MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                               1998 Annual Report

                                 March 18, 1999

         The General Partners of the Meridian  Healthcare Growth and Income Fund
Limited  Partnership  are pleased to discuss the  operating  performance  of our
seven nursing home facilities.

OPERATIONS

         Fund  revenues  and  profitability  increased  markedly  in  1998  when
compared  to  prior  years  due  primarily  to  the  favorable  resolution  of a
longstanding  Maryland Medicaid  reimbursement  issue.  Profitability  increased
approximately  $3,500,000  (or  150%)  to  $5,768,000  in  1998 as  compared  to
$2,268,000 in 1997.

         Patient revenues for the Fund's seven operating  partnerships increased
by  approximately  $4,540,000  (or 9.2%) for the year ended December 31, 1998 as
compared to the year ended December 31, 1997. This was primarily the result of a
favorable outcome to a long standing Maryland Medicaid  reimbursement issue. The
resolution of this issue provided increased  revenues of approximately  $800,000
for current year patient  services and  approximately  $2,100,000 for prior year
patient  services.  A favorable  Medicaid cost report settlement in the state of
North Carolina added  approximately  $350,000 to revenue.  A favorable  Medicare
settlement  for the three  prior  years  resulted  in an increase in revenues of
approximately $700,000.

         Census declines of approximately  6,500 days,  primarily in private and
Medicare days, were only partially offset by increases in insurance and assisted
living  days.  The decline in census days  resulted  in a revenue  reduction  of
approximately  $1,300,000.  Year  to  year  price  increases  (exclusive  of the
Medicaid and Medicare items discussed above) of approximately  2.3% for Medicaid
and 6.0% for Medicare  increased  revenue by approximately  $1,600,000.  Year to
year price increases in the assisted living units increased revenue by $260,000.

           While operating expenses increased  approximately  $719,000 (or 1.8%)
during 1998 versus 1997,  as a percentage  of revenue they  declined from 80% in
1997 to 74% in 1998. Cost  efficiencies  due to a decline in census of 1.6% were
offset by  inflationary  wages  increases  and increases in therapy,  drug,  and
medical  supply  expenses.  Management and general and  administrative  expenses
increased  approximately  $519,000  principally due to increased management fees
and inflationary changes to expenses.

         Interest expense decreased  approximately $176,000 (or 8.7%) in 1998 as
 compared to 1997.  This  decrease is primarily  due to the  refinancing  of the
 Fund's mortgages effective February 28,
1998.

                                      -1-
<PAGE>

FINANCING

         Effective February 28, 1998, the Fund entered into a renewal commitment
with a bank to refinance  all of the existing  indebtedness.  Under the terms of
the refinancing,  the mortgages mature on February 28, 2000 and bear interest at
LIBOR plus 1.55%.  The Fund has a $4,000,000  line of credit which is designated
for working capital needs and is primarily secured by the accounts receivable of
the Fund. At December 31, 1998, there were no outstanding  borrowings under this
line of credit.

PROPOSED SALE OF LIMITED AND GENERAL PARTNERSHIP INTERESTS

         On December  15,  1998 the Fund signed a letter of intent with  Genesis
Health  Ventures,  Inc.  ("Genesis"),  an affiliate of the  Development  General
Partner,  for the purchase by Genesis of all the limited and general partnership
interests of the operating  partnerships (the "Proposed Sale") for approximately
$70 million. The Fund agreed to operate the facilities in the ordinary course of
business  and agreed  not to make  distributions  to the  partners  through  the
closing  date or upon  termination  of the  Proposed  Sale.  On March 30,  1999,
Genesis informed the Fund that it terminated the letter of intent.

CASH DISTRIBUTIONS

         The normal fourth quarter cash  distribution of $826,410,  scheduled to
be paid to the partners in February  1999,  was retained by the Fund pursuant to
the letter of intent with Genesis.  The Fund expects to make its deferred fourth
quarter 1998  distribution and to resume its quarterly  distribution  policy now
that the Proposed Sale has been terminated.

SUMMARY

         In light of the termination of the Proposed Sale, the General  Partners
will evaluate alternative  disposition strategies for the Fund. We will keep you
advised of developments in this area in our quarterly reports.


Very truly yours,

   /s/  John M. Prugh                        /s/  Michael R. Walker

John M. Prugh, President                  Michael R. Walker, President
Brown Healthcare, Inc.                    Meridian Healthcare Investments, Inc.
Administrative General Partner            Development General Partner



                                      -2-

<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  as of December 31, 1998
and 1997 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,   1998.   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  generally   accepted  auditing
standards.  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 as of December 31, 1998 and 1997, and
the  results of its  operations  and its cash flows for each of the years in the
three-year period ended December 31, 1998 in conformity with generally  accepted
accounting principles.

                                                                /s/   KPMG LLP

February 5, 1999
Philadelphia, Pennsylvania

                                      -3-
<PAGE>
         MERIDIAN HEALTHCARE GROWTH AND INCOME FUND LIMITED PARTNERSHIP
                              Financial Statements


                                      -4-

<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP
               Consolidated Balance Sheets (Dollars in thousands)
<TABLE>
<CAPTION>

                                                             December 31,
                                                           1998         1997
Assets
Current assets
<S>                                                     <C>           <C>
    Cash and cash equivalents                           $  2,928      $  2,275
    Accounts receivable, net of allowance for doubtful
      accounts of $479 in 1998 and $513 in 1997            7,279         6,437
    Estimated third-party payor settlements                  882           343
    Prepaid expenses and other current assets                565           565

Total current assets                                      11,654         9,620

Property and equipment
    Land and improvements                                  1,858         1,848
    Buildings and improvements                            43,304        43,088
    Furniture and equipment                                4,617         4,308
                                                          49,779        49,244
    Accumulated depreciation                             (16,126)      (14,405)
                                                          33,653        34,839

Other assets
    Goodwill, net                                          4,998         5,239
    Loan acquisition costs, net                               --             9
                                                           4,998         5,248

Total assets                                            $ 50,305      $ 49,707

Liabilities and Partners' Capital
Current liabilities
    Current portion of long-term debt                   $    720      $    707
    Accrued compensation and related costs                   941         1,054
    Accounts payable and other accrued expenses
      Trade                                                1,389         1,007
      Related party                                        1,795         1,179
    Estimated third-party payor settlements                2,093         4,234

Total current liabilities                                  6,938         8,181

Deferred management fee payable                              852           812
Loan payable to Development General Partner                1,086         1,035
Long-term debt                                            22,616        23,328
                                                          24,554        25,175

Partners' capital (deficit)
    General partners                                        (128)         (153)
    Assignee limited partners; 1,540,040 units issued and 18,941        16,504

Total partners' capital                                   18,813        16,351

Total liabilities and partners' capital                 $ 50,305      $ 49,707
</TABLE>


See the accompanying notes to consolidated financial statements.

<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,
                                                     1998      1997      1996

Revenues
<S>                                                <C>       <C>       <C>
    Medicaid and Medicare patients                 $42,641   $38,154   $36,589
    Private and other patients                      11,121    11,103    10,956
    Investment and other income                        346       311       340
                                                    54,108    49,568    47,885

Expenses
    Operating, including $7,400, $6,760 and $5,300
      to related parties                            40,182    39,463    38,386
    Management and administration fees
      to related parties                             3,522     3,184     3,087
    General and administrative                         810       635       677
    Depreciation and amortization                    1,972     1,988     1,870
    Interest expense                                 1,854     2,030     2,143
                                                    48,340    47,300    46,163

Net earnings                                       $ 5,768   $ 2,268   $ 1,722



Net earnings per unit of assignee limited partnership interest - basic (computed
    based on 1,540,040 units
    outstanding in 1998, 1997 and 1996)            $  3.71   $  1.46   $  1.12

</TABLE>

See the accompanying notes to consolidated financial statements.

                                      -6-
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Consolidated Statements of Partners' Capital (Deficit)
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                             Assignee
                                  General    Limited
                                  Partners   Partners    Total


<S>                              <C>        <C>        <C>
Balance at December 31, 1995     $   (127)  $ 19,100   $ 18,973

Net earnings                           17      1,705      1,722

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

Balance at December  31, 1996        (143)    17,532     17,389

Net earnings                           23      2,245      2,268

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

Balance at December  31, 1997        (153)    16,504     16,351

Net earnings                           58      5,710      5,768

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

Balance at December  31, 1998    $   (128)  $ 18,941   $ 18,813

</TABLE>

See the accompanying notes to consolidated financial statements.

                                      -7-
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERHSIP

                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                   Years Ended December 31,

                                                                    1998      1997      1996

Cash flows from operating activities
<S>                                                               <C>       <C>       <C>
    Net earnings                                                  $ 5,768   $ 2,268   $ 1,722
    Adjustments to reconcile net earnings to net cash
       provided by operating activities
          Depreciation of property and equipment                    1,721     1,671     1,553
          Amortization of intangibles                                 250       317       317
          Minority interest in net earnings of operating
            partnerships                                               24        26        20
          Increase in loan payable to Development General Partner      51        51        52
          Increase in deferred management fee payable                  40        42        42
          Change in other assets and liabilities
                Accounts receivable                                  (842)       (8)     (262)
                Estimated third-party payor settlements, net       (2,680)    1,038     2,578
                Prepaid expenses and other current assets              --       (51)       57
                Accrued compensation and related costs               (113)   (1,361)    1,316
                Accounts payable and other
                  accrued expenses                                  1,048        27      (732)

Net cash provided by operating activities                           5,267     4,020     6,663

Cash flows from investing activities
    Additions to property and equipment                              (535)     (830)     (608)
    Additions to other assets                                          --        --       (13)

Net cash used in investing activities                                (535)     (830)     (621)

Cash flows from financing activities
    Line of credit borrowings, net                                     --    (1,000)      281
    Repayment of long-term debt                                      (699)     (557)     (557)
    Distributions to partners                                      (3,306)   (3,306)   (3,306)
    Distributions to minority interests                               (74)      (14)      (37)

Net cash used in financing activities                              (4,079)   (4,877)   (3,619)

Net increase (decrease) in cash and cash equivalents                  653    (1,687)    2,423
Cash and cash equivalents, beginning of year                        2,275     3,962     1,539

Cash and cash equivalents, end of year                            $ 2,928   $ 2,275   $ 3,962
</TABLE>


See the accompanying notes to consolidated financial statements.

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

             Notes to Consolidated Financial Statements (continued)


(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 Health Ventures, Inc.

       The Fund owns 98.99%  limited  partnership  interests in 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.  Total patient days available and occupancy (unaudited)
       at the facilities in each of the three years were as follows:
<TABLE>
<CAPTION>
                                                    Available
                                  Year                Days                   Occupancy

<S>                             <C>                <C>                        <C>
                                1998               429,000                    91.7%
                                1997               429,000                    93.2%
                                1996               431,000                    94.3%
</TABLE>


(2)    Summary of Significant Accounting Policies

       Principles of Consolidation

       The consolidated  financial  statements  include the accounts of the Fund
       and  its  98.99%  owned   consolidated   partnerships.   All  significant
       transactions   and  balances   between  the  Fund  and  its  consolidated
       partnerships have been eliminated in consolidation.

       Cash and Cash Equivalents

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

                                      -9-
<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                             LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(2)    Summary of Significant Accounting Policies (continued)

       Revenue

       The Fund derives a substantial  portion of its revenue under Medicaid and
       Medicare  cost  reimbursement  programs  which are  subject  to audit and
       adjustment, in some cases, by the respective third-party payors. 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. Such revisions to prior
       year cost reimbursement settlements resulted in a credit to 1998 earnings
       aggregating  $3,094,000 in 1998. Of this total  $2,056,000  resulted from
       the favorable  resolution to a prior year Maryland  Medicaid issue.  This
       settlement  also resulted in increased  revenues of $817,000 for services
       rendered in 1998.  Revision to prior year cost reimbursement  settlements
       resulted in a credit to  earnings  of  $342,000  in 1997 and  $594,000 in
       1996.

       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.

       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.

       Loan Acquisition Costs

       Loan acquisition costs, which represent costs incurred in connection with
       securing financing for the nursing centers, are capitalized and amortized
       using the  interest  method  over the  period  that the  related  debt is
       scheduled to be outstanding. Accumulated amortization of loan acquisition
       costs  aggregated  $576,000  and  $567,000 at December 31, 1998 and 1997,
       respectively.  At December 31, 1998 all loan acquisition  costs have been
       fully amortized.

       Goodwill

       Goodwill  arising  from the Fund's  purchase of its  limited  partnership
       interests in the operating  partnerships  is amortized on a straight-line
       basis over thirty years.  Accumulated amortization of goodwill aggregated
       $2,667,000 and $2,426,000 at December 31, 1998 and 1997, respectively.



                                      -10-
<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(2)    Summary of Significant Accounting Policies (continued)

       Goodwill (continued)

       Goodwill is reviewed  for  impairment  whenever  events or  circumstances
       provide  evidence that suggests that the carrying  amount of goodwill may
       not be recoverable.  The Fund assesses the  recoverability of goodwill by
       determining  whether  the  amortization  of the  goodwill  balance can be
       recovered through projected undiscounted cash flows.

       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.

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

                                                                                 1998         1997          1996

<S>                                                                            <C>          <C>            <C>
                  Net earnings per consolidated statements of earnings         $5,768       $2,268         $1,722
                  Accelerated depreciation deducted for income
                    tax purposes over straight-line depreciation
                    deducted for financial reporting purposes                    (195)        (228)          (302)
                  Amortization of goodwill deducted for financial reporting
                    purposes, not deducted for income tax purposes                241          248            253
                  Differences in timing of revenue recognition
                    for financial reporting purposes and
                    income tax purposes, primarily related to cost
                    reimbursement settlements                                  (2,275)         422            435
                  Differences in timing of expense deductions for
                    financial reporting purposes and income tax purposes          (70)        (197)            82

                  Taxable earnings                                             $3,469       $2,513         $2,190
</TABLE>


       Use of Estimates

       The  preparation  of financial  statements in conformity  with  generally
       accepted accounting  principles 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.


                                      -11-
<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(2)    Summary of Significant Accounting Policies (continued)

       New Accounting Pronouncement

       In June 1997,  the  Financial  Accounting  Standards  Board (FASB) issued
       Statement  of  Financial   Accounting   Standards   No.  130,   Reporting
       Comprehensive  Income ("Statement 130").  Statement 130 requires that all
       items that are required to be recognized  under  accounting  standards as
       components of comprehensive  income be reported in a financial  statement
       that is displayed with the same prominence as other financial statements.
       The adoption of this accounting  standard in fiscal 1998 had no impact on
       the Fund.

(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 6% 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, 1998 and 1997, the amounts  deferred  under this  agreement,
       including  interest at 9% per annum,  aggregated  $852,000 and  $812,000,
       respectively.  The Fund is obligated to repay these  amounts when certain
       financial criteria are met.

       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.

       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 $1,086,000 and $1,035,000 at December 31, 1998
       and 1997,  respectively.  The Fund is  obligated to repay such loans when
       certain specified financial criteria are met.

       Transactions  with the Fund's General  Partners and their  affiliates for
       the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                 1998              1997             1996

<S>                                                             <C>                <C>              <C>
           Management and administration fees                   $3,522             $3,184           $3,087
           Drugs and medical supplies purchases                  2,447              2,230            2,305
           Nursing and rehabilitation services                   4,953              4,530            2,995
           Interest expense on borrowings                           91                 93               94

</TABLE>

                                      -12-
<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(3)    Related Party Transactions (continued)

       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
       65%,  64%,  and 67% in  1998,  1997  and  1996,  respectively,  of  total
       operating expenses.

(4)    Debt

       Effective  February  28,  1998,  the  Fund  renewed  its  line of  credit
       agreement  which is designated for working  capital needs and issuance of
       letters of credit.  The agreement expires February 28, 2000 at which time
       any and all  outstanding  borrowings  under  the  agreement  become  due.
       Borrowings are secured primarily by the accounts  receivable of the Fund.
       Any outstanding cash borrowings under the facility bear interest based on
       a LIBOR rate plus 155 basis points. Prior to the refinancing interest was
       based on LIBOR rate  (6.49% at  December  31,  1998 and 7.29% at December
       31,1997)  plus 175 basis  points.  There were no borrowings or letters of
       credit outstanding at December 31, 1998 and 1997.

       Effective  February 28,  1998,  the Fund  refinanced  all of the existing
       mortgages.  Under the terms of the  refinancing,  the mortgages mature on
       February  28, 2000 and bear  interest  at LIBOR plus 1.55%.  Prior to the
       refinancing,  approximately  $18,500,000  of fixed  rate  mortgages  were
       outstanding  at a  weighted  average  rate  of  7.8%,  and  approximately
       $5,500,000 of a variable rate mortgage was outstanding at 7.84%.

       Long-term debt at December 31 consisted of the following (in thousands):
<TABLE>
<CAPTION>
                                                                   1998          1997
                  Mortgage notes payable
<S>                                                              <C>            <C>
                    Maryland facilities                          $16,049        $16,464
                    Woodlands facility                             5,773          5,924
                    Frederick facility                             1,153          1,258
                    Hamilton facility                                361            389
                                                                  23,336         24,035
                  Less current portion                              (720)          (707)
                                                                 $22,616        $23,328
</TABLE>



       The mortgage  notes  payable are secured by deeds of trust on the related
       property.  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.

       Long-term  debt maturing in each of the two years  subsequent to December
       31, 1998 under the renewal commitment is $720,000 in 1999 and $22,616,000
       in 2000.

       Cash  outflows  from  operating  activities  included  interest  paid  of
       $1,738,309,   $1,803,000   and   $2,001,000  in  1998,   1997  and  1996,
       respectively.

                                      -13-
<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)

(5)    Distributions to Partners and Allocation of Net Income

       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 in
       1998, 1997 and 1996.  Cash  distributions  per unit  aggregated  $2.12 in
       1998, 1997 and 1996.

(6)    Employee Benefit Plans

       Certain   employees  of  the  Fund's  nursing  centers  are  eligible  to
       participate in the Genesis Health  Ventures,  Inc.  Retirement  Plan. The
       Plan covers all  employees  having  1,000 hours or more service in a plan
       year.  Employees'  contributions  to the plan may be  matched by the Fund
       based on years of service.  During the plan years ended December 31, 1998
       and 1997, a company  match of 50% of employee  contributions  up to 3% of
       the employee's  annual gross salary was accrued.  Additionally,  the Plan
       provides for discretionary employer contributions based on profits.

       Certain  other  employees of the Fund's  nursing  centers are eligible to
       participate in Meridian  Healthcare,  Inc. Union Retirement  Savings Plan
       which  qualified  under Section  401(K) of the Internal  Revenue  Service
       Code.  In accordance  with the terms of the plan,  employees may elect to
       contribute a percentage of their  respective  annual  compensation to the
       plan, subject to certain limitations.  The Fund is obligated to match 50%
       of each  employee's  contribution  up to 3% of  their  respective  annual
       compensation.

       Charges to operations in connection with these plans aggregated  $185,000
       in 1998, $139,000 in 1997 and $208,000 in 1996.

(7)    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.

(8)    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 carrying value of the Fund's floating-rate debt approximates its fair
value.

                                      -14-
<PAGE>

Directors and Executive Officers

Meridian Healthcare Investments, Inc.
Development General Partner

       Michael R. Walker
       President and Director

       Richard R. Howard
       Director

       George V. Hager, Jr.
       Vice President and Treasurer

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 1998 as filed  with the
Securities  and Exchange  Commission is available to partners  without charge on
request by writing to:

       Investor Relations
       Brown Healthcare, Inc.
       225 East Redwood Street
       Baltimore, Maryland 21202

                                    Auditors

KPMG LLP
1600 Market Street
Philadelphia, PA 19103-7212

                                  Legal Counsel

Piper & Marbury
1100 Charles Center South
36 South Charles Street
Baltimore, Maryland 21201

                               Further Information

For further  information  or questions  regarding your  investment,  please call
Denise Shaduk, Investment Coordinator, at (410) 547-3002.

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

                                      -15-