MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                               Letter to Investors


                                       1

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP
                               2004 Annual Report

                                 April 15, 2005



Dear Investor:

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


SALE

         On February 11, 2005 the Fund entered into an Asset Purchase Agreement
for the sale of the seven nursing facilities and on February 22, 2005 the
Purchaser escrowed its required $1,000,000 good faith deposit under this
Agreement. The purchase price per the Agreement is $50,000,000. Under the terms
of the Agreement and assuming the consent of the holders of a majority of the
Fund's units, the General Partners expect the sale to close by the end of the
second quarter of 2005 and project the sale will result in distributable
proceeds of approximately $20 per original $25 investment unit.


OPERATIONS

         Net earnings from the nursing centers increased $1,093,000, or 47% in
2004 when compared to 2003 due to the proportionately larger increase in
revenues versus expenses.

        Overall 2004 revenues of $65,706,000 increased $1,857,000 or 2.9% from
the same period in 2003. This increase was primarily the result of (1) Medicaid
rate increases and (2) growth in Private and other patients. Medicaid revenue
increased $995,000 primarily due to an overall rate increase of approximately
7.2% driven by the four Maryland centers, which received their annual Medicaid
rate adjustment in July 2004, and a rate increase effective October 2003 for the
two North Carolina facilities. Revenues from private and other patients
increased $787,000 to $10,226,000 in fiscal year 2004 as compared to $9,439,000
in fiscal year 2003. This increase is due to growth in the Private and Insurance
census along with an Insurance rate increase. The Private average daily census
increased 1.3% or 1 resident, and the Insurance average daily census increased
28.4% or 6.5 residents.

         Operating expenses increased $380,000 or .7 % in fiscal year 2004 as
compared to fiscal year 2003. This increase is primarily due to the increased
cost of nursing services and supplies, state assessment taxes, and property and
liability insurance, which is being partially offset by a decrease in bad debt
expenses and ancillary costs. Nursing costs increased $113,000 for the year
ended December 31, 2004 as compared to the same period in 2003. Nursing
purchased services and supplies increased $128,000 for fiscal year 2004 as
compared to fiscal year 2003. An assessment levied by the State of North
Carolina to patient days retroactive to October 2003 in the amount of $640,000
was recognized in 2004. Property and Liability insurance increased $248,000 for
fiscal year 2004 as compared to fiscal year 2003 due to annual rate increases
effective in June. Bad debt expense decreased $512,000 in 2004 when compared to
2003. In addition, ancillary expenses decreased $385,000 or 4.8% in 2004 when
compared to 2003 due to a decline in the Medicare census, whose customers have
high ancillary usage. The remaining increase in operating costs is due to
general inflationary pressures.



                                       2
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

OPERATIONS (continued)

         Management and administration fees increased $161,000 or approximately
4.7% in 2004 as compared to 2003. This increase was due to primarily to an
increase in the management fee expense, which is calculated at 5% of the Fund's
net revenues.

         General and administrative expenses increased $223,000 or 20.9% in
comparison to 2003. This increase was primarily due to understated 2003 expenses
resulting from a $190,000 adjustment relating to New Jersey filing fees.

         Depreciation and amortization expense increased $46,000 to $2,160,000
for the twelve months ended December 31, 2003 compared to the same period in the
prior year.

         Interest expense decreased $46,000 for the twelve months ended December
31, 2004 as compared to the same period in fiscal year 2003 due to the normal
amortization of the loan's principal balance.


FINANCING

         The Fund closed its $24,000,000 mortgage loan refinancing 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 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. 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 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, 2004, 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 28, 2005 the Fund made its fourth quarter 2004 distribution
to partners in the amount of $583,348. This distribution was funded by fourth
quarter 2004 operations. Distributions from 2004 operations to partners totaled
$2,333,392, representing a 6% return, and were fully funded by the operations of
the seven nursing facilities.

         The Fund continues to evaluate the impact of proposed Medicaid and
Medicare legislation and further capital improvement needs at the facilities. If
the sale is not consummated, future distributions will be influenced by these
considerations.


                                       3

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


SUMMARY

         Given the improving capital market for skilled nursing facilities, the
continued uncertainty regarding Medicare and Medicaid reimbursement rates, the
aging of the facilities and the increasing capital improvement needs of the
facilities, the General Partners believe a sale at this time will maximize the
investment for the unit holders. We are optimistic the Fund will close under the
terms and conditions of the Purchase and Sale Agreement by the end of the second
quarter of 2005. We will keep you advised of any developments.


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




                                       4

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP
                              Financial Statements





                                       5


<PAGE>


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM




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, 2004 and 2003, and the related consolidated statements
of earnings, partners' capital (deficit), and cash flows for each for the years
in the three-year period ended December 31, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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,
2004 and 2003, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 2004, in conformity
with U.S. generally accepted accounting principles.


     /s/   KPMG LLP


Philadelphia, Pennsylvania
March 25, 2005




                                        6

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

               Consolidated Balance Sheets (Dollars in thousands)
<TABLE>
<CAPTION>

                                                                                December 31,
                                                                   --------------------------------------
                                                                         2004                  2003
                                                                   ---------------       ----------------
Assets
Current assets
<S>                                                                <C>                   <C>
    Cash and cash equivalents                                      $        1,647        $         1,141
    Accounts receivable, net of allowance for doubtful
      accounts of $499 in 2004 and $855 in 2003                             6,947                  7,248
    Estimated third-party payor settlements                                   268                    362
    Prepaid expenses and other current assets                                 827                    806
                                                                   ---------------       ----------------

Total current assets                                                        9,689                  9,557
                                                                   ---------------       ----------------

Property and equipment
    Land and improvements                                                   2,067                  2,032
    Buildings and improvements                                             48,157                 47,489
    Furniture and equipment                                                 7,730                  7,253
                                                                   ---------------       ----------------
                                                                           57,954                 56,774
    Accumulated depreciation                                              (27,595)               (25,567)
                                                                   ---------------       ----------------
                                                                           30,359                 31,207
                                                                   ---------------       ----------------
Other assets
    Goodwill, net of accumulated amortization                               4,237                  4,237
    Loan acquisition costs, net of accumulated amortization                   189                    322
                                                                   ---------------       ----------------
                                                                            4,426                  4,559
                                                                   ---------------       ----------------
Total assets                                                       $       44,474        $        45,323
                                                                   ===============       ================

Liabilities and Partners' Capital
Current liabilities
    Current portion of long-term debt                               $          765        $           712
    Line of credit                                                             227                    227
    Accrued compensation and related costs                                      50                     83
    Accounts payable and other accrued expenses
      Trade                                                                  1,414                  2,036
      Related party                                                            588                    921
    Estimated third-party payor settlements                                  1,643                  1,984
                                                                    ---------------       ----------------
Total current liabilities                                                    4,687                  5,963
                                                                    ---------------       ----------------

Deferred management fee payable                                              1,105                  1,063
Loan payable to Development General Partner                                  1,367                  1,343
Long-term debt                                                              20,779                 21,504
                                                                    ---------------       ----------------
                                                                            23,251                 23,910
                                                                    ---------------       ----------------

Partners' capital (deficit)
    General partners                                                          (150)                  (161)
    Assignee limited partners; 1,540,040 units
       issued and outstanding                                               16,686                 15,611
                                                                    ---------------       ----------------
Total partners' capital                                                     16,536                 15,450
                                                                    ---------------       ----------------

Total liabilities and partners' capital                             $       44,474        $        45,323
                                                                    ===============       ================
</TABLE>



        See the accompanying notes to consolidated financial statements.

                                       7


<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,
                                                        -------------------------------------------------
                                                              2004             2003             2002
                                                        ---------------   --------------   --------------

Revenues
<S>                                                     <C>               <C>              <C>
    Medicaid and Medicare patients                      $       55,341    $      54,310    $      51,803
    Private and other patients                                  10,226            9,439            9,994
    Investment and other income                                    139              100              123
                                                        ---------------   --------------   --------------
                                                                65,706           63,849           61,920
                                                        ---------------   --------------   --------------


Expenses
    Operating, including $4,572, $9,257 and $10,281
      to related parties                                        53,600           53,220           50,346
    Management and administration fees
      to related parties                                         3,604            3,443            3,366
    General and administrative                                   1,290            1,067            1,391
    Depreciation and amortization                                2,160            2,114            2,023
    Interest expense                                             1,633            1,679            2,410
                                                        ---------------   --------------   --------------
                                                                62,287           61,523           59,536
                                                        ---------------   --------------   --------------

Net earnings                                            $        3,419    $       2,326    $       2,384
                                                        ===============   ==============   ==============


Net earnings per unit of assignee limited partnership interest - basic (computed
    based on 1,540,040 units
    outstanding in 2004, 2003 and 2002)                 $         2.20    $        1.50    $        1.53
                                                        ===============   ==============   ==============

</TABLE>


        See the accompanying notes to consolidated financial statements.

                                       8

<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, 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

Net earnings                                     34               3,385           3,419

Distributions to partners                       (23)             (2,310)         (2,333)
                                      --------------   -----------------  --------------

Balance at December  31, 2004         $        (150)   $         16,686   $      16,536
                                      ==============   =================  ==============
</TABLE>

        See the accompanying notes to consolidated financial statements.


                                       9

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                      Consolidated Statements of Cash Flows
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                                  -------------------------------------------------
                                                                        2004              2003             2002
                                                                  ---------------   ---------------   -------------

Cash flows from operating activities
<S>                                                               <C>               <C>               <C>
   Net earnings                                                   $        3,419    $        2,326    $      2,384
   Adjustments to reconcile net earnings to net cash
      provided by operating activities
        Depreciation of property and equipment                             2,028             1,993           1,941
        Amortization of intangibles                                          133               121              82
        Minority interest in net earnings of operating
          partnerships                                                        39                26              30
        Increase in loan payable to Development General Partner               24                51              52
        Increase in deferred management fee payable                           42                42              43
        Change in other assets and liabilities
              Accounts receivable                                            301               561           1,331
              Estimated third-party pay or settlements, net                 (247)              (65)            350
              Prepaid expenses and other current assets                      (21)              (40)           (218)
              Accrued compensation and related costs                         (33)               80            (472)
              Accounts payable and other accrued expenses                   (955)              149          (1,790)
                                                                  ---------------   ---------------   -------------
Net cash provided by operating activities                                  4,730             5,244           3,733
                                                                  ---------------   ---------------   -------------

Cash flows from investing activities -
    additions to property and equipment                                   (1,180)           (1,969)         (1,245)
                                                                  ---------------   ---------------   -------------

Cash flows from financing activities
    Deferred financing fees                                                    -              (227)              -
    Proceeds from long-term debt                                               -               227               -
    Repayment of long-term debt                                             (672)             (661)           (471)
    Distributions to partners                                             (2,333)           (2,187)         (3,306)
    Distributions to minority interests                                      (39)              (26)            (37)
                                                                  ---------------   ---------------   -------------
Net cash used in financing activities                                     (3,044)           (2,874)         (3,814)
                                                                  ---------------   ---------------   -------------

Net increase (decrease) in cash and cash equivalents                         506               401          (1,326)
Cash and cash equivalents, beginning of year                               1,141               740           2,066
                                                                  ---------------   ---------------   -------------
Cash and cash equivalents, end of year                            $        1,647    $        1,141    $        740
                                                                  ===============   ===============   =============
</TABLE>



        See the accompanying notes to consolidated financial statements.

                                       10

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                   Notes to Consolidated Financial Statements
                        December 31, 2004, 2003 and 2002


(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.  Brown Healthcare Inc. and Meridian
       Healthcare  Investments  Inc. are the general partners of the seven
       underlying 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
                --------      -------------      -------------
                  2004           403,000             85.5%
                  2003           403,000             88.2%
                  2002           403,000             89.9%



(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.


                                       11

<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 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.

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


(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. Depreciation expense for the three years
       ended December 31, 2004 is $2,028,000, 1,993,000 and $1,941,000
       respectively.

       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.


                                       13

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


(2) Summary of Significant Accounting Policies (continued)

       Goodwill (continued)

       SFAS 142 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, 2004 and 2003 and the results of this test
       indicated that the fair value of the Fund's goodwill exceeded carrying
       amounts.

       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, is summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                                 2004          2003         2002
                                                             -----------   -----------  -----------

<S>                                                          <C>           <C>          <C>
Net earnings per consolidated statements of earnings         $    3,419    $    2,326   $    2,384
Accelerated depreciation deducted for income
    tax purposes over straight-line depreciation
    deducted for financial reporting purposes                      (276)         (289)        (297)
Differences in timing of revenue recognition
    for financial reporting purposes and
    income tax purposes, primarily related to cost
    reimbursement settlements                                      (172)         (285)         381
Differences in timing of expense deductions for
    financial reporting purposes and income tax purposes           (400)         (373)        (964)
                                                             -----------   -----------  -----------

Taxable earnings                                             $    2,571    $    1,379   $    1,504
                                                             ===========   ===========  ===========
</TABLE>

                                       14



<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


(2) Summary of Significant Accounting Policies (continued)

       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, 2004 and 2003, the amounts deferred under this agreement,
       including interest at 9% per annum, aggregated $1,105,000 and $1,063,000,
       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. 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 the partnership interests. Loans outstanding
       under this arrangement, including accumulated interest from inception of
       the loan at 9% per annum, were $1,367,000 and $1,343,000 at December 31,
       2004 and 2003, 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.



                                       15

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


(3) Related Party Transactions (continued)

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

                                                2004         2003        2002
                                             --------     -------     --------

Management and administration fees         $   3,604    $  3,443    $   3,366
Drugs and medical supplies purchases*              -       3,560        3,840
Nursing and rehabilitation services            4,572       5,697        6,441
Interest expense on borrowings                    93          93           95

           *As a result of a spin-off transaction completed on December 1, 2003,
           Genesis is no longer affiliated with the Fund's primary supplier of
           drugs and medical supplies. Consequently, such transactions are no
           longer reflected as related party.

       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
       67%, 64% and 63% in 2004, 2003 and 2002, 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, 2005. As
       of December 31, 2004, the Fund had borrowed $227,000 under this line of
       credit.

       On June 12, 2000, the Fund refinanced its mortgage loans totaling
       $24,000,000 with a new commercial bank. The renewal terms became 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.


                                       16

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


(4) Debt (continued)

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


                                           2004           2003
                                      -------------   ------------
        Mortgage notes payable
            Maryland facilities       $      9,664    $     9,966
            Woodlands facility               5,053          5,211
            Frederick facility               4,312          4,446
            Hamilton facility                2,515          2,593
                                      -------------   ------------
                                            21,544         22,216
        Less current portion                  (765)          (712)
                                      -------------   ------------
                                      $     20,779    $    21,504
                                      =============   ============


       Principal payments on the amended mortgage loans during the next four
       years are as follows: $765,000 in 2005, $817,000 in 2006, $872,000 in
       2007 and $19,090,000 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
       $1,582,000, $1,627,000 and $2,291,000 in 2004, 2003 and 2002,
       respectively.

(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 and working capital if
       needed. Cash distributions per unit of assignee limited partnership
       interest aggregated $1.50 in 2004, $1.41 in 2003 and $2.13 in 2002.

(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.


                                       17

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


(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, 2004 and 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.

       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.


                                       18

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


(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, 2004                       $16,741                $1,032
         June 30, 2004                         16,033                   284
         September 30, 2004                    15,946                   679
         December 31, 2004                     16,986                 1,424

         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

         (1) Increase in quarterly net earnings primarily due to favorable
             Medicaid settlements.

(10)     Subsequent Events

     On February 11, 2005, the Fund entered into an Asset Purchase Agreement for
     the sale of the seven nursing facilities and on February 22, 2005 the
     Purchaser escrowed its required $1,000,000 good faith deposit under this
     Agreement. The purchase price per the Agreement is $50,000,000 plus net
     working capital as defined.

     Under the terms of the Agreement and assuming the consent of the holders of
     a majority of the Fund's units, the General Partners expect the sale to
     close by the end of the second quarter of 2005 and project the sale will
     result in distributable proceeds of approximately $20 per original $25
     investment unit (unaudited).


                                       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

         Kathleen F. Russell
         Secretary

         Timothy M. Gisriel
         Treasurer



                                    Form 10-K

A copy of the Fund's Annual Report on Form 10-K for 2004 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 Hale and   Dorr LLP
         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