Background: Functional and physiological declines in advancing age may be significant limiting factors in reduced physical activity. Sarcopenia of aging, as a normative process or disease, cannot entirely explain reduced physical activity in the elderly. Objective: The purpose of the study was to investigate the relationship between muscle loss and reduction in functional abilities in elderly adults and also to determine whether an exercise program can improve functional performance and muscle quality. Methods: Anthropometric measurements and sensorimotor testing were conducted on 28 volunteers (12 men and 16 women, 82.7 ± 2.4 years of age) who were permanent residents in a skilled nursing facility. Twenty-nine elderly adults (79.3 ± 3.5 years of age) served as a control, nonexercising group. Anthropometric measurements included: weight, height, body fat, and thigh circumference. The muscle strength was tested with a medical isokinetic system. We assessed two sensorimotor functions including a ‘timed up-and-go’ test and a 3-min distance walking test. The institutionalized participants undertook an exercise training program lasting 12 weeks. Results: No significant changes were observed in thigh circumference, body weight, or percentage of body fat in either gender as a result of the exercise training. An improvement in muscle strength was noticed in 82% of the relatively younger group (79–83 years of age) under a slow voluntary contraction at 60°/s (p < 0.05). Post-training results showed a significant improvement in performance in the two sensorimotor tests (p < 0.05). The correlation coefficients between muscle strength and functional ability were weak: r = 0.60 and r = 0.57 for males and females, respectively. Conclusions: This study confirmed the positive effects of an exercise program on functional performance in older adults. The improvement in functional abilities did not correlate with muscle strength, body weight, or body fat.