of Trustees may at any time amend or
discontinue the Plan and the Committee may at any time amend or cancel
outstanding awards for the purpose of satisfying changes in law or for any other
lawful purpose. However, no such action may be taken which adversely affects any
rights under an outstanding award without the holder's consent. Further, Plan
amendments may be subject to approval by the Company's shareholders if and to
the extent required by the Code to preserve the qualified status of Incentive
Options or to preserve tax deductibility of compensation earned under options.

Employment and Non-Competition Agreements

The Company will enter into an employment agreement with Edward B. Romanov,
Jr. as its President and Chief Executive Officer that will continue in effect
until the third anniversary of the closing of the Offering and thereafter will
be automatically renewed for successive two year terms, unless otherwise
terminated. Mr. Romanov's annual base salary currently is $250,000, subject to
increase by the Board of Trustees. Mr. Romanov's employment agreement entitles
him to receive additional bonus compensation as may be determined by the
Company's Board of Trustees in its sole discretion. In addition, Mr. Romanov
will receive options to purchase 300,000 Common Shares and dividend equivalent
rights with respect to 37,500 Common Shares. Mr. Romanov's employment agreement
may be terminated by the Company at any time for Cause (as defined in his
employment agreement), upon the vote of not less than two-thirds of the entire
Board of Trustees. Mr. Romanov may terminate his employment agreement on 30
days' notice upon the occurrence of certain events, including an election by the
Company not to renew the term of the agreement, as described above. In the event
that the Company terminates Mr. Romanov's employment agreement without Cause, or
Mr. Romanov terminates his employment agreement as described in the preceding
sentence, Mr. Romanov is entitled to severance compensation equal to two times
his then current annual base salary and bonus. If Mr. Romanov becomes disabled,
he will continue to receive all of his compensation and benefits for six months,
less any amounts received under any disability insurance provided by the
Company. If the disability continues for six months and for periods aggregating
12 months in any 24 month period, the Company may terminate Mr. Romanov's
employment. Mr. Romanov's employment agreement also contains provisions which
are intended to limit him from competing with the Company throughout the term of
the agreement and for a period of two years thereafter. In particular, Mr.
Romanov may not establish, engage, own, manage, operate, join or control or
participate in the establishment, ownership (other than as the owner of less
than 1% of the stock of a corporation whose shares are publicly traded),
management, operation or control of, or be a director, trustee, officer,
employee, salesman, agent or representative of, or be a consultant to, any
person or entity in any business in competition with the Company, at any
location within 100 miles of any office or facility owned, leased or operated by
Company.

88
<PAGE>

Mr. Walker also will enter into a similar non-competition agreement with
the Company restricting such activities by Mr. Walker in his individual capacity
at any location within 10 miles of any office or facility owned, leased or
operated by the Company during the period that Mr. Walker serves as Chairman or
as a trustee of the Company and for one year thereafter, provided that any
activity engaged in by Mr. Walker as an officer, director or employee of, or any
interest of Mr. Walker as a shareholder in, Genesis will not in any way be
limited by such provisions. Mr. Walker's non-competition agreement also will
provide that he may retain his board position with Universal Health Realty
Income Trust and that he may develop office and similar development projects not
related to the healthcare business.

Incentive Compensation

The Company intends to establish an incentive compensation plan for key
officers of the Company and its subsidiaries. This plan will provide for payment
of cash bonuses to participating officers after evaluating the officer's
performance and the overall performance of the Company. The Chief Executive
Officer will make recommendations to the Compensation Committee of the Board of
Trustees, which will make the final determination of the award of bonuses. The
Compensation Committee will determine such bonuses, if any, for the Chief
Executive Officer.

Limitation of Liability and Indemnification

The Maryland REIT Law permits a Maryland REIT to include in its Declaration
of Trust a provision limiting the liability of its trustees and officers to the
trust and its shareholders for money damages except for liability resulting from
(a) actual receipt of an improper benefit or profit in money, property or
services, to the extent of the amount of the benefit or profit in money,
property or services actually received, or (b) a judgment or other final
adjudication adverse to the trustee or officer entered in a proceeding based on
a finding in the proceeding that the trustee's or officer's action or failure to
act was material to the cause of action adjudicated in the proceeding and was
committed in bad faith or was the result of active and deliberate dishonesty.
The Declaration of Trust of the Company contains a provision that eliminates
such liability to the maximum extent permitted by Maryland law.

The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former trustee or officer or (b) any individual who, while a
trustee of the Company and at the request of the Company, serves or has served
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her status
as a present or former trustee or officer of the Company. The Bylaws of the
Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former trustee or officer who
is made party to the proceeding by reason of his or her service in that capacity
or (b) any individual who, while a trustee or officer of the Company and at the
request of the Company, serves or has served another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise as a
trustee, director, officer or partner of such corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and who is made a
party to the proceeding by reason of his or her service in that capacity,
against any claim or liability to which he or she may become subject by reason
of such status. The Declaration of Trust and Bylaws also permit the Company to
indemnify and advance expenses to any employee or agent of the Company. The
Bylaws require the Company to indemnify a trustee or officer (or any former
trustee or officer) who has been successful, on the merits or otherwise, in the
defense of any proceeding to which he or she is made a party by reason of his or
her service in that capacity.

The Maryland REIT Law permits a Maryland REIT to indemnify and advance
expenses to its trustees, officers, employees and agents to the same extent as
permitted by the MGCL for directors and officers of Maryland corporations. The
MGCL permits a corporation to indemnify its present and former directors and
officers, among others, against judgments, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their

89
<PAGE>

service in those or other capacities unless it is established that (a) the act
or omission of the director or officer was material to the matter giving rise to
the proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty, (b) the director or officer actually received
an improper personal benefit in money, property or services or (c) in the case
of any criminal proceeding, the director or officer had reasonable cause to
believe that the act or omission was unlawful. However, under the MGCL, a
Maryland corporation may not indemnify for an adverse judgment in a suit by or
in the right of the corporation. In accordance with the MGCL, the Bylaws of the
Company require it, as a condition to advancing expenses, to obtain (a) a
written affirmation by the Trustee or officer of his or her good faith belief
that he or she has met the standard of conduct necessary for indemnification by
the Company as authorized by the Bylaws and (b) a written statement by or on his
or her behalf to repay the amount paid or reimbursed by the Company if it shall
ultimately be determined that the standard of conduct was not met.

The Operating Partnership Agreement also provides for indemnification of
the Company and its officers and Trustees to the same extent that
indemnification is provided to officers and trustees of the Company in its
Declaration of Trust, and limits the liability of the Company and its officers
and trustees to the Operating Partnership and its respective partners to the
same extent that the liability of the officers and trustees of the Company to
the Company and its shareholders is limited under the Company's Declaration of
Trust.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to trustees, officers or persons controlling the registrant
pursuant to the foregoing provisions, the registrant has been informed that in
the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.

Indemnification Agreements

The Company intends to enter into indemnification agreements with each of
its trustees and officers prior to completion of the Offering. The
indemnification agreements will require, among other things, that the Company
indemnify its trustees and officers to the fullest extent permitted by law and
advance to its trustees and executive officers all related expenses, subject to
reimbursement if it is subsequently determined that indemnification is not
permitted.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Genesis currently leases the Windsor Office Building and the Windsor Clinic
and Training Facility from a partnership which is owned by among others, Michael
R. Walker, Chairman of the Board of Directors and Chief Executive Officer of
Genesis and Chairman of the Board of Trustees of the Company. Payments under
these two leases have approximated $197,000 per year during each of the past
three fiscal years. The Company will purchase these two office buildings in the
Formation Transactions.

The Windsor Office Building and Windsor Clinic and Training Facility secure
a $1.1 million mortgage held by Mr. Walker since May 1995. The interest rate on
such mortgage is 10.25%. The mortgage is payable in monthly principal and
interest installments of $11,780, with a balloon payment of the outstanding
balance due May 2005. This indebtedness will be repaid in full upon completion
of the Offering using a portion of the net proceeds from the Offering.

Genesis currently is involved in certain lease transactions with Salisbury
Medical Office Building General Partnership ("SMOBGP"). This partnership is
owned by, among others, Michael R. Walker. Genesis rents space in the Salisbury
Medical Office Building which is used as a medical clinic and therapy clinic
pursuant to two leases with SMOBGP. Payments under the leases have approximated
$169,000 during each of the past three fiscal years. The Company will purchase
all of the outstanding general partnership interests in SMOBGP in the Formation
Transactions.

The Salisbury Medical Office Building secures a $742,000 mortgage held by
Mr. Walker since August 1995. The interest rate on such mortgage is 10.25%. The
mortgage is payable in monthly principal and interest installments of $7,362,
with a balloon payment of $674,000 due April 30, 2000. This indebtedness will be
repaid in full upon completion of the Offering using a portion of the net
proceeds from the Offering.

90
<PAGE>

In June 1995, SMOBGP made two loans totaling $450,000 to Mr. Romanov. The
loans mature in May 1998 and provide for the payment of interest only until
maturity at an annual interest rate of 11 1/2%. One loan for $250,000 has been
repaid. The second loan for $200,000 will be repaid by Mr. Romanov prior to
completion of the Offering.

In October 1997, the Company agreed to issue and sell to Mr. Romanov
200,000 Common Shares at a per share price equal to the initial public offering
price. Mr. Romanov will pay for such shares with a recourse, 10-year promissory
note with interest only payable quarterly until maturity at an annual interest
rate of 7%.

91
<PAGE>

STRUCTURE AND FORMATION OF THE COMPANY

Formation of the Company. The formation transactions include the following
transactions which will have occurred prior to the Closing of the Offering:

o ElderTrust Realty Group, Inc., a Maryland corporation owned by Messrs.
Michael R. Walker, Chairman of the Board of Trustees of the Company and
Chairman of the Board and Chief Executive Officer of Genesis, and Edward B.
Romanov, Jr., President and Chief Executive Officer and a trustee of the
Company and until recently a Senior Vice President of Genesis, was
incorporated on June 5, 1997 as the organizational general partner of the
Operating Partnership. The Operating Partnership was formed on July 30,
1997. The organizational limited partners of the Operating Partnership were
Mr. Romanov, D. Lee McCreary, Jr., Vice President and Chief Financial
Officer of the Company, and ET Partnership, a Pennsylvania general
partnership. The partners of ET Partnership consist of Genesis, Mr. Romanov
and MGI Limited Partnership, a Delaware limited partnership whose general
partner is a corporation owned by Mr. Walker and whose limited partners
consist of Mr. Walker and other executive officers of Genesis.

o ElderTrust filed its Declaration of Trust with the State Department of
Assessments and Taxation of Maryland on September 23, 1997.

o ET Capital Corp. was formed as a Delaware corporation. The Operating
Partnership owns all of the nonvoting stock of ET Capital Corp.
(representing a 95% equity interest) and Mr. Romanov owns all of the voting
stock of ET Capital Corp. (representing a 5% equity interest).

o The Operating Partnership entered into purchase agreements to acquire for
cash from Genesis and certain other persons their direct or indirect
interests in certain of the 21 Initial Properties and, through ET Capital
Corp., substantially all of the economic interest in the Florida Facilities
Note.

o The Operating Partnership entered into contribution agreements to acquire
for Units from the Continuing Investors the remaining interests in the
Initial Properties.

o The Operating Partnership agreed to make Term Loans and a Construction Loan
secured by four assisted living facilities in lease-up or development to
Genesis (including a Term Loan for a facility in which Genesis has a 49%
interest), and to acquire from Genesis for cash three of the four
facilities that secure such loans at the end of the loan term or at such
time as each such facility reaches Stabilized Occupancy.

o The Operating Partnership agreed to make Construction Loans secured by two
facilities to subsidiaries of SLC, and entered into option agreements
granting it an option to acquire from such subsidiaries of SLC for cash the
facilities that secure such loans at the end of the loan term or at such
time as each such facility reaches Stabilized Occupancy.

o The Operating Partnership has made Construction Loan Commitments with
respect to nine assisted living development and expansion projects in the
planning phase. Pursuant to these Construction Loan Commitments, the
Operating Partnership will agree to purchase for cash seven of these
projects which are owned by Genesis upon the earlier of the maturity of the
related loan or at such time following completion of development as each
such facility reaches Stabilized Occupancy.

o The Operating Partnership agreed to make the Proposed Multicare Loans
secured by three properties in lease-up or development and to purchase the
assisted living facilities securing these loans, subject to certain terms
and conditions.

The following transactions will occur at or immediately prior to the
closing of the Offering:

92
<PAGE>

o The Company will be admitted to the Operating Partnership as an additional
general partner, and ElderTrust Realty Group, Inc. will withdraw as a
general partner of the Operating Partnership.

o The Company will sell 6,800,000 Common Shares in the Offering and will
contribute the net proceeds therefrom to the Operating Partnership in
exchange for Units.

o The Operating Partnership will consummate the acquisition of the Initial
Properties, the funding of the Term Loans and the initial draws under the
Construction Loans and the purchase of substantially all of the economic
interest in the Florida Facilities Note by investing an aggregate amount of
approximately $199.0 million in the form of (i) approximately $139.6
million in cash paid to Genesis and certain other investors to purchase
certain of the Initial Properties or interests therein, to fund the Term
Loans and to acquire the Florida Facilities Note, (ii) 220,030 Units issued
to the Continuing Investors to purchase interests in certain of the Initial
Properties, (iii) approximately $7.5 million in cash paid to lenders to
repay mortgage indebtedness secured by certain of the Initial Properties,
(iv) approximately $13.2 million in cash drawn under the Bank Credit
Facility and paid to Genesis and certain other investors to purchase
certain of the Initial Properties or interests therein and to fund the
initial draws under the Construction Loans and (v) approximately $34.2
million in assumed mortgage indebtedness secured by certain of the Initial
Properties. Subsequent advances under the Construction Loans, the funding
of the Construction Loan Commitments and the subsequent purchases of the
Lease-up Assisted Living Facilities and the Initial Assisted Living
Development Project owned by Genesis, and of the two remaining Initial
Assisted Living Development Projects owned by subsidiaries of SLC, if the
Company elects to purchase such facilities, also will be made through
borrowings under the Bank Credit Facility. In addition, if certain terms
and conditions are satisfied, the Company will fund the Proposed Multicare
Term Loans and the initial draw under the Proposed Multicare Construction
Loan, as well as subsequent advances under the Proposed Multicare
Construction Loan and the subsequent purchases of the assisted living
facilities that secure the Proposed Multicare Loans, if the Company elects
to purchase such facilities, through borrowings under the Bank Credit
Facility.

o The Operating Partnership will be recapitalized to reflect the ownership of
interests in the Operating Partnership by the Company, the Continuing
Investors, Messrs. Walker, Romanov and McCreary and MGI Limited
Partnership, and the Operating Partnership will issue Units to each of its
partners to represent these interests. The Units issued to Mr. Walker and
to Mr. Romanov in respect of the Genesis interest in ET Partnership
purchased by Messrs. Walker and Romanov prior to the liquidation of ET
Partnership will be exchanged for Common Shares on a one-for-one basis.

o Mr. Walker will enter into a non-competition agreement with the Company
(which will not limit in any way any activities related to Mr. Walker's
employment by or interest in Genesis), and Mr. Romanov will enter into an
employment and non-competition agreement with the Company. See "Management
-- Employment and Non-Competition Agreements."

o The Operating Partnership will acquire all of the assets and liabilities of
ElderTrust Realty Group, Inc., which will consist of a lease, a bank
account and certain contract rights and obligations, for cash in the amount
of $100,000. ElderTrust Realty Group, Inc. will then be dissolved.

o As a result of the foregoing transactions, the Company will own 7,012,600
Units, which will represent an approximate 95.4% interest in the Operating
Partnership after the Offering.

93
<PAGE>

Benefits to Related Parties. Genesis and certain affiliates of the Company
will realize certain material benefits in connection with the Formation
Transactions, including the following:

o Genesis will receive $60.6 million in cash from the Company for the nine
Initial Properties or interests therein transferred by Genesis to the
Company in the Formation Transactions. The estimated purchase price for
these facilities and interests is $61.1 million, including $500,000 of
assumed indebtedness. The aggregate book value reflected on Genesis'
financial statements of the Initial Properties to be acquired from Genesis
as of June 30, 1997 was approximately $41.3 million. The Company does not
believe that the book values of the Initial Properties being acquired from
Genesis (which reflect the historical cost of such Initial Properties, net
of accumulated depreciation, where applicable) are equivalent to the fair
market values of such Initial Properties.

o Genesis or an entity in which Genesis owns a 49% interest will receive
$16.0 million in cash from the Company as a result of the funding of the
Term Loans and the initial draw under one of the Construction Loans to be
made by the Company. The Company will be obligated to fund approximately
$3.9 million in subsequent advances under the Construction Loan made to
Genesis.

o If certain terms and conditions are satisfied, Multicare, in which Genesis
will own indirectly 44% of the interests, will receive approximately $15.9
million in cash from the Company as a result of the funding of the Proposed
Multicare Term Loans and the initial draw under the Proposed Multicare
Construction Loan by the Company. In addition, if such terms and conditions
are satisfied, the Company will be obligated to fund approximately $3.5
million in subsequent advances under the Proposed Multicare Construction
Loan, and the Company will acquire options to purchase from Multicare for
cash the assisted living facilities that secure the Proposed Multicare
Loans for an estimated aggregate purchase price of $23.8 million.

o The Company has made Construction Loan Commitments to Genesis totaling
$42.9 million for eight assisted living development and expansion projects
which are owned by Genesis and which are in the planning stage. Pursuant to
these Construction Loan Commitments, the Operating Partnership will agree
to purchase for cash these projects from Genesis upon the earlier of the
maturity of the related loan or at such time following completion of
development as each such project reaches Stabilized Occupancy. The
estimated aggregate purchase price of these facilities upon completion of
development is $50.3 million.

o As a result of the funding by the Company of the initial draw under the
Construction Loan for one of the Initial Assisted Living Development
Projects, Genesis will receive approximately $2.0 million from a subsidiary
of SLC as a repayment by such subsidiary of SLC of a construction mortgage
loan made by Genesis to such subsidiary of SLC with respect to such Initial
Assisted Living Development Project.

o Genesis will receive $7.5 million from ET Capital Corp. as payment of the
purchase price for the Florida Facilities Note.

o As a result of the repayment of debt secured by certain of the Initial
Properties or Lease-up Assisted Living Facilities, Genesis will be released
from guarantees of such indebtedness totaling $4.8 million.

o It is estimated that Genesis will receive approximately $2.0 million in
cash from the Company as reimbursement for expenses incurred by Genesis on
behalf of the Company in connection with the Formation Transactions.

o Genesis will receive $100,000 in cash or notes from Messrs. Walker and
Romanov for the interest owned by Genesis in ET Partnership. Mr. Walker and
Mr. Romanov will receive 5,000 Units in respect of this interest upon
recapitalization of the Operating Partnership, which Units will be
exchanged for Common Shares on a one-for-one basis substantially
simultaneously with the Closing of the Offering.

94
<PAGE>

o Mr. Walker will receive cash distributions totaling approximately $357,000
from certain entities in which he owns interests and which own three of the
Initial Properties. Mr. Walker also will receive a direct or indirect
interest in 88,877 Units in exchange for his ownership interests in certain
of the Initial Properties that are not owned by Genesis. Such Units,
together with Mr. Walker's interest in the Units to be distributed to MGI
Limited Partnership upon the recapitalization of the Operating Partnership,
will have a total value of approximately $1.8 million based on the assumed
initial public offering price of the Common Shares. In addition, Mr. Walker
will receive approximately $1.9 million in cash from the Company as
repayment of indebtedness. The aggregate book value as of June 30, 1997 of
Mr. Walker's ownership interests in the Initial Properties being
transferred to the Company in which he holds interests was approximately
negative $251,000.

o Messrs. Romanov and McCreary will receive a total of 112,600 Units upon the
recapitalization of the Operating Partnership (not including the Units
distributed to Mr. Romanov with respect to the Operating Partnership
interest acquired by Mr. Romanov from Genesis), which Units will have a
total value of approximately $2.3 million based on the assumed initial
public offering price of the Common Shares.

o Mr. Walker and Mr. Romanov each will receive $50,000 in cash (representing
a return of their initial investment) indirectly from the Operating
Partnership upon the dissolution of ElderTrust Realty Group, Inc. following
the sale by ElderTrust Realty Group, Inc. of all of its assets and
liabilities to the Operating Partnership.

o Kent P. Dauten, a trustee nominee, will receive a cash distribution
totaling approximately $90,500 from one of the entities in which he owns
interests and which owns one of the Initial Properties. He also will
receive an indirect interest in 19,144 Units in exchange for his ownership
interests in certain of the Initial Properties that are not owned by
Genesis. Such Units will have a total value of approximately $383,000 based
on the assumed initial public offering price of the Common Shares. The
aggregate book value as of June 30, 1997 of Mr. Dauten's ownership
interests in the Initial Properties being transferred to the Company in
which he holds interests was approximately negative $63,000.

o Three other executive officers of Genesis will receive direct or indirect
interests in 24,359 Units in exchange for their ownership interests in
certain of the Initial Properties that are not owned by Genesis. Such Units
will have a total value of approximately $487,000 based on the assumed
initial public offering price of the Common Shares. The aggregate book
value as of June 30, 1997 of the three executive officers' ownership
interests in the Initial Properties being transferred to the Company in
which they hold interests was approximately negative $80,000. In addition,
these three executive officers and another executive officer of Genesis
will have an interest in the Units to be distributed to MGI Limited
Partnership upon the recapitalization of the Operating Partnership, which
interest will consist of 3,200 Units having a total value of approximately
$64,000 based on the assumed initial public offering price of the Common
Shares.

o The Company will issue and sell to Mr. Romanov 200,000 Common Shares in a
private placement at a per share purchase price equal to the initial public
offering price. Mr. Romanov will pay for such shares with a 10-year
recourse promissory note, with interest only payable until maturity at an
annual rate of 7%.

o The three trustee nominees will each receive an award of 2,500 Common
Shares each under the Company's 1997 Share Option and Incentive Plan. The
Company also will grant options to purchase 7,500 Common Shares to each of
the three trustee nominees of the Company under the Company's 1997 Share
Option and Incentive Plan. The options will have an exercise price equal to
the initial public offering price and will vest over three years.

95
<PAGE>

initial public offering price. The options to be granted to Mr. Walker will
vest over three years, one-half of the options to be granted to Mr. Romanov
will vest immediately and one-half will vest over three years and the
options to be granted to Mr. McCreary will vest over five years.

o Commencing 14 months after the Offering, Messrs. Dauten, Walker, Romanov
and McCreary will have registration rights with respect to the Common
Shares issued to them and that may be issued to them in exchange for Units
they receive in the Formation Transactions, as well as, in the case of
Messrs. Walker and Romanov, with respect to the Common Shares to be
acquired by them upon the exchange of the Units distributed to them in
respect of the interest in ET Partnership purchased by them from Genesis.

96
<PAGE>

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

The following is a discussion of the anticipated policies with respect to
investments, financing and certain other activities of the Operating Partnership
and the Company. Upon consummation of the Offering, these policies will be
determined by the Board of Trustees of the Company and may be amended or revised
from time to time at the discretion of the Board of Trustees without notice to
or a vote of the shareholders of the Company, or the limited partners of the
Operating Partnership, except that changes in certain policies with respect to
conflicts of interest must be consistent with legal requirements.

Investment Policies

Investments in Real Estate or Interests in Real Estate and Investments in
Mortgages. The Company currently plans to conduct all of its investment
activities through the Operating Partnership. The Company's principal business
objective is to maximize growth in cash available for distribution and to
enhance the value of its portfolio in order to maximize total return to
shareholders. The Company's business and growth strategies to achieve this
objective are: (i) to invest in a high quality portfolio of healthcare-related
properties operated or managed by established operators or mortgages secured by
such properties located in close proximity to complimentary healthcare services
and facilities, (ii) to pursue aggressively opportunities for portfolio growth
through REIT financing to established operators in the healthcare industry,
particularly in the fast growing assisted living segment, (iii) to provide
shareholders the opportunity for increased distributions from annual increases
in rental income and interest income and from portfolio growth and (iv) to
provide shareholders with stock price appreciation resulting from potential
increases in the value of the Company's investments. There can be no assurance,
however, that these investment objectives will be realized. See "Business and
Growth Strategies" and "Policies with Respect to Certain Activities."

The Company intends to acquire a diversified portfolio of income-producing
healthcare facilities or mortgages thereon, with a primary initial focus on
assisted living facilities located primarily in the eastern United States. In
evaluating potential investments, the Company will consider such factors as (i)
the quality and experience of management and the creditworthiness of the
operator of the facility: (ii) the facility's historical, current and forecasted
cash flow and its adequacy to meet operational needs, capital expenditures and
lease or debt service obligations, while providing a competitive return on
investment to the Company; (iii) the construction quality, conditions and design
of the facility; (iv) the geographic areas and type of facility; (v) the tax,
growth, regulatory and reimbursement environment of the community in which the
facility is located; (vi) the occupancy and demand for similar health care
facilities in the same or nearby communities and (vii) in the case of skilled
nursing facilities, the payor mix of private, Medicare and Medicaid patients.

In making future investments, the Company intends to focus on established,
creditworthy, healthcare operators which meet the Company's standards for
network resources and quality and experience of management. Although the Company
initially will emphasize assisted living investments, it may seek to diversify
prudently into other types of healthcare facilities, such as retirement
facilities, congregate care facilities, continuing care retirement communities,
and additional independent living facilities, skilled nursing facilities and
medical office buildings. The Company also may seek to diversify its investments
in terms of geographic location, operators and, subject to the foregoing,
facility types. Nonetheless, substantially all of the Initial Properties will be
leased to or managed by Genesis, and it is anticipated that a significant
portion of new investments also will involve Genesis as tenant or manager. In
addition, Genesis will manage the 11 skilled nursing facilities that secure the
Florida Facilities Note.

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 participate with other entities in property ownership
through joint ventures or other types of co-ownership. Equity investments may be
subject to existing mortgage financing and other indebtedness or such financing
or indebtedness may be incurred in connection with acquiring investments. Any
such financing or indebtedness will have priority over the Company's equity
interest in such property.

97
<PAGE>

The Company does not intend to invest in the securities of others for the
purpose of exercising control. Where appropriate, and subject to REIT
qualification rules, the Operating Partnership may sell certain of its
properties.

The Company may determine to finance acquisitions through the exchange of
properties of the issuance of shares of its capital stock to others, if such
transactions otherwise satisfy the Company's investment criteria. The Company
also has authority to repurchase or otherwise reacquire its Common Shares or any
other securities and may determine to do so in the future.

To the extent that the Company's Board of Trustees determines to obtain
additional capital, the Company may raise such capital through additional equity
offerings, debt financing or retention of cash flow (subject to provisions of
the Code concerning the taxability of undistributed income of "real estate
investment trusts") or a combinations of these methods. See "Borrowing Policies"
for further information concerning the Company's policies regarding debt
financing.

Securities of or Interests in Persons Primarily Engaged in Real Estate
Activities and Other Issuers. Subject to the gross income and asset tests
necessary for REIT qualification, the Company also may invest in securities of
entities engaged in real estate activities or securities of other issuers. The
Company may acquire all or substantially all of the securities or assets of
other REITs or similar entities where such investments would be consistent with
the Company's investment policies. In any event, the Company does not intend
that its investments in securities will require it or the Operating Partnership
to register as an "investment company" under the Investment Company Act of 1940,
as amended.

Financing Policies

The Company does not have a policy limiting the amount of indebtedness that
the Company may incur. In addition, the Declaration of Trust and Bylaws do not
limit the amount or percentage of indebtedness that the Company may incur. The
Company has not established any limit on the number or amount of mortgages that
may be placed on any single property or on its portfolio as a whole.

The Board of Trustees will consider a number of factors when evaluating the
Company's level of indebtedness and when making decisions regarding the
incurrence of indebtedness, including the purchase price of properties to be
acquired with debt financing, the estimated market value of its properties upon
refinancing and the ability of particular properties and the Company as a whole
to generate cash flow to cover expected debt service. See "Risk Factors-No
Limitations on Debt" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."

Lending Policies

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.

Conflict of Interest Policies

Conflicts of Interest Involving Trustees. Mr. Walker, the Chairman of the
Board of Trustees, also serves as Chairman of the Board of Directors and Chief
Executive Officer of Genesis. At June 30, 1997, Mr. Walker beneficially owned
approximately 2.2% of the outstanding common stock of Genesis. Because he serves
as Chairman of both Genesis and the Company, Mr. Walker may be subject to
certain conflicts of interest in fulfilling his responsibilities to the Company
and its shareholders. See "Risk Factors -- Conflicts of Interest in Business
Decisions Affecting the Company." Under Maryland law, any contract or other
transaction between a corporation and any of its directors or any other
corporation, firm or other entity in which any of its directors is a director or
has a material financial interest may be void or voidable. However, the MGCL
provides that any such contract or transaction will not be void or voidable if
(a) the contract or transaction is authorized, approved or ratified, after
disclosure of, or with knowledge of, the common directorship or interest, by the
affirmative vote of a majority of disinterested directors (even if the
disinterested directors constitute less than a quorum) or by the affirmative
vote of a majority of the votes cast by disinterested shareholders, or (b) it is
fair and reasonable to the corporation. While the Maryland REIT Law does not
have a comparable provision for

98
<PAGE>

trustees, a court may apply the principles of the MGCL to contracts or
transactions between the Company and its trustees. The Company believes that a
requirement of disinterested director approval of such transactions, including
transactions with Genesis, will help to eliminate or minimize certain potential
conflicts of interest. Therefore, without the approval of a majority of the
disinterested trustees, the Company and its subsidiaries will not (i) acquire
from or sell to any trustee, officer or employee of the Company, or any entity
in which a trustee, officer or employee of the Company serves as a director or
owns more than a 1% interest, or acquire from or sell to any affiliate of any of
the foregoing, any assets or other property of the Company or its subsidiaries,
(ii) make any loan to or borrow from any of the foregoing persons, or (iii)
engage in any other material transaction with any of the foregoing persons.

Policies Applicable to All Trustees. Under Maryland law, each trustee will
be obligated to offer to the Company any opportunity (with certain limited
exceptions) which comes to him and which the Company could reasonably be
expected to have an interest in developing or acquiring. In addition, under
Maryland law, any contract or other transaction between a corporation and any
director or any other corporation, firm or other entity in which the director is
a director or has a material financial interest may be void or voidable unless
approved as described above.

Leased Office Space. Genesis is the principal tenant of three office
properties owned by the Company. The Company believes Genesis is paying fair
market rent for this space. The disinterested members of the Board of Trustees
will annually review and approve the rates charged to Genesis for such office
space.

Policies With Respect to Other Activities

The Company may, but does not presently intend to, make investments other
than as previously described. The Company will make investments only through the
Operating Partnership. The Company will have authority to offer its Common
Shares or other equity or debt securities of the Operating Partnership 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 Operating Partnership may offer additional Units or other equity
interests in the Operating Partnership that are exchangeable into Common Shares
or Preferred Shares, in exchange for property. The Operating Partnership also
may make loans to joint ventures in which it may participate in the future.
Neither the Company nor the Operating Partnership will engage in trading,
underwriting or the agency distribution or sale of securities of other issuers.
At all times, the Company intends to cause the Operating Partnership to make
investments in such a manner as to be consistent with the requirements of the
Code to qualify as a REIT unless, because of circumstances or changes in the
Code (or the regulations promulgated thereunder), the Board of Trustees
determines that it is no longer in the best interests of the Company to continue
to qualify as a REIT. The Company's policies with respect to such activities may
be reviewed and modified from time to time by the Company's trustees without
notice to or the vote of its shareholders.

99
<PAGE>

PARTNERSHIP AGREEMENT

The following summary of the Operating Partnership Agreement, including the
descriptions of certain provisions thereof set forth elsewhere in this
Prospectus, is qualified in its entirety by reference to the Operating
Partnership Agreement, which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part.

Management

The Operating Partnership was formed on July 30, 1997, as a limited
partnership under the Delaware Revised Uniform Limited Partnership Act (the
"Partnership Act"). Following completion of the Offering, the Company will be
the sole general partner of the Operating Partnership and expects at all times
to own a majority interest in the Operating Partnership.

The Company, as the general partner of the Operating Partnership, will have
the exclusive power and authority to conduct the business of the Operating
Partnership, subject to the consent of the limited partners in certain limited
circumstances. Limited partners will have no right or authority to act for or to
bind the Operating Partnership. No limited partner may take part in the conduct
or control of the business or affairs of the Operating Partnership by virtue of
being a holder of Units. In particular, the limited partners expressly
acknowledge in the Operating Partnership Agreement that the Company, as general
partner, is acting on behalf of the Operating Partnership's limited partners and
the Company's shareholders collectively, and is under no obligation to consider
the tax consequences to limited partners when making decisions for the benefit
of the Operating Partnership.

Sales of Assets

Under the Operating Partnership Agreement, the Company, as general partner,
will have the exclusive authority to determine whether, when and on what terms
the assets of the Operating Partnership (including the Properties) will be sold.
A sale of all or substantially all of the assets of the Operating Partnership
(or a merger of the Operating Partnership with another entity) generally
requires an affirmative vote of the holders of a majority of the outstanding
Units (excluding Units held directly or indirectly by the Company).

Removal of the General Partner; Transfer of the Company's Interests

The Operating Partnership Agreement provides that the limited partners may
not remove the Company as general partner of the Operating Partnership with or
without cause. In addition, the Company may not transfer any of its interests as
general or limited partner in the Operating Partnership, except in connection
with a merger or sale of all or substantially all of the Company's assets
(subject to certain conditions).

Under the Operating Partnership Agreement, a sale of all or substantially
all of the assets of the Company (or a merger of the Company with another
entity) generally requires an affirmative vote of the holders of a majority of
the outstanding Units (including Units held directly or indirectly by the
Company). The Company expects at all times to own a majority of the outstanding
Units and thus to control any such vote. In addition, the Operating Partnership
Agreement does not require the consent of the limited partners to approve a
transaction in which another entity acquires control (or all of the outstanding
Common Shares) of the Company as long as all limited partners receive or have
the right to receive the same consideration for their interests as they would
have received had they exercised the Units Redemption Right (as defined below)
with respect to their Units immediately prior to such acquisition.

Reimbursement of the Company; Transactions with the Company and its Affiliates

The Company will not receive any compensation for its services as general
partner of the Operating Partnership. The Company, however, as a partner in the
Operating Partnership, has the same right to allocations and distributions as
other partners in the Operating Partnership. In addition, the Operating
Partnership will reimburse the Company for all expenses it incurs relating to
its activities as general partner, its continued existence and qualification as
a REIT and all other liabilities incurred by the Company in connection with the
pursuit of its business and affairs (including expenses incurred by the Company
in

100
<PAGE>

connection with the issuance of Common Shares or other securities of the
Company). Except as expressly permitted by the Operating Partnership Agreement,
affiliates of the Company will not engage in any transactions with the Operating
Partnership except on terms that are fair and reasonable and no less favorable
to the Operating Partnership than would be obtained from an unaffiliated
third-party.

Redemption of Units

Subject to certain limitations in the Operating Partnership Agreement,
holders of Units generally will have the right to require the redemption of
their Units at any time 14 months after the Closing of the Offering (the "Unit
Redemption Right"). Unless the Company elects to assume and perform the
Operating Partnership's obligation with respect to the Unit Redemption Right, as
described below, the limited partner will receive cash from the Operating
Partnership in an amount equal to the market value of the Units to be redeemed.
The market value of a Unit for this purpose will be equal to the average of the
closing trading price of a Common Share on the NYSE for the ten trading days
before the day on which the redemption notice was given. In lieu of the
Operating Partnership's acquiring the Units for cash, the Company will have the
right to elect to acquire the Units directly from a limited partner exercising
the Unit Redemption Right, in exchange for either cash or Common Shares, and,
upon such acquisition, the Company will become the owner of such Units. Upon
exercise of the Unit Redemption Right, the limited partner's right to receive
distributions for the Units so redeemed or exchanged will cease. At least 1,000
Units (or all remaining Units owned by the limited partner if less than 1,000
Units) must be redeemed each time the Unit Redemption Right is exercised. No
redemption or exchange can occur if delivery of Common Shares would be
prohibited either under the provisions of the Company's Declaration of Trust
designed to protect the Company's qualification as a REIT or under applicable
Federal or state securities laws as long as the Common Shares are publicly
traded. See "Shares of Beneficial Interest." The Company will at all times
reserve and keep available out of its authorized but unissued Common Shares,
solely for the purpose of effecting the issuance of Common Shares pursuant to
the Unit Redemption Right, a sufficient number of Common Shares as shall from
time to time be sufficient for the redemption of all outstanding Units not owned
by the Company.

Restrictions on Transfer of Units by Limited Partners

The Operating Partnership Agreement imposes certain restrictions on the
transfer of Units. The Operating Partnership Agreement provides that for a
period of 14 months after the Closing of the Offering, no limited partner shall,
without the prior written consent of the Company (which may be withheld in the
sole discretion of the Company), sell, assign, distribute or otherwise transfer
all or any part of his, her or its interest in the Operating Partnership except,
(i) in the case of an individual, to a member of his or her immediate family (or
to a trust formed for the benefit of such individual or members of his or her
immediate family or to a partnership, limited liability company, joint venture,
corporation or other business entity comprised, directly or indirectly, only of
such individual or members of his or her immediate family) (ii) in the case of a
trust, partnership, limited liability company, joint venture, corporation or
other business entity, to its beneficiaries, partners, owners or stockholders,
as the case may be, (iii) by gift, (iv) by operation of law, (v) to another
limited partner or (vi) pursuant to certain pledges or other collateral
transfers effected by a limited partner to secure the repayment of a loan. See
"Shares of Beneficial Interest -- Restrictions on Ownership and Transfer."

Issuance of Additional Units and Preference Units

The Company is authorized at any time, without the consent of the limited
partners, to cause the Operating Partnership to issue additional Units to the
Company, to the limited partners or to other persons for such consideration and
on such terms and conditions as the Company deems appropriate. If Units are
issued to the Company, then the Company must issue a corresponding number of
Common Shares and must contribute to the Operating Partnership the proceeds, if
any, received by the Company from such issuance. In addition, the Operating
Partnership Agreement provides that the Operating Partnership may also issue
preferred units and other partnership interests of different classes and series
(collectively, "Preference Units") having such rights, preferences and other
privileges, variations and designations as may be determined by the Company. Any
such Preference Units may have terms, provisions and rights which are
preferential to the terms, provisions and rights of the Units. Preference Units,
however, may be issued to the Company only in

101
<PAGE>

connection with an offering of securities of the Company having substantially
similar rights and the contribution of the proceeds therefrom to the Operating
Partnership. No limited partner has preemptive, preferential or similar rights
with respect to capital contributions to the Operating Partnership or the
issuance or sale of any partnership interests therein.

Capital Contributions

No partner of the Operating Partnership will be required to make additional
capital contributions to the Operating Partnership, except that the Company is
generally required to contribute net proceeds of the sale of Common Shares (and
other equity interests) of the Company to the Operating Partnership. Except for
limited partners (which will not include the Company) who enter into one or more
Deficit Restoration Obligation Agreements with the Operating Partnership), no
limited or general partner will be required to pay to the Operating Partnership
any deficit or negative balance which may exist in its account.

Distributions; Allocations of Income and Loss

The Operating Partnership Agreement generally provides for the quarterly
distribution of "Available Cash" (as defined below), as determined in the manner
provided in the Operating Partnership Agreement, to the partners of the
Operating Partnership in proportion to their percentage interests in the
Operating Partnership (which for any partner is determined by the number of
Units it owns relative to the total number of Units outstanding). "Available
Cash" is generally defined as net cash flow from operations plus any reduction
in reserves and minus interest and principal payments on debt, capital
expenditures, any additions to reserves and other adjustments. Neither the
Company nor the limited partners are entitled to any preferential or
disproportionate distributions of Available Cash with respect to the Units.

Exculpation and Indemnification of the Company

The Operating Partnership Agreement generally provides that the Company, as
general partner of the Operating Partnership, will incur no liability to the
Operating Partnership or any limited partner for losses sustained, liabilities
incurred, or benefits not derived as a result of errors in judgment or for any
mistakes of fact or law or for anything which it may do or refrain from doing in
connection with the business and affairs of the Operating Partnership if the
Company or such other general partner carried out its duties in good faith. The
Company's liability in any event is limited to its interest in the Operating
Partnership. Without limiting the foregoing, the Company has no liability for
the loss of any limited partner's capital. In addition, the Company is not
responsible for any misconduct, negligent act or omission of any consultant,
contractor, or agent of the Operating Partnership or of the Company and has no
obligation other than to use good faith in the selection of all such
contractors, consultants, and agents.

The Operating Partnership Agreement also requires the Operating Partnership
to indemnify the Company, the Trustees and officers of the Company, and such
other persons as the Company may from time to time designate against any loss or
damage, including reasonable legal fees and court costs incurred by such person
by reason of anything it may do or refrain from doing for or on behalf of the
Operating Partnership or in connection with its business or affairs unless it is
established that: (i) the act or omission of the indemnified person was material
to the matter giving rise to the proceeding and either was committed in bad
faith or was the result of active and deliberate dishonesty; (ii) the
indemnified person actually received an improper personal benefit in money,
property or services; or (iii) in the case of any criminal proceeding, the
indemnified person had reasonable cause to believe that the act or omission was
unlawful. Any such indemnification claims must be satisfied solely out of the
assets of the Operating Partnership.

Amendment of the Operating Partnership Agreement

Amendments to the Operating Partnership Agreement may be proposed by the
Company or by limited partners owning at least 25% of the then outstanding
Units. Generally, the Operating Partnership Agreement may be amended with the
approval of the Company, as general partner, and limited partners (including the
Company) holding a majority of the Units. Certain provisions regarding, among
other things, the rights and duties of the Company as general partner (e.g.,
restrictions on the Company's power to conduct businesses

102
<PAGE>

other than owning Units) or the dissolution of the Operating Partnership, may
not be amended without the approval of a majority of the Units not held by the
Company. Certain amendments that would, among other things, (i) convert a
limited partner's interest into a general partner's interest, (ii) modify the
limited liability of a limited partner, (iii) alter the interest of a partner in
profits or losses, or the right to receive any distributions (except as
permitted under the Operating Partnership Agreement with respect to the
admission of new partners or the issuance of additional Units), or (iv) alter
the Unit Redemption Right, must be approved by the Company and each limited
partner that would be adversely affected by such amendment.

Term

The Operating Partnership will be dissolved and its affairs wound up upon
the earliest of (i) December 31, 2096, (ii) the withdrawal of the Company as
general partner without the permitted transfer of the Company's interest to a
successor general partner (except in certain limited circumstances), (iii) the
sale of all or substantially all of the Operating Partnership's assets and
properties, (iv) the entry of a decree of judicial dissolution of the Operating
Partnership pursuant to the provisions of the Partnership Act, (v) the entry of
a final non-appealable judgment ruling that the general partner is bankrupt or
insolvent (except that, in either such case, in certain circumstances the
limited partners (other than the Company) may vote to continue the Operating
Partnership and substitute a new general partner in place of the Company), (vi)
prior to January 1, 2047, with the consent of holders (including the Company) of
90% of the outstanding Units or (vii) on or after January 1, 2047, on election
by the Company, in its sole and absolute discretion.

103
<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Shares (or Common Shares for which Units are exchangeable)
by (i) each trustee (and trustee nominee) of the Company, (ii) each executive
officer of the Company, (iii) all trustees, trustee nominees and executive
officers of the Company as a group, and (iv) each person or entity which is
expected to be the beneficial owner of 5% or more of the outstanding Common
Shares immediately following completion of the Offering. Except as indicated
below, all of such Common Shares are owned directly, and the indicated person or
entity has sole voting and investment power.

<TABLE>
<CAPTION>
Number of Shares and Units Percentage of All Percent of
Beneficially Owned After the Common Shares and All Common
Name of Beneficial Owner(1) Offering Units Shares (2)
- --------------------------- ------------------------------ ------------------- -----------
<S> <C> <C> <C>
Michael R. Walker ........................ 28,775(3) * *
Edward B. Romanov, Jr. .................. 453,100(4) 6.0% 6.2%
Kent P. Dauten ........................... 77,500(3)(5) 1.1 1.1
Rodman W. Moorhead, III .................. 27,500(5) * *
Timothy T. Weglicki ........................ 7,500(5) * *
D. Lee McCreary, Jr. ..................... 12,100 * *
All trustees, trustee nominees and executive
officers as a group (6 persons) ......... 606,475(3)(4)(5) 8.1% 8.3%
</TABLE>

- ------------
* Less than 1%.

(1) Address: c/o ElderTrust, 415 McFarlan Road, Suite 202, Kennett Square,
Pennsylvania 19348.
(2) Assumes that all Units held by the person are presented to the Operating
Partnership for redemption and acquired by the Company for Common Shares.
The total number of Common Shares outstanding used in calculating the
percentage assumes that none of the Units held by other persons are
similarly acquired for Common Shares.
(3) Excludes the indirect interests of Messrs. Walker and Dauten as shareholders
of Senior LifeChoice in 165,850 Units that will be issued to and will not
be distributed by that entity.
(4) Includes options for 150,000 Common Shares that will vest immediately upon
completion of the Offering.
(5) Includes 75,000, 25,000 and 5,000 Common Shares, respectively, which the
named trustee nominees have indicated they expect to purchase in the
Offering.

104
<PAGE>

SHARES OF BENEFICIAL INTEREST

The summary of the terms of the shares of beneficial interest of the
Company set forth below does not purport to be complete and is subject to and
qualified in its entirety by reference to the Declaration of Trust and Bylaws of
the Company, copies of which are exhibits to the Registration Statement of which
this Prospectus is a part.

General

The Declaration of Trust of the Company provides that the Company may issue
100 million Common Shares and 20 million Preferred Shares. As of September 23,
1997, 100 Common Shares were issued and outstanding.

Under the Maryland REIT Law, a shareholder is not liable for obligations of
the Company. The Declaration of Trust provides that no shareholder shall be
liable for any debt or obligation of the Company by reason of being a
shareholder nor shall any shareholder be subject to any personal liability in
tort, contract or otherwise to any person in connection with the property or
affairs of the Company by reason of being a shareholder. The Company's Bylaws
further provide that the Company shall indemnify each present or former
shareholder against any claim or liability to which the shareholder may become
subject by reason of being or having been a shareholder and that the Company
shall reimburse each shareholder for all reasonable expenses incurred by him or
her in connection with any such claim or liability. However, with respect to
tort claims, contractual claims where shareholder liability is not so negated,
claims for taxes and certain statutory liability, the shareholders may, in some
jurisdictions, be personally liable to the extent that such claims are not
satisfied by the Company. Inasmuch as the Company carries public liability
insurance which it considers adequate, any risk of personal liability to
shareholders is limited to situations in which the Company's assets plus its
insurance coverage would be insufficient to satisfy the claims against the
Company and its shareholders.

Common Shares

All Common Shares offered hereby will be duly authorized, fully paid and
nonassessable. Subject to the preferential rights of any other shares of
beneficial interest and to the provisions of the Declaration of Trust regarding
restrictions on transfers of shares of beneficial interest, holders of Common
Shares are entitled to receive distributions if, as and when authorized and
declared by the Board of Trustees out of assets legally available therefor and
to share ratably in the assets of the Company legally available for distribution
to its shareholders in the event of its liquidation, dissolution or winding-up
after payment of, or adequate provision for, all known debts and liabilities of
the Company. The Company currently intends to pay regular quarterly
distributions.

Subject to the provisions of the Company's Declaration of Trust regarding
restrictions on transfer of shares of beneficial interest, each outstanding
Common Share entitles the holder to one vote on all matters submitted to a vote
of shareholders, including the election of trustees, and, except as provided
with respect to any other class or series of shares of beneficial interest, the
holders of Common Shares will possess the exclusive voting power. There is no
cumulative voting in the election of trustees, which means that the holders of a
majority of the outstanding Common Shares can elect all of the trustees then
standing for election, and the holders of the remaining shares of beneficial
interest, if any, will not be able to elect any trustees.

Holders of Common Shares have no preferences, conversion, sinking fund,
redemption rights or preemptive rights to subscribe for any securities of the
Company. Subject to the exchange provisions of the Company's Declaration of
Trust regarding restrictions on transfer, Common Shares have equal distribution,
liquidation and other rights.

Pursuant to the Maryland REIT Law, a Maryland real estate investment trust
generally cannot dissolve, amend its declaration of trust or merge, unless
approved by the affirmative vote or written consent of shareholders holding at
least two-thirds of the shares entitled to vote on the matter unless a lesser
percentage (but not less than a majority of all of the votes entitled to be cast
on the matter) is set forth in the trust's Declaration of Trust. The Company's
Declaration of Trust provides that the Board of Trustees, with the

105
<PAGE>

approval of a majority of the votes cast at a meeting of shareholders, may amend
the Declaration of Trust from time to time to increase or decrease the aggregate
number of shares or the number of shares of any class that the Company has
authority to issue. The Declaration of Trust also provides that a merger
transaction may be approved, at a meeting of the shareholders called for that
purpose, by the affirmative vote of the holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the shares then outstanding and entitled to vote
thereon. Under the Maryland REIT Law, a declaration of trust may permit the
trustees by a two-thirds vote to amend the declaration of trust from time to
time to qualify as a REIT under the Code or the Maryland REIT Law without the
affirmative vote or written consent of the shareholders. The Company's
Declaration of Trust permits such action by the Board of Trustees.

Preferred Shares

The Declaration of Trust authorizes the Board of Trustees to issue 20
million Preferred Shares and to classify any unissued Preferred Shares or to
reclassify any previously classified but unissued Preferred Shares of any series
from time to time, in one or more series. Prior to issuance of shares of each
series, the Board of Trustees is required by the Maryland REIT Law and the
Declaration of Trust of the Company to set, subject to the provisions of the
Declaration of Trust regarding the restriction on transfer of shares of
beneficial interest, the terms, preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends or other distributions,
qualifications and terms or conditions of redemption for each such series. Thus,
the Board could authorize the issuance of Preferred Shares with terms and
conditions which could have the effect of delaying, deferring or preventing a
transaction or a change in control of the Company that might involve a premium
price for holders of Common Shares or otherwise be in their best interest. As of
the date hereof, no Preferred Shares are outstanding and the Company has no
present plans to issue any Preferred Shares.

Power To Issue Additional Common Shares and Preferred Shares

The Company believes that the power of the Board of Trustees to issue
additional authorized but unissued Common Shares or Preferred Shares in one or
more series will provide the Company with increased flexibility in structuring
possible future financings and acquisitions and in meeting other needs which
might arise. Authorized but unissued Common Shares or Preferred Shares will be
available for issuance without further action by the Company's shareholders,
unless such action is required by applicable law or the rules of any stock
exchange or automated quotation system on which the Company's securities may be
listed or traded.

Restrictions on Ownership and Transfer

For the Company to qualify as a REIT under the Code, no more than 50% in
value of its outstanding shares of beneficial interest may be owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year for which an election to be treated as a REIT has been made) or during a
proportionate part of a shorter taxable year. In addition, if the Company, or an
owner of 10% or more of the Company, actually or constructively owns 10% or more
of a tenant of the Company (or a tenant of any partnership in which the Company
is a partner), the rent received by the Company (either directly or through any
such partnership) from such tenant will not be qualifying income for purposes of
the REIT gross income tests of the Code. A REIT's shares also must be
beneficially owned by 100 or more persons during at least 335 days of a taxable
year of twelve months or during a proportionate part of a shorter taxable year
(other than the first year for which an election to be treated as a REIT has
been made).

Because the Board of Trustees believes it is desirable for the Company to
qualify as a REIT, the Declaration of Trust, subject to certain exceptions,
provides that no holder may own, or be deemed to own by virtue of the
attribution provisions of the Code, more than the Ownership Limit or the
Excluded Holder Limit, as applicable. In connection with the Excluded Holder
Limit of 15% of the Common Shares that applies with respect to Mr. Romanov, Mr.
Romanov has entered into an agreement with the Company for the benefit of the
Company and certain designated charitable beneficiaries that restricts Mr.
Romanov's ownership of (i) a tenant

106
<PAGE>

of the Company or (ii) any entity that would cause the Company to be deemed to
own more than 10% of a tenant of the Company and providing that if, at any time,
for any reason, Mr. Romanov's ownership of interests in a tenant of the Company
resulted in the actual or constructive ownership by the Company of 10% or more
of any tenant of the Company, than a number of shares of the Company owned by
Mr. Romanov necessary to reduce the Company's actual or constructive ownership
of such tenant to less than 10% will automatically and irrevocably be
transferred to a designated charitable beneficiary. The ownership attribution
rules under the Code are complex and may cause Common Shares owned actually or
constructively by a group of related individuals and/or entities to be owned
constructively by one individual or entity. As a result, the acquisition of less
than 8.6% of the Common Shares (or the acquisition of an interest in an entity
that owns, actually or constructively, Common Shares) by an individual or
entity, could, nevertheless cause that individual or entity, or another
individual or entity, to own constructively in excess of 8.6% of the outstanding
Common Shares and thus subject such Common Shares to the Ownership Limit. The
Board of Trustees may grant an exemption from the Ownership Limit or the
Excluded Holder Limit with respect to one or more persons who would not be
treated as "individuals" for purposes of the Code if it is satisfied, based upon
the advice of counsel or a ruling from the IRS, that such ownership will not
cause a person who is an individual to be treated as owning Shares in excess of
the Ownership Limit or the Excluded holder Limit, as applicable, applying the
applicable constructive ownership rules, and such ownership would not result in
the Company otherwise failing to qualify as a REIT (including, but not limited
to, ownership that would result in the Company owning interests in a tenant as
described in Section 856(d)(2)(B) of the Code. As a condition of such waiver,
the Board of Trustees may require undertakings or representations from the
applicant with respect to preserving the REIT status of the Company.

The Board of Trustees of the Company will have the authority to increase
the Ownership Limit with respect to Common Shares from time to time, but will
not have the authority to do so to the extent that after giving effect to such
increase, five beneficial owners of Common Shares could beneficially own in the
aggregate more than 49.5% of the outstanding Common Shares.

The Declaration of Trust further prohibits (a) any person from actually or
constructively owning shares of beneficial interest of the Company that would
result in the Company being "closely held" under Section 856(h) of the Code or
otherwise cause the Company to fail to qualify as a REIT and (b) any person from
transferring shares of beneficial interest of the Company if such transfer would
result in shares of beneficial interest of the Company being owned by fewer than
100 persons.

Any person who acquires or attempts or intends to acquire actual or
constructive ownership of shares of beneficial interest of the Company that will
or may violate any of the foregoing restrictions on transferability and
ownership is required to give notice immediately to the Company and provide the
Company with such other information as the Company may request in order to
determine the effect of such transfer on the Company's status as a REIT.

If any purported transfer of shares of beneficial interest of the Company
or any other event would otherwise result in any person violating the Ownership
Limit or the other restrictions in the Declaration of the Trust, then any such
purported transfer will be void and of no force or effect with respect to the
purported transferee (the "Prohibited Transferee") as to that number of shares
that exceeds the Ownership Limit (referred to as "excess shares") and the
Prohibited Transferee shall acquire no right or interest (or, in the case of any
event other than a purported transfer, the person or entity holding record title
to any such shares in excess of the Ownership Limit (the "Prohibited Owner")
shall cease to own any right or interest) in such excess shares. Any such excess
shares described above will be transferred automatically, by operation of law,
to a trust, the beneficiary of which will be a qualified charitable organization
selected by the Company (the "Beneficiary"). Such automatic transfer shall be
deemed to be effective as of the close of business on the Business Day (as
defined in the Declaration of Trust) prior to the date of such violating
transfer. Within 20 days of receiving notice from the Company of the transfer of
shares to the trust, the trustee of the trust (who shall be designated by the
Company and be unaffiliated with the Company and any Prohibited Transferee or
Prohibited Owner) will be required to sell such excess shares to a person or
entity who could own such shares without violating the Ownership Limit, and
distribute to the Prohibited Transferee an amount equal to the lesser of the
price paid by the Prohibited Transferee for such excess shares or the sales
proceeds received by the trust for such

107
<PAGE>

excess shares. In the case of any excess shares resulting from any event other
than a transfer, or from a transfer for no consideration (such as a gift), the
trustee will be required to sell such excess shares to a qualified person or
entity and distribute to the Prohibited Owner an amount equal to the lesser of
the fair market value of such excess shares as of the date of such event or the
sales proceeds received by the trust for such excess shares. In either case, any
proceeds in excess of the amount distributable to the Prohibited Transferee or
Prohibited Owner, as applicable, will be distributed to the Beneficiary. Prior
to a sale of any such excess shares by the trust, the trustee will be entitled
to receive, in trust for the Beneficiary, all dividends and other distributions
paid by the Company with respect to such excess shares, and also will be
entitled to exercise all voting rights with respect to such excess shares.
Subject to Maryland law, effective as of the date that such shares have been
transferred to the trust, the trustee shall have the authority (at the trustee's
sole discretion and subject to applicable law) (i) to rescind as void any vote
cast by a Prohibited Transferee prior to the discovery by the Company that such
shares have been transferred to the trust and (ii) to recast such vote in
accordance with the desires of the trustee acting for the benefit of the
Beneficiary. However, if the Company has already taken irreversible corporate
action, then the trustee shall not have the authority to rescind and recast such
vote. Any dividend or other distribution paid to the Prohibited Transferee or
Prohibited Owner (prior to the discovery by the Company that such shares had
been automatically transferred to a trust as described above) will be required
to be repaid to the trustee upon demand for distribution to the Beneficiary. If
the transfer to the trust as described above is not automatically effective (for
any reason) to prevent violation of the Ownership Limit, then the Declaration of
Trust provides that the transfer of the excess shares will be void.

In addition, shares of beneficial interest of the Company held in the trust
shall be deemed to have been offered for sale to the Company, or its designee,
at a price per share equal to the lesser of (i) the price per share in the
transaction that resulted in such transfer to the trust (or, in the case of a
devise or gift, the market value at the time of such devise or gift) and (ii)
the market value of such shares on the date of the Company, or its designee,
accepts such offer. The Company shall have the right to accept such offer until
the trustee has sold the shares of beneficial interest held in the Trust. Upon
such a sale to the Company, the interest of the Beneficiary in the shares sold
shall terminate and the trustee shall distribute the net proceeds of the sale to
the Prohibited Owner.

The foregoing restrictions on transferability and ownership will not apply
if the Board of Trustees determines that it is no longer in the best interests
of the Company to attempt to qualify, or to continue to qualify, as a REIT.

All certificates representing shares of beneficial interest shall bear a
legend referring to the restrictions described above.

All persons who own, directly or by virtue of the attribution provisions of
the Code, more than 5% (or such other lower percentage as provided in the rules
and regulations promulgated under the Code) of the lesser of the number or value
of the outstanding shares of beneficial interest of the Company must give a
written notice to the Company within 30 days after the end of each taxable year.
In addition, each shareholder will, upon demand, be required to disclose to the
Company in writing such information with respect to the direct, indirect and
constructive ownership of shares of beneficial interest as the Board of Trustees
deems reasonably necessary to comply with the provisions of the Code applicable
to a REIT, to comply with the requirements of any taxing authority or
governmental agency or to determine any such compliance.

These ownership limitations could have the effect of delaying, deferring or
preventing a takeover or other transaction in which holders of some, or a
majority, of Common Shares might receive a premium for their Common Shares over
the then prevailing market price or which such holders might believe to be
otherwise in their best interest.

Transfer Agent and Registrar

The transfer agent and registrar for the Common Shares is ChaseMellon
Shareholder Services, Inc.

108
<PAGE>

CERTAIN PROVISIONS OF MARYLAND LAW AND THE COMPANY'S
DECLARATION OF TRUST AND BYLAWS

The following summary of certain provisions of Maryland law and of the
Declaration of Trust and Bylaws of the Company does not purport to be complete
and is subject to and qualified in its entirety by reference to Maryland law and
the Declaration of Trust and Bylaws of the Company, copies of which are exhibits
to the Registration Statement of which this Prospectus is a part.

The Declaration of Trust and Bylaws of the Company contain certain
provisions that could make more difficult an acquisition or change in control of
the Company by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to negotiate first with the Board of Trustees.
The Company believes that the benefits of these provisions outweigh the
potential disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals might result in an improvement of their
terms. See also "Shares of Beneficial Interest -- Restrictions on Ownership and
Transfer."

Classification and Removal of Board of Trustees; Other Provisions

Immediately prior to the closing of the Offering, the Company's Declaration
of Trust will be amended to provide for the Board of Trustees to be divided into
three classes of Trustees, with each class to consist as nearly as possible of
an equal number of Trustees. The term of office of the first class of trustees
will expire at the 1998 annual meeting of shareholders; the term of the second
class of trustees will expire at the 1999 annual meeting of shareholders; and
the term of the third class of trustees will expire at the 2000 annual meeting
of shareholders. At each annual meeting of shareholders, the class of trustees
to be elected at such meeting will be elected for a three-year term, and the
trustees in the other two classes will continue in office. Because shareholders
will have no right to cumulative voting for the election of trustees, at each
annual meeting of shareholders the holders of a majority of the Common Shares
will be able to elect all of the successors to the class of trustees whose term
expires at that meeting.

The Company's Declaration of Trust also provides that, except for any
trustees who may be elected by holders of a class or series of shares of
beneficial interest other than the Common Shares, Trustees may be removed only
for cause and only by the affirmative vote of shareholders holding at least a
majority of the shares then outstanding and entitled to be cast for the election
of trustees. Vacancies on the Board of Trustees may be filled by the concurring
vote of a majority of the remaining trustees and, in the case of a vacancy
resulting from the removal of a trustee by the shareholders, by a majority of
the votes entitled to be cast for the election of trustees. Under Maryland law,
trustees may fill any vacancy only until the next annual meeting of
shareholders. A vote of shareholders holding at least two-thirds of all the
votes entitled to be cast thereon is required to amend, alter, change, repeal or
adopt any provisions inconsistent with the foregoing classified board and
trustee removal provisions. These provisions may make it more difficult and
time-consuming to change majority control of the Board of Trustees of the
Company and, thus, may reduce the vulnerability of the Company to an unsolicited
proposal for the takeover of the Company or the removal of incumbent management.

Because the Board of Trustees will have the power to establish the
preferences and rights of additional series of shares of beneficial interest
without a shareholder vote, the Board of Trustees may afford the holders of any
series of senior shares of beneficial interest preferences, powers and rights,
voting or otherwise, senior to the rights of holders of Common Shares. The
issuance of any such senior shares of beneficial interest could have the effect
of delaying, deferring or preventing a change in control of the Company. The
Board of Trustees, however, currently does not contemplate the issuance of any
shares of beneficial interest other than Common Shares.

See "Management -- Limitation of Liability and Indemnification" for a
description of the limitations on liability of trustees and officers of the
Company and the provisions for indemnification of trustees and officers provided
for under applicable Maryland law and the Declaration of Trust.

109
<PAGE>

Changes in Control Pursuant to Maryland Law

Maryland Business Combination Law. Under the MGCL, as applicable to real
estate investment trusts, certain "business combinations" (including certain
issuances of equity securities) between a Maryland real estate investment trust
and any Interested Shareholder or an affiliate of the Interested Shareholder are
prohibited for five years after the most recent date on which the Interested
Shareholder becomes an Interested Shareholder. Thereafter, any such business
combination must be recommended by the Board of Trustees of such Trust and
approved by the affirmative vote of at least (i) 80% of all the votes entitled
to be cast by holders of the outstanding shares of voting stock and (ii)
two-thirds of the votes entitled to be cast by holders of voting stock held by
the Interested Shareholder who is (or whose affiliate is) a party to the
business combination unless, among other conditions, the trust's common
shareholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the Interested Shareholder for its common shares.

Maryland Control Share Acquisition Law. In addition, also under the MGCL,
as applicable to real estate investments trusts, "control shares" acquired in a
"control share acquisition" have no voting rights except to the extent approved
by a vote of two-thirds of the votes entitled to be cast on the matter,
excluding shares owned by the acquiror, by officers or by trustees who are
employees of the trust. "Control shares" are voting shares which, if aggregated
with all other such shares previously acquired by the acquiror or in respect of
which the acquiror is able to exercise or direct the exercise of voting power
(except solely by virtue of a revocable proxy), would entitle the acquiror to
exercise voting power in electing trustees within one of the following ranges of
voting power: (i) one-fifth or more but less than one-third; (ii) one-third or
more but less than a majority; or (iii) a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled to
vote as a result of having previously obtained shareholder approval. A "control
share acquisition" means the acquisition of control shares, subject to certain
exceptions.

A person who has made or proposes to make a control share acquisition, upon
satisfaction of certain conditions (including an undertaking to pay expenses),
may compel the board of trustees of the trust to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the trust may itself present
the question at any shareholders meeting.

If voting rights are not approved at the meeting or if the acquiring person
does not deliver an acquiring person statement as required by the statute, then,
subject to certain conditions and limitations, the trust may redeem any or all
of the control shares (except those for which voting rights have previously been
approved) for fair value determined, without regard to the absence of voting
rights for the control shares, as of the date of the last control share
acquisition by the acquiror or of any meeting of shareholders at which the
voting rights of such shares are considered and not approved. If voting rights
for control shares are approved at a shareholders meeting and the acquiror
becomes entitled to vote a majority of the shares entitled to vote, all other
shareholders may exercise appraisal rights. The fair value of the shares as
determined for purposes of such appraisal rights may not be less than the
highest price per share paid by the acquiror in the control share acquisition.

The control share acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the trust is a party to the
transaction or (b) to acquisitions approved or exempted by the declaration of
trust or bylaws of the trust. As permitted by the MGCL, the Bylaws provide that
the control share provisions of the MGCL do not apply to the Company. However,
the Board of Trustees, through its exclusive power to amend the Bylaws, may
elect to adopt these provisions in the future.

Amendments to the Declaration of Trust and Bylaws

The Declaration of Trust, including its provisions on classification of the
Board of Trustees, restrictions on transferability of Common Shares and removal
of trustees, may be amended only by a resolution adopted by the Board of
Trustees and approved at an annual or special meeting of the shareholders by the
affirmative vote of the holders of not less than two-thirds of all of the votes
entitled to be cast on the matter. However, amendments relating to changes in
the number of authorized shares of beneficial interest of the Company require
the approval of holders of a majority of all votes cast at a meeting of
shareholders at which a quorum is present.

110
<PAGE>

The Bylaws of the Company provide that the trustees have the exclusive
right to amend the Bylaws.

Advance Notice of Trustee Nominations and New Business

The Bylaws of the Company provide that (i) with respect to an annual
meeting of shareholders, nominations of persons for election to the Board of
Trustees and the proposal of business to be considered by shareholders may be
made only (A) pursuant to the Company's notice of the meeting, (B) by the Board
of Trustees or (C) by a shareholder who is entitled to vote at the meeting and
has complied with the advance notice procedures set forth in the Bylaws and (ii)
with respect to special meetings of the shareholders, only the business
specified in the Company's notice of meeting may be brought before the meeting
of shareholders and nominations of persons for election to the Board of Trustees
may be made only (A) pursuant to the Company's notice of the meeting, (B) by the
Board of Trustees or (C) provided that the Board of Trustees has determined that
trustees shall be elected at such meeting, by a shareholder who is entitled to
vote at the meeting and has complied with the advance notice provisions set
forth in the Bylaws.

Anti-Takeover Effect of Certain Provisions of Maryland Law and of the
Declaration of Trust and Bylaws

The business combination provisions of the MGCL (and the control share
acquisition provisions of the MGCL if they ever become applicable to the
Company), the provisions of the Declaration of Trust on classification of the
Board of Trustees and removal of Trustees, the provisions for amending the
Declaration of Trust and Bylaws and the advance notice provisions of the Bylaws
could delay, defer or prevent a transaction or a change in control of the
Company that might involve a premium price for holders of Common Shares or
otherwise be in their best interests. The Declaration of Trust, as in effect,
provides that a merger, consolidation or sale of all or substantially all of the
assets of the Company must be approved, at a meeting called for that purpose, by
the affirmative vote of the holders of not less than two-thirds of the then
outstanding shares entitled to vote thereon.

Maryland Asset Requirements

To maintain its qualification as a Maryland real estate investment trust,
the Maryland REIT Law requires that the Company hold, either directly or
indirectly, at least 75% of the value of its assets in real estate assets,
mortgages or mortgage related securities, government securities, cash and cash
equivalent items, including high-grade short-term securities and receivables.
The Maryland REIT Law also prohibits using or applying land for farming,
agricultural, horticultural or similar purposes.

111
<PAGE>

SHARES AVAILABLE FOR FUTURE SALE

General

Upon the completion of the Offering, the Company will have outstanding
7,012,600 Common Shares (8,037,600 shares if the Underwriters' overallotment
option is exercised in full). In addition, 337,030 Common Shares are reserved
for issuance upon exchange of Units. The Common Shares issued in the Offering
will be freely tradable by persons other than "affiliates" of the Company
without restriction under the Securities Act, subject to the limitations on
ownership set forth in this Prospectus. See "Shares of Beneficial Interest." The
200,000 Common Shares purchased by Mr. Romanov in the private placement, the
Common Share awards of 2,500 shares each to be made to the three trustee
nominees and the 5,000 Common Shares to be issued to Messrs. Walker and Romanov
in exchange for the Units received by Messrs. Walker and Romanov in respect of
the interest of Genesis in ET Partnership, which interest will be purchased by
Messrs. Walker and Romanov from Genesis prior to the liquidation of ET
Partnership and the recapitalization of the Operation Partnership from Genesis,
as well as any Common Shares acquired in redemption of Units (collectively, the
"Restricted Common Shares"), will be "restricted" securities under the meaning
of Rule 144 promulgated under the Securities Act ("Rule 144") and may not be
sold in the absence of registration under the Securities Act unless an exemption
from registration is available, including exemptions contained in Rule 144. As
described below under "-- Registration Rights," the Company has granted certain
holders registration rights with respect to their Restricted Common Shares.

In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of Restricted Common Shares from the
Company or any "affiliate" of the Company, as that term is defined under the
Securities Act, the acquiror or subsequent holder thereof is entitled to sell
within any three-month period a number of shares that does not exceed the
greater of 1% of the then outstanding Common Shares or the average weekly
trading volume of the Common Shares during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the SEC. Sales
under Rule 144 also are subject to certain manner of sales provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the date of acquisition of Restricted
Common Shares from the Company or from any "affiliate" of the Company, and the
acquiror or subsequent holder thereof is deemed not to have been an affiliate of
the company at any time during the 90 days immediately preceding a sale, such
person is entitled to sell such shares in the public market under Rule 144(k)
without regard to the volume limitations, manner of sale provisions, public
information requirements or notice requirements.

The Company and the executive officers and trustees (including trustee
nominees) of the Company will be required, as a condition to the Underwriters'
participation in the Offering, to agree that they will not, without the consent
of the Representative (as defined below), offer, sell, contract to sell or
otherwise dispose of any Common Shares (including any Common Shares acquired
upon redemption of Units) for 14 months following the Closing. See
"Underwriting."

Prior to the Offering, there has been no public market for the Common
Shares. Trading of the Common Shares on the New York Stock Exchange is expected
to commence immediately following completion of the Offering. No prediction can
be made as to the effect, if any, that future sales or shares of the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Common Shares (including
Common Shares issued upon the exercise of options), or the perception that such
sales could occur, could adversely affect prevailing market prices of the Common
Shares. See "Risk Factors -- Risks of Ownership of Common Shares" and
"Partnership Agreement -- Transfer of Interests."

Registration Rights

The Company will grant demand registration rights to Messrs. Walker and
Romanov with respect to Restricted Common Shares owned by them as of the Closing
of the Offering. The Company also will grant demand registration rights to any
shareholder with respect to any Restricted Common Shares acquired by such
shareholder in redemption of Units. The Company will bear all expenses incident
to these registration requirements, except for any underwriting discounts or
commissions or transfer taxes, if any, relating to the such Restricted Common
Shares.

112
<PAGE>

In addition, the Company will adopt the ElderTrust 1997 Share Option and
Incentive Plan for the purpose of attracting and retaining highly qualified
trustees, executive officers and other key employees. See "Management -- 1997
Share Option and Incentive Plan" and "-- Compensation of Board of Trustees." The
Company intends to grant options to purchase approximately 497,500 Common Shares
to trustees and executive officers upon the completion of the Offering. Promptly
following the completion of the Offering, the Company expects to file a
registration statement with the SEC with respect to the Common Shares issuable
under the ElderTrust 1997 Share Option and Incentive Plan, which shares may be
resold without restriction, unless held by affiliates.

FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the federal income tax considerations
reasonably anticipated to be material to a prospective shareholder in the
Company in connection with the ownership of Common Shares. The following
description is for general information only, is not exhaustive of all possible
tax considerations, and is not intended to be (and should not be construed as)
tax advice. For example, this summary does not give a detailed discussion of any
state, local or foreign tax considerations. In addition, the discussion is
intended to address only those federal income tax considerations that are
generally applicable to all shareholders in the Company. It does not discuss all
aspects of federal income taxation that might be relevant to a specific
shareholder in light of its particular investment or tax circumstances. The
description does not purport to deal with all aspects of taxation that may be
relevant to shareholders subject to special treatment under the federal income
tax laws, including, without limitation, insurance companies, financial
institutions or broker-dealers, tax-exempt organizations (except to the extent
discussed under the heading "-- Taxation of Tax-Exempt Shareholders of the
Company") or foreign corporations and persons who are not citizens or residents
of the United States (except to the extent discussed under the heading "--
Taxation of Non-U.S. Shareholders of the Company").

The information in this section is based on the Code, current, temporary
and proposed Treasury Regulations thereunder, the legislative history of the
Code (taking into account certain changes in law that are effective for taxable
years starting after August 5, 1997), current administrative interpretations and
practices of the IRS (including its practices and policies as endorsed in
private letter rulings, which are not binding on the IRS except with respect to
a taxpayer that receives such a ruling), and court decisions, all as of the date
hereof. No assurance can be given that future legislation, Treasury Regulations,
administrative interpretations and practices and court decisions will not
significantly change the current law or adversely affect existing
interpretations of current law. Any such change could apply retroactively to
transactions preceding the date of the change. The Company has not requested,
and does not plan to request, any rulings from the IRS concerning the tax
treatment of the Company or the Operating Partnership. Thus, no assurance can be
provided that the statements set forth herein (which do not bind the IRS or the
courts) will not be challenged by the IRS or will be sustained by a court if so
challenged.

As used in this section, the term "Company" refers solely to ElderTrust.

EACH PROSPECTIVE PURCHASER OF COMMON SHARES IS URGED TO CONSULT WITH ITS
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO IT OF THE OWNERSHIP
AND DISPOSITION OF COMMON SHARES OF AN ENTITY ELECTING TO BE TAXED AS A REIT IN
LIGHT OF ITS SPECIFIC TAX AND INVESTMENT SITUATIONS AND THE SPECIFIC FEDERAL,
STATE, LOCAL AND FOREIGN TAX LAWS APPLICABLE TO IT.

Taxation of the Company

The Company plans to make an election to be taxed as a REIT under Sections
856 through 860 of the Code, commencing with its taxable year ending December
31, 1997. The Company believes that, commencing with its taxable year ending
December 31, 1997, it will be organized and will operate in such a manner as to
qualify for taxation as a REIT under the Code, and the Company intends to
continue to operate in such a manner, but no assurance can be given that it will
continue to operate in such a manner so as to qualify or remain qualified.

113
<PAGE>

These sections of the Code and the corresponding Treasury Regulations are
highly technical and complex. The following sets forth the material aspects of
the rules that govern the federal income tax treatment of a REIT and its
shareholders. This summary is qualified in its entirety by the applicable Code
provisions, rules and Treasury Regulations promulgated thereunder, and
administrative and judicial interpretations thereof.

Hogan & Hartson L.L.P. has acted as tax counsel to the Company in
connection with the Company's election to be taxed as a REIT. In the opinion of
Hogan & Hartson L.L.P., commencing with the Company's taxable year ending
December 31, 1997, the Company will be organized in conformity with the
requirements for qualification as a REIT, and its proposed method of operation
should enable it to meet the requirements for qualification and taxation as a
REIT under the Code. It must be emphasized that this opinion is conditioned upon
certain representations made by the Company as to factual matters relating to
the organization and operation of the Company and the Operating Partnership. In
addition, this opinion is based upon the factual representations of the Company
concerning its business and properties as set forth in this Prospectus and will
assume that the actions described in this Prospectus are completed in a timely
fashion. Moreover, such qualification and taxation as a REIT depends upon the
Company's ability to meet on a ongoing basis (through actual annual operating
results, distribution levels and diversity of share ownership) the various
qualification tests imposed under the Code discussed below, the results of which
will not be reviewed by Hogan & Hartson L.L.P. Accordingly, no assurance can be
given that the actual results of the Company's operations for any particular
taxable year will satisfy such requirements. Further, the anticipated income tax
treatment described in this Prospectus may be changed, perhaps retroactively, by
legislative, administrative or judicial action at any time. See "-- Failure of
the Company to Qualify as a REIT."

If the Company qualifies for taxation as a REIT, it generally will not be
subject to federal corporate income taxes on its net income that is distributed
currently 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 as follows.

o The Company will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital
gains.

o Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its items of tax preference.

o If the Company has (i) net income from the sale or other disposition of
"foreclosure property" which is held primarily for sale to customers in
the ordinary course of business or (ii) other nonqualifying income from
foreclosure property, it will be subject to tax at the highest corporate
rate on such income.

o If the Company has net income from prohibited transactions (which are,
in general, certain sales or other dispositions of property held
primarily for sale to customers in the ordinary course of business other
than foreclosure property or sales to which Section 1033 applies), such
income will be subject to a 100% tax.

o If the Company should fail to satisfy the 75% gross income test or the
95% gross income test (each as discussed below), 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 (a) the gross income attributable to the greater of the
amount by which the Company fails the 75% or 95% test multiplied by (b)
a fraction intended to reflect the Company's profitability.

o If the Company should fail to distribute during each calendar year at
least the sum of (i) 85% of its REIT ordinary income for such year (ii)
95% of its REIT capital gain net income for such year and (iii) 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.

o With respect to any asset (a "Built-In Gain Asset") acquired by the
Company from a corporation which is or has been a C corporation (i.e.,
generally a corporation subject to full corporate-level tax) in a
transaction in which the basis of the Built-In Gain Asset in the hands
of the Company is determined by reference to the basis of the asset in
the hands of the C corporation, if the Company recognizes gain on

114
<PAGE>

the disposition of such asset during the ten-year period (the "Recognition
Period") beginning on the date on which such asset was acquired by the
Company, then, to the extent of the "Built-In Gain" (i.e., the excess of
(a) the fair market value of such asset over (b) the Company's adjusted
basis in such asset, determined as of the beginning of the Recognition
Period), such gain will be subject to tax at the highest regular corporate
rate pursuant to Treasury Regulations that have not yet been promulgated.
The results described above with respect to the recognition of Built-In
Gain assume that the Company will make the election described in IRS Notice
88-19.

Requirements for Qualification as a REIT

Organizational Requirements. The Code defines a REIT as a corporation,
trust or association (i) that is managed by one or more trustees or directors,
(ii) the beneficial ownership of which is evidenced by transferable shares, or
by transferable certificates of beneficial interest, (iii) that would be taxable
as a domestic corporation, but for Sections 856 through 859 of the Code, (iv)
that is neither a financial institution nor an insurance company subject to
certain provisions of the Code, (v) the beneficial ownership of which is held by
100 or more persons, (vi) during the last half of each taxable year not more
than 50% in value of the outstanding shares of which is owned, actually or
constructively, by five or fewer individuals (as defined in the Code to include
certain entities) and (vii) that meets certain other tests, described below,
regarding the nature of its income and assets. The Code provides that conditions
(i) to (iv), inclusive, must be met during the entire taxable year and that
condition (v) must be met during at least 335 days of a taxable year of twelve
months, or during a proportionate part of a taxable year of less than twelve
months. Conditions (v) and (vi) will not apply until after the first taxable
year for which an election is made to be taxed as a REIT. For purposes of
conditions (v) and (vi), pension funds and certain other tax-exempt entities are
treated as individuals, subject to a "look-through" exception in the case of
condition (vi).

The Company believes that it will have issued sufficient Common Shares with
sufficient diversity of ownership in the Offering to allow it to satisfy
conditions (v) and (vi) above. In addition, the Company's Declaration of Trust
provides for restrictions regarding the transfer and ownership of Common Shares,
which restrictions are intended to assist the Company in continuing to satisfy
the share ownership requirements described in (v) and (vi) above. Such ownership
and transfer restrictions are described in "Shares of Beneficial Interest --
Restrictions on Ownership and Transfer." These restrictions, however, may not
ensure that the Company will, in all cases, be able to satisfy the share
ownership requirements described above. If the Company fails to satisfy such
share ownership requirements, the Company's status as a REIT will terminate. See
"-- Failure of the Company to Qualify as a REIT." Treasury Regulations require
that the Company each year demand from certain record owners of its shares
certain information in order to assist the Company in ascertaining that the
share ownership requirements described above are satisfied. If the Company were
to fail to comply with these Treasury Regulation requirements for any year, it
would be subject to a $25,000 penalty. If the Company's failure to comply were
due to intentional disregard of the requirements, the penalty would be increased
to $50,000. However, if the Company's failure to comply were due to reasonable
cause and not willful neglect, no penalty would be imposed. If the Company
complies with the regulatory rules on ascertaining its actual owners but does
not know, or would not have known by exercising reasonable diligence, whether it
failed to meet the requirement that it not be closely held, the Company will be
treated as having met the requirement. These rules were enacted as part of the
Taxpayer Relief Act of 1997 (the "1997 Act") and are a change to the prior law,
which provided that a REIT would be disqualified if it failed to comply with
these Treasury Regulations.

In addition, a corporation may not elect to become a REIT unless its
taxable year is the calendar year. The Company will have a calendar taxable
year.

In order to qualify as a REIT, the Company cannot have at the end of any
taxable year any undistributed "earnings and profits" that are attributable to a
"C corporation" taxable year. The Company itself will be a newly formed entity
and will make a REIT election for its first taxable year. Hence, the Company
itself will not have any undistributed "C corporation earnings and profits."

Ownership of Partnership Interests. In the case of a REIT which is a
partner in a partnership, Treasury Regulations provide that the REIT will be
deemed to own its proportionate share of the assets of the

115
<PAGE>

partnership and will be deemed to be entitled to the income of the partnership
attributable to such share of assets. In addition, the character of the assets
and gross income of the partnership shall retain the same character in the hands
of the REIT for purposes of Section 856 of the Code, including satisfying the
gross income tests and the asset tests. Thus, the Company's proportionate share
of the assets and items of income of the Operating Partnership and any
subsidiaries of the Operating Partnership that are partnerships or limited
liability companies ("LLCs") will be treated as assets and items of income of
the Company for purposes of applying the requirements described herein. A
summary of the rules governing the federal income taxation of partnerships and
their partners is provided below in "-- Tax Aspects of the Company's Ownership
of Interests in the Operating Partnership." The Company will have direct control
of the Operating Partnership and intends to operate the Operating Partnership in
a manner consistent with the requirements for qualification as a REIT.

Income Tests. In order to maintain qualification as a REIT, the Company
annually must satisfy two gross income requirements.

o First, at least 75% of the Company's gross income (excluding gross income
from "prohibited transactions") for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real property (including "rents from real property" and, in
certain circumstances, interest from mortgage loans secured by real
property) or from certain types of temporary investments.

o Second, at least 95% of the Company's gross income (excluding gross income
from "prohibited transactions") for each taxable year must be derived from
such real property investments, dividends, interest and gain from the sale
or disposition of stock or securities, including certain hedging
instruments (or from any combination of the foregoing).

Rents received by the Company will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met.

o First, the amount of rent must not be based in whole or in part on the
income or profits of any person. However, an amount received or accrued
generally will not be excluded from the term "rents from real property"
solely by reason of being based on a fixed percentage or percentages of
receipts or sales.

o Second, rents received from a tenant will not qualify as "rents from real
property" in satisfying the gross income tests if the REIT, or an actual or
constructive owner of 10% or more of the REIT, actually or constructively
owns 10% or more of such tenant (a "Related Party Tenant").

o Third, if rent attributable to personal property leased in connection with
a lease of real property, is greater than 15% of the total rent received
under the lease, then the portion of rent attributable to such personal
property will not qualify as "rents from real property" (the "15% Personal
Property Test").

o Finally, for rents received to qualify as "rents from real property," the
REIT generally must not operate or manage the property, or furnish or
render services to the tenants of such property, other than through an
independent contractor from whom the REIT derives no revenue. The REIT may,
however, directly perform certain services that are "usually or customarily
rendered" in connection with the rental of space for occupancy only and are
not otherwise considered "rendered to the occupant" of the property and,
pursuant to the 1997 Act, may provide certain de minimis services to its
tenants. To the extent that services (other than those customarily
furnished or rendered in connection with the rental of real property) are
rendered to the tenants of the property by the independent contractor, the
cost of the services must be borne by the independent contractor.

The Company will not (i) charge rent for any property that is based in
whole or in part on the income or profits of any person (except by reason of
being based on a fixed percentage of receipts or sales, as described above, or
unless the Board of Trustees determines, in its discretion, that the rent
received from a particular tenant under such an arrangement is not material and
will not jeopardize the Company's status as a REIT), (ii) rent any property to a
Related Party Tenant (unless the Board of Trustees determines in its discretion
that the rent received from such Related Party Tenant is not material and will
not jeopardize the Company's status as a REIT), (iii) derive rental income
attributable to personal property (other than personal property leased in

116
<PAGE>

connection with the lease of real property, the amount of which is less than 15%
of the total rent received under the lease) or (iv) perform services considered
to be rendered to the occupant of the property, other than through an
independent contractor from whom the Company derives no revenue.

Pursuant to the Percentage Rent Leases, Genesis or a subsidiary of Genesis
will lease from the Operating Partnership (i) two of the Initial Properties
which are assisted living facilities and one of the Initial Properties which is
an independent living facility, (ii) the three Lease-up Assisted Living
Facilities which the Company has agreed to acquire from Genesis or from an
entity in which Genesis has a 49% interest and (iii) the Initial Assisted Living
Development Project which the Company has agreed to acquire from Genesis. The
lease for the remaining assisted living facility being acquired from and
leased-back to a subsidiary of Genesis will provide for the payment of Minimum
Rent until such facility reaches Stabilized Occupancy, at which time the lease
will convert automatically into a Percentage Rent Lease with no minimum rent.
The Percentage Rent Leases provide that Genesis, directly or indirectly, will be
obligated to pay to the Operating Partnership (i) Percentage Rent (as defined
below) and (ii) Additional Rent (as defined below) (collectively "Rent").
"Percentage Rent" is calculated by multiplying a specified fixed percentage by
the revenue generated with respect to the leased property (adjusted to exclude:
(a) revenues from professional fees or charges by physicians and all providers
of ancillary services, including, without limitation, physical therapy services,
whether or not such providers are employees of the tenant; (b) non-operating
revenues, such as interest income or income from the sale of assets not sold in
the ordinary course of business; (c) federal, state or local excise taxes
imposed upon, and any tax based upon or measured by, such revenues which is
added to or made a part of the amount billed to the resident, client or other
recipient of such services or goods, whether included in the billing or stated
separately; (d) contractual allowances (relating to any period during the term)
for billings not paid by or received from the appropriate governmental agencies
or third party providers; and (e) all proper patient billing credits and
adjustments (including, without limitation, allowances for uncollectable
accounts) according to generally accepted accounting principles relating to
healthcare accounting) (as adjusted, "Facility Revenues"). Percentage Rent is
required to be paid each month in advance, with adjustments to be made quarterly
and annually based on actual results.

Pursuant to the Minimum Rent Leases, a tenant will lease from the Operating
Partnership (i) two of the Initial Properties which are assisted living
facilities, (ii) all of the Initial Properties which are skilled nursing
facilities and (iii) any Lease-up Assisted Living Facilities on Initial Assisted
Living Development Projects which are not leased to Genesis or a subsidiary of
Genesis. The Minimum Rent Leases provide that the tenant will be obligated to
pay to the Operating Partnership "Rent" consisting of (i) Minimum Rent (as
defined below), (ii) Incremental Percentage Rent and (iii) Additional Rent.
"Minimum Rent" is set at the beginning of the term and escalates based on the
Consumer Price Index, a fixed percentage increase per year or a fixed percentage
of the increase in the gross revenues for a facility during the immediately
preceding year. Incremental Percentage Rent is calculated by multiplying a
specified fixed percentage by the increased gross revenues for a facility over a
specified base amount. Minimum Rent is to be paid each month in advance, and
Incremental Percentage Rent is required to be paid quarterly, with adjustments
to be made annually based on actual results.

For both Percentage Rent Leases and Minimum Rent Leases, "Additional Rent"
includes adjustments equal to the difference between the tenant's payment of
estimated Percentage Rent or Incremental Percentage Rent, as the case may be,
during a particular period and the actual Percentage Rent or Incremental
Percentage Rent, as applicable, payable with respect to such period and certain
other costs a tenant agrees to pay under the applicable lease.

The leases of the medical and other office buildings included in the
Initial Properties do not provide for any rent payments based on a tenant's
revenues.

In order for Rent to constitute "rents from real property," the leases must
be respected as true leases for federal income tax purposes and not treated as
service contracts, joint ventures or some other type of arrangement. The
determination of whether the leases are true leases depends on an analysis of
all the surrounding facts and circumstances. In making such a determination,
courts have considered a variety of factors, including the following: (i) the
intent of the parties; (ii) the form of the agreement; (iii) the degree of
control over the property that is retained by the property owner (e.g., whether
the lessee has substantial

117
<PAGE>

control over the operation of the property or whether the lessee was required
simply to use its best efforts to perform its obligations under the agreement);
and (iv) the extent to which the property owner retains the risk of loss with
respect to the property (e.g., whether the lessee bears the risk of increases in
operating expenses or the risk of damage to the property) or the potential for
economic gain (e.g., appreciation) with respect to the property.

In addition, Code section 7701(e) provides that a contract that purports to
be a service contract (or a partnership agreement) is treated instead as a lease
of property if the contract is properly treated as such, taking into account all
relevant factors, including whether or not: (i) the service recipient is in
physical possession of the property; (ii) the service recipient controls the
property; (iii) the service recipient has a significant economic or possessory
interest in the property (e.g., if the property's use is likely to be dedicated
to the service recipient for a substantial portion of the useful life of the
property, the recipient shares the risk that the property will decline in value,
the recipient shares in any appreciation in the value of the property, the
recipient shares in savings in the property's operating costs or the recipient
bears the risk of damage to or loss of the property); (iv) the service provider
does not bear any risk of substantially diminished receipts or substantially
increased expenditures if there is nonperformance under the contract; (v) the
service provider does not use the property concurrently to provide significant
services to entities unrelated to the service recipient; and (vi) the total
contract price does not substantially exceed the rental value of the property
for the contract period. Since the determination of whether a service contract
should be treated as a lease is inherently factual, the presence or absence or
any single factor may not be dispositive in every case.

The Percentage Rent Leases and the Minimum Rent Leases have been structured
with the intent to qualify as true leases for federal income tax purposes.
Investors should be aware, however, that there are no controlling Treasury
Regulations, published rulings or judicial decisions involving leases with terms
substantially the same as the Percentage Rent Leases or the Minimum Rent Leases
that discuss whether such leases constitute true leases for federal income tax
purposes. Therefore, there can be no assurance that the IRS might not assert a
contrary position. If the Percentage Rent Leases or the Minimum Rent Leases are
recharacterized as service contracts or partnership agreements, rather than true
leases, part or all of the payments that the Operating Partnership receives from
the lessee would not be considered rent or would not otherwise satisfy the
various requirements for qualification as "rents from real property." In that
case, the Company likely would not be able to satisfy either the 75% or 95%
gross income test and, as a result, would lose its REIT status.

As indicated above, "rents from real property" must not be based in whole
or in part on the income or profits of any person. Each of the Percentage Rent
and the Incremental Percentage Rent should qualify as "rents from real property"
since it is based on percentages of receipts or sales which percentages are
fixed at the time the leases are entered into, provided the leases (i) are not
renegotiated during the term of the leases in a manner that has the effect of
basing Percentage Rent or Incremental Percentage Rent on income or profits and
(ii) are not in reality used as a means of basing rent on income or profits.
More generally, the Percentage Rent and the Incremental Percentage Rent, as
applicable, will not qualify as "rent from real property" if, considering the
Percentage Rent Leases or the Minimum Rent Leases and all the surrounding
circumstances, the arrangement does not conform with normal business practice
but is in reality used as a means of basing rent on income or profits. Because
each of the Percentage Rent and the Incremental Percentage Rent, as applicable,
is based on fixed percentages of the gross revenues from the facilities that are
established in the Percentage Rent Leases and the Minimum Rent Leases, and the
Company has represented that the percentages (i) will not be renegotiated during
the terms of the leases in a manner that has the effect of basing rent on income
or profits and (ii) conform with normal business practice, the Percentage Rent
and the Incremental Percentage Rent, as applicable, should not be considered
based in whole or in part on the income or profits of any person. Furthermore,
the Company has represented that, with respect to other properties that it
acquires in the future, it will not charge rent for any property that is based
in whole or in part on the income or profits of any person (except by reason of
being based on a fixed percentage of gross revenues, as described above).
Neither the Percentage Rent and the Incremental Percentage Rent, as applicable,
nor Additional Rent are based on the income or net profits of any person, and
therefore should qualify as "rents from real property."

The Company may lease certain items of personal property in connection
with the lease of an assisted living facility, a skilled nursing facility or an
independent living facility property. The 15% Personal Property

118
<PAGE>

Test provides that if a lease provides for the rental of both real and personal
property and the portion of the rent attributable to personal property is 15% or
less of the total rent due under the lease, then all rent paid pursuant to such
lease qualifies as "rent from real property." If, however, a lease provides for
the rental of both real and personal property, and the portion of the rent
attributable to personal property exceeds 15% of the total rent due under the
lease, then the portion of the rent that is attributable to personal property
does not qualify as "rent from real property." The amount of rent attributable
to personal property is that amount which bears the same ratio to total rent for
the taxable year as the average of the adjusted tax bases of the personal
property at the beginning and end of the year bears to the average of the
aggregate adjusted tax bases of both the real and personal property at the
beginning and end of such year. The Company has represented that with respect to
each lease that includes a lease of items of personal property, the amount of
rent attributable to personal property with respect to such lease, determined as
set forth above, will not exceed 15% of the total rent due under the lease.

If any of the leased Initial Properties which are assisted living
facilities, skilled nursing facilities or independent living facilities or any
of the leased Initial Assisted Living Development Projects were to be operated
directly by the Operating Partnership or a subsidiary partnership or LLC as a
result of a default by the lessee under the applicable lease, such property
would constitute foreclosure property for three years following its acquisition
(or for up to an additional three years if an extension is granted by the IRS),
provided that (i) the Operating Partnership or its subsidiary partnership or LLC
conducts operations through an independent contractor (which would not include
Genesis and its affiliates) within 90 days after the date the property is
acquired, (ii) the Operating Partnership or its subsidiary partnership or LLC
does not undertake any construction on the foreclosed property other than
completion of improvements that were more than 10% complete before default
became imminent and (iii) foreclosure was not regarded as foreseeable at the
time the Company entered into such leases. For as long as any of these
properties constitute foreclosure property, the income from the properties would
be subject to tax at the maximum corporate rates, but it would qualify under the
75% and 95% gross income tests. However, if any of these properties does not
constitute foreclosure property at any time in the future, income earned from
the disposition or operation of such property will not qualify under the 75% and
95% gross income tests.

Through the Operating Partnership, which is not an "independent
contractor," the Company may provide certain services with respect to the
Initial Properties or the Lease-up Assisted Living Facilities or Initial
Assisted Living Development Projects, but the Company believes (and has
represented) that all such services would be considered "usually or customarily
rendered" in connection with the rental of space for occupancy only, so that the
provision of such services would not jeopardize the qualification of rent from
the Initial Properties or the Lease-up Assisted Living Facilities or Initial
Assisted Living Development Projects as "rents from real property." In the case
of any services that are not "usual and customary" under the foregoing rules,
the Company intends to employ "independent contractors" to provide such
services.

Except for interest on obligations secured by real property, such as the
Construction Loans and the Term Loans, "interest" will not qualify under the 75%
gross income test (but will qualify under the 95% gross income test). For
interest received from the Construction Loans and the Term Loans to qualify for
both the 75% and 95% gross income test, the Loans must be secured by real
property and the loans must be treated as debt for federal income tax purposes.
In this regard, the Construction Loans and the Term Loans are secured by real
property, the terms of each of the Loans are typical of a debt instrument, and
the Company believes that the fair market value of the real property securing
each of the Term Loans and the Construction Loans will exceed the principal
amount of the Loan at the time the Loan is made by the Company. (Interest on
loans, whether secured by real property or not, that is based on the income or
profits of any person will not qualify under either the 75% or the 95% gross
income test. The Company, however, does not anticipate making any loans where
interest payable is based upon the income or profits of any person.)

If the Company fails to satisfy one or both of the 75% or 95% gross income
tests for any taxable year, it may nevertheless qualify as a REIT for such year
if it is entitled to relief under certain provisions of the Code. These relief
provisions generally will be available if the Company's failure to meet such
tests were due to reasonable cause and not due to willful neglect, the Company
attaches a schedule of the sources of its income to its federal income tax
return and any incorrect information on the schedule was not due to fraud

119
<PAGE>

with intent to evade tax. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. For example, if the Company fails to satisfy the gross income tests
because non-qualifying income that the Company intentionally incurs exceeds the
limits on such income, the IRS could conclude that the Company's failure to
satisfy the tests was not due to reasonable cause. If these relief provisions
are inapplicable to a particular set of circumstances involving the Company, the
Company will not qualify as a REIT. As discussed above under "-- Taxation of the
Company," even if these relief provisions apply, a tax would be imposed with
respect to the excess net income.

Any gain realized by the Company on the sale of any property held as
inventory or other property held primarily for sale to customers in the ordinary
course of business (including the Company's share of any such gain realized by
the Operating Partnership) will be treated as income from a "prohibited
transaction" that is subject to a 100% penalty tax. Such prohibited transaction
income may also have an adverse effect upon the Company's ability to satisfy the
income tests for qualification as a REIT. Under existing law, whether property
is held as inventory or primarily for sale to customers in the ordinary course
of a trade or business is a question of fact that depends on all the facts and
circumstances with respect to the particular transaction. The Operating
Partnership intends to hold the Initial Properties and the Initial Assisted
Living Development Projects for investment with a view to long-term
appreciation, to engage in the business of acquiring, developing, owning and
operating the Initial Properties and the Lease-up Assisted Living Facilities and
Initial Assisted Living Development Projects (and other properties) and to make
such occasional sales of the Initial Properties or the Lease-up Assisted Living
Facilities or Initial Assisted Living Development Projects as are consistent
with the Operating Partnership's investment objectives. There can be no
assurance, however, that the IRS might not contend that one or more of such
sales is subject to the 100% penalty tax.

Asset Tests. The Company, at the close of each quarter of its taxable
year, must also satisfy three tests relating to the nature of its assets.

o First, at least 75% of the value of the Company's total assets must be
represented by real estate assets including (i) its allocable share of real
estate assets held by partnerships in which the Company owns an interest
(including its allocable share of the assets held directly or indirectly
through the Operating Partnership) and (ii) stock or debt instruments held
for not more than one year purchased with the proceeds of a stock offering
or long-term (at least five years) debt offering of the Company, cash, cash
items and government securities.

o Second, not more than 25% of the Company's total assets may be represented
by securities other than those in the 75% asset class.

o Third, of the investments included in the 25% asset class, the value of any
one issuer's securities owned by the Company may not exceed 5% of the value
of the Company's total assets, and the Company may not own more than 10% of
any one issuer's outstanding voting securities.

The Operating Partnership owns 100% of the nonvoting stock of ET Capital
Corp. and a note issued by ET Capital Corp. The Company believes that the
Company's pro rata share of the value of the securities of ET Capital Corp. does
not exceed 5% of the total value of the Company's assets. There can be no
assurance, however, that the IRS will not contend either that the value of the
securities of ET Capital Corp. held by the Company (through the Operating
Partnership) exceeds the 5% value limitation or that nonvoting stock of ET
Capital Corp. held by the Operating Partnership should be considered "voting
stock" for this purpose.

After initially meeting the asset tests at the close of any quarter, the
Company will not lose its status as a REIT for failure to satisfy the asset
tests at the end of a later quarter solely by reason of changes in asset values.
If the failure to satisfy the asset tests results from an acquisition of
securities or other property during a quarter (including, for example, as a
result of the Company increasing its interest in the Operating Partnership as a
result of the exercise of a Unit Redemption Right or an additional capital
contribution of proceeds of an offering of Common Shares by the Company), the
failure can be cured by disposition of sufficient nonqualifying assets within 30
days after the close of that quarter. The Company intends to maintain adequate
records of the value of its assets to ensure compliance with the asset tests and
to take such other actions within 30 days after the close of any quarter as may
be required to cure any noncompliance. If the Company fails to cure
noncompliance with the asset tests within such time period, the Company would
cease to qualify as a REIT.

120
<PAGE>

As discussed above, the assets held by the Company include the Construction
Loans and the Term Loans. For these Loans to qualify as "real estate assets" for
the purpose of the asset test, the Loans must be secured by real property and
the loans must be treated as debt for federal income tax purposes. As discussed
above, the Construction Loans and the Term Loans are secured by real property,
the terms of each of the Loans are typical of a debt instrument and the Company
believes that the fair market value of the real property securing each of the
Term Loans and the Construction Loans will exceed the principal amount of the
Loan at the time the Loan is made or acquired, as applicable, by the Company.

Annual Distribution Requirements. The Company is required to distribute
dividends (other than capital gain dividends) to its shareholders in an amount
at least equal to (i) the sum of (a) 95% of the Company's "REIT taxable income"
(computed without regard to the dividends paid deduction and the Company's net
capital gain) and (b) 95% of the net income (after tax), if any, from
foreclosure property, minus (ii) the sum of certain items of noncash income. In
addition, if the Company disposes of any Built-In Gain Asset during its
Recognition Period, the Company will be required, pursuant to Treasury
Regulations which have not yet been promulgated, to distribute at least 95% of
the Built-In Gain (after tax), if any, recognized on the disposition of such
asset. Such distributions must be paid in the taxable year to which they relate,
or in the following taxable year if declared before the Company timely files its
tax return for such year and if paid on or before the first regular dividend
payment date after such declaration.

To the extent that the Company does not distribute all of its net capital
gain or distributes at least 95%, but less than 100%, of its "REIT taxable
income," as adjusted, it will be subject to tax thereon at regular ordinary and
capital gain corporate tax rates. The Company, however, may designate some or
all of its retained net capital gain, so that, although the designated amount
will not be treated as distributed for purposes of this tax, a shareholder would
include its proportionate share of such amount in income, as long-term capital
gain, and would be treated as having paid its proportionate share of the tax
paid by the Company with respect to such amount. The shareholder's basis in its
shares would be increased by the amount the shareholder included in income and
decreased by the amount of the tax the shareholder is treated as having paid.
The Company would make an appropriate adjustment to its earnings and profits.
For a more detailed description of the tax consequences to a shareholder of such
a designation, see "-- Taxation of Taxable U.S. Shareholders of the Company
Generally." The Company intends to make timely distributions sufficient to
satisfy these annual distribution requirements. In this regard, the Operating
Partnership Agreement authorizes the Company, as managing general partner, to
take such steps as may be necessary to cause the Operating Partnership to
distribute to its partners an amount sufficient to permit the Company to meet
these distribution requirements.

It is expected that the Company's REIT taxable income will be less than its
cash flow due to the allowance of depreciation and other non-cash charges in
computing REIT taxable income. Accordingly, the Company anticipates that it will
generally have sufficient cash or liquid assets to enable it to satisfy the
distribution requirements described above. It is possible, however, that the
Company, from time to time, may not have sufficient cash or other liquid assets
to meet these distribution requirements due to timing differences between (i)
the actual receipt of income and actual payment of deductible expenses and (ii)
the inclusion of such income and deduction of such expenses in arriving at
taxable income of the Company. If such timing differences occur, in order to
meet the distribution requirements, the Company may find it necessary to arrange
for short-term, or possibly long-term, borrowings or to pay dividends in the
form of taxable share dividends.

A portion of the cash to be used by the Company to fund distributions is
expected to come from ET Capital Corp. through payments of dividends on the
stock of ET Capital Corp. held by the Operating Partnership. ET Capital Corp.
pays federal and state income tax at the applicable corporate rates. To the
extent that ET Capital Corp. is required to pay federal, state or local taxes,
the cash available for distribution by the Company to its shareholders will be
reduced accordingly.

Under certain circumstances, the Company may be able to rectify a failure
to meet the distribution requirement for a year by paying "deficiency dividends"
to shareholders in a later year, which may be included in the Company's
deduction for dividends paid for the earlier year. Thus, the Company may be able
to avoid being taxed on amounts distributed as deficiency dividends; however,
the Company will be required to pay interest based upon the amount of any
deduction taken for deficiency dividends.

121
<PAGE>

Furthermore, if the Company should fail to distribute during each calendar
year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii)
95% of its REIT capital gain income for such year and (iii) 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.

Failure of the Company to Qualify as a REIT

If the Company fails to qualify for taxation as a REIT in any taxable year,
and if the relief provisions do not apply, the Company will be subject to tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates. Distributions to shareholders in any year in which the
Company fails to qualify will not be deductible by the Company nor will they be
required to be made. As a result, the Company's failure to qualify as a REIT
would significantly reduce the cash available for distribution by the Company to
its shareholders. In addition, if the Company fails to qualify as a REIT, all
distributions to shareholders will be taxable as ordinary income to the extent
of the Company's current and accumulated earnings and profits, and, subject to
certain limitations of the Code, corporate distributees may be eligible for the
dividends received deduction. Unless entitled to relief under specific statutory
provisions, the Company also will be disqualified from taxation as a REIT for
the four taxable years following the year during which qualification was lost.
It is not possible to state whether in all circumstances the Company would be
entitled to such statutory relief.

Taxation of Taxable U.S. Shareholders of the Company Generally

As used herein, the term "U.S. Shareholder" means a holder of Common Shares
who (for United States federal income tax purposes) (i) is a citizen or resident
of the United States, (ii) is a corporation, partnership or other entity created
or organized in or under the laws of the United States or of any political
subdivision thereof or (iii) is an estate or trust the income of which is
subject to United States federal income taxation regardless of its source.

Distributions Generally. As long as the Company qualifies as a REIT,
distributions made by the Company out of its current or accumulated earnings and
profits (and not designated as capital gain dividends) will constitute dividends
taxable to its taxable U.S. Shareholders as ordinary income.

U.S. Shareholders that are corporations, however, may be required to treat
up to 20% of certain capital gain dividends as ordinary income. In addition,
such distributions will not be eligible for the dividends received deduction in
the case of such U.S. Shareholders.

Distributions made by the Company that are properly designated by the
Company as capital gain dividends will be taxable to taxable U.S. Shareholders
as gains from the sale or exchange of a capital asset held for more than one
year (to the extent that they do not exceed the Company's actual net capital
gain for the taxable year) without regard to the period for which a U.S.
Shareholder has held his shares in the Company. It is not clear whether, for a
U.S. Shareholder who is an individual or an estate or trust, such amounts will
be taxable at the rate applicable to mid-term capital gains (i.e., gains from
the sale of capital assets held for more than one year but not more than 18
months) or at the rate applicable to long-term capital gains (i.e., gains from
the sale of capital assets held for more than 18 months). This uncertainty may
be clarified by future legislation or regulations.

Generally, for an individual or an estate or trust, the maximum tax rate
applicable to mid-term capital gains is 28% and the maximum tax rate applicable
to long-term capital gains is 20%. However, for such taxpayers: (i) mid-term
capital gains resulting from sales of depreciable real property are taxed at the
rate applicable to ordinary income to the extent that prior depreciation
deductions with respect to the property were claimed in excess of the
depreciation that would have been allowed if computed on a straight-line basis;
and (ii) long-term capital gains resulting from sales of depreciable real
property are taxed at a maximum rate of 25% to the extent of the depreciation
deductions taken with respect to such property. The IRS has authority to issue
regulations pursuant to which the capital gain dividends received by a taxable
U.S. Shareholder that is an individual or an estate or trust could be subject
these special rates.

122
<PAGE>

To the extent that the Company makes distributions (not designated as
capital gain dividends) in excess of its current and accumulated earnings and
profits, such distributions will be treated first as a tax-free return of
capital to each U.S. Shareholder, reducing the adjusted basis which such U.S.
Shareholder has in its Common Shares for tax purposes by the amount of such
distribution (but not below zero), with distributions in excess of a U.S.
Shareholder's adjusted basis in its Common Shares taxable as capital gains
(provided that the Common Shares have been held as a capital asset). Dividends
declared by the Company in October, November, or December of any year and
payable to a shareholder of record on a specified date in any such month shall
be treated as both paid by the Company and received by the shareholder on
December 31 of such year, provided that the dividend is actually paid by the
Company on or before January 31 of the following calendar year. Shareholders may
not include in their own income tax returns any net operating losses or capital
losses of the Company.

Capital Gain Distributions. Distributions made by the Company that are
properly designated by the Company as capital gain dividends will be taxable to
taxable U.S. Shareholders as long-term capital gains (to the extent that they do
not exceed the Company's actual net capital gain for the taxable year) without
regard to the period for which a U.S. Shareholder has held his Common Shares.
U.S. Shareholders that are corporations may, however, be required to treat up to
20% of certain capital gain dividends as ordinary income.

Passive Activity Loss and Investment Limitations. Distributions made by the
Company and gain arising from the sale or exchange by a U.S. Shareholder of
Common Shares will not be treated as passive activity income, and, as a result,
U.S. Shareholders generally will not be able to apply any "passive losses"
against such income or gain. Dividends from the Company (to the extent they do
not constitute a return of capital) generally will be treated as investment
income for purposes of the investment income limitation. Under recently enacted
legislation, net capital gain from the disposition of Common Shares and capital
gain dividends generally will be excluded from investment income.

Certain Dispositions of Shares. Upon any sale or other disposition of
Common Shares, a U.S. Shareholder will recognize gain or loss for federal income
tax purposes in an amount equal to the difference between (i) the amount of cash
and the fair market value of any property received on such sale or other
disposition and (ii) the holder's adjusted basis in such Common Shares for tax
purposes. Such gain or loss will be capital gain or loss if the Common Shares
have been held by the U.S. Shareholder as a capital asset.

In the case of a U.S. Shareholder who is an individual or an estate or
trust, such gain or loss will be mid-term capital gain or loss if such shares
have been held for more than one year but not more than 18 months and long-term
capital gain or loss if such shares have been held for more than 18 months. In
the case of a U.S. Shareholder that is a corporation, such gain or loss will be
long-term capital gain or loss if such shares have been held for more than one
year. In general, any loss recognized by a U.S. Shareholder upon the sale or
other disposition of shares in the Company that have been held for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss, to the extent of distributions received by such U.S.
Shareholder from the Company which were required to be treated as long-term
capital gains.

The Company may designate its net capital gain so that with respect to
retained net capital gains, a U.S. Shareholder would include its proportionate
share of such gain in income as long-term capital gain and would be treated as
having paid its proportionate share of the tax paid by the Company with respect
to the gain. The U.S. Shareholder's basis in its shares would be increased by
its share of such gain and decreased by its share of such tax. With respect to
such long-term capital gain of a U.S. Shareholder that is an individual or an
estate or trust, the IRS, as described above in this section, has authority to
issue regulations that could apply the special tax rate applicable generally to
the portion of the long-term capital gains of an individual or an estate or
trust attributable to deductions for depreciation taken with respect to
depreciable real property.

Backup Withholding for Company Distributions

The Company will report to its U.S. Shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any. Under the backup withholding rules, a shareholder may be subject to backup
withholding at the rate of 31% with respect to dividends paid unless such holder
(a) is a

123
<PAGE>

corporation or comes within certain other exempt categories and, when required,
demonstrates this fact or (b) provides a taxpayer identification number,
certifies as to no loss of exemption from backup withholding and otherwise
complies with applicable requirements of the backup withholding rules. A U.S.
Shareholder that does not provide the Company with its correct taxpayer
identification number may also be subject to penalties imposed by the IRS. Any
amount paid as backup withholding will be creditable against the shareholder's
income tax liability. In addition, the Company may be required to withhold a
portion of capital gain distributions to any shareholders who fail to certify
their non-foreign status to the Company. See "-- Taxation of Non-U.S.
Shareholders of the Company."

Taxation of Tax-Exempt Shareholders of the Company

The IRS has ruled that amounts distributed as dividends by a qualified REIT
do not constitute unrelated business taxable income ("UBTI") when received by a
tax-exempt entity. Based on that ruling, provided that a tax-exempt shareholder
(except certain tax-exempt shareholders described below) has not held its Common
Shares as "debt financed property" within the meaning of the Code and such
Common Shares are not otherwise used in a trade or business, the dividend income
from the Company will not be UBTI to a tax-exempt shareholder. Similarly, income
from the sale of Common Shares will not constitute UBTI unless such tax-exempt
shareholder has held such Common Shares as "debt financed property" within the
meaning of the Code or has used the Common Shares in a trade or business.

For tax-exempt shareholders that are social clubs, voluntary employee
benefit associations, supplemental unemployment benefit trusts or qualified
group legal services plans exempt from federal income taxation under Code
Sections 501(c)(7), (c)(9), (c)(17) or (c)(20), respectively, income from an
investment in the Company will constitute UBTI unless the organization is able
to properly deduct amounts set aside or placed in reserve for certain purposes
so as to offset the income generated by its investment in the Company. Such
prospective shareholders should consult their own tax advisors concerning these
"set aside" and reserve requirements.

Notwithstanding the above, however, a portion of the dividends paid by a
"pension-held REIT" shall be treated as UBTI as to any trust which (i) is
described in Section 401(a) of the Code, (ii) is tax-exempt under Section 501(a)
of the Code and (iii) holds more than 10% (by value) of the interests in the
REIT. Tax-exempt pension funds that are described in Section 401(a) of the Code
are referred to below as "qualified trusts." A REIT is a "pension-held REIT" if
(i) it would not have qualified as a REIT but for the fact that Section
856(h)(3) of the Code provides that stock owned by qualified trusts shall be
treated for purposes of the "not closely held" requirement as owned by the
beneficiaries of the trust (rather than by the trust itself) and (ii) either (a)
at least one such qualified trust holds more than 25% (by value) of the
interests in the REIT or (b) one or more such qualified trusts, each of which
owns more than 10% (by value) of the interests in the REIT, hold in the
aggregate more than 50% (by value) of the interests in the REIT. The percentage
of any REIT dividend treated as UBTI is equal to the ratio of (i) the UBTI
earned by the REIT (treating the REIT as if it were a qualified trust and
therefore subject to tax on UBTI) to (ii) the total gross income of the REIT. A
de minimis exception applies where the percentage is less than 5% for any year.
The provisions requiring qualified trusts to treat a portion of REIT
distributions as UBTI will not apply if the REIT is able to satisfy the "not
closely held" requirement without relying upon the "look-through" exception with
respect to qualified trusts.

Based on the anticipated ownership of Common Shares immediately following
the Offering, and as a result of certain limitations on transfer and ownership
of Common Shares contained in the Declaration of Trust, the Company does not
expect to be classified as a "pension-held REIT."

Taxation of Non-U.S. Shareholders of the Company

The rules governing United States federal income taxation of the ownership
and disposition of Common Shares by persons that are, for purposes of such
taxation, nonresident alien individuals, foreign corporations, foreign
partnerships or foreign estates or trusts (collectively, "Non-U.S.
Shareholders") are complex, and no attempt is made herein to provide more than a
brief summary of such rules. Accordingly, the discussion does not address all
aspects of United States federal income taxation that may be applicable to
Non-U.S. Shareholders and does not address state, local or foreign tax
consequences that may be relevant to a Non-U.S.

124
<PAGE>

Shareholder in light of its particular circumstances. In addition, this
discussion is based on current law, which is subject to change, and assumes that
the Company qualifies for taxation as a REIT. Prospective Non-U.S. Shareholders
should consult with their own tax advisers to determine the impact of federal,
state, local and foreign income tax laws with regard to an investment in Common
Shares, including any reporting requirements.

Distributions by the Company. Distributions by the Company to a Non-U.S.
Shareholder that are neither attributable to gain from sales or exchanges by the
Company of United States real property interests nor designated by the Company
as capital gains dividends will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and profits
of the Company. Such distributions ordinarily will be subject to withholding of
United States federal income tax on a gross basis (that is, without allowance
for deductions) at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty, unless the dividends are treated as effectively
connected with the conduct by the Non-U.S. Shareholder of a United States trade
or business. Dividends that are effectively connected with such a trade or
business will be subject to tax on a net basis (that is, after allowance for
deductions) at graduated rates, in the same manner as domestic shareholders are
taxed with respect to such dividends, and are generally not subject to
withholding. Any such dividends received by a Non-U.S. Shareholder that is a
corporation may also be subject to an additional branch profits tax at a 30%
rate or such lower rate as may be specified by an applicable income tax treaty.

Pursuant to current Treasury Regulations, dividends paid to an address in a
country outside the United States are generally presumed to be paid to a
resident of such country for purposes of determining the applicability of
withholding discussed above and the applicability of a tax treaty rate. Under
proposed Treasury Regulations not currently in effect, however, a Non-U.S.
Shareholder who wishes to claim the benefit of an applicable treaty rate would
be required to satisfy certain certification and other requirements. Under
certain treaties, lower withholding rates generally applicable to dividends do
not apply to dividends from a REIT, such as the Company. Certain certification
and disclosure requirements must be satisfied to be exempt from withholding
under the effectively connected income exemption discussed above.

Distributions in excess of current or accumulated earnings and profits of
the Company will not be taxable to a Non-U.S. Shareholder to the extent that
they do not exceed the adjusted basis of the shareholder's Common Shares, but
rather will reduce the adjusted basis of such Common Shares. To the extent that
such distributions exceed the adjusted basis of a Non-U.S. Shareholder's Common
Shares, they will give rise to gain from the sale or exchange of its Common
Shares, the tax treatment of which is described below. As a result of a
legislative change made by the Small Business Job Protection Act of 1996, it
appears that the Company will be required to withhold 10% of any distribution in
excess of the Company's current and accumulated earnings and profits.
Consequently, although the Company intends to withhold at a rate of 30% on the
entire amount of any distribution (or a lower applicable treaty rate), to the
extent that the Company does not do so, any portion of a distribution not
subject to withholding at a rate of 30% (or a lower applicable treaty rate) will
nevertheless be subject to withholding at a rate of 10%. However, the Non-U.S.
Shareholder may seek a refund of such amounts from the IRS if it subsequently
determined that such distribution was, in fact, in excess of current or
accumulated earnings and profits of the Company and that the amount withheld
exceeded the Non-U.S. Shareholder's United States tax liability, if any, with
respect to the distribution.

Distributions to a Non-U.S. Shareholder that are designated by the Company
at the time of distribution as capital gains dividends (other than those arising
from the disposition of a United States real property interest) generally will
not be subject to United States federal income taxation, unless (i) investment
in the Common Shares is effectively connected with the Non-U.S. Shareholder's
United States trade or business, in which case the Non-U.S. Shareholder will be
subject to the same treatment as domestic shareholders with respect to such gain
(except that a shareholder that is a foreign corporation may also be subject to
the 30% branch profits tax, as discussed above), or (ii) the Non-U.S.
Shareholder is a nonresident alien individual who is present in the United
States for 183 days or more during the taxable year and has a "tax home" in the
United States, in which case the nonresident alien individual will be subject to
a 30% tax on the individual's capital gains.

Under the Foreign Investment in Real Property Tax Act ("FIRPTA")
distributions to a Non-U.S. Shareholder that are attributable to gain from
sales or exchanges by the Company of United States real

125
<PAGE>

property interests will cause the Non-U.S. Shareholder to be treated as
recognizing such gain as income effectively connected with a United States trade
or business. Non-U.S. Shareholders would thus generally be taxed at the same
rates applicable to domestic shareholders (subject to a special alternative
minimum tax in the case of nonresident alien individuals). Also, such gain may
be subject to a 30% branch profits tax in the hands of a Non-U.S. Shareholder
that is a corporation, as discussed above. The Company is required to withhold
35% of any such distribution. That amount is creditable against the Non-U.S.
Shareholder's United States federal income tax liability.

Sale of Common Shares. Gain recognized by a Non-U.S. Shareholder upon the
sale or exchange of Common Shares generally will not be subject to United States
taxation unless such shares constitute a "United States real property interest"
within the meaning of FIRPTA. The Common Shares will not constitute a "United
States real property interest" as long as the Company is a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT in which at all
times during a specified testing period less than 50% in value of its shares is
held directly or indirectly by Non-U.S. Shareholders. The Company believes that
at the closing of the Offering it will be a "domestically controlled REIT," and
therefore that the sale of Common Shares will not be subject to taxation under
FIRPTA. However, because the Common Shares are expected to become publicly
traded, no assurance can be given that the Company will continue to be a
"domestically controlled REIT." Notwithstanding the foregoing, gain from the
sale or exchange of Common Shares not otherwise subject to FIRPTA will be
taxable to a Non-U.S. Shareholder if the Non-U.S. Shareholder is a nonresident
alien individual who is present in the United States for 183 days or more during
the taxable year and has a "tax home" in the United States. In such case, the
nonresident alien individual will be subject to a 30% United States withholding
tax on the amount of such individual's gain.

Even if the Company does not qualify as or ceases to be a
"domestically-controlled REIT," gain arising from the sale or exchange by a
Non-U.S. Shareholder of Common Shares would not be subject to United States
taxation under FIRPTA as a sale of a "United States real property interest" if
(i) the Common Shares are "regularly traded" (as defined by applicable Treasury
Regulations) on an established securities market (e.g., the New York Stock
Exchange) and (ii) such Non-U.S. Shareholder owned 5% or less of the value of
the Common Shares throughout the five-year period ending on the date of the sale
or exchange. If gain on the sale or exchange of Common Shares were subject to
taxation under FIRPTA, the Non-U.S. Shareholder would be subject to regular
United States federal income tax with respect to such gain in the same manner as
a U.S. Shareholder (subject to any applicable alternative minimum tax, a special
alternative minimum tax in the case of nonresident alien individuals and the
possible application of the 30% branch profits tax in the case of foreign
corporations), and the purchaser of the Common Shares would be required to
withhold and remit to the IRS 10% of the purchase price.

Backup Withholding Tax and Information Reporting. Backup withholding tax
(which generally is a withholding tax imposed at the rate of 31% on certain
payments to persons that fail to furnish certain information under the United
States information reporting requirements) and information reporting will
generally not apply to distributions paid to Non-U.S. Shareholders outside the
United States that are treated as (i) dividends subject to the 30% (or lower
treaty rate) withholding tax discussed above, (ii) capital gains dividends or
(iii) distributions attributable to gain from the sale or exchange by the
Company of United States real property interests. As a general matter, backup
withholding and information reporting will not apply to a payment of the
proceeds of a sale of Common Shares by or through a foreign office of a foreign
broker. Information reporting (but not backup withholding) will apply, however,
to a payment of the proceeds of a sale of Common Shares by a foreign office of a
broker that (a) is a United States person, (b) derives 50% or more of its gross
income for certain periods from the conduct of a trade or business in the United
States or (c) is a "controlled foreign corporation" (generally, a foreign
corporation controlled by United States shareholders) for United States tax
purposes, unless the broker has documentary evidence in its records that the
holder is a Non-U.S. Shareholder and certain other conditions are met, or the
shareholder otherwise establishes an exemption. Payment to or through a United
States office of a broker of the proceeds of a sale of Common Shares is subject
to both backup withholding and information reporting unless the shareholder
certifies under penalty of perjury that the shareholder is a Non-U.S.
Shareholder, or otherwise establishes an exemption. A Non-U.S. Shareholder may
obtain a refund of any amounts withheld under the backup withholding rules by
filing the appropriate claim for refund with the IRS.

126
<PAGE>

The United States Treasury has recently issued proposed regulations
regarding the withholding and information reporting rules discussed above. In
general, the proposed Treasury Regulations do not alter the substantive
withholding and information reporting requirements but unify current
certification procedures and forms and clarify and modify reliance standards. If
finalized in their current form, the proposed Treasury Regulations would
generally be effective for payments made after December 31, 1997, subject to
certain transition rules.

Tax Aspects of the Company's Ownership of Interests in the Operating
Partnership

General. Substantially all of the Company's investments will be held
indirectly through the Operating Partnership. In general, partnerships are
"pass-through" entities which are not subject to federal income tax. Rather,
partners are allocated their proportionate shares of the items of income, gain,
loss, deduction and credit of a partnership, and are potentially subject to tax
thereon, without regard to whether the partners receive a distribution from the
partnership. The Company will include in its income its proportionate share of
the foregoing partnership items for purposes of the various REIT income tests
and in the computation of its REIT taxable income. Moreover, for purposes of the
REIT asset tests, the Company will include its proportionate share of assets
held through the Operating Partnership. See "-- Requirements for Qualification
as a REIT -- Ownership of Partnership Interests."

Entity Classification. If the Operating Partnership were treated as an
association, the entity would be taxable as a corporation and therefore would be
subject to an entity level tax on its income. In such a situation, the character
of the Company's assets and items of gross income would change and would
preclude the Company from qualifying as a REIT (see "-- Requirements for
Qualification as a REIT -- Asset Tests" and "-- Income Tests"). The same result
could occur if any subsidiary partnership or LLC of the Operating Partnership
failed to qualify for treatment as a partnership.

Prior to January 1, 1997, an organization formed as a partnership or an LLC
was treated as a partnership for federal income tax purposes rather than as a
corporation only if it had no more than two of the four corporate
characteristics that the Treasury Regulations in effect at that time used to
distinguish a partnership from a corporation for tax purposes. These four
characteristics were (i) continuity of life, (ii) centralization of management,
(iii) limited liability and (iv) free transferability of interests. Under final
Treasury Regulations which became effective January 1, 1997, the four factor
test has been eliminated and an entity formed as a partnership or as an LLC will
be taxed as a partnership for federal income tax purposes, unless it
specifically elects otherwise. The Treasury Regulations provide that the IRS
will not challenge the classification of an existing partnership or LLC for tax
periods prior to January 1, 1997 so long as (1) the entity had a reasonable
basis for its claimed classification, (2) the entity and all its members
recognized the federal income tax consequences of any changes in the entity's
classification within the 60 months prior to January 1, 1997 and (3) neither the
entity nor any member of the entity had been notified in writing on or before
May 8, 1996 that the classification of the entity was under examination by the
IRS.

Hogan & Hartson L.L.P., tax counsel to the Company, is of the opinion,
based upon certain factual assumptions and representations described in the
opinion, that the Operating Partnership will be treated as a partnership for
federal income tax purposes (and not as an association taxable as a
corporation).

Partnership Allocations. Although a partnership agreement will generally
determine the allocation of income and loss among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Code and the Treasury Regulations promulgated
thereunder. Generally, Section 704(b) and the Treasury Regulations promulgated
thereunder require that partnership allocations respect the economic arrangement
of the partners.

If an allocation is not recognized for federal income tax purposes, the
item subject to the allocation will be reallocated in accordance with the
partners' interests in the partnership, which will be determined by taking into
account all of the facts and circumstances relating to the economic arrangement
of the partners with respect to such item. The allocations of taxable income and
loss provided for in the Operating Partnership Agreement is intended to comply
with the requirements of Section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.

127
<PAGE>

Tax Allocations with Respect to the Properties. Pursuant to Section 704(c)
of the Code, income, gain, loss and deduction attributable to appreciated or
depreciated property (such as the Initial Properties and the Lease-up Assisted
Living Facilities and Initial Assisted Living Development Projects) that is
contributed to a partnership in exchange for an interest in the partnership,
must be allocated in a manner such that the contributing partner is charged
with, or benefits from, respectively, the unrealized gain or unrealized loss
associated with the property at the time of the contribution. The amount of such
unrealized gain or unrealized loss is generally equal to the difference between
the fair market value of contributed property at the time of contribution and
the adjusted tax basis of such property at such time (a "Book-Tax Difference").
Such allocations are solely for federal income tax purposes and do not affect
the book capital accounts or other economic or legal arrangements among the
partners. The Operating Partnership will receive contributions of appreciated
property (including the Initial Properties and the Lease-up Assisted Living
Facilities and Initial Assisted Living Development Projects). Consequently, the
Operating Partnership Agreement requires that such allocations be made in a
manner consistent with Section 704(c) of the Code.

In general, the partners in the Operating Partnership who contributed
depreciable assets having adjusted tax bases less than their fair market values
at the time of contribution will be allocated depreciation deductions for tax
purposes which are lower than such deductions would be if determined on a pro
rata basis. In addition, in the event of the disposition of any of the
contributed assets which have such a Book-Tax Difference, all income
attributable to such Book-Tax Difference generally will be allocated to such
partners. These allocations will tend to eliminate the Book-Tax Difference over
the life of the Operating Partnership. However, the special allocation rules of
Section 704(c) of the Code do not always entirely eliminate the Book-Tax
Difference on an annual basis or with respect to a specific taxable transaction
such as a sale. Thus, the carryover basis of the contributed assets in the hands
of the Operating Partnership may cause the Company to be allocated lower
depreciation and other deductions, and possibly an amount of taxable income in
the event of a sale of such contributed assets in excess of the economic or book
income allocated to it, as a result of such sale. Such an allocation might cause
the Company to recognize taxable income in excess of cash proceeds, which might
adversely affect the Company's ability to comply with the REIT distribution
requirements. See "-- Taxation of the Company -- Annual Distribution
Requirements."

Treasury Regulations under Section 704(c) of the Code provide partnerships
with a choice of several methods of accounting for Book-Tax Differences,
including retention of the "traditional method" or the election of certain
methods which would permit any distortions caused by a Book-Tax Difference to be
entirely rectified on an annual basis or with respect to a specific taxable
transaction such as a sale. The Operating Partnership and the Company have
determined to use the "traditional method" for accounting for Book-Tax
Differences with respect to the properties initially contributed to the
Operating Partnership. This method is generally the most favorable method from
the perspective of the limited partners at the time of the contribution and will
be less favorable from the perspective of the Company to the extent it
subsequently contributes cash (such as the proceeds of this Offering) to the
Operating Partnership.

Other Tax Consequences for the Company and its Shareholders

The Company and its shareholders may be subject to state or local taxation
in various state or local jurisdictions, including those in which it or they
transact business or reside. The state and local tax treatment of the Company
and its shareholders may not conform to the federal income tax consequences
discussed above. Consequently, prospective shareholders should consult their own
tax advisors regarding the effect of state and local tax laws on an investment
in the Company.

128
<PAGE>

ERISA CONSIDERATIONS

Employment Benefit Plans, Tax-Qualified Pension, Profit Sharing or Stock Bonus
Plans and IRAs

Each fiduciary of an employee benefit plan subject to ERISA (an "ERISA
Plan") should carefully consider whether an investment in the Common Shares is
consistent with its fiduciary responsibilities under ERISA. In particular, the
fiduciary requirements of Part 4 of Title I of ERISA require an ERISA Plan's
investment, inter alia, to be (i) for the exclusive purpose of providing
benefits to the ERISA Plan's participants and their beneficiaries and defraying
reasonable expenses of administering the ERISA Plan, (ii) prudent and solely in
the interests of the participants and beneficiaries of the ERISA Plan, (iii)
diversified in order to minimize the risk of large losses, unless it is clearly
prudent not to do so, and (iv) authorized under the terms of the governing
documents of the ERISA Plan. In addition, a fiduciary of an ERISA Plan should
not cause or permit such ERISA Plan to enter into transactions prohibited under
Section 406 of ERISA or Section 4975 of the Code. In determining whether an
investment in the Common Shares is prudent for purposes of ERISA, the
appropriate fiduciary of an ERISA Plan should consider whether such investment
is reasonably designed, as part of an ERISA Plan's investment portfolio for
which the fiduciary has responsibility, to further the purposes of the ERISA
Plan, taking into consideration the risk of loss and opportunity for gain (or
other return) associated with the investment, the diversification, cash flow and
funding requirements of the ERISA Plan and the liquidity and current return of
the ERISA Plan's investment portfolio. A fiduciary should also take into account
the nature of the Company's business, the length of the Company's operating
history, the terms of the management agreements, the fact that certain
investment properties may not have been identified yet, other matters described
under "Risk Factors" and the possibility of UBTI.

The fiduciary of an ERISA Plan, or of an IRA or a qualified pension, profit
sharing or stock bonus plan, or medical savings account which is not subject to
ERISA but is subject to Section 4975 of the Code ("Other Plans"), should ensure
that the purchase of Common Shares will not constitute a prohibited transaction
under ERISA or the Code.

Status of the Company and the Operating Partnership under ERISA

The following section discusses certain principles that apply in
determining whether the fiduciary requirements of ERISA and the prohibited
transaction provisions of ERISA and the Code apply to an entity because one or
more investors in the entity's equity interests is an ERISA Plan or Other Plan.
The fiduciary of an ERISA Plan should also consider the relevance of these
principles to ERISA's prohibition on improper delegation of control over or
responsibility for Plan assets and ERISA's imposition of co-fiduciary liability
on a fiduciary who participates in, permits (by action or inaction) the
occurrence of or fails to remedy a known breach by another fiduciary.

If the underlying assets of the Company are deemed to be assets of an ERISA
Plan ("Plan Assets"), (i) the prudence standards and other provisions of Part 4
of Title I of ERISA and the prohibited transaction provisions of ERISA and the
Code would be applicable to any transactions involving the Company's assets and
(ii) persons who exercise any authority or control over the Company's assets, or
who provide investment advice for a fee or other compensation to the Company,
would be (for purposes of ERISA and the Code) fiduciaries of ERISA Plans and
Other Plans that acquire Common Shares. The United States Department of Labor
(the "DOL"), which has administrative responsibility over ERISA Plans and
certain Other Plans, has issued a regulation defining plan assets for certain
purposes (the "DOL Regulation"). The DOL Regulation generally provides that when
an ERISA Plan acquires a security that is an equity interest in an entity and
that security is neither a "publicly-offered security" nor a security issued by
an investment company registered under the 1940 Act, the assets of the ERISA
Plan include both the equity interest and an undivided interest in each of the
underlying assets of the entity, unless it is established either that the entity
is an "operating company" (as defined in the DOL Regulation) or that equity
participation in the entity by "benefit plan investors" is not significant.

The DOL Regulation defines a "publicly-offered security" as a security that
is "widely held," "freely transferable" and either part of a class of securities
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or sold pursuant to an effective registration statement under the
Securities Act

129
<PAGE>

(provided the securities are registered under the Exchange Act within 120 days,
or such later time as may be allowed by the SEC (the "registration period"),
after the end of the fiscal year of the issuer during which the offering to the
public occurred). The Common Shares are being sold in an offering registered
under the Securities Act and the Company intends to register the Common Shares
under the Exchange Act within the registration period.

The DOL Regulation provides that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely held"
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control.

The DOL Regulation provides that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulation further provides that where
a security is part of an offering in which the minimum investment is $10,000 or
less, certain restrictions ordinarily will not, alone or in combination, affect
a finding that such securities are "freely transferable." The Offering will not
impose a minimum investment requirement. The restrictions on transfer enumerated
in the DOL Regulation as ordinarily not affecting a finding that the securities
are "freely transferable" include: (i) any restriction on or prohibition against
any transfer or assignment that would result in a termination or
reclassification of the Company for federal or state tax purposes, or that would
otherwise violate any state or federal law or court order; (ii) any requirement
that advance notice of a transfer or assignment be given to the Company; (iii)
any requirement that either the transferor or transferee, or both, execute
documentation setting forth representations as to compliance with any
restrictions on transfer that are among those enumerated in the DOL Regulation
as not affecting free transferability; (iv) any administrative procedure that
established an effective date, or an event (such as completion of the Offering)
prior to which a transfer or assignment will not be effective; (v) any
prohibition against transfer or assignment to an ineligible or unsuitable
investor; (vi) any limitation or restriction on transfer or assignment that is
not imposed by the issuer or a person acting for or on behalf of the issuer;
(vii) any restriction or substitution of an assignee as a limited partner of a
partnership, including a general partner consent requirement, provided that the
economic benefits of ownership of the assignee may be transferred or assigned
without regard to such restriction or consent (other than any restriction
described in the DOL Regulation); and (viii) any requirement that not less than
a minimum number of shares of such security be transferred or assigned by any
investor, provided that such requirement does not prevent transfer of all of the
then remaining shares or units held by an investor. The Company believes that
the restrictions imposed under the Declaration of Trust on the transfer of
Common Shares are of the type of restrictions on transfer generally permitted
under the DOL Regulation or are not otherwise material and should not result in
the failure of the Common Shares to be "freely transferable" within the meaning
of the DOL Regulation. See "Shares of Beneficial Interest -- Restrictions on
Transfer." The Company also believes that certain restrictions on transfer that
derive from the securities laws, from contractual arrangements with the
Underwriters in connection with the Offering and from certain provisions should
not result in the failure of the Common Shares to be "freely transferable." See
"Underwriting." Furthermore, the Company is not aware of any other facts or
circumstances limiting the transferability of the Common Shares that are not
included among those enumerated as not affecting their free transferability
under the DOL Regulation, and the Company does not expect to impose in the
future (or to permit any person to impose on its behalf) any other limitations
or restrictions on transfer that would not be among the enumerated permissible
limitations or restrictions.

Assuming (i) that the Common Shares are "widely held" within the meaning of
the DOL Regulation and (ii) that no facts and circumstances other than those
referred to in the preceding paragraph exist that restrict transferability of
the Common Shares, the Company believes that, under the DOL Regulation, the
Common Shares should be considered "publicly-offered securities" and, therefore,
that the underlying assets of the Company should not be deemed to be plan assets
of any ERISA Plan or Other Plan that invests in the Common Shares.

In addition, the Declaration of Trust provides that if, in the future, the
Board of Trustees authorizes the creation of any class of equity interests other
than Common Shares, and such class of equity interests will not be
"publicly-offered securities," the Board of Trustees will limit the equity
participation in such class by

130
<PAGE>

"benefit plan investors" so that their participation will not become
"significant." For these purposes, the DOL Regulation provides that equity
participation becomes "significant" once 25 percent or more of the value of the
class is held by "benefit plan investors," and the term "benefit plan investors"
means any employee benefit plan (as defined in ERISA section 3(3)) or any plan
described in section 4975(e) of the Code, or any entity whose underlying assets
include benefit plan investments.

The DOL Regulation will also apply in determining whether the underlying
assets of the Operating Partnership will be deemed to be plan assets. The
partnership interests in the Operating Partnership will not be publicly offered
securities. Nevertheless, if the Common Shares constitute publicly offered
securities, the Company believes that the indirect investment in the Operating
Partnership by ERISA Plans or Other Plans through their ownership of the Common
Shares will not cause the assets of the Operating Partnership to be treated as
plan assets. Similarly, the Operating Partnership Agreement provides that no
interests in the Operating Partnership may be acquired by "benefit plan
investors" if immediately after such acquisition investment in the Operating
Partnership by "benefit plan investors" would be "significant."

131
<PAGE>

UNDERWRITING

Subject to the terms and conditions in the United States purchase agreement
(the "U.S. Purchase Agreement"), between the Company and each of the
underwriters named below (the "U.S. Underwriters"), and concurrently with the
sale of 1,360,000 Common Shares to the International Managers (as defined
below), the Company has agreed to sell to each of the U.S. Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated, BT Alex. Brown
Incorporated and Goldman, Sachs & Co. are acting as representatives (the "U.S.
Representatives"), and each of the U.S. Underwriters has severally agreed to
purchase from the Company, the respective number of Common Shares set forth
below opposite their respective names:
Number of
Underwriter Common Shares
----------- -------------
Merrill Lynch, Pierce, Fenner & Smith Incorporated ...
BT Alex. Brown Incorporated ...........................
Goldman, Sachs & Co. .................................
---------
Total ............................................. 5,440,000
=========

The Company has also entered into a purchase agreement (the "International
Purchase Agreement" and, together with the U.S. Purchase Agreement, the
"Purchase Agreements") with certain underwriters outside the United States and
Canada (the "International Managers" and, together with the U.S. Underwriters,
the "Underwriters") for whom Merrill Lynch International, BT Alex. Brown
International, a division of Bankers Trust International PLC and Goldman Sachs
International are acting as lead managers. Subject to the terms and conditions
set forth in the International Purchase Agreement and concurrently with the sale
of 5,440,000 Common Shares to the U.S. Underwriters pursuant to the U.S.
Purchase Agreement, the Company has agreed to sell to the International
Managers, and the International Managers have severally agreed to purchase from
the Company, an aggregate of 1,360,000 Common Shares. The initial public
offering price per share and the total underwriting discount per share are
identical under the U.S. Purchase Agreement and the International Purchase
Agreement.

In each Purchase Agreement, the several U.S. Underwriters and the several
International Managers have agreed, respectively, subject to the terms and
conditions set forth in such Purchase Agreement, to purchase all of the Common
Shares being sold pursuant to such Purchase Agreement if any of such Common
Shares are purchased. Under certain circumstances, the commitments of
non-defaulting U.S. Underwriters or International Managers (as the case may be)
may be increased. The sale of Common Shares pursuant to the U.S. Purchase
Agreement and the International Purchase Agreement are conditioned upon each
other.

The U.S. Representatives have advised the Company that the U.S.
Underwriters propose initially to offer the Common Shares to the public at the
public offering price per share set forth on the cover page of this Prospectus,
and to certain dealers at such price less a concession not in excess of $______
per share. The U.S. Underwriters may allow, and such dealers may re-allow, a
discount not in excess of $______ per share on sales to certain other dealers.
After the date of this Prospectus, the initial public offering price, concession
and discount may be changed.

The Company has been informed that the U.S. Underwriters and the
International Managers have entered into an agreement (the "Intersyndicate
Agreement") providing for the coordination of their activities. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and the International
Managers are permitted to sell Common Shares to each other for purposes of
resale at the initial public offering price, less an amount not greater than the
selling concession. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to persons who are United States persons or
Canadian persons or to persons they believe intend to resell to persons who are
United States persons or Canadian persons, and the U.S. Underwriters and any
dealer to whom they sell Common Shares will not offer to sell or sell Common
Shares to persons who are non-United States and non-Canadian persons or to
persons they believe intend to resell to non-United States and non-Canadian
persons, except in each case for transactions pursuant to such agreement.

132
<PAGE>

The Company has granted to the U.S. Underwriters an option, exercisable for
30 days after the date of this Prospectus, to purchase up to 816,000 additional
Common Shares to cover overallotments, if any, at the initial public offering
price, less the underwriting discount set forth on the cover page of this
Prospectus. If the U.S. Underwriters exercise this option, each U.S. Underwriter
will have a firm commitment, subject to certain conditions, to purchase
approximately the same percentage thereof which the number of Common Shares to
be purchased by it shown in the foregoing table bears to such Common Shares
initially offered hereby. The Company also has granted an option to the
International Managers, exercisable during the 30-day period after the date of
this Prospectus, to purchase up to 204,000 additional Common Shares to cover
overallotments, if any, on terms similar to those granted to the U.S.
Underwriters.

Until the distribution of the Common Shares is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Common Shares. As an exception to these rules, the U.S.
Representatives are permitted to engage in certain transactions that stabilize
the price of the Common Shares. Such transactions consist of bids or purchases
for the purpose of pegging, fixing or maintaining the price of the Common
Shares.

If the Underwriters create a short position in the Common Shares in
connection with the Offering, i.e., if they sell more Common Shares than are set
forth on the cover page of this Prospectus, the U.S. Representatives and the
International Managers, respectively, may reduce that short position by
purchasing Common Shares in the open market. The U.S. Representatives and the
International Managers, respectively, may also elect to reduce any short
position by exercising all or part of the overallotment option described above.

The U.S. Representatives and the International Managers, respectively, may
also impose a penalty bid on certain Underwriters and selling group members.
This means that if the U.S. Representatives or the International Managers
purchase Common Shares in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Shares, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Shares. In addition, neither
the Company nor any of the Underwriters makes any representation that the U.S.
Representatives or the International Managers will engage in such transactions
or that such transactions, once commenced, will not be discontinued without
notice.

In the Purchase Agreements, the Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act. Insofar as indemnification of the Underwriters for liabilities
arising under the Securities Act may be permitted pursuant to the foregoing
provision, the Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.

At the request of the Company, the U.S. Underwriters have reserved up to
10% of the shares offered hereby for sale at the initial public offering price
to trustees, officers and employees of the Company, its and their business
affiliates and related parties who have expressed an interest in purchasing
shares. Such purchases will be made under the same terms and conditions as will
be initially offered by the U.S. Underwriters to others in the Offering. The
number of shares available to the general public will be reduced to the extent
these persons purchase the reserved shares. Any reserved shares that are not so
purchased by such persons at the completion of the Offering will be offered by
the U.S. Underwriters to the general public on the same terms as the other
shares offered by this Prospectus.

133
<PAGE>

or otherwise dispose of any Common Shares or Units or any securities convertible
into or exchangeable for Common Shares or Units for a period of 14 months from
the date of the Prospectus, without the prior written consent of Merrill Lynch,
Pierce, Fenner & Smith Incorporated. The Company has granted certain
registration rights to Messrs. Walker and Romanov and the Continuing Investors
pursuant to which such persons may require the Company to file a registration
statement with the SEC with respect to Common Shares owned by Messrs. Walker and
Romanov or received by the Continuing Investors in exchange for their Units
after the expiration of such 14-month period.

The Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.

Prior to the Offerings, there has been no public market for the Common
Shares of the Company. The initial public offering price will be determined
through negotiations between the Company and the U.S. Representatives. Among the
factors to be considered in such negotiations, in addition to prevailing market
conditions, will be dividend yields and financial characteristics of publicly
traded REITs that the Company and the U.S. Representatives believe to be
comparable to the Company, the expected results of operations of the Company
(which will be based on the results of operations of the Initial Investments),
estimates of the future business potential and earnings prospects of the Company
as a whole and the current state of the real estate market in the Company's
primary markets and the economy as a whole.

The Company will apply for listing of the Common Shares on the New York
Stock Exchange under the symbol "ETT." In order to meet one of the requirements
for listing the Common Shares on the New York Stock Exchange, the Underwriters
will undertake to sell lots of 100 or more Common Shares to a minimum of 2,000
beneficial holders.

The Company will pay to Merrill Lynch, Pierce, Fenner & Smith Incorporated
an advisory fee equal to 0.5% of the gross proceeds received from the sale of
Common Shares to public investors in the Offering for financial advisory
services rendered in connection with the Company's formation as a REIT.

EXPERTS

The balance sheet of ElderTrust as of September 23, 1997 has been included
herein and in the Registration Statement in reliance on the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.

LEGAL MATTERS

The validity of the Common Shares will be passed upon for the Company by
Hogan & Hartson L.L.P., Washington, DC. In addition, the description of Federal
Income Tax Considerations under the heading "Federal Income Tax Considerations"
is based upon the opinion of Hogan & Hartson L.L.P. Certain legal matters will
be passed upon for the Underwriters by Brown & Wood LLP, New York, New York. In
addition to providing services to the Company, Hogan & Hartson L.L.P. also
provides legal services to Genesis, including in connection with certain of the
Formation Transactions.

ADDITIONAL INFORMATION

The Company has filed with the SEC a Registration Statement on Form S-11
(of which this Prospectus is a part) under the Securities Act with respect to
the securities offered hereby. This Prospectus does not contain all information
set forth in the Registration Statement, certain portions of which have been
omitted as permitted by the rules and regulations of the SEC. Statements
contained in this Prospectus as to the content of any contract or other document
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by such reference
and the exhibits and schedules hereto. For further information regarding the
Company and the Common Shares offered hereby, reference is hereby made to the
Registration Statement and such exhibits and schedules, which may be obtained
from the SEC at its principal office at 450 Fifth Street, N.W., Washington, D.C.
20549, upon payment of the fees prescribed by the SEC. The SEC

134
<PAGE>

maintains a website at http://www.sec.gov containing reports, proxy and
information statements and other information regarding registrants, including
the Company, that file electronically with the SEC. In addition, the Company
intends to file an application to list the Common Shares on the NYSE and, if the
Common Shares are listed on the NYSE, similar information concerning the Company
can be inspected and copies at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.

The Company intends to furnish its shareholders with annual reports
containing audited financial statements and a report thereon by independent
certified public auditors.

135
<PAGE>

GLOSSARY

The following are definitions of certain terms used in this Prospectus.
Unless the context otherwise requires, the following terms shall have the
meanings set forth below for purposes of this Prospectus.

"ACBM" means asbestos-containing building materials.

"Acquisition Corp." means Genesis ElderCare Acquisition Corp., a wholly
owned subsidiary of Genesis ElderCare Corp. which is owned 44% by Genesis and
owned 56% by The Cypress Group, L.L.C. and TPG Partners II, L.P.

"Acquisition Loan" means the $45.0 million loan made by Genesis in August
1996 to finance the Age Institute of Florida's acquisition of 11 skilled nursing
facilities.

"Additional Rent" means, for both Percentage Rent Leases and Minimum Rent
Leases, adjustments equal to the difference between the tenant's payment of
estimated Percentage Rent or Incremental Percentage Rent, as the case may be,
during a particular period and the actual Percentage Rent or Incremental
Percentage Rent, as applicable, payable with respect to such period and certain
other costs a tenant agrees to pay under the applicable lease.

"Age Institute of Florida" means the Age Institute of Florida, Inc., a
Florida not-for-profit corporation.

"Available Cash" means, generally, net cash flow from operations plus any
reduction in reserves and minus interest and principal payments on debt, capital
expenditures, any additions to reserves and other adjustments.

"Bank Credit Facility" means the Company's proposed secured bank credit
facility in the amount of up to $110.0 million.

"Beneficiary" means the qualified charitable organization selected by the
Company as the beneficiary of the trust which will automatically receive any
shares purportedly transferred to a Prohibited Transferee in violation of the
Ownership Limit or other restrictions in the Declaration of Trust.

"Book-Tax Difference" means the difference between the fair market value of
contributed property at the time of contribution and the adjusted tax basis of
such property at such time.

"Built-In Gain Asset" means any asset acquired by the Company from a
corporation which is or has been a C corporation (i.e., generally a corporation
subject to full corporate-level tax).

"Bylaws" means the Bylaws of the Company.

"CCMC" means Crozer Chester Medical Center, a Pennsylvania nonprofit
organization.

"CKHS" means Crozer-Keystone Health System, a Pennsylvania nonprofit
corporation.

"Code" means the Internal Revenue Code of 1986, as amended.

"Committee" means the Share Option Committee of the Board of Trustees of
the Company.

"Common Shares" means the common shares of beneficial interest, $.01 par
value per share, of the Company.

"Company" means ElderTrust, a Maryland real estate investment trust, and
one or more of its subsidiaries (including the Operating Partnership and ET
Capital Corp.), or, as the context may require, ElderTrust only or the Operating
Partnership only.

"Construction Loan Commitments" means financing commitments made by the
Company for nine assisted living development and expansion projects which are in
the planning stage.

"Construction Loans" means construction loans made by the Company to
provide funding for the development and construction of the Initial Assisted
Living Development Projects.

"Continuing Investors" means certain persons contributing interests in the
Initial Properties to the Operating Partnership in exchange for Units.

136
<PAGE>

"Crozer/Genesis" means Crozer/Genesis ElderCare Limited Partners, a
Pennsylvania limited partnership.

"DCMH" means the Delaware County Memorial Hospital.

"Declaration of Trust" means the Declaration of Trust of the Company, as
amended from time to time, and as filed with the State Department of Assessments
and Taxation of Maryland.

"DOL" means the United States Department of Labor.

"DOL Regulation" means a regulation, issued by the DOL, defining plan
assets for certain purposes under ERISA.

"Environmental Laws" means the federal, state and local laws and
regulations relating to protection of the environment.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA Plan" means an employee benefit plan subject to ERISA.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Excluded Holder Limit" means the 15.0% limit on the amount of Common
Shares which may be owned by Mr. Romanov.

"Facility Revenues" means revenue generated with respect to the applicable
leased property (adjusted to exclude: (a) revenues from professional fees or
charges by physicians and all providers of ancillary services, including,
without limitation, physical therapy services, whether or not such providers are
employees of the tenant; (b) non-operating revenues, such as interest income or
income from the sale of assets not sold in the ordinary course of business; (c)
federal, state or local excise taxes imposed upon, and any tax based upon or
measured by, such revenues which is added to or made a part of the amount billed
to the resident, client or other recipient of such services or goods, whether
included in the billing or stated separately; (d) contractual allowances
(relating to any period during the Term) for billings not paid by or received
from the appropriate governmental agencies or third party providers; and (e) all
proper patient billing credits and adjustments (including, without limitation,
allowances for uncollectable accounts) according to generally accepted
accounting principles relating to healthcare accounting).

"15% Personal Property Test" means the test under the Code to determine
whether rent attributable to personal property leased in connection with a lease
of real property is greater than 15% of the total rent received under the lease.

"FIRPTA" means the Foreign Investment in Real Property Tax Act.

"Fixed Rent Leases" means the tenant leases for the medical office and
other buildings which provide for specified annual rent, subject to increases in
rent in certain of the leases.

"Florida Facilities Note" means the $7.5 million note of the Age Institute
of Florida to be purchased by ET Capital Corp. from Genesis and in which the
Operating Partnership will have substantially all of the economic interest.

"Formation Transactions" means all of the transactions described under
"Structure and Formation of the Company -- Formation Transactions."

"Funds from Operations" means net income (loss) (computed in accordance
with GAAP), excluding gains (or losses) from debt restructuring and sales of
properties, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. 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 in accordance with standards established by NAREIT which
may not be comparable to Funds from Operations reported by other REITs that do
not define the term in accordance with the current NAREIT definition or that
interpret the

137
<PAGE>

current NAREIT definition differently than the Company. Funds from Operations
does not represent cash generated from operating activities in accordance with
GAAP and should not be considered as an alternative to net income (determined in
accordance with GAAP) as an indication of the Company's financial performance or
to cash flow from operating activities (determined in accordance with GAAP) 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.

"GAAP" means Generally Accepted Accounting Principles.

"Genesis" means Genesis Health Ventures, Inc., a Pennsylvania corporation,
and its subsidiaries that will lease or manage a substantial portion of the
properties and other assets acquired by the Company in its formation or, as the
context may require, Genesis only or such subsidiaries of Genesis only.

"Incentive Options" means options to purchase Common Shares which are
granted under the Plan and which are intended to qualify as incentive options
under Section 422 of the Code.

"Incremental Percentage Rent" means, with respect to certain of the Minimum
Rent Leases, incremental percentage rent equal to a specified percentage of
increased gross revenues during any lease year over the gross revenues during
the first lease year for a facility.

"Independent Trustee" means an individual serving as a trustee who is not
an affiliate of the Company and is not an employee of the Company.

"Initial Assisted Living Development Projects" means assisted living
facilities in development subject to Construction Loans.

"Initial Investments" means the Company's investments in the Initial
Properties, the Term and Construction Loans and the Florida Facilities Note.

"Initial Properties" means the 21 assisted and independent living
facilities, skilled nursing facilities and medical office and other buildings
being acquired by the Company in the Formation Transactions.

"Initial Property Acquisition Agreement" means each of the acquisition
agreements between the Company and the current owner of an Initial Property and
the acquisition agreements among the Company and the holders of all interests in
the current owner of an Initial Property.

"Interested Shareholder" means any person who beneficially owns ten percent
or more of the voting power of the Company's then outstanding shares or an
affiliate of the Company who, at any time within the two-year period prior to
the date in question, was the beneficial owner of ten percent or more of the
voting power of the then outstanding voting shares of beneficial interest of the
Company.

"International Purchase Agreement" means the purchase agreement among the
Company and the International Managers.

"International Managers" means the underwriters outside the United States
and Canada named in this Prospectus for whom Merrill Lynch International, BT
Alex. Brown International, division of Bankers Trust International PLC and
Goldman Sachs International are acting as lead managers.

"Intersyndicate Agreement" means the agreement between the U.S.
Underwriters and the International Managers providing for the coordination of
their activities.

"IRS" means the Internal Revenue Service.

"Lake Washington" means Lake Washington, Ltd., a Florida limited
partnership in which Genesis owns a 49% interest.

"Lease-up Assisted Living Facilities" means assisted living facilities in
lease-up subject to Term Loans.

"MGCL" means the Maryland General Corporation Law.

138
<PAGE>

"Minimum Rent" means the rent which is set at the beginning of the term of
a Minimum Rent Lease and escalates based on the Consumer Price Index, a fixed
percentage increase per year or a fixed percentage of the increase in the gross
revenues for a facility during the immediately preceding year.

"Minimum Rent Leases" means the long-term, triple net leases for certain of
the Initial Properties which are skilled nursing or assisted living facilities
and which will provide for base rent, plus scheduled base rent step-ups and, in
the case of certain of the Minimum Rent Leases, additional rent based upon
incremental revenues over the base year.

"Multicare" means The Multicare Companies, Inc. and its subsidiaries.

"Named Executive Officers" means the Company's Chief Executive Officer and
the Company's other executive officer.

"NAREIT" means the National Association of Real Estate Investment Trusts.

"1997 Act" means the Taxpayer Relief Act of 1997.

"Non-Qualified Options" means options to purchase Common Shares which are
granted under the Plan and which are not intended to qualify as incentive
options under Section 422 of the Code.

"Non-U.S. Shareholders" means persons that are, for United States federal
income taxation purposes, nonresident alien individuals, foreign corporations,
foreign partnerships or foreign estates or trusts.

"Offering" means the offering of Common Shares of the Company pursuant to
and as described in this Prospectus.

"Operating Partnership" means ElderTrust Operating Limited Partnership, a
Delaware limited partnership.

"Operating Partnership Agreement" means the Agreement of Limited
Partnership of the Operating Partnership, as amended from time to time.

"Other Plans" means an IRA or a qualified pension, profit sharing or stock
bonus plan, or medical savings account which is not subject to ERISA but is
subject to Section 4975 of the Code.

"Ownership Limit" means the restrictions in the Declaration of Trust which
generally will prohibit ownership, directly or by virtue of the attribution
provisions of the Code, by any single shareholder of more than 8.6% of the
issued and outstanding Common Shares and generally will prohibit ownership,
directly or by virtue of the attribution provisions of the Code, by any single
shareholder of more than 9.9% of the issued and outstanding shares of any class
or series of the Company's Preferred Shares.

"Partnership Act" means the Delaware Revised Uniform Limited Partnership
Act.

"Percentage Rent" means the rent calculated by multiplying a specified
fixed percentage by the Facility Revenues.

"Percentage Rent Leases" means the long-term, triple net leases for certain
of the Initial Properties which are assisted living or independent living
facilities and which will be based on a specified percentage of facility
revenues with no required minimum rent.

"Plan" means the ElderTrust 1997 Share Option and Incentive Plan.

"Plan Assets" means assets of an ERISA Plan.

"POB I" means Professional Office Building I.

"Preference Units" means preferred units and other partnership interests of
different classes and series having such rights, preferences and other
privileges, variations and designations as may be determined by the Company and
which may be issued by the Operating Partnership under the Operating Partnership
Agreement.

"Preferred Shares" means the preferred shares of beneficial interest, $0.01
par value per share, of the Company.

139
<PAGE>

"Prohibited Owner" means a person or entity holding record title to any
shares in excess of the Ownership Limit.

"Prohibited Transferee" means a transferee of a purported transfer of
shares of beneficial interest of the Company which would result in any person
violating the Ownership Limit or the other restrictions in the Declaration of
the Trust.

"Proposed Multicare Construction Loan" means the Construction Loan which
the Company expects to make to a wholly owned subsidiary of Multicare which will
not be guaranteed by Multicare.

"Proposed Multicare Loans" means the Proposed Multicare Term Loans and the
Proposed Multicare Construction Loan.

"Proposed Multicare Term Loans" means the two Term Loans which the Company
expects to make to wholly owned subsidiaries of Multicare which will not be
guaranteed by Multicare.

"Prospectus" means this prospectus, as the same may be amended.

"Purchase Agreement" means the purchase agreement between the Company and
the Underwriters.

"Recognition Period" means the ten-year period beginning on the date on
which the Company acquires a Built-In Gain Asset.

"REIT" means a real estate investment trust as defined under Sections 856
through 860 of the Code and applicable Treasury regulations.

"Related Party Tenant" means a tenant of the Company which also is an
actual or constructive owner of 10% or more of the Company, or of which the
Company actually or constructively owns 10% or more.

"Rent" means, with respect to a Percentage Rent Lease, (i) Percentage Rent
and (ii) Additional Rent, and, with respect to a Minimum Rent Lease, (i) Minimum
Rent, (ii) Incremental Percentage Rent and (iii) Additional Rent.

"Restricted Common Shares" means Common Shares which are "restricted"
securities under the meaning of Rule 144 or any Common Shares acquired in
redemption of Units.

"Retained Note" means the $2.5 million working capital term note made by
the Age Institute of Florida and retained by Genesis.

"Rule 144" means Rule 144 promulgated under the Securities Act.

"SEC" means the Securities and Exchange Commission.

"Securities Act" means the Securities Act of 1933, as amended.

"Senior LifeChoice" means Senior LifeChoice Corp., a privately held
Pennsylvania corporation.

"Series 1994 Bonds" and "Series 1995 Bonds" mean, together, the tax-exempt
bond financings relating to the Highgate and Woodbridge assisted living
facilities.

"SLC" means Senior LifeChoice, LLC, a privately held Pennsylvania limited
liability company.

"SMOBGP" means Salisbury Medical Office Building General Partnership, a
Pennsylvania general partnership.

"Stabilized Occupancy" means average monthly occupancy for a facility of at
least 90% for three consecutive months.

"Subordinated Notes" means the Florida Facilities Note and the Retained
Note.

"Tender Offer" means the tender offer by Acquisition Corp. for all of the
outstanding shares of common stock of Multicare.

"Term Loans" means term mortgage loans made by the Company with respect to
the Lease-up Assisted Living Facilities.

140
<PAGE>

"Tranche A Facility" means a tranche of the Bank Credit Facility which
would be available to fund the acquisition of certain of the Initial Properties
and additional growth opportunities, refinance existing indebtedness, fund Term
Loans, for working capital purposes and general corporate purposes (subject to a
maximum of 25% of the unused commitments under the Bank Credit Facility from
time to time).

"Tranche B Facility" means a tranche under the Bank Credit Facility which
would be available to fund Construction Loans which are guaranteed by Genesis.

"Treasury Regulations" means the applicable regulations that have been
promulgated under the Code.

"U.S. Shareholder" means a holder of Common Shares who (for United States
federal income tax purposes) (i) is a citizen or resident of the United States,
(ii) is a corporation, partnership or other entity created or organized in or
under the laws of the United States or of any political subdivision thereof or
(iii) is an estate or trust the income of which is subject to United States
federal income taxation regardless of its source.

"UBTI" means unrelated business taxable income.

"Underwriters" means the U.S. Underwriters and the International Managers.

"Unit" means a unit of partnership interest in the Operating Partnership.

"U.S. or United States" means the United States of America (including the
District of Columbia), its territories, possessions and other areas subject to
its jurisdiction.

"U.S. Purchase Agreement" means the purchase agreement among the Company
and the U.S. Underwriters.

"Unit Redemption Right" means the right of holders of Units to require the
redemption of their Units at any time more than 14 months after the closing of
the Offering.

"U.S. Representatives" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, BT Alex. Brown Incorporated and Goldman, Sachs & Co.

"USTs" means underground storage tanks.

"U.S. Underwriters" means the underwriters for the United States and
Canada named in this Prospectus for whom the U.S. Representatives are acting as
representatives.

141
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
Number
-------
<S> <C>
ELDERTRUST

Independent Auditors' Report ............................................................ F-2

Balance Sheet as of September 23, 1997 ................................................ F-3

Notes to Balance Sheet .................................................................. F-4

Pro Forma Balance Sheet and Statements of Estimated Revenues Less Estimated Expenses ... F-7-8

Notes to Pro Forma Balance Sheet and Statements of Estimated Revenues Less Estimated
Expenses................................................................................ F-10
</TABLE>

F-1
<PAGE>

Independent Auditors' Report

The Board of Directors and Shareholders
ElderTrust:

We have audited the accompanying balance sheet of ElderTrust as of September 23,
1997. This balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based upon our
audit.

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

In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of ElderTrust as of September 23,
1997, in conformity with generally accepted accounting principles.

KPMG PEAT MARWICK LLP

Washington, DC
September 24, 1997

F-2
<PAGE>

ELDERTRUST

Balance Sheet

September 23, 1997

Assets
Cash ............................................................ $ 100
------
Shareholders' equity
Preferred shares of beneficial interest, $.01 par value:
20,000,000 shares authorized; none issued or outstanding ...... $ --
Common shares of beneficial interest, $.01 par value:
100,000,000 shares authorized; 100 issued and outstanding ...... 1
Additional paid-in-capital ....................................... 99
------
Total shareholders' equity ....................................... $ 100
======

See accompanying notes to balance sheet.

F-3
<PAGE>

ELDERTRUST

Notes to Balance Sheet

September 23, 1997

(1) Organization

ElderTrust was formed in the State of Maryland on September 23, 1997 and
issued a total of 100 shares to the Company's chief executive officer for a
total consideration of $100. The Company is in the process of an initial public
offering pursuant to which it plans to issue approximately 6,800,000 additional
shares (the "Offering"). The Company intends to file a Form S-11 registration
statement with the Securities and Exchange Commission in connection with the
proposed offering of shares to the public.

The Company has had no operations. Upon consummation of the Offering, the
Company intends to begin operations by 1) purchasing a diversified portfolio of
healthcare properties, consisting primarily of assisted living and skilled
nursing facilities which will be leased back to the current owners or other
third parties; 2) making construction loans collateralized by healthcare
properties under construction and making term loans collateralized by healthcare
properties on which construction has been recently completed, but which are
still in transition to occupancy levels required under purchase/leaseback
agreements, and 3) acquiring a 95% interest in an entity which will acquire a
second mortgage loan.

(2) Federal Income Taxes

At the earliest possible date, the Company intends to qualify as a real
estate investment trust under the Internal Revenue Code of 1986, as amended.
Accordingly, it will not be subject to federal income taxes on amounts
distributed to shareholders provided it distributes at least 95 percent of its
taxable income and meets certain other conditions. The Company may, however, be
subject to state or local taxation in various jurisdictions.

(3) Planned Transactions

The Company intends to contribute the proceeds of the Offering to an
operating partnership in exchange for the sole general partner interest. The
operating partnership will use the contributions from the Company and borrowings
under a proposed bank credit facility to purchase 21 healthcare properties for
an aggregate cost of $146.8 million and to fund construction and term loans on 6
healthcare properties with an aggregate balance of $19.7 million. In addition,
the Company will make a $5.6 million loan to ET Capital Corp. (ET Capital) and
will invest an additional $1.8 million to acquire a 95%, nonvoting equity
interest in ET Capital. ET Capital will use proceeds from the loan and the
contributed capital from the Company and the Company's chief executive officer
to purchase a $7.5 miilion working capital term note from Genesis Health
Ventures, Inc. ("Genesis") which is secured by a second lien on 11 skilled
nursing facilities and related accounts receivable and other working capital
assets. Nine of the properties to be purchased with an aggregate cost of $62.1
million are owned by Genesis and will be leased back to affiliates of Genesis or
other third parties under long-term operating leases. Approximately $11.2
million of the construction and term loans will be purchased from Genesis.
Affiliates of Genesis will be the borrowers on the construction and term loans,
and Genesis manages the properties securing the working capital term note. The
Chairman and chief executive officer of Genesis is chairman of the board of
directors of the Company.

The operating partnership has agreements to purchase the properties and the
construction, term and second mortgage loans, subject to certain terms and
conditions including, among other things, successful completion of the Offering
and obtaining a bank credit facility. The Company is negotiating with a
commercial bank for a secured bank credit facility which would be used to pay a
portion of the purchase price of the properties and to fund the construction and
term loans and which would be available for working capital needs and other
general corporate purposes. Management believes that the Company will be able to
obtain sufficient credit on acceptable terms.

F-4
<PAGE>

(3) Planned Transactions -- (Continued)

The Company has agreed to reimburse actual costs incurred on its behalf by
Genesis upon consummation of the Offering. These costs relate to organizing the
Company, negotiating property acquisitions, performing due diligence related to
the properties, performing corporate work in contemplation of the Offering, and
preparing the registration statement. This amount is estimated to be
approximately $2,000,000 and will be payable upon the closing of the Offering
from the proceeds of the Offering.

The Company and Genesis have entered into an agreement for a period of
three years from the closing of the Offering (subject to annual renewal),
pursuant to which Genesis has granted the Company a right of first refusal to
purchase and leaseback to Genesis any assisted living facility which Genesis
determines to sell and leaseback. The agreement also provides the Company with a
right to offer financing to Genesis and other developers of assisted and
independent living facilities which, once developed, will be operated by
Genesis. The Company has provided Genesis with a first right of refusal to lease
or manage any assisted or independent living facility financed or acquired by
the Company within Genesis' markets unless the facility will be leased or
managed by the developing or selling company or an affiliate.

(4) Employee Benefit Plans and Related Matters

The Company's board of directors intends to adopt deferred compensation and
retirement plans and has adopted a share option and incentive plan. The Company
has reserved 9.9% of the total number of common shares and operating partnership
units outstanding from time to time for issuance under the share option and
incentive plan. As of the effective date of the Offering, the Company intends to
grant options to purchase 497,500 shares. These options will generally vest over
three to five years. The Company intends to adopt the intrinsic value approach
to accounting for stock-based compensation.

In September, 1997, the Company awarded its president and chief executive
officer and its chief financial officer 112,600 limited partnership units in the
operating partnership in consideration for services rendered in connection with
the formation of the Company. The operating partnership recognized compensation
expense equal to the estimated fair market value of the units awarded which will
be reported in the Company's statement of operations upon completion of the
Offering. These units are redeemable beginning fourteen months after completion
of the Offering for either cash or, at the option of the Company, common shares
on a one-for-one basis.

The Company will enter into an employment agreement with its president and
chief executive officer upon consummation of the offering. The agreement will
have an initial term of three years, subject to automatic renewal for subsequent
two year terms, and will cover matters including compensation, disability and
termination. The agreement will also contain provisions which are intended to
limit the president from competing with the Company throughout the term of the
agreement and for a period of two years thereafter.

The Company will also enter into a non-competition agreement with the
chairman of the board of directors. The agreement will be in effect during the
period that he serves as chairman and for a period of one year thereafter.

F-5
<PAGE>

ElderTrust

Pro Forma Balance Sheet and Statements of Estimated Revenues Less
Estimated Expenses

(Unaudited)

The unaudited pro forma balance sheet is based on the balance sheet of the
Company included elsewhere in the Prospectus, has been prepared as if the
Company were formed on June 30, 1997 and gives effect to the Offering,
investment in the Operating Partnership and acquisition of the Initial
Investments as if they had occurred on June 30, 1997. The unaudited pro forma
statements of estimated revenues less estimated expenses for the year ended
December 31, 1996, and six months ended June 30, 1997, give effect to the
Offering, the Initial Investments and the respective leases as if they had been
in effect on January 1, 1996 and January 1, 1997. The pro forma adjustments are
based upon available information and certain estimates and assumptions that
management of the Company believes are reasonable. The unaudited pro forma
balance sheet and statements of estimated revenues less estimated expenses do
not purport to present what the Company's financial position or results of
operations and cash available for distribution would actually have been if the
Offering and related transactions had occurred on June 30, 1997, January 1, 1996
or January 1, 1997, or to project the Company's financial position or results of
operations for any future period.

The unaudited pro forma balance sheet and statements of estimated revenues
less estimated expenses should be read in conjunction with the balance sheet of
the Company and related notes thereto, and other financial information
pertaining to the Company, including "Capitalization" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included elsewhere in this Prospectus.

F-6

<PAGE>

ELDERTRUST
PRO FORMA BALANCE SHEET
JUNE 30, 1997
(Unaudited)
(In thousands)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
EXISTING FOR THE
RENTAL OFFERING AND
ELDERTRUST PROPERTIES THE INITIAL
(HISTORICAL) (HISTORICAL) INVESTMENTS
-------------- -------------- --------------------
<S> <C> <C> <C>
ASSETS
Initial properties .................................... $ -- $ 13,481 $ 127,427 (2)
Investment in ET Capital Corp. ........................ -- -- 7,406 (4)
Loans receivable ....................................... -- -- 13,647 (3)
Cash and cash equivalents .............................. -- 1,050 123,480 (1)
(88,792)(2)
3,331 (2)
(1,050)(2)
(13,647)(3)
(7,406)(4)
(3,641)(5)
Other assets .......................................... -- 595 (595)(2)
3,641 (5)
----- --------- -------------
Total assets .......................................... $ -- $ 15,126 $ 163,801
===== ========= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable .................................... $ -- 8,834 (8,343)(2)
33,900 (2)
Bank credit facility ................................. -- 13,224 (2)
(315)(2)
Accounts payable and accrued expenses .................. -- 315 3,331 (2)
Minority interest .................................... -- -- 6,741 (2)
SHAREHOLDERS' EQUITY
Preferred shares of beneficial interest, $.01 par value:
20,000,000 shares authorized; none issued Common shares
of beneficial interest, $.01 par value:
100,000,000 shares authorized; 100 issued and outstanding
(historical) 7,012,600 issued and outstanding (pro
forma) ................................................ -- -- 70 (1)
Additional paid-in-capital ........................... -- -- 121,170 (1)
4,000 (6)
Note receivable-officer .............................. -- -- (4,000)(6)
Owners' equity ....................................... 5,977 (5,977)(2)
----- --------- -------------
Total liabilities and shareholders' equity ............ $ -- $ 15,126 $ 163,801
===== ========= =============
</TABLE>

<PAGE>

ELDERTRUST,
ADJUSTED FOR
THE OFFERING,
ELDERTRUST, PRO FORMA THE INITIAL
ADJUSTED ADJUSTMENTS INVESTMENTS
FOR THE OFFERING FOR THE AND THE
AND THE PROPOSED PROPOSED
INITIAL INVESTMENTS MULTICARE LOANS MULTICARE LOANS
--------------------- ----------------- ----------------
<S> <C> <C> <C>
ASSETS
Initial properties .................................... $ 140,908 $ -- $ 140,908
Investment in ET Capital Corp. ........................ 7,406 -- 7,406
Loans receivable ....................................... 13,647 9,449(10) 23,096
Cash and cash equivalents .............................. 13,325 -- 13,325
Other assets .......................................... 3,641 -- 3,641
--------- ----------- ---------
Total assets .......................................... $ 178,927 $ 9,449 $ 188,376
========= =========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages payable .................................... 34,391 $ -- 34,391
Bank credit facility ................................. 13,224 9,449(10) 22,673
Accounts payable and accrued expenses .................. 3,331 -- 3,331
Minority interest .................................... 6,741 -- 6,741
SHAREHOLDERS' EQUITY
Preferred shares of beneficial interest, $.01 par value:
20,000,000 shares authorized; none issued Common shares
of beneficial interest, $.01 par value:
100,000,000 shares authorized; 100 issued and outstanding
(historical) 7,012,600 issued and outstanding (pro
forma) ................................................ 70 -- 70
Additional paid-in-capital ........................... 125,170 -- 125,170
Note receivable-officer .............................. (4,000) -- (4,000)
Owners' equity ....................................... -- -- --
--------- ----------- ---------
Total liabilities and shareholders' equity ............ $ 178,927 $ 9,449 $ 188,376
========= =========== =========
</TABLE>

See notes to unaudited pro forma balance sheet and statements
of estimated revenues less estimated expenses.

F-7
<PAGE>

ELDERTRUST
PRO FORMA STATEMENT OF ESTIMATED REVENUES LESS ESTIMATED EXPENSES
SIX MONTHS ENDED JUNE 30, 1997
(Unaudited)
(In thousands except per share data)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
EXISTING FOR THE
RENTAL OFFERING AND
ELDERTRUST PROPERTIES THE INITIAL
(HISTORICAL) (HISTORICAL) INVESTMENTS
-------------- -------------- ----------------------
<S> <C> <C> <C>
Estimated revenues:
Rental revenues .......................................... $ -- $ 1,503 $ 5,858 (2)
Interest income .......................................... -- 48 777 (3)
(48)(2)
140 (6)
----- -------- --------------
Total estimated revenues ................................. -- 1,551 6,727
----- -------- --------------
Estimated expenses:
Property operating expenses .............................. -- 594 (136)(2)
Administrative expenses ................................. -- -- 1,098 (9)
Interest ................................................ -- 362 (63)(2)
229 (5)
1,141 (7)
577 (8)
Depreciation ............................................. -- 275 (60)(2)
1,791 (2)(5)
----- -------- --------------
Total estimated expenses ................................. -- 1,231 4,577
----- -------- --------------
Estimated revenues less estimated expenses before equity in
earnings of ET Capital Corp. and minority interest ...... -- 320 2,150
Equity in earnings of ET Capital Corp. .................. -- -- 440
----- -------- --------------
Estimated revenues less estimated expenses before minority
interest ................................................ -- 320 2,590
Minority interest ....................................... -- -- 134
----- -------- --------------
Estimated revenues less estimated expenses after minority
interest ................................................ $ -- $ 320 $ 2,456
===== ======== ==============
Estimated revenues less estimated expenses per share ...... $ --
=====
Weighted average number of common shares of beneficial
interest outstanding .................................... 100 7,012,500
===== ==============
</TABLE>

<PAGE>

ELDERTRUST,
ADJUSTED FOR
THE OFFERING,
ELDERTRUST, PRO FORMA THE INITIAL
ADJUSTED ADJUSTMENTS INVESTMENTS
FOR THE OFFERING FOR THE AND THE
AND THE PROPOSED PROPOSED
INITIAL INVESTMENTS MULTICARE LOANS MULTICARE LOANS
--------------------- ----------------- ----------------
<S> <C> <C> <C>
Estimated revenues:
Rental revenues .......................................... $ 7,361 $ -- $ 7,361
Interest income .......................................... 917 363(10) 1,290
------------ --------- ------------
Total estimated revenues ................................. 8,278 363 8,641
------------ --------- ------------
Estimated expenses:
Property operating expenses .............................. 458 -- 458
Administrative expenses ................................. 1,098 -- 1,098
Interest ................................................ 2,246 233(10) 2,479
Depreciation ............................................. 2,006 -- 2,006
------------ --------- ------------
Total estimated expenses ................................. 5,808 233 6,041
------------ --------- ------------
Estimated revenues less estimated expenses before equity in
earnings of ET Capital Corp. and minority interest ...... 2,470 130 2,600
Equity in earnings of ET Capital Corp. .................. 440 -- 440
------------ --------- ------------
Estimated revenues less estimated expenses before minority
interest ................................................ 2,910 130 3,040
Minority interest ....................................... 134 6 140
------------ --------- ------------
Estimated revenues less estimated expenses after minority
interest ................................................ $ 2,776 $ 124 $ 2,900
============ ========= ============
Estimated revenues less estimated expenses per share ...... $ 0.40 $ 0.02 $ 0.41
============ ========= ============
Weighted average number of common shares of beneficial
interest outstanding .................................... 7,012,600 -- 7,012,600
============ ========= ============
</TABLE>

See notes to unaudited pro forma balance sheet and statements
of estimated revenues less estimated expenses.

F-8
<PAGE>

ELDERTRUST
PRO FORMA STATEMENT OF ESTIMATED REVENUES LESS ESTIMATED EXPENSES
YEAR ENDED DECEMBER 31, 1996
(Unaudited)
(In thousands except per share data)

<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
EXISTING FOR THE
RENTAL OFFERING AND
ELDERTRUST PROPERTIES THE INITIAL
(HISTORICAL) (HISTORICAL) INVESTMENTS
-------------- -------------- ----------------------
<S> <C> <C> <C>
Estimated revenues:
Rental revenues .......................................... $ -- $ 2,955 $ 10,707 (2)
Interest income .......................................... -- 58 810 (3)
(58)
280 (6)
----- -------- --------------
Total estimated revenues ................................. -- 3,013 11,739
----- -------- --------------
Estimated expenses:
Property operating expenses .............................. -- 1,203 (262)(2)
Administrative expenses ................................. -- -- 2,200 (9)
Interest ................................................ -- 692 (130)(2)
458 (5)
1,924 (7)
1,144 (8)
Depreciation and amortization ........................... -- 544 (124)(2)
3,401 (2)(5)
----- -------- --------------
Total estimated expenses ................................. -- 2,439 8,611
----- -------- --------------
Estimated revenues less estimated expenses before equity in
earnings of ET Capital Corp. and minority interest ...... -- 574 3,128
Equity in earnings of ET Capital Corp. .................. -- -- 294
----- -------- --------------
Estimated revenues less estimated expenses before minority
interest ................................................ -- 574 3,422
Minority interest in estimated revenues less estimated
expenses ................................................ -- -- 183
----- -------- --------------
Estimated revenues less estimated expenses after minority
interest ................................................ $ -- $ 574 $ 3,239
===== ======== ==============
Estimated revenues less estimated expenses per share ...... $ --
=====
Weighted average number of common shares of beneficial
interest outstanding .................................... 100 7,012,500
===== ==============
</TABLE>

<PAGE>

ELDERTRUST,
ADJUSTED FOR
THE OFFERING,
ELDERTRUST, PRO FORMA THE INITIAL
ADJUSTED ADJUSTMENTS INVESTMENTS
FOR THE OFFERING FOR THE AND THE
AND THE PROPOSED PROPOSED
INITIAL INVESTMENTS MULTICARE LOANS MULTICARE LOANS
--------------------- ----------------- ----------------
<S> <C> <C> <C>
Estimated revenues:
Rental revenues .......................................... $ 13,662 $ -- $ 13,662
Interest income .......................................... 1,090 95(10) 1,185
------------ -------- ------------
Total estimated revenues ................................. 14,752 95 14,847
------------ -------- ------------
Estimated expenses:
Property operating expenses .............................. 941 -- 941
Administrative expenses ................................. 2,200 -- 2,200
Interest ................................................ 4,088 61(10) 4,149
Depreciation and amortization ........................... 3,821 -- 3,821
------------ -------- ------------
Total estimated expenses ................................. 11,050 61 11,111
------------ -------- ------------
Estimated revenues less estimated expenses before equity in
earnings of ET Capital Corp. and minority interest ...... 3,702 34 3,736
Equity in earnings of ET Capital Corp. .................. 294 -- 294
------------ -------- ------------
Estimated revenues less estimated expenses before minority
interest ................................................ 3,996 34 4,030
Minority interest in estimated revenues less estimated
expenses ................................................ 183 2 185
------------ -------- ------------
Estimated revenues less estimated expenses after minority
interest ................................................ $ 3,813 $ 32 $ 3,845
============ ======== ============
Estimated revenues less estimated expenses per share ...... $ 0.54 $ 0.01 $ 0.55
============ ======== ============
Weighted average number of common shares of beneficial
interest outstanding .................................... 7,012,600 -- 7,012,600
============ ======== ============
</TABLE>

See notes to unaudited pro forma balance sheet and statements
of estimated revenues less estimated expenses.

F-9
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Estimated Revenues Less
Estimated Expenses
(Unaudited)
(Dollars in thousands)

(A) Background and Basis of Presentation

The assisted, independent living and skilled nursing facilities included in
the Initial Properties will be leased back to the sellers or joint ventures
between the sellers and others under long-term operating leases which will be
Percentage Rent Leases or Minimum Rent Leases. Rental revenues under the
Percentage Rent Leases will be based on a specified percentage of facility
operating revenues. Rental revenues under the Minimum Rent Leases will be based
on (i) base rent (increasing each year by 1.5%) and additional rent based upon a
specified percentage of annual revenues over revenues for the first year of the
lease or (ii) 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 increase in the Consumer Price Index for the immediately preceding year, or
(iii) in the case of the assisted living facilities secured by the Proposed
Multicare Loans, if the Company makes such loans or elects to purchase and
leaseback such facilities to Multicare, base rent, increasing each year by 2.5%.
Both types of leases are triple net leases that require the lessees to pay all
operating expenses, taxes and insurance. The medical office and other buildings
included in the Initial Properties (the "Existing Rental Properties") are
subject to existing tenant leases that provide for specified annual rents,
subject to increases in certain leases. The Company has agreed to or has options
to purchase the six assisted living facilities securing the term and
construction loans included in the Initial Investments, subject to certain terms
and conditions, and these facilities will also be leased back to the sellers
pursuant to Percentage Rent Leases or Minimum Rent Leases. The Company also has
agreed to purchase the assisted living facilities that would secure the Proposed
Multicare Loans and lease them back to the sellers.

The accompanying unaudited pro forma balance sheet is provided to
illustrate the effects of the Offering, the acquisition and funding of the
Initial Investments, the possible funding of the Proposed Multicare Loans and
related transactions on the Company. It reflects how the balance sheet might
have appeared if the Company had been formed and the Initial Investments had
been made on June 30, 1997, with the potential impact of the Proposed Multicare
Loans presented separately. The accompanying pro forma statements of estimated
revenues less estimated expenses for the year ended December 31, 1996, and the
six months ended June 30, 1997, give effect to the Offering, the Initial
Investments, the possible funding of the Proposed Multicare Loans and related
transactions and the various tenant leases as if they had been in effect on
January 1, 1996 and January 1, 1997, respectively. The statements include
historical revenues and expenses of the Existing Rental Properties, adjustments
to record the estimated rental revenues under the Percentage Rent Leases and
Minimum Rent Leases, the Company's equity in the estimated earnings of ET
Capital, estimated interest income under the term mortgage and construction
loans and the Proposed Multicare Loans and estimated expenses and adjustments to
give effect to matters directly attributable to the Offering and related
transactions. The pro forma adjustments are explained in detail in note B. As
more fully discussed therein, certain of the Initial Properties (Willowbrook,
Heritage Woods and Lacey Bank) were under development or in the lease-up stage
during the pro forma periods. The pro forma statements of estimated revenues
less estimated expenses have been prepared assuming that the Company made
construction or term loans on these

F-10
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Estimated Revenues Less
Estimated Expenses
(Unaudited)
(Dollars in thousands) -- (Continued)

(A) Background and Basis of Presentation -- (Continued)

properties; however, these properties are now operating and will be acquired at
the time of the Offering and leased back to the lessees under Minimum or
Percentage Rent Leases. In addition, the term and construction loans the Company
will fund either were not in existence during part of the pro forma periods or
would have been funded at lower levels (due to the earlier stage of development
of the related facilities) than will be the case upon closing of the Offering,
and the Florida Facilities Note was not in existence until September 1, 1996.
For these and other reasons, the unaudited pro forma balance sheet and
statements of estimated revenues less estimated expenses do not purport to
present what the Company's financial position or results of operations would
actually have been if the Offering and related transactions had occurred on June
30, 1997 or January 1, 1996 or to project the Company's financial position or
results of operations for any future period.

(B) Pro Forma Adjustments

The accompanying unaudited pro forma balance sheet as of June 30, 1997, and
unaudited pro forma statements of estimated revenues less estimated expenses for
the year ended December 31, 1996, and the six months ended June 30, 1997,
reflect various adjustments which are required to give effect to the Offering,
of the Initial Investments and related transactions and to record estimated
rental revenues from Percentage Rent Leases and Minimum Rent Leases, equity in
the estimated net earnings of ET Capital, estimated interest on loans receivable
and estimated expenses. Explanations of the adjustments are as follows:

(1) Record issuance of 6,800,000 shares of common shares of beneficial
interest at an assumed price of $20 per share. The estimated transaction
expenses of the offering, including the underwriting discount and estimated
offering expenses totaling $12,520 and Common Share awards to Trustees have been
reflected as a offset to additional paid-in capital. The Units issued to
management upon formation have been reflected as an increase to minority
interest. The resulting cash proceeds of the Offering total $123,480.

(2) Record the acquisition of the Initial Properties, eliminate assets and
liabilities of the Existing Rental Properties which will not be acquired or
assumed by the Company and record related depreciation and rental revenues.

The aggregate cost of the Initial Properties is $140,908, consisting of
$88,792 paid from proceeds of the Offering, $13,224 paid from borrowings on the
Bank Credit Facility, $34,391 in debt assumed and $4,501 paid by issuance of
225,050 limited partnership units in the Operating Partnership, representing a
3.0% minority interest in the Company. The aggregate cost of the Initial
Properties is allocated as follows:

Buildings ................................................... $124,768
Land improvements .......................................... 7,339
Land ......................................................... 14,679
---------
Less historical book value of existing rental properties ... 13,481
---------
$133,305
=========

Buildings and land improvements are depreciated using the straight-line
method over the estimated useful lives of the assets, generally 15 to 35 years.

Rental revenues from the Initial Properties (excluding the Existing Rental
Properties) are estimated based on terms of the applicable Percentage Rent
Leases and Minimum Rent Leases for properties which were open and operating
during the periods. However, Percentage Rent Leases are assumed to commence only
upon the earlier of three years from the date at which construction of the
facility commenced or at the date the facility reached Stabilized Occupancy. The
pro forma adjustments to rental revenues for the Initial Properties are
summarized as follows:

F-11
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Estimated Revenues Less
Estimated Expenses
(Unaudited)
(Dollars in thousands) -- (Continued)

(B) Pro Forma Adjustments -- (Continued)
<TABLE>
<CAPTION>

Assumed
Lease Period Ended
Commencement ------------
Date December 31, 1996 June 30, 1997
-------------- ------------------- --------------
<S> <C> <C> <C>
Revenues from Minimum Rent Lease Properties:
Crozer/Genesis Skilled Nursing
Facilities .................. 1/96 $ 4,164 2,110
Highgate at Paoli Pointe ...... 1/96 1,152 585
The Woodbridge .................. 8/96 606 614
Rittenhouse CC .................. 1/96 872 443
Lopatcong NRC .................. 1/96 1,357 689
Phillipsburg CC ............... 1/96 617 313
Wayne NRC ..................... 1/96 597 303
Silverlake NRC .................. 1/96 808 410
Heritage Woods .................. 6/97 -- 88
-------- ------
10,173 5,555
======== ======
</TABLE>
Revenues from Percentage Rent Lease Properties:
<TABLE>
<S> <C> <C> <C>
Pleasant View (20.8%) ........................... 1/96 369 190
Riverview Ridge (41.7%) ........................ 1/96 650 332
-------- -------
1,019 522
-------- -------
Net change in revenues from Existing Rental
Properties ....................................... (485) (229)
-------- -------
$10,707 $5,858
======== =======
</TABLE>
The net change in revenues from Existing Rental Properties is due to (i) an
increase in revenues from leasing owner-occupied space in two medical office
buildings to the current owner under fixed rent leases and (ii) a decrease in
revenues due to the Company not acquiring two floors of space in one of the
buildings. Property operating expenses were also reduced for the estimated
effect of the reduction in space.

(3) Record loans receivable and related interest income. Loans receivable
consist of the following:

Construction loans ........................... $ 4,407
Term loans .................................... 9,240
--------
$13,647
========

Interest income on construction and term loans is based on the three year
United States Treasury Bill rate plus 3.5%. The following is a summary of the
estimated income on construction and term loans based on the estimated loan
commencement dates indicated (representing the commencement date of construction
of the related facility if after January 1996 in the case of construction loans,
and the commencement date of operations of the related facility for the term
loans) and estimated draws required to fund development costs incurred during
the year ended December 31, 1996 and six months ended June 30, 1997:

F-12
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Estimated Revenues Less
Estimated Expenses
(Unaudited)
(Dollars in thousands) -- (Continued)

(B) Pro Forma Adjustments -- (Continued)
<TABLE>
<CAPTION>

Pro Forma Period Ended
Commencement ------------
Date December 31, 1996 June 30, 1997
-------------- ------------------- --------------
Construction Loans
<S> <C> <C> <C>
Harbor Place ......... 1/96 221 73
Mifflin ............ 10/96 3 41
Coquina Center ...... 10/96 19 89
Heritage Woods ...... 1/96 107 191

Term Loans
----------
Willowbrook ......... 1/96 460 224
Harbor Place ......... 3/97 -- 159
------ ------
$ 810 $ 777
====== ======
</TABLE>
As indicated above, a number of the Initial Properties were under
development or in the lease-up stage during the year ended December 31, 1996,
and/or the six months ended June 30, 1997, and accordingly, the construction and
term loans either were not in existence or were funded at lower levels (due to
the earlier stages of development of the related facilities) than will be the
case upon closing of the Offering, and the Florida Facilities Note described in
note 4 was not in existence until September 1, 1996. As a result, and because of
the assumed level of net offering proceeds, the Company's cash balances average
$36,768 during the year ended December 31, 1996 and $22,954 during the six
months ended June 30, 1997, and are substantially higher during the periods than
they are anticipated to be in future periods. The Company has not assumed that
it will earn income from the investment of these balances during the pro forma
periods.

(4) Record investment in ET Capital and related estimated earnings. ET
Capital will acquire from Genesis the Florida Facilities Note. The Company will
make a loan of $5,625 to ET Capital which will bear interest at 13% and will
invest $1,781 to acquire a 95%, nonvoting equity interest in ET Capital. The
Company will account for its investment using the equity method. The Company's
equity in the earnings of ET Capital in the statements of estimated revenues
less estimated expenses includes interest on the loan of $244 during the year
ended December 31, 1996, and $363 during the six months ended June 30, 1996, and
the Company's 95% share of estimated net earnings of ET Capital, which are
summarized as follows:
<TABLE>
<CAPTION>
Period Ended
-----------------------------------
December 31, 1996 June 30,1997
------------------- -------------
<S> <C> <C>
Interest income on Florida Facilities Note ...... $ 325 $ 488
Interest expense on loan from the Company ...... (244) (363)
Income taxes .................................... (28) (44)
------ ------
Net income .................................... $ 53 $ 81
====== ======
</TABLE>
Interest income on the Florida Facilities Note and interest expense on the
loan from the Company are recorded only from September 1, 1996, the date the
Florida Facilities Note was acquired by Genesis.

(5) Record other assets and related amortization. Other assets consist of
the following:

Bank Credit Facility commitment fee ...... $ 1,375
Reserve Funds ........................... 2,209
Organization costs ........................ 25
Other assets .............................. 32
--------
$ 3,641
========

F-13
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Estimated Revenues Less
Estimated Expenses
(Unaudited)
(Dollars in thousands) -- (Continued)

(B) Pro Forma Adjustments -- (Continued)

Deferred costs are amortized using the straight-line method over the period
benefited by the expenditures. The Bank Credit Facility commitment fee is
amortized to interest expense using the straight-line method over the
anticipated term of the bank credit facility (three years). Organization costs
are amortized over five years.

(6) Record note receivable from sale of 200,000 common shares of beneficial
interest to the Company's president and chief executive officer (at an assumed
price of $20 per share) and related interest income. The note will bear interest
at 7% and require quarterly payments of interest only until maturity ten years
from the date of issuance.

(7) Record interest expense on debt assumed by the Company. The debt
assumed matures at various dates to 2021 and provides for interest at stated
rates ranging from 8% to 11%. The aggregate contract value of the debt was
$33,077 at June 30, 1997; the recorded amount of $34,391 is the present value of
future amounts payable in accordance with the loan terms discounted at a
weighted average market rate of 8.5%.

(8) Record interest expense on borrowings under the Bank Credit Facility.
As described in 2 above, it is assumed that the Facility will be used to fund
$13,224 of the cost of the Initial Properties. These borrowings are assumed to
bear interest at a variable rate based on a specified spread over short-term
Eurodollar rates (6.66% based on the specified spread over the average daily
Eurodollar rate for the year ended December 31, 1996 and 6.92 % based on the
specified spread over the average daily Eurodollar rate for the six months ended
June 30, 1997). A 1/8% fluctuation in the assumed interest rate would change
interest expense by $165 and $83 for the year ended December 31, 1996 and the
six months ended June 30, 1997, respectively.

(9) Administrative expenses of $2,200 for the year ended December 31, 1996
and $1,098 for the six months ended June 30, 1997 consist of compensation and
related benefits, professional fees, travel, rent and other administrative
costs.

(10) Record Multicare construction loans receivable and related interest
income and interest expense. Interest income on the construction loans is based
on a fixed interest rate of 11%. The following is a summary of the estimated
income on the construction loans based on the estimated loan commencement dates
indicated (representing the commencement date of construction of the related
facility) and draws required to fund development costs incurred during the year
ended December 31, 1996 and the six months ended June 30, 1997:
<TABLE>
<CAPTION>

Pro Forma Period Ended
Commencement ------------
Date December 31, 1996 June 30, 1997
-------------- ------------------- --------------
Construction Loans
- ------------------
<S> <C> <C> <C>
Park Lane Commons at Lehigh
Manor ..................... 3/96 $ 45 $ 186
Park Lane Commons at Berkshire
Manor ..................... 3/96 41 157
Park Lane Commons at Sanatoga
Manor ..................... 3/96 13 37
----- ------
$ 99 $ 380
===== ======
</TABLE>
The Multicare construction loans receivable are funded by additional draws
under the Bank Credit Facility. Interest expense on these draws is estimated to
be $61 and $233 for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively.

(11) The Operating Partnership will issue 112,000 limited partnership units
in Operating Partnership (representing a minority interest of 1.5% in the
Company) to officers of the Company at an assumed value of

F-14
<PAGE>

ElderTrust
Notes to Pro Forma Balance Sheet and Statements of Estimated Revenues Less
Estimated Expenses
(Unaudited)
(Dollars in thousands) -- (Continued)

(B) Pro Forma Adjustments -- (Continued)

$20 per unit. The units will be issued in consideration for services relating to
the formation of the Company and, accordingly, the Company will recognize
compensation expense equal to the fair value of the units ($2,240,000). This
expense is a nonrecurring item and, accordingly, has not been included in the
balance sheet or the statements of estimated revenues less estimated expenses.

F-15
<PAGE>
===============================================================================
No dealer, salesperson or other individual has been authorized to give
any information or make any representations not contained in this Prospectus in
connection with the offering made by this Prospectus. If given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any of the Underwriters. This Prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, the Common Shares in any
jurisdiction where, or to any person to whom, it is unlawful to make such offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create an implication that there has
not been any change in the facts set forth in this Prospectus or in the affairs
of the Company since the date hereof.

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

SUMMARY TABLE OF CONTENTS

Page
---------
Summary .......................................... 3
Risk Factors .................................... 23
The Company ....................................... 36
Business and Growth Strategies .................. 37
Use of Proceeds ................................. 40
Distributions .................................... 40
Capitalization .................................... 45
Dilution .......................................... 46
Selected Combined Financial Data .................. 48
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................... 49
Business and Properties ........................... 53
Management ....................................... 84
Certain Relationships and Transactions ............ 90
Structure and Formation of the Company ............ 92
Policies with Respect to Certain Activities ...... 97
Partnership Agreement ........................... 100
Principal Shareholders ........................... 104
Shares of Beneficial Interest ..................... 105
Certain Provisions of Maryland Law and the
Company's Declaration of Trust and Bylaws 109
Shares Available for Future Sale .................. 112
Federal Income Tax Considerations ............... 113
ERISA Considerations .............................. 129
Underwriting .................................... 132
Experts .......................................... 134
Legal Matters .................................... 134
Additional Information ........................... 134
Glossary .......................................... 136
Index to Financial Statements ..................... F-1

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

Until , 1997 (25 days after the commencement of this Offering), all
dealers effecting transactions in the Common Shares, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This delivery requirement is in addition to the obligation of dealers to
deliver a Prospectus when acting as Underwriters and with respect to their
unsold allotments or subscriptions.
===============================================================================
<PAGE>

===============================================================================

6,800,000 Common Shares

ElderTrust(SM)

Common Shares
of Beneficial Interest

----------------
PROSPECTUS
----------------

Merrill Lynch & Co.

BT Alex. Brown

Goldman, Sachs & Co.

, 1997

===============================================================================

<PAGE>

INTERNATIONAL TRANCHE PAGE

Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.

SUBJECT TO COMPLETION, DATED NOVEMBER 17, 1997

PROSPECTUS
- ----------

6,800,000 Common Shares
ElderTrust(SM)
Common Shares of Beneficial Interest
-------------------

ElderTrust (together with its subsidiaries, the "Company") has been formed
to invest in a diversified portfolio of healthcare-related real estate and
mortgages. The Company will be self-administered and self-managed and expects
to qualify as a real estate investment trust ("REIT") for federal income tax
purposes. Upon completion of this offering (the "Offering"), the Company will
invest in an initial portfolio of 21 assisted and independent living
facilities, skilled nursing facilities and medical office and other buildings,
term mortgage and construction loans totaling $19.7 million secured by six
assisted living facilities in lease-up or development and substantially all of
the economic interest in a $7.5 million second mortgage loan. The facilities
and the properties securing the loans are located in eight states in the
eastern United States. The Company has agreed or has the option to purchase the
six assisted living facilities that secure the term mortgage and construction
loans, as well as eight of the nine assisted living development and expansion
projects currently in the planning phase for which the Company will make loan
commitments totaling $53.3 million. The Company has agreed to make three
additional term mortgage and construction loans totaling $19.4 million and to
purchase the assisted living facilities securing these loans, subject to
certain terms and conditions. Approximately 48.4% of the Company's total assets
upon completion of the Offering (excluding the three additional term mortgage
and construction loans) will consist of properties leased to and loans made to
consolidated subsidiaries of Genesis Health Ventures, Inc. ("Genesis"), a
leading provider of healthcare and support services to the elderly.
Subsidiaries of Genesis will operate or manage substantially all of the
properties initially being acquired by the Company, as well as substantially
all of the properties that secure the loans being made by the Company.
Approximately $79.3 million of the net proceeds from the Offering, including
initial draws under the proposed bank credit facility, will be used to acquire
properties and other assets from and to make loans to Genesis.
All of the common shares of beneficial interest, $.01 par value per share, of
the Company (the "Common Shares") offered hereby are being sold by the Company
and will represent approximately 92.5% of the Company's outstanding common
equity. The remaining common equity in the Company will be beneficially owned
by officers and trustees of the Company and other continuing investors. Of the
6,800,000 Common Shares being offered hereby, 5,440,000 shares are being
offered initially in the United States and Canada by the U.S. Underwriters and
1,360,000 shares are being offered initially outside the United States and
Canada by the International Managers. See "Underwriting."
Prior to the Offering, there has been no public market for the Common Shares.
It is currently anticipated that the initial public offering price will be
$20.00 per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company will
apply to list the Common Shares on the New York Stock Exchange.

<PAGE>

See "Risk Factors" beginning on page 23 for certain factors relevant to an
investment in the Common Shares, including:

o The substantial dependence on a single operator in the highly regulated
healthcare industry;
o The possibility that the consideration to be paid by the Company for the
properties and other assets to be acquired by the Company may exceed
their fair market value and the absence of third-party appraisals;
o Risks inherent in real estate investments, including illiquidity of
ownership interests, fluctuations in values of real property, defaults
under or nonrenewals of leases, timely completion of development
projects, and nonpayment of construction and mortgage loans made by the
Company, and the lack of minimum rent payments in certain of the facility
leases;
o Conflicts of interest in connection with the Company's formation,
including the receipt by trustees and officers of the Company of equity
interests, and conflicts of interest involving the Chairman of the Board
of the Company in business decisions affecting the Company;
o The Company has been recently organized and management of the Company has
no prior experience in the day-to-day operations of a REIT;
o Risks associated with rapid growth, including the ability of the Company
to manage its growth effectively;
o Exposure of the Company to possible increases in interest expense under
its proposed bank credit facility, and the possibility that the Company
may not be able to refinance outstanding debt upon maturity or that
indebtedness might be refinanced on less favorable terms;
o Limitations on shareholders' ability to change control of the Company,
including a prohibition on actual or constructive ownership of Common
Shares in excess of 8.6% of the Company's outstanding shares; and
o Taxation of the Company as a regular corporation if it fails to qualify
as a REIT.
-------------------

<PAGE>

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
================================================================================
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
Per Common Share ...... $ $ $
- --------------------------------------------------------------------------------
Total (3) ............ $ $ $
================================================================================
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $_____________ payable by the
Company.
(3) The Company has granted the U.S. Underwriters a 30-day option to purchase
up to an additional 816,000 Common Shares, and has granted the
International Managers a 30-day option to purchase up to an additional
204,000 Common Shares, on the same terms and conditions as set forth
above, solely to cover overallotments, if any. If such option is exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively. See "Underwriting."
-------------------
The Common Shares are offered by the several Underwriters, subject to
prior sale, when, as and if issued to and accepted by them, subject to approval
of certain legal matters by counsel to the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Common Shares offered hereby will be made in New York, New York
on or about , 1997.
-------------------
Merrill Lynch International
BT Alex. Brown International
Goldman Sachs International
-------------------
The date of this Prospectus is , 1997.
<PAGE>

INTERNATIONAL TRANCHE PAGE

================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or make any representations not contained in this Prospectus in
connection with the offering made by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Common
Shares in any jurisdiction where, or to any person to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Company since the date hereof.

------------------
SUMMARY TABLE OF CONTENTS

Page
-----
Summary ..........................................
Risk Factors ....................................
The Company ....................................
Business and Growth Strategies ..................
Use of Proceeds .................................
Distributions ....................................
Capitalization .................................
Dilution .......................................
Selected Combined Financial Data ...............
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .................................
Business and Properties ........................
Management .......................................
Certain Relationships and Transactions .........
Structure and Formation of the Company .........
Policies with Respect to Certain Activities ......
Partnership Agreement ...........................
Principal Shareholders ...........................
Shares of Beneficial Interest ..................
Certain Provisions of Maryland Law and the
Company's Declaration of Trust and
Bylaws .......................................
Shares Available for Future Sale ...............
Federal Income Tax Considerations ...............
ERISA Considerations ...........................
Underwriting ....................................
Experts ..........................................
Legal Matters ....................................
Additional Information ...........................
Glossary .......................................
Index to Financial Statements ..................

------------------
Until , 1997 (25 days after the commencement of this Offering), all dealers
effecting transactions in the Common Shares, whether or not participating in
this distribution, may be required to deliver a Prospectus. This delivery
requirement is in addition to the obligation of dealers to deliver a Prospectus
when acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
<PAGE>

================================================================================

6,800,000 Common Shares

ElderTrust(SM)

Common Shares
of Beneficial Interest

------------------
PROSPECTUS
------------------

Merrill Lynch International

BT Alex. Brown International

Goldman Sachs International

, 1997

================================================================================
<PAGE>

INTERNATIONAL TRANCHE PAGE

UNDERWRITING

Subject to the terms and conditions in the international purchase
agreement (the "International Purchase Agreement"), between the Company and
each of the underwriters named below (the "International Managers"), and
concurrently with the sale of 5,440,000 Common Shares to the U.S. Underwriters
(as defined below), the Company has agreed to sell to each of the International
Managers, for whom Merrill Lynch International, BT Alex. Brown International,
division of Bankers Trust International PLC and Goldman Sachs International are
acting as lead managers (the "Lead Managers"), and each of the International
Managers has severally agreed to purchase from the Company, the respective
number of Common Shares set forth below opposite their respective names:

Number of
Underwriter Common Shares
----------- --------------
Merrill Lynch International ...............
---------
BT Alex. Brown International, division of
Bankers Trust International PLC .........
---------
Goldman Sachs International ...............
---------
Total ................................. 1,360,000
=========

The Company has also entered into a purchase agreement (the "U.S. Purchase
Agreement" and, together with the International Purchase Agreement, the
"Purchase Agreements") with certain underwriters outside the United States and
Canada (the "U.S. Underwriters" and, together with the International
Underwriters, the "Underwriters") for whom Merrill Lynch, Pierce, Fenner &
Smith Incorporated, BT Alex. Brown Incorporated and Goldman, Sachs & Co. are
acting as representatives. Subject to the terms and conditions set forth in the
U.S. Purchase Agreement and concurrently with the sale of 1,360,000 Common
Shares to the International Managers pursuant to the International Purchase
Agreement, the Company has agreed to sell to the U.S. Underwriters, and the
U.S. Underwriters have severally agreed to purchase from the Company, an
aggregate of 5,440,000 Common Shares. The initial public offering price per
share and the total underwriting discount per share are identical under the
U.S. Purchase Agreement and the International Purchase Agreement.

The Lead Managers have advised the Company that the International Managers
propose initially to offer the Common Shares to the public at the public
offering price per share set forth on the cover page of this Prospectus, and to
certain banks, brokers and dealers (the "Selling Group") at such price less a
concession not in excess of $______ per share. The International Managers may
allow, and such dealers may re-allow with the consent of Merrill Lynch
International, a discount not in excess of $______ per share on sales to
certain other International Managers and members of the Selling Group. After
the date of this Prospectus, the initial public offering price, concession and
discount may be changed.

The Company has been informed that the U.S. Underwriters and the
International Managers have entered into an agreement (the "Intersyndicate
Agreement") providing for the coordination of their activities. Under the terms
of the Intersyndicate Agreement, the U.S. Underwriters and the International
Managers are permitted to sell Common Shares to each other for purposes of
resale at the initial public offering price, less an amount not greater than
the selling concession. Under the terms of the Intersyndicate Agreement, the
International Managers and any dealer to whom they sell Common Shares will not
offer to sell or sell Common Shares to persons who are United States persons or
Canadian persons or to persons they believe intend to resell to persons who are
United States persons or Canadian persons, and the U.S. Underwriters and any
dealer to whom they sell Common Shares will not offer to sell or sell Common
Shares to persons who are non-United States and non-Canadian persons or to
persons they believe intend to resell to non-United States and non-Canadian
persons, except in each case for transactions pursuant to such agreement.

132
<PAGE>

INTERNATIONAL TRANCHE PAGE

The Company has granted to the International Managers an option,
exercisable for 30 days after the date of this Prospectus, to purchase up to
204,000 additional Common Shares to cover overallotments, if any, at the
initial public offering price, less the underwriting discount set forth on the
cover page of this Prospectus. If the International Managers exercise this
option, each International Manager will have a firm commitment, subject to
certain conditions, to purchase approximately the same percentage thereof which
the number of Common Shares to be purchased by it shown in the foregoing table
bears to such International Managers' initial amount reflected in the foregoing
table. The Company also has granted an option to the U.S. Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 816,000 additional Common Shares to cover overallotments, if
any, on terms similar to those granted to the International Managers.

Each of the Company and the International Managers has represented and
agreed that (a) it has not offered or sold, and prior to the date six months
after the date of this Prospectus will not offer or sell any Common Shares to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purpose of their businesses or otherwise in
circumstances which do not constitute an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulation 1995,
(b) it has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in relation to
the Common Shares in, from or otherwise involving the United Kingdom and (c) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issue or sale of the
Common Shares to a person who is of a kind described in Article II(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom the document may otherwise lawfully be issued or passed
on.

Until the distribution of the Common Shares is completed, rules of the SEC
may limit the ability of the Underwriters and certain selling group members to
bid for and purchase the Common Shares. As an exception to these rules, the
U.S. Representatives are permitted to engage in certain transactions that
stabilize the price of the Common Shares. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Shares.

If the Underwriters create a short position in the Common Shares in
connection with the Offering, i.e., if they sell more Common Shares than are
set forth on the cover page of this Prospectus, the U.S. Representatives and
the International Managers, respectively, may reduce that short position by
purchasing Common Shares in the open market. The U.S. Representatives and the
International Managers, respectively, may also elect to reduce any short
position by exercising all or part of the overallotment option described above.

The U.S. Representatives and the International Managers, respectively, may
also impose a penalty bid on certain Underwriters and selling group members.
This means that if the U.S. Representatives or the International Managers
purchase Common Shares in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Shares, they may reclaim the
amount of the selling concession from the Underwriters and selling group
members who sold those shares as part of the Offering.

Neither the Company nor any of the Underwriters makes any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the Common Shares. In
addition, neither the Company nor any of the Underwriters makes any
representation that the U.S. Representatives or the International Managers will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.

133
<PAGE>

INTERNATIONAL TRANCHE PAGE

The Company, its trustees and executive officers, the Operating
Partnership and the Continuing Investors have agreed, subject to certain
exceptions, not to sell, offer or contract to sell, grant any option for the
sale of, or otherwise dispose of any Common Shares or Units or any securities
convertible into or exchangeable for Common Shares or Units for a period of 14
months from the date of the Prospectus, without the prior written consent of
Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Company has granted
certain registration rights to Messrs. Walker and Romanov and the Continuing
Investors pursuant to which such persons may require the Company to file a
registration statement with the SEC with respect to Common Shares owned by
Messrs. Walker and Romanov or received by the Continuing Investors in exchange
for their Units after the expiration of such 14-month period.

The Underwriters do not intend to confirm sales to any account over which
they exercise discretionary authority.

Prior to the Offerings, there has been no public market for the Common
Shares of the Company. The initial public offering price will be determined
through negotiations between the Company and the U.S. Representatives. Among
the factors to be considered in such negotiations, in addition to prevailing
market conditions, will be dividend yields and financial characteristics of
publicly traded REITs that the Company and the U.S. Representatives believe to
be comparable to the Company, the expected results of operations of the Company
(which will be based on the results of operations of the Initial Investments),
estimates of the future business potential and earnings prospects of the
Company as a whole and the current state of the real estate market in the
Company's primary markets and the economy as a whole.

134

<PAGE>

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 30. Other Expenses of Issuance and Distribution

The following table itemizes the expenses incurred by the Company in
connection with the Offering. All amounts are estimated except for the
Registration Fee and the NASD Fee.

Registration Fee .................................... $47,394
NASD Fee .......................................... 16,140
New York Stock Exchange Listing Fee ............... *
Printing and Engraving Expenses ..................... *
Legal Fees and Expenses ........................... *
Accounting Fees and Expenses ........................ *
Blue Sky Fees and Expenses ........................ *
Environmental and Engineering Expenses ............ *
Miscellaneous ....................................... *
--------
TOTAL .......................................... $ *
========
Indemnification Insurance Costs (see Item 33) ...... *
--------

- ------------
*To be completed by amendment.

Item 31. Sales to Special Parties

See Item 32.

Item 32. Recent Sales of Unregistered Securities

1. On September 23, 1997, the Company was capitalized with the issuance to
Mr. McCreary of 100 Common Shares for an aggregate purchase price of $100. The
issuance of such Common Shares was effected in reliance on an exemption from
registration under Section 4(2) of the Securities Act. See "Structure and
Formation of the Company."

2. On June 30, 1997, the Operating Partnership was capitalized with the
issuance of a general partnership interest to ElderTrust Realty Group, Inc. in
exchange for a capital contribution in the amount of $200 and with the issuance
of a limited partnership interest to ET Partnership in exchange for a capital
contribution in the amount of $200,000. The issuance of such limited partnership
interests in the Operating Partnership was effected in reliance on an exemption
from registration under Section 4(2) of the Securities Act, and Regulation D
promulgated thereunder. See "Structure and Formation of the Company."

3. On September 10, 1997, the Operating Partnership issued additional
limited partnership interests to Messrs. Romanov and McCreary in exchange for
capital contributions in the aggregate amount of $200. The issuance of such
limited partnership interests in the Operating Partnership was effected in
reliance on an exemption from registration under Section 4(2) of the Securities
Act, and Regulation D promulgated thereunder. See "Structure and Formation of
the Company."

4. Immediately prior to the closing of the Offering, ET Partnership will be
dissolved and the Operating Partnership will be recapitalized and will issue
Units to (i) Messrs. Romanov and McCreary and the former partners in ET
Partnership (including Messrs. Walker and Romanov in respect of the Genesis
interest in ET Partnership which will be purchased by Messrs. Walker and Romanov
immediately prior to the dissolution of ET Partnership) in respect of the
limited partnership interests in the Operating Partnership previously issued to
such partners and (ii) the Continuing Investors in exchange for the interests of
the Continuing Investors in certain of the Initial Properties. Messrs. Romanov
and McCreary will receive a total of 112,000 Units in respect of the limited
partnership interests in the Operating Partnership issued to them on September
10, 1997. The number of Units to be issued to the former partners in ET
Partnership (including Messrs. Walker and

II-1
<PAGE>

Romanov in respect of the Genesis interest in ET Partnership which will be
purchased by Messrs. Walker and Romanov immediately prior to the dissolution of
ET Partnership) in respect of the limited partnership interest in the Operating
Partnership previously issued to ET Partnership will be determined based upon
the initial public offering price per Common Share in the Offering. Immediately
following completion of the Offering, the Units issued to Messrs. Walker and
Romanov in respect of the Genesis interest in ET Partnership will be exchanged
for Common Shares on a one-for-one basis pursuant to the Unit Redemption Right
as provided in the Operating Partnership Agreement. The number of Units to be
issued to the Continuing Investors in the Formation transactions will be
determined at the time the final preliminary prospectus relating to the Offering
(the "Final Preliminary Prospectus") is circulated to prospective investors and
will be a number of Units having an aggregate value equal to $4,400,600, based
on a per Unit value equal to the midpoint of the price range per Common Share
set forth in the Final Preliminary Prospectus. The issuance of such Units and
Common Shares to Messrs. Romanov and McCreary, the former partners in ET
Partnership (including Messrs. Walker and Romanov in respect of the Genesis
interest in ET Partnership which will be purchased by Messrs. Walker and Romanov
immediately prior to the dissolution of ET Partnership) and the Continuing
Investors will be effected in reliance on an exemption from registration under
Section 4(2) of the Securities Act, and Regulation D promulgated thereunder. See
"Structure and Formation of the Company."

Item 33. Indemnification of Directors and Officers

The Company's officers and directors are and will be indemnified under
Maryland and Delaware law, the Declaration of Trust and Bylaws of the Company
and the Partnership Agreement of the Operating Partnership against certain
liabilities. The Declaration of Trust of the Company requires it to indemnify
its directors and officers to the fullest extent permitted from time to time
under Maryland law.

The Declaration of Trust of the Company authorizes it, to the maximum
extent permitted by Maryland law, to obligate itself to indemnify and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding to
(a) any present or former trustee or officer or (b) any individual who, while a
trustee of the Company and at the request of the Company, serves or has served
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise from and against any claim or liability to which such person
may become subject or which such person may incur by reason of his or her status
as a present or former trustee or officer of the Company. The Bylaws of the
Company obligate it, to the maximum extent permitted by Maryland law, to
indemnify and to pay or reimburse reasonable expenses in advance of final
disposition of a proceeding to (a) any present or former trustee or officer who
is made party to the proceeding by reason of his service in that capacity or (b)
any individual who, while a trustee or officer of the Company and at the request
of the Company, serves or has served another real estate investment trust,
corporation, partnership, joint venture, trust, employee benefit plan or any
other enterprise as a trustee, director, officer or partner of such real estate
investment trust, corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise and who is made a party to the proceeding by
reason of his service in that capacity, against any claim or liability to which
he may become subject by reason of such status. The Declaration of Trust and
Bylaws also permit the Company to indemnify and advance expenses to any person
who served as a predecessor of the Company in any of the capacities described
above and to any employee or agent of the Company or a predecessor of the
Company. The Bylaws require the Company to indemnify a trustee or officer who
has been successful, on the merits or otherwise, in the defense of any
proceeding to which he is made a party by reason of his service in that
capacity.

The Maryland REIT Law permits a Maryland real estate investment trust to
indemnify and advance expenses to its trustees, officers, employees and agents
to the same extent as permitted by the MGCL for directors and officers of
Maryland corporations. The MGCL permits a corporation to indemnify its present
and former directors and officers, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their service in those or other capacities unless it is established that (a) the
act or omission of the director or officer was material to the matter giving
rise to the proceeding and (i) was committed in bad faith or (ii) was the result
of active and deliberate dishonesty, (b) the director or officer actually
received an improper personal benefit in money, property or services or (c) in
the case of any criminal proceeding, the

II-2
<PAGE>

director or officer had reasonable cause to believe that the act or omission was
unlawful. However, under the MGCL, a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation. In
accordance with the MGCL, the Bylaws of the Company require it, as a condition
to advancing expenses, to obtain (a) a written affirmation by the director or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification by the Company as authorized by the Bylaws and (b)
a written statement by or on his behalf to repay the amount paid or reimbursed
by the Company if it shall ultimately be determined that the standard of conduct
was not met.

Item 34. Treatment of Proceeds from Stock Being Registered

Not Applicable.

Item 35. Financial Statements and Exhibits

(a) Financial Statements, all of which are included in the Prospectus:

ELDERTRUST
Independent Auditors' Report
Balance Sheet as of September 23, 1997
Notes to Balance Sheet
Pro Forma Balance Sheet and Statements of Estimated Revenues
Less Estimated Expenses
Notes to Pro Forma Balance Sheet and Statements of Estimated
Revenues Less Estimated Expenses

(b) Exhibits

<TABLE>
<CAPTION>
<S> <C>
1.1* Form of U.S. Purchase Agreement
1.2* Form of International Purchase Agreement
3.1* Form of Amended and Restated Declaration of Trust of the Company
3.2* Form of Bylaws of the Company
5.1* Opinion of Hogan & Hartson L.L.P. regarding the validity of the securities being registered
8.1* Opinion of Hogan & Hartson L.L.P. regarding tax matters
10.1* Form of Second Amended and Restated Agreement of Limited Partnership of the Operating
Partnership
10.2* Form of Registration Rights Agreement between the Company and the persons named therein
10.3* 1997 Share Option and Incentive Plan
10.4* Form of Plan of Asset Transfer and Contribution Agreement
10.5* Form of Asset Transfer Agreement
10.6* Employment and Non-Competition Agreement between the Company and Edward B. Romanov, Jr.
10.7* Non-Competition Agreement between the Company and Michael R. Walker
10.8* Form of Indemnification Agreement
10.9* Asset Transfer Agreements between ElderTrust Operating Limited Partnership and Genesis Health
Ventures, Inc. (Heritage Woods, Willowbrook, Riverview Ridge, Pleasant View, Rittenhouse,
Lopatcong, Phillipsburg, Wayne, POB I and Lacey Bank Building)
10.10* Minimum Rent Leases between ElderTrust Operating Limited Partnership and Genesis Health
Ventures, Inc. (Heritage Woods, Highgate at Paoli Pointe, Rittenhouse, Lopatcong, Phillipsburg,
Wayne, Salisbury Medical Office Building, and Windsor Office Building and Windsor Clinic and
Training Facility)
10.11* Percentage Rent Leases between ElderTrust Operating Limited Partnership and Genesis Health
Ventures, Inc.
10.12* Term Loan Agreements between ElderTrust Operating Limited Partnership Agreement and
Genesis Health Ventures, Inc. (Mifflin and Coquina Center)
</TABLE>

II-3
<PAGE>

<TABLE>
<S> <C>
10.13* Construction Loan Agreement between ElderTrust Operating Limited Partnership Agreement and
Genesis Health Ventures, Inc. (Oaks)
10.14* Form of Loan Commitments between ElderTrust Operating Limited Partnership Agreement and
Genesis Health Ventures, Inc.
10.15* Right of First Offer Agreement between ElderTrust Operating Limited Partnership and Genesis
Health Ventures, Inc.
10.16* Option Agreement to purchase Holton Point facility between ElderTrust Operating Limited
Partnership and Genesis Health Ventures, Inc.
10.17* Plan of Asset Transfer and Contribution Agreement among ElderTrust Operating Limited
Partnership, GHV Associates and the partners in GHV Associates dated as of September 25, 1997.
10.18* Plan of Asset Transfer and Contribution Agreement among ElderTrust Operating Limited
Partnership and the partners in Salisbury Medical Office Building General Partnership dated as of
September 25, 1997.
10.19* Stock Purchase Agreement between the Company and Edward B. Romanov, Jr. dated as of
October 8, 1997
21.1* List of Subsidiaries
23.1* Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
23.4* Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 8.1)
23.5* Consent of Kent P. Dauten
23.6* Consent of Rodman W. Moorhead, III
23.7* Consent of Timothy T. Weglicki
24.1+ Power of Attorney (included in the Signature Page at page II-6)
27.1+ Financial Data Schedule
</TABLE>

- ------------
*To be filed by amendment.

+Previously filed.

Item 36. Undertakings

The Registrant hereby undertakes:

(1) For purposes of determining any liability under the Securities Act of 1933,
as amended (the "Act"), the information omitted from the form of Prospectus
filed as part of the Registration Statement in reliance upon rule 430A and
contained in the form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

(3) The undersigned registrant hereby undertakes to provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery of each purchaser.

(4) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.

II-4
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable ground to believe that it meets all of the
requirements for filing on Form S-11 and has duly caused this Amendment to be
signed on its behalf by the undersigned, thereunto duly authorized, in Kennett
Square, Pennsylvania on this 14th day of November, 1997.

ELDERTRUST

By: /s/ Edward B. Romanov, Jr.
-----------------------------------
Edward B. Romanov, Jr.
President and Chief Executive
Officer

Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities indicated as of the
14th day of November, 1997.

<TABLE>
<CAPTION>
Signature Title
--------- -----

<S> <C>
/s/ Edward B. Romanov, Jr. President, Chief Executive Officer and
- ---------------------------------------------------- Trustee (principal executive officer)
Edward B. Romanov, Jr.

/s/ D. Lee McCreary, Jr. Chief Financial Officer (principal
- ---------------------------------------------------- financial officer and principal accounting
D. Lee McCreary, Jr. officer)

/s/ Michael R. Walker Chairman of the Board of Trustees
- ----------------------------------------------------
Michael R. Walker
</TABLE>

II-5
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibits Page No.
- -------- --------
<S> <C> <C>
1.1* Form of U.S. Purchase Agreement

1.2* Form of International Purchase Agreement

3.1* Form of Amended and Restated Declaration of Trust of the Company

3.2* Form of Bylaws of the Company

5.1* Opinion of Hogan & Hartson L.L.P. regarding the validity of the securities being
registered

8.1* Opinion of Hogan & Hartson L.L.P. regarding tax matters

10.1* Form of Second Amended and Restated Agreement of Limited Partnership of the
Operating Partnership

10.2* Form of Registration Rights Agreement between the Company and the persons
named therein

10.3* 1997 Share Option and Incentive Plan

10.4* Form of Plan of Asset Transfer and Contribution Agreement

10.5* Form of Asset Transfer Agreement

10.6* Employment and Non-Competition Agreement between the Company and
Edward B. Romanov, Jr.

10.7* Non-Competition Agreement between the Company and Michael R. Walker

10.8* Form of Indemnification Agreement

10.9* Asset Transfer Agreements between ElderTrust Operating Limited Partnership
and Genesis Health Ventures, Inc. (Heritage Woods, Willowbrook, Riverview
Ridge, Pleasant View, Rittenhouse, Lopatcong, Phillipsburg, Wayne, POB I and
Lacey Bank Building)

10.10* Minimum Rent Leases between ElderTrust Operating Limited Partnership and
Genesis Health Ventures, Inc. (Heritage Woods, Highgate at Paoli Pointe,
Rittenhouse, Lopatcong, Phillipsburg, Wayne, Salisbury Medical Office Building,
and Windsor Office Building and Windsor Clinic and Training Facility)

10.11* Percentage Rent Leases between ElderTrust Operating Limited Partnership and
Genesis Health Ventures, Inc.

10.12* Term Loan Agreements between ElderTrust Operating Limited Partnership
Agreement and Genesis Health Ventures, Inc. (Mifflin and Coquina Center)

10.13* Construction Loan Agreement between ElderTrust Operating Limited Partnership
Agreement and Genesis Health Ventures, Inc. (Oaks)

10.14* Form of Loan Commitments between ElderTrust Operating Limited Partnership
Agreement and Genesis Health Ventures, Inc.

10.15* Right of First Offer Agreement between ElderTrust Operating Limited
Partnership and Genesis Health Ventures, Inc.

10.16* Option Agreement to purchase Holton Point facility between ElderTrust
Operating Limited Partnership and Genesis Health Ventures, Inc.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
<S> <C>
10.17* Plan of Asset Transfer and Contribution Agreement among ElderTrust Operating Limited
Partnership, GHV Associates and the partners in GHV Associates dated as of September
25, 1997.

10.18* Plan of Asset Transfer and Contribution Agreement among ElderTrust Operating Limited
Partnership and the partners in Salisbury Medical Office Building General
Partnership dated as of September 25, 1997.

10.19* Stock Purchase Agreement between the Company and Edward B. Romanov, Jr. dated as of
October 8, 1997

21.1* List of Subsidiaries

23.1* Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 5.1)

23.2 Consent of KPMG Peat Marwick LLP

23.4* Consent of Hogan & Hartson L.L.P. (included as part of Exhibit 8.1)

23.5* Consent of Kent P. Dauten

23.6* Consent of Rodman W. Moorhead, III

23.7* Consent of Timothy T. Weglicki

24.1+ Power of Attorney (included in the Signature Page at page II-6)

27.1+ Financial Data Schedule
</TABLE>

- ------------
*To be filed by amendment.

+Previously filed.

<PAGE>
ACCOUNTANTS' CONSENT

The Board of Directors
ElderTrust:

We consent to the use of our report on the balance sheet of ElderTrust as of
September 23, 1997 included herein and to the reference to our firm under the
heading "Experts" in the prospectus.

/s/ KPMG Peat Marwick, LLP
---------------------------------
KPMG Peat Marwick, LLP

Washington, D.C.
November 14, 1997