MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                               2003 Annual Report

                                 April 15, 2004

Dear Investor:

         The general partners of Meridian Healthcare Growth and Income Fund
Limited Partnership (the "Fund") are pleased to discuss the operating
performance of our seven nursing home facilities.

OPERATIONS

         While operating revenues from the nursing centers increased modestly in
2003 when compared to 2002, net earnings were relatively unchanged due to
increased operating expenses.

Overall 2003 revenues of $63,849,000 increased $1,929,000 or 3.1% from the same
period in 2002. This increase was primarily the result of Medicaid rate
increases. Medicaid revenue increased $2,583,000 primarily due to an overall
rate increase of approximately 8.6% driven by the four Maryland centers, which
received their annual Medicaid rate adjustment in July 2003. Medicaid
settlements for prior year audits were finalized, resulting in increased
Medicaid revenue of $933,000. Medicare revenue decreased $76,000 due to
decreased utilization of Medicare Part B services.

         Revenues from private and other patients decreased $555,000 to
$9,439,000 in fiscal year 2003 as compared to $9,994,000 in fiscal year 2002.
This decrease was a result of lower private census, which was partially offset
by a slight increase in insurance census. Private census made up 8.0% of the
overall census in fiscal year 2003 compared to 9.3% in fiscal year 2002. In
fiscal year 2003, insurance census made up 2.4% of the overall census as
compared to 2.3% in fiscal year 2002.

         Operating expenses increased $2,874,000 or 5.7 % in fiscal year 2003 as
compared to fiscal year 2002. This increase was primarily due to the increased
cost of nursing services, ancillary costs, and property and liability insurance.
Nursing costs increased $1,407,000 due to increases in salary and wages,
partially offset by the decreased utilization of temporary nurse staffing.
Salary and wage expense for nurses increased $2,624,000, while temporary nurse
staffing expense decreased $1,217,000. Ancillary expenses increased $688,000
during 2003 when compared to 2002 due to growth in the Medicare census, whose
customers have high ancillary usage. The remaining increase in operating costs
was due to annual property and liability insurance rate increases, and general
inflationary cost increases.

         Management and administration fees increased $77,000 or approximately
2.3% in 2003 as compared to 2002. This increase was due to an increase in the
management fee expense, which is calculated at 5% of the Fund's net revenues.

         General and administrative expenses decreased $324,000 or 23.3% in
comparison to 2002. This decrease was primarily due to a change in New Jersey
regulations which resulted in a $190,000 reduction of a filing fee expense
recognized in fiscal year 2002.

         Depreciation and amortization expense increased $91,000 to $2,114,000
for the twelve months ended December 31, 2003 compared to the same period in the
prior year. This increase was due to an increase in depreciation expense for
equipment purchases and an increase in amortization of deferred financing fees
due to the amortization of restructuring fees of $227,000 incurred February 1,
2003.


                                       1
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


OPERATIONS (continued)

         Interest expense decreased $731,000 for the twelve months ended
December 31, 2003 as compared to the same period in fiscal year 2002 due to the
reduction of the interest rate from 9.75% to 6.5% effective February 1, 2003.


FINANCING

         The Fund closed its $24,000,000 mortgage loan refinancing on June 12,
2000. The renewal terms provided for a term of five years at an interest rate of
9.75%. Monthly payments were based on a 20-year amortization schedule with a
balloon payment due at the end of the 5-year term. Effective February 1, 2003
the Fund amended the existing mortgage. The amendment provides for an interest
rate of 6.5% for five years. Effective February 1, 2008 and again on February 1,
2013 the interest rate is adjusted to a fixed rate based on the bank's prime
rate plus 1/4% or a floating rate based on the bank's prime rate at the Fund's
option. Monthly payments of $180,242 are based on a 20-year amortization
schedule with a mandatory prepayment option at the Bank's discretion during the
period from November 1, 2007 through May 1, 2008 and November 1, 2012 through
May 1, 2013. The new terms resulted in debt service savings of approximately
$541,000 in 2003.

         The Fund has a $4,000,000 line of credit with the same lender under
terms similar to the mortgage loan terms described above, except that the line
of credit facility requires annual reaffirmation. As of December 31, 2003, the
Fund had borrowed $227,000 under this credit facility to fund financing fees
incurred in connection with the amendment of mortgage terms, discussed above.


CASH DISTRIBUTION

         On February 19, 2004 the Fund made its fourth quarter 2003 distribution
to partners in the amount of $583,348. This distribution was funded by fourth
quarter 2003 operations. Distributions from 2003 operations to partners totaled
$2,333,392, representing a 6% return, and were funded by operations and working
capital of approximately $731,000.

         The Fund is monitoring pending Medicaid legislation in both North
Carolina and Maryland and evaluating further capital improvement needs at the
facilities. The favorable or unfavorable resolutions of these issues could
impact the Fund's distribution levels in 2004. Legislation is currently pending
in North Carolina which would convert the State Medicaid system to a provider
tax based system. Such a system would provide higher reimbursement levels to the
Fund's North Carolina facilities, however the passage of this legislation is
uncertain at this time and there is no discernable timeframe as to whether or
when any changes to the system will occur.

         Due to a running budget deficit in the State of Maryland, of which the
State Medicaid program represents a significant component, there is a risk that
a reduction in Maryland Medicaid reimbursement rates could occur after June 30,
2004. The Fund is closely monitoring this situation and anticipates that the
extent of any rate reductions, if any, will be known by the time the Maryland
legislature recesses in April 2004.

                                       2

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


CASH DISTRIBUTION (continued)

         The Fund performed approximately $1.2 million of non-routine capital
improvements to enhance the functionality and marketability of its Maryland
centers in 2003. The Fund will continue to evaluate the capital needs of the
facilities in 2004 and would expect to draw on its line of credit facility to
fund improvements in excess of routine requirements.


SUMMARY

         Given the continued uncertainty regarding Medicare and Medicaid
reimbursement rates, the major challenges to the Fund in the foreseeable future
will be to control operating expenses, maintain a quality mix of patients and to
increase the overall census at each of the facilities. The Fund will also
continue to closely monitor the skilled nursing facility market for any
favorable liquidation opportunities that may materialize.

Very truly yours,


   /s/  John M. Prugh                      /s/  George V. Hager

John M. Prugh, President                George V. Hager, Chief Executive Officer
Brown Healthcare, Inc.                  Meridian Healthcare Investments, Inc.
Administrative General Partner          Development General Partner


                                       3

<PAGE>












                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP
                              Financial Statements









                                       4

<PAGE>


                          INDEPENDENT AUDITORS' REPORT




To the Partners of
Meridian Healthcare Growth and
Income Fund Limited Partnership:

We have audited the accompanying consolidated balance sheets of Meridian
Healthcare Growth and Income Fund Limited Partnership and subsidiaries (the
Fund) as of December 31, 2003 and 2002, and the related consolidated statements
of earnings, partners' capital (deficit) and cash flows for each of the years in
the three-year period ended December 31, 2003. These consolidated financial
statements are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meridian Healthcare
Growth and Income Fund Limited Partnership and subsidiaries as of December 31,
2003 and 2002, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2003, in conformity
with accounting principles generally accepted in the United States of America.

As discussed in note 2 to the financial statements, the Fund adopted Statement
of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets,
on January 1, 2002.


                                          /s/   KPMG LLP


Philadelphia, Pennsylvania
February 13, 2004



                                       5

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


               Consolidated Balance Sheets (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                        --------------------------------------
                                                                              2003                  2002
                                                                        ---------------       ----------------
Assets
Current assets
<S>                                                                     <C>                   <C>
    Cash and cash equivalents                                           $        1,141        $           740
    Accounts receivable, net of allowance for doubtful
      accounts of $855 in 2003 and $1,353 in 2002                                7,248                  7,809
    Estimated third-party payor settlements                                        362                    840
    Prepaid expenses and other current assets                                      806                    766
                                                                        ---------------       ----------------

Total current assets                                                             9,557                 10,155
                                                                        ---------------       ----------------

Property and equipment
    Land and improvements                                                        2,032                  2,020
    Buildings and improvements                                                  47,489                 46,156
    Furniture and equipment                                                      7,253                  6,629
                                                                        ---------------       ----------------
                                                                                56,774                 54,805
    Accumulated depreciation                                                   (25,567)               (23,574)
                                                                        ---------------       ----------------
                                                                                31,207                 31,231
                                                                        ---------------       ----------------
Other assets
    Goodwill, net of accumulated amortization                                    4,237                  4,237
    Loan acquisition costs, net of accumulated amortization                        322                    216
                                                                        ---------------       ----------------
                                                                                 4,559                  4,453
                                                                        ---------------       ----------------

Total assets                                                            $       45,323        $        45,839
                                                                        ===============       ================

Liabilities and Partners' Capital
Current liabilities
    Current portion of long-term debt                                   $          712        $           606
    Line of credit                                                                 227                      -
    Accrued compensation and related costs                                          83                      3
    Accounts payable and other accrued expenses
      Trade                                                                      2,036                  1,130
      Related party                                                                921                  1,678
    Estimated third-party payor settlements                                      1,984                  2,527
                                                                        ---------------       ----------------

Total current liabilities                                                        5,963                  5,944
                                                                        ---------------       ----------------

Deferred management fee payable                                                  1,063                  1,021
Loan payable to Development General Partner                                      1,343                  1,292
Long-term debt                                                                  21,504                 22,271
                                                                        ---------------       ----------------
                                                                                23,910                 24,584
                                                                        ---------------       ----------------

Partners' capital
    General partners                                                              (161)                  (162)
    Assignee limited partners; 1,540,040 units issued and outstanding           15,611                 15,473
                                                                        ---------------       ----------------

Total partners' capital                                                         15,450                 15,311
                                                                        ---------------       ----------------

Total liabilities and partners' capital                                 $       45,323        $        45,839
                                                                        ===============       ================
</TABLE>

        See the accompanying notes to consolidated financial statements.


                                        6

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP



                       Consolidated Statements of Earnings
                 (Dollars in thousands except per unit amounts)

<TABLE>
<CAPTION>
                                                                     Years Ended December 31,
                                                        -------------------------------------------------
                                                              2003             2002             2001
                                                        ---------------   --------------   --------------
Revenues
<S>                                                     <C>               <C>              <C>
    Medicaid and Medicare patients                      $       54,310    $      51,803    $      49,022
    Private and other patients                                   9,439            9,994           10,760
    Investment and other income                                    100              123              151
                                                        ---------------   --------------   --------------
                                                                63,849           61,920           59,933
                                                        ---------------   --------------   --------------


Expenses
    Operating, including $9,257, $10,281 and $10,062
      to related parties                                        53,220           50,346           48,774
    Management and administration fees
      to related parties                                         3,443            3,366            3,295
    General and administrative                                   1,067            1,391              972
    Depreciation and amortization                                2,114            2,023            2,244
    Interest expense                                             1,679            2,410            2,457
                                                        ---------------   --------------   --------------
                                                                61,523           59,536           57,742
                                                        ---------------   --------------   --------------

Net earnings                                            $        2,326    $       2,384    $       2,191
                                                        ===============   ==============   ==============


Net earnings per unit of assignee limited partnership
    interest - basic (computed based on 1,540,040 units
    outstanding in 2003, 2002 and 2001)                 $         1.50    $        1.53    $        1.41
                                                        ===============   ==============   ==============

</TABLE>



        See the accompanying notes to consolidated financial statements.


                                        7



<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP



              Consolidated Statement of Partners' Capital (Deficit)
                             (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                             Assignee
                                             General           Limited
                                            Partners           Partners           Total
                                         --------------   -----------------  --------------

<S>                                      <C>              <C>                <C>
Balance at December 31, 2000             $        (142)   $         17,490   $      17,348

Net earnings                                        22               2,169           2,191

Distributions to partners                          (33)             (3,273)         (3,306)
                                         --------------   -----------------  --------------

Balance at December  31, 2001                     (153)             16,386          16,233

Net earnings                                        24               2,360           2,384

Distributions to partners                          (33)             (3,273)         (3,306)
                                         --------------   -----------------  --------------

Balance at December  31, 2002                     (162)             15,473          15,311

Net earnings                                        23               2,303           2,326

Distributions to partners                          (22)             (2,165)         (2,187)
                                         --------------   -----------------  --------------

Balance at December  31, 2003            $        (161)   $         15,611   $      15,450
                                         ==============   =================  ==============
</TABLE>


        See the accompanying notes to consolidated financial statements.


                                        8
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP



                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                           Years Ended December 31,
                                                                  -----------------------------------------
                                                                       2003         2002           2001
                                                                  -----------    ----------     -----------
Cash flows from operating activities
<S>                                                               <C>            <C>            <C>
   Net earnings                                                   $    2,326     $   2,384      $    2,191
   Adjustments to reconcile net earnings to net cash
      provided by operating activities
        Depreciation of property and equipment                         1,993         1,941           1,909
        Amortization of intangibles                                      121            82             338
        Minority interest in net earnings of operating
          partnerships                                                    26            30              33
        Increase in loan payable to Development General Partner           51            52              52
        Increase in deferred management fee payable                       42            43              41
        Change in other assets and liabilities
              Accounts receivable                                        561         1,331            (150)
              Estimated third-party pay or settlements, net              (65)          350             852
              Prepaid expenses and other current assets                  (40)         (218)            102
              Accrued compensation and related costs                      80          (472)           (580)
              Accounts payable and other accrued expenses                149        (1,790)            915
                                                                  -----------    ----------     -----------

Net cash provided by operating activities                              5,244         3,733           5,703
                                                                  -----------    ----------     -----------

Cash flows from investing activities -
    additions to property and equipment                               (1,969)       (1,245)           (902)
                                                                  -----------    ----------     -----------

Cash flows from financing activities
    Deferred financing fees                                             (227)            -               -
    Proceeds from long-term debt                                         227             -               -
    Repayment of long-term debt                                         (661)         (471)           (428)
    Distributions to partners                                         (2,187)       (3,306)         (3,306)
    Distributions to minority interests                                  (26)          (37)           (109)
                                                                  -----------    ----------     -----------

Net cash used in financing activities                                 (2,874)       (3,814)         (3,843)
                                                                  -----------    ----------     -----------

Net increase (decrease) in cash and cash equivalents                     401        (1,326)            958
Cash and cash equivalents, beginning of year                             740         2,066           1,108
                                                                  -----------    ----------     -----------

Cash and cash equivalents, end of year                            $    1,141     $     740      $    2,066
                                                                  ===========    ==========     ===========
</TABLE>



        See the accompanying notes to consolidated financial statements.


                                        9

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                   Notes to Consolidated Financial Statements
                        December 31, 2003, 2002 and 2001


(1)    Organization and Operations

       Meridian  Healthcare  Growth and Income Fund Limited  Partnership (the
       Fund) was organized under the laws of the State of Delaware and will
       continue to operate  through  December 31, 2037,  unless  terminated
       sooner under the  provisions of the  Partnership  Agreement.  The Fund's
       Administrative  General  Partner is Brown Healthcare,  Inc. and the
       Fund's Development General Partner is Meridian Healthcare Investments,
       Inc. Brown Healthcare  Holding Co., Inc. is the Fund's  Assignor  Limited
       Partner.  Meridian  Healthcare  Investments, Inc. is a subsidiary of
       Genesis HealthCare Corporation (Genesis).

       The Fund owns 98.99% limited partnership interests in each of the seven
       operating partnerships. Each partnership owns and operates a nursing
       center located in Maryland, New Jersey, or North Carolina. As described
       further in Note 3, Meridian Healthcare, Inc. (MHC) and other affiliates
       of the Development General Partner manage the nursing centers and provide
       personnel to the operating partnerships, along with certain other goods
       and services.

       The Fund, through its operating partnerships, derives substantially all
       of its revenue from extended healthcare provided to nursing center
       residents, including room and board, nursing care, and drugs and other
       medical services. The operations of the Fund are managed and its
       performance is evaluated based on the consolidated results of operations
       and financial position of the Fund. Total patient days available and
       occupancy (unaudited) at the facilities in each of the three years were
       as follows:

                                Available
                  Year            Days             Occupancy
              -------------   --------------    -----------------
                  2003           403,000             88.2%
                  2002           403,000             89.9%
                  2001           406,000             90.0%

(2)    Summary of Significant Accounting Policies

       Principles of Consolidation

       The consolidated financial statements include the accounts of the Fund
       and each of its 98.99% owned consolidated partnerships based on the
       ability of the Fund to control the major operating and financial policies
       of each of the operating partnerships under the terms of the partnership
       agreements. All significant transactions and balances between the Fund
       and its consolidated partnerships have been eliminated in consolidation.


                                       10

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(2) Summary of Significant Accounting Policies (continued)

       Cash and Cash Equivalents

       Cash and cash equivalents primarily consist of cash deposits in banks and
       money market funds. All cash and cash equivalents have an original
       maturity of less than three months, and are stated at cost which
       approximates market value.

       Revenue

       Revenue is recognized by the Fund in the period the related services are
       rendered. The Fund derives a substantial portion of its revenue under
       Medicaid and Medicare reimbursement programs.

       Under certain retrospective Medicaid systems, revenues are generally
       based on reimbursement of the reasonable direct and indirect costs of
       providing services to program participants. The Fund separately estimates
       revenues due from each third-party with which it has a contractual
       arrangement and records anticipated settlements with these parties in the
       contractual period during which services were rendered. The amounts
       actually reimbursable under the cost based reimbursement programs are
       determined by filing cost reports which are then subject to audit and
       retroactive adjustment by the payor. The Fund provides an allowance for
       potential audit adjustments to the interim reimbursement amounts received
       under these cost reimbursement programs. Revisions to this allowance, if
       any, are recorded as an adjustment to revenues in the year such amounts
       are determined. Factors that management considers when establishing or
       adjusting an allowance for potential audit adjustments include, but are
       not limited to, changes in estimates resulting from improved cost
       information and preliminary results of third-party audits and reviews.
       Adjustments and final settlements with third-party payors are reflected
       in operations at the time of the adjustment or settlement as an increase
       or decrease to the balance of estimated third-party payor settlements and
       revenue.

       Under certain prospective Medicaid systems and Medicare, the Fund is
       reimbursed at a predetermined rate based upon the historical cost to
       provide the service, demographics of the site of service and the acuity
       of the customer. The differences between the established billing rates
       and the predetermined rates are recorded as contractual adjustments and
       deducted from revenues.

       Allowance for Doubtful Accounts

       The Fund utilizes the "Aging Method" to evaluate the adequacy of its
       allowance for doubtful accounts. This method is based upon applying
       estimated standard allowance requirement percentages to each accounts
       receivable aging category for each type of payor.


                                       11
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(2) Summary of Significant Accounting Policies (continued)

       Allowance for Doubtful Accounts (continued)

       The Fund has developed estimated standard allowance requirement
       percentages by utilizing historical collection trends and its
       understanding of the nature and collectibility of receivables in the
       various aging categories and the various segments of the Fund's business.
       The standard allowance percentages are developed by payor type as the
       accounts receivable from each payor type have unique characteristics. The
       allowance for doubtful accounts is determined utilizing the aging method
       described above while also considering accounts specifically identified
       as uncollectible. Accounts receivable that the Fund's management
       specifically estimates to be uncollectible, based upon the age of the
       receivables, the results of collection efforts or other circumstances,
       are fully reserved for in the allowance for doubtful accounts until they
       are written-off.

       Property and Depreciation

       Property and equipment are stated at cost less accumulated depreciation.
       Major renewals and betterments are capitalized and ordinary repairs and
       maintenance are charged against operations in the period incurred. Asset
       costs and related accumulated depreciation are removed from the accounts
       upon disposition of an asset and the resulting gain or loss is included
       in the determination of earnings. Property and equipment are reviewed for
       impairment whenever events or circumstances provide evidence that
       suggests that their carrying amount may not be recoverable. The Fund
       assesses the recoverability of property and equipment by determining
       whether the carrying value can be recovered through projected
       undiscounted cash flows.

       Depreciation is computed using the straight-line method. Estimated useful
       lives established for purposes of computing depreciation range from
       thirty to forty years for buildings, twenty years for building
       improvements, ten years for land improvements, and from five to ten years
       for furniture and equipment.

       Goodwill

       Goodwill arose from the Fund's purchase of its limited partnership
       interests in the operating partnerships. The Fund adopted Statement of
       Financial Accounting Standards No. 142, Goodwill and Other Intangible
       Assets (SFAS 142), on January 1, 2002. SFAS 142 provides that goodwill no
       longer be amortized on a recurring basis but rather is subject to
       periodic impairment testing. The impairment test requires companies to
       compare the fair value of its businesses to their carrying value
       including assigned goodwill.  Prior to adopting SFAS 142, the Fund
       amortized goodwill over 30 years.


                                       12
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(2) Summary of Significant Accounting Policies (continued)

       Goodwill (continued)

       SFAS 142 requires the Fund to perform an assessment of whether there is
       an indication that goodwill is impaired as of the date of adoption. The
       Fund performed this transitional test effective January 1, 2002 and the
       results of this test indicated that the fair value of the Fund's goodwill
       exceeded carrying amounts.

       SFAS 142 also requires an annual impairment test. Goodwill should be
       tested more frequently if changes in circumstances or the occurrence of
       events indicate impairment exists. The Fund performed the annual
       impairment test effective December 31, 2003 and 2002 and the results of
       this test indicated that the fair value of the Fund's goodwill exceeded
       carrying amounts.

       The following table reconciles the prior year's reported net earnings to
       its respective pro forma balances adjusted to exclude goodwill
       amortization expense which is no longer amortized under the provisions of
       SFAS 142 (in thousands):


                                           2003          2002           2001
                                       -----------    ----------     ----------

        Reported Net Earnings          $    2,326     $   2,384      $   2,191

        Add back: goodwill amortization       --             --            254
                                       -----------    ----------     ----------
        Adjusted net earnings          $    2,326     $   2,384      $   2,445
                                       ===========    ==========     ==========




       Income Taxes

       The consolidated financial statements of the Fund do not include any
       provision for federal or state income taxes. All items of Fund earnings,
       deductions and credits are allocated among the partners. The distributive
       share of the Fund's earnings, deductions and credits are included in each
       partner's federal and state income tax returns.


                                       13
<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(2) Summary of Significant Accounting Policies (continued)

       Income Taxes (continued)

       A reconciliation of net earnings, as reported on the Fund's consolidated
       statements of earnings, to taxable earnings for the years ended December
       31, is summarized as follows (in thousands):

<TABLE>
<CAPTION>
                                                                  2003          2002         2001
                                                              -----------   -----------  -----------

<S>                                                           <C>           <C>          <C>
Net earnings per consolidated statements of earnings          $    2,326    $    2,384   $    2,191
Accelerated depreciation deducted for income
    tax purposes over straight-line depreciation
    deducted for financial reporting purposes                       (289)         (297)        (129)
Amortization of goodwill deducted for financial reporting
    purposes, not deducted for income tax purposes                     -             -          253
Differences in timing of revenue recognition
    for financial reporting purposes and
    income tax purposes, primarily related to cost
    reimbursement settlements                                       (285)          381           68
Differences in timing of expense deductions for
    financial reporting purposes and income tax purposes            (373)         (964)         785
                                                              -----------   -----------  -----------

Taxable earnings                                              $    1,379    $    1,504   $    3,168
                                                              ===========   ===========  ===========
</TABLE>


       Use of Estimates

       The preparation of financial statements in conformity with accounting
       principles generally accepted in the United States of America requires
       management to make estimates and assumptions that affect the amounts
       reported in the financial statements and accompanying notes. Actual
       results could differ from those estimated.

(3)    Related Party Transactions

       The nursing centers owned by the operating partnerships are managed by
       MHC, an affiliate of the Development General Partner. Under the terms of
       the management agreements, the operating partnerships are obligated to
       pay monthly management fees at an annual rate equal to 5% of each nursing
       center's revenue. However, payment of one-half of the fees incurred for
       the management of the Mooresville, Salisbury and Woodlands nursing
       centers was deferred during the two-year period commencing with the
       Fund's acquisition of partnership interests in 1988 and 1989. As of
       December 31, 2003 and 2002, the amounts deferred under this agreement,
       including interest at 9% per annum, aggregated $1,063,000 and $1,021,000,
       respectively. The Fund is obligated to repay these amounts when certain
       financial criteria are met.



                                       14
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(3) Related Party Transactions (continued)

       The Fund is obligated to pay the Administrative General Partner
       administration fees equal to the greater of 1/2 of 1% of the Fund's
       annual revenue or $75,000. Certain of the operating partnerships also
       purchase drugs and medical supplies and other services from affiliates of
       the Development General Partner. Such purchases are in turn billed to
       patients or third-party payors at prices which on average approximate the
       nursing center's cost.

       The Development General Partner loaned the Fund $597,000, as required by
       the Cash Flow Deficit Guaranty Agreement, to support the operating
       deficits generated by the Mooresville, Salisbury and Woodlands nursing
       centers during each center's first two years of operations subsequent to
       the Fund's acquisition of partnership interests. Loans outstanding under
       this arrangement, including accumulated interest from inception of the
       loan at 9% per annum, were $1,343,000 and $1,292,000 at December 31, 2003
       and 2002, respectively. The Fund is obligated to repay these loans when
       certain specified financial criteria are met, the most significant of
       which is the payment of a preferred return to the assignee limited
       partners as defined in the Fund's partnership agreement.

       Transactions with the Fund's general partners and their affiliates for
       the years ended December 31 are summarized as follows (in thousands):

                                                   2003      2002        2001
                                                --------    -------    --------
        Management and administration fees      $  3,443    $ 3,366    $  3,295
        Drugs and medical supplies purchases       3,560      3,840       4,344
        Nursing and rehabilitation services        5,697      6,441       5,718
        Interest expense on borrowings                93         95          93


       Neither the Fund nor the operating partnerships employ any personnel. All
       staff required by the nursing centers are employees of MHC which charges
       the operating partnerships for all costs related to such personnel,
       including payroll taxes, workers' compensation, health insurance and
       other fringe benefits. Salaries and benefits represented approximately
       64%, 63% and 62% in 2003, 2002 and 2001, respectively, of total operating
       expenses.

(4)    Debt

       Effective June 12, 2000, the Fund established a line of credit with a
       maximum borrowing limit of $4,000,000. Borrowing under the line of credit
       bears interest at a floating rate, equal to the announced commercial
       prime rate. The bank reviews the line of credit each year to consider
       extending. This line of credit has been reaffirmed until June 1, 2004. As
       of December 31, 2003 the Fund had borrowed $227,000 under this line of
       credit.


                                       15
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(4) Debt (continued)

       Effective February 28, 2000, the Fund extended all existing mortgages
       through June 12, 2000. The mortgages bore interest at LIBOR plus 1.55%.
       The Fund closed the mortgage loan refinancing with a new bank for loans
       totaling $24,000,000 on June 12, 2000. The renewal terms became effective
       on June 12, 2000 and provided for a term of five years at an interest
       rate of 9.75%. Monthly payments of $229,886 were based on a 20-year
       amortization schedule.

       Effective February 1, 2003, the existing mortgages were amended. The
       amendment provides for an interest rate of 6.5% for five years. Effective
       February 1, 2008 and again on February 1, 2013, the interest rate is
       adjusted to a fixed rate based on the bank's prime rate plus 1/4% or a
       floating rate based on the bank's prime rate at the Fund's option.
       Monthly payments of $180,242 are based on a 20-year amortization schedule
       with a mandatory prepayment option at the banks sole discretion during
       the period between November 1, 2007 through May 1, 2008 and November 1,
       2012 and May 1, 2013. All outstanding interest and principal is due June
       1, 2015.

       Debt at December 31 consisted of the following (in thousands):

                                              2003           2002
                                         -------------   ------------
        Mortgage notes payable
            Maryland facilities          $      9,966    $    10,263
            Woodlands facility                  5,211          5,365
            Frederick facility                  4,446          4,578
            Hamilton facility                   2,593          2,671
                                         -------------   ------------
                                               22,216         22,877
        Less current portion                     (712)          (606)
                                         -------------   ------------
                                         $     21,504    $    22,271
                                         =============   ============


       Principal payments on the amended mortgage loans during the next five
       years are as follows: $712,000 in 2004, $765,000 in 2005, $817,000 in
       2006, $872,000 in 2007 and $19,050,000 in 2008 at the banks option.

       The mortgage notes payable are secured by deeds of trust on the related
       property and all assets of the Fund. Under the terms of these loan
       agreements, the operating partnerships are obligated to conform with
       specific financial criteria and are subject to certain other covenants.

       Cash outflows from operating activities included interest paid of
       $1,627,000, $2,291,000 and $2,134,000 in 2003, 2002 and 2001,
       respectively.



                                       16

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(5)    Distributions to Partners and Allocation of Net Earnings

       Cash is distributable and net earnings are allocable 1% to the Fund's
       general partnership interests and 99% to its limited partnership
       interests. Cash distributable to partners is determined at the discretion
       of the Fund's general partners. Cash distributions to partners were made
       from net cash provided by operating activities as disclosed on the
       statements of cash flows and working capital if needed. Cash
       distributions per unit of assignee limited partnership interest
       aggregated $1.41 in 2003 and $2.13 in 2002 and 2001.

(6)    Commitments and Contingencies

       The Fund is a party to litigation arising in the ordinary course of
       business. The Fund does not believe the results of such litigation, even
       if the outcome is unfavorable to the Fund, would have a material effect
       on its consolidated financial position or results of operations.

(7)    Fair Value of Financial Instruments

       The Fund believes the carrying amount of cash and equivalents, accounts
       receivable (net of allowance for doubtful accounts), estimated
       third-party payor settlements, prepaid expenses and other current assets,
       accounts payable and other accrued expenses and accrued compensation and
       related costs approximates fair value because of the short-term maturity
       of these instruments.

       The fair value of the Fund's debt approximates the carrying value at
       December 31, 2003. The fair value is determined based on rates currently
       offered by lending institutions for debt instruments of similar terms.

(8)    Certain Significant Risks and Uncertainties

       The Fund receives revenues from Medicare, Medicaid, private insurance,
       self-pay residents, and other third party payors. The healthcare industry
       is experiencing the effects of the federal and state governments' trend
       toward cost containment, as government and other third party payors seek
       to impose lower reimbursement and utilization rates and negotiate reduced
       payment schedules with providers. These cost containment measures,
       combined with the increasing influence of managed care payors and
       competition for patients, have resulted in constrained rates of
       reimbursement for services provided by the Fund.

       The Medicaid and Medicare programs are highly regulated. The failure of
       the Fund to comply with applicable reimbursement regulations could
       adversely affect its business. The Fund monitors its receivables from
       third party payor programs and reports such revenues at the net
       realizable value expected to be received.

                                       17
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(8) Certain Significant Risks and Uncertainties (continued)

       On December 15, 2000, Congress passed the Benefits Improvement Protection
       Act, increasing the nursing component of federal prospective payment
       system's rates by approximately 16.7% for the period from April 1, 2001
       through September 30, 2002. The legislation also changed the 20% add-on
       to 3 of the 14 rehabilitation resource utilization group categories to a
       6.7% add-on to all 14 rehabilitation resource utilization group
       categories beginning April 1, 2001.

       A number of provisions of the Balanced Budget Refinement Act and the
       Benefits Improvement and Protection Act, providing additional funding for
       Medicare participating skilled nursing facilities, expired on September
       30, 2002 resulting in an approximate 10% reduction in the rates paid to
       us for providing services to Medicare patients. We refer to the
       expiration of the additional funding as the "skilled nursing facility
       Medicare cliff." Effective October 1, 2002, Medicare rates adjusted for
       the skilled nursing facility Medicare cliff were increased by a 2.6%
       annual market basket adjustment. For the Fund, the net impact of these
       provisions adversely impacted annual revenue and net earnings in fiscal
       2003 by approximately $900,000.

       The final fiscal year 2004 prospective payment system rules for skilled
       nursing facilities became effective on October 1, 2003. The final rules
       enhance the reimbursement rates for fiscal year 2004 by increasing base
       rates by 6.26% (a 3% increase in the annual update factor and a 3.26%
       upward adjustment correcting previous forecast errors). These changes are
       estimated to increase Medicare payment rates per patient day by $19. The
       final rules also provide for the continuation through fiscal year 2004 of
       certain payment add-ons that were authorized in the Balanced Budget
       Refinement Act to compensate for non-therapy ancillaries.

       The recent economic downturn is having a detrimental affect on state
       revenues in most jurisdictions. Budget shortfalls range from 4% to 5% of
       outlays upwards to 20% of outlays in a handful of states. Historically
       these budget pressures have translated into reductions in state spending.
       Given that Medicaid outlays are a significant component of state budgets,
       we expect continuing cost containment pressures on Medicaid outlays for
       skilled nursing facilities in the states in which we operate. In each of
       the major states where we provide services, we are working with trade
       groups, consultants and government officials to responsively address the
       particular funding issues.

       The plight of state governments has helped to elevate issues related to
       Medicaid onto the national agenda. In May 2003, Congress passed the Jobs
       and Growth Tax Relief Reconciliation Act of 2003 which provided temporary
       relief to states by providing a 2.9% temporary increase in the Federal
       Medicaid Assistance Percentage for five quarters. This


                                       18
<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(8) Certain Significant Risks and Uncertainties (continued)

       assistance is estimated to provide states with an aggregate of $10
       billion in Medicaid relief. Unless Congress acts to extend this financial
       support, the temporary assistance will expire on June 30, 2004.

       Late in November 2003, the General Accounting Office released a study
       examining how nursing home reimbursement has been affected by the fiscal
       crisis being experienced by a number of states. The report documents that
       most states have sustained their reimbursement commitments. States have
       tapped reserves, tobacco settlement monies and other funding strategies
       including provider assessments to meet their obligations. While the data
       does not evaluate the adequacy of state Medicaid payments for nursing
       facility services, the analysis does suggest that under current difficult
       conditions states are honoring their commitments.

       It is not possible to fully quantify the effect of potential legislative
       or regulatory changes, the administration of such legislation or any
       other governmental initiatives on the Fund's business. Accordingly, there
       can be no assurance that the impact of these changes or any future
       healthcare legislation will not further adversely affect the Fund's
       business. There can be no assurance that payments under governmental and
       private third party payor programs will be timely, will remain at levels
       comparable to present levels or will, in the future, be sufficient to
       cover the costs allocable to patients eligible for reimbursement pursuant
       to such programs. The Fund's financial condition and results of
       operations may be affected by the reimbursement process, which in the
       healthcare industry is complex and can involve lengthy delays between the
       time that revenue is recognized and the time that reimbursement amounts
       are settled.

(9) Quarterly Financial Data (Unaudited)

       The Fund's unaudited quarterly financial information is as follows (in
       thousands):

                                         Total Net                Net
                                         Revenues              Earnings
         Quarter ended:

         March 31, 2003                   $15,407                 $321
         June 30, 2003                     15,343                  378
         September 30, 2003                16,028                  538
         December 31, 2003 (1)             17,071                1,089

         March 31, 2002                    15,070                  834
         June 30, 2002                     15,426                  483
         September 30, 2002                15,613                  551
         December 31, 2002                 15,811                  516

         (1) Increase in quarterly net earnings primarily due to favorable
                Medicaid settlements of $451 related to prior year audits


                                       19

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                             Partnership Information


Directors and Executive Officers

Meridian Healthcare Investments, Inc.
Development General Partner

         George V. Hager, Jr.
         Chairman and Chief Executive Officer

         James V. McKeon
         Chief Financial Officer

         Eileen M. Coggins
         Sr. Vice President and Secretary

Brown Healthcare, Inc.
Administrative General Partner

         John M. Prugh
         President and Director

         Peter E. Bancroft
         Vice President and Director

         Terry F. Hall
         Secretary

         Timothy M. Gisriel
         Treasurer



                                    Form 10-K

A copy of the Fund's Annual Report on Form 10-K for 2003 as filed with the
Securities and Exchange Commission is available to partners without charge on
request by writing to:

         Investor Services
         Brown Healthcare, Inc.
         300 East Lombard Street
         Suite 1200
         Baltimore, Maryland 21202

                                    Auditors

         KPMG LLP
         1601 Market Street
         Philadelphia, Pennsylvania 19103

                                  Legal Counsel

         Wilmer, Cutler & Pickering
         100 Light Street
         Baltimore, Maryland 21202




                               Further Information

Please submit changes in name, address, investment representative and
distribution instructions to Investor Services at the above address.

For further information or questions regarding your investment, please call
Yolanda Harris, Investor Services Coordinator, at 410-547-3016


                                       20