MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP
                               Letter to Investors







                                       1

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                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                               2001 Annual Report

                                 April 10, 2002



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

         Operating income from the nursing centers showed a modest increase in
2001 when compared to 2000, however higher interest costs and greater non-cash
expenses resulted in decreased earnings in 2001 when compared to 2000. Similar
operating income and profitability trends occurred in 2000 when compared to
1999.

         Overall, 2001 revenues of $59,933,000 increased $4,169,000 or 7.5% when
compared to revenues received during 2000. This increase was primarily the
result of Medicaid rate increases and an increase in the number of Medicare
days. Medicaid revenue increased $2,365,000 primarily due to overall rate
increases of approximately 8.7% driven primarily by the four Maryland centers.
Medicare revenue increased $2,143,000 relating to growth in the Medicare census.
In fiscal year 2001 Medicare census made up 13.9% of the overall census as
compared to 12.8% in fiscal year 2000.

         Revenues from private and other patients decreased $200,000 to
$10,760,000 as compared to $10,960,000 in 2000. This decrease was a result of
lower private pay and insurance census.

         Operating expenses increased $4,269,000 or 9.6% from the same period in
the prior year. This increase was primarily due to the increased cost of nursing
services and ancillary costs. Nursing costs increased $2,194,000 primarily due
to increased salaries and a higher utilization of temporary nurse staffing. The
increase in nursing salary and wages and utilization of temporary nurse staffing
was a result of an overall shortage of nurses within the healthcare industry.
Ancillary expenses increased $663,000 during 2001 when compared to 2000 due to
the increased acuity level of patients admitted to the centers. The remaining
increase in operating costs was due to higher health insurance costs, and
general inflationary cost increases.

         Management and administration fees decreased $334,000 or approximately
9.2% in 2001 as compared to 2000. This decrease is due to an amendment to the
management agreement effective January 1, 2001, which reduced the management fee
from 6% to 5% of net patient service revenue.

         Interest expense increased $250,000 in 2001 as compared to 2000. This
increase was the result of the first full year with the new mortgage, which
increased the beginning principal balance from $22,346,000 prior to the
refinancing to $24,000,000, at a higher interest rate.





                                       2
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                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP


FINANCING

         The Fund closed its mortgage loan refinancing with a new bank for loans
totaling $24,000,000 on June 12, 2000. The renewal terms provide for a term of
five years at an interest rate of 9.75%. Monthly payments are based on a 20-year
amortization schedule with a balloon payment due at the end of the 5-year term.
Following the repayment of the original loan and transaction costs, the new loan
resulted in refinancing proceeds of approximately $1,225,000 which were
designated to fund certain improvements to the nursing facilities. The Fund also
replaced its $4,000,000 line of credit facility with the same lender under terms
similar to the mortgage loan terms described above, except the line of credit
facility requires annual reaffirmation.

CASH DISTRIBUTION

         On February 15, 2002 the Fund made its fourth quarter 2001 distribution
to partners of $826,410. This distribution was funded by fourth quarter 2001
operations. During 2000 operations funded the distributions to partners. Review
of the 2002 budget suggests operations from the seven nursing centers will be
sufficient to fund a similar distribution in 2002.

SUMMARY

         The major challenge to the Fund in the foreseeable future is to control
operating expenses in light of Medicare's conversion to the Prospective Payment
System, to maintain a quality mix of patients and to increase the overall census
at each of the facilities

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






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                   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 (the Fund) as of December
31, 2001 and 2000 and the related consolidated statements of earnings, partners'
capital and cash flows for each of the years in the three-year period ended
December 31, 2001. 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 as of December 31, 2001 and 2000, and
the results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2001 in conformity with accounting
principles generally accepted in the United States of America.



                               /s/  KPMG LLC

March 14, 2002
Philadelphia, Pennsylvania



                                       5

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                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

               Consolidated Balance Sheets (Dollars in thousands)
<TABLE>
<CAPTION>
                                                                            December 31,
                                                              --------------------------------------
                                                                      2001                  2000
                                                              ---------------       ----------------
Assets
Current assets
<S>                                                            <C>                   <C>
    Cash and cash equivalents                                  $        2,066        $         1,108
    Accounts receivable, net of allowance for doubtful
      accounts of $1,656 in 2001 and $1,245 in 2000                     9,140                  8,990
    Estimated third-party payor settlements                               561                    843
    Prepaid expenses and other current assets                             548                    650
                                                               ---------------       ----------------

Total current assets                                                   12,315                 11,591
                                                               ---------------       ----------------

Property and equipment
    Land and improvements                                               1,981                  1,978
    Buildings and improvements                                         45,535                 45,142
    Furniture and equipment                                             6,044                  5,538
                                                               ---------------       ----------------
                                                                       53,560                 52,658
    Accumulated depreciation                                          (21,633)               (19,724)
                                                               ---------------       ----------------
                                                                       31,927                 32,934
                                                               ---------------       ----------------
Other assets
    Goodwill, net of accumulated amortization                           4,237                  4,490
    Loan acquisition costs, net of accumulated amortization               298                    383
                                                               ---------------       ----------------
                                                                        4,535                  4,873
                                                               ---------------       ----------------

Total assets                                                   $       48,777        $        49,398
                                                               ===============       ================

Liabilities and Partners' Capital
Current liabilities
    Current portion of long-term debt                          $          435        $           397
    Accrued compensation and related costs                                475                  1,055
    Accounts payable and other accrued expenses
      Trade                                                             1,331                    829
      Related party                                                     3,274                  2,937
    Estimated third-party payor settlements                             1,898                  1,328
                                                               ---------------       ----------------

Total current liabilities                                               7,413                  6,546
                                                               ---------------       ----------------

Deferred management fee payable                                           978                    937
Loan payable to Development General Partner                             1,240                  1,188
Long-term debt                                                         22,913                 23,379
                                                               ---------------       ----------------
                                                                       25,131                 25,504
                                                               ---------------       ----------------

Partners' capital
    General partners                                                     (153)                  (142)
    Assignee limited partners; 1,540,040 units
          issued and outstanding                                       16,386                 17,490
                                                               ---------------       ----------------

Total partners' capital                                                16,233                 17,348
                                                               ---------------       ----------------

Total liabilities and partners' capital                        $       48,777        $        49,398
                                                               ===============       ================
</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,
                                                        -------------------------------------------------
                                                              2001             2000             1999
                                                        ---------------   --------------   --------------


Revenues
<S>                                                     <C>               <C>              <C>
    Medicaid and Medicare patients                      $       49,022    $      44,514    $      41,031
    Private and other patients                                  10,760           10,960            9,965
    Investment and other income                                    151              290              282
                                                        ---------------   --------------   --------------
                                                                59,933           55,764           51,278
                                                        ---------------   --------------   --------------


Expenses
    Operating, including $10,062, $8,449 and $6,441
      to related parties                                        48,774           44,505           40,396
    Management and administration fees
      to related parties                                         3,295            3,629            3,368
    General and administrative                                     972              920              902
    Depreciation and amortization                                2,244            2,221            2,018
    Interest expense                                             2,457            2,207            1,729
                                                        ---------------   --------------   --------------
                                                                57,742           53,482           48,413
                                                        ---------------   --------------   --------------

Net earnings                                            $        2,191    $       2,282    $       2,865
                                                        ===============   ==============   ==============


Net earnings per unit of assignee limited partnership interest - basic (computed
    based on 1,540,040 units
    outstanding in 2001, 2000 and 1999)                 $         1.41    $        1.47    $        1.84
                                                        ===============   ==============   ==============
</TABLE>

See the accompanying notes to consolidated financial statements.


                                       7

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                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                   Consolidated Statement of Partners' Capital
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                  Assignee
                                                General           Limited
                                               Partners           Partners           Total
                                            --------------   -----------------  --------------

<S>                                         <C>              <C>                <C>
Balance at December 31, 1998                $        (128)   $         18,941   $      18,813

Net earnings                                           29               2,836           2,865

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

Balance at December  31, 1999                        (132)             18,504          18,372

Net earnings                                           23               2,259           2,282

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

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
                                            ==============   =================  ==============
</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,
                                                             -----------------------------------------------
                                                                  2001            2000             1999
                                                             -------------   --------------  ---------------

Cash flows from operating activities
<S>                                                          <C>             <C>             <C>
    Net earnings                                             $      2,191    $       2,282   $        2,865
    Adjustments to reconcile net earnings to net cash
       provided by operating activities
          Depreciation of property and equipment                    1,909            1,834            1,765
          Amortization of intangibles                                 338              387              253
          Minority interest in net earnings of operating
            partnerships                                               33               30               34
          Increase in loan payable to Development General Partner      52               51               51
          Increase in deferred management fee payable                  41               43               42
          Change in other assets and liabilities
                Accounts receivable                                  (150)          (1,766)              55
                Estimated third-party payor settlements, net          852           (1,107)             381
                Prepaid expenses and other current assets             102             (172)              87
                Accrued compensation and related costs               (580)             277             (163)
                Accounts payable and other accrued expenses           915              781             (177)
                                                             -------------   --------------  ---------------

Net cash provided by operating activities                           5,703            2,640            5,193
                                                             -------------   --------------  ---------------

Cash flows from investing activities -
    additions to property and equipment                              (902)          (1,421)          (1,458)
                                                             -------------   --------------  ---------------

Cash flows from financing activities
    Deferred financing fees                                             -             (429)               -
    Proceeds from long-term debt                                        -           24,000                -
    Repayment of long-term debt                                      (428)         (22,829)            (731)
    Distributions to partners                                      (3,306)          (3,306)          (3,306)
    Distributions to minority interests                              (109)             (58)            (115)
                                                             -------------   --------------  ---------------

Net cash used in financing activities                              (3,843)          (2,622)          (4,152)
                                                             -------------   --------------  ---------------

Net increase (decrease) in cash and cash equivalents                  958           (1,403)            (417)
Cash and cash equivalents, beginning of year                        1,108            2,511            2,928
                                                             -------------   --------------  ---------------

Cash and cash equivalents, end of year                       $      2,066    $       1,108   $        2,511
                                                             =============   ==============  ===============
</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, 2001, 2000 and 1999



(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. (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
                 ---------------   --------------   -----------------
                      2001            406,000            90.0%
                      2000            430,000            86.2%
                      1999            429,000            87.9%


(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.



                                       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,
       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.

       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. At December 31,
       2001, in the aggregate the Fund's operating partnerships have recorded
       assets of $561,000 for cost report receivables and $1,898,000 for cost
       report liabilities relating to Medicare and Medicaid cost reports that
       have accumulated for the years 2001, 2000 and 1999.

       Revisions to prior year cost reimbursement settlements resulted in an
       increase to revenues of $362,000, $797,000 and $389,913 for fiscal years
       ended in 2001, 2000 and 1999, respectively. These revenue adjustments are
       primarily due to the revision of the estimated settlements based upon
       final and interim audit settlements of the open cost report years.

       Pursuant to the Balanced Budget Act of 1997, effective January 1, 1999
       the Fund's operating partnerships were converted to the Medicare
       Prospective Payment System (PPS). Under PPS, skilled nursing facilities
       are reimbursed at a prospective per diem rate for all covered Part A
       skilled nursing facility services, as well as many services for which
       payment may be made under Part B when a beneficiary who is a resident of
       a skilled nursing facility



                                       11

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)



(2)    Summary of Significant Accounting Policies (continued)

       Revenue (continued)

       receives covered skilled nursing facility care. There can be no
       assurances that any future healthcare legislation will not adversely
       affect the business of the Fund.

       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 and is amortized on a
       straight-line basis over thirty years. Accumulated amortization of
       goodwill aggregated $3,426,000 and $3,173,000 at December 31, 2001 and
       2000, respectively.

       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


                                       12

<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)

       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 (dollars in thousands):
<TABLE>
<CAPTION>

                                                                  2001         2000          1999
                                                               ----------  -----------   -----------
<S>                                                            <C>         <C>           <C>
Net earnings per consolidated statements of earnings           $   2,191   $    2,282    $    2,865
Accelerated depreciation deducted for income
    tax purposes over straight-line depreciation
    deducted for financial reporting purposes                       (129)        (153)         (164)
Amortization of goodwill deducted for financial reporting
    purposes, not deducted for income tax purposes                   253          252           251
Differences in timing of revenue recognition
    for financial reporting purposes and
    income tax purposes, primarily related to cost
    reimbursement settlements                                         68         (743)          (38)
Differences in timing of expense deductions for
    financial reporting purposes and income tax purposes             785          (44)          516
                                                               ----------  -----------   -----------
Taxable earnings                                               $   3,168   $    1,594    $    3,430
                                                               ==========  ===========   ===========
</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.

       New Accounting Pronouncements

       In July 2001, the FASB issued Statement No. 141, Business Combinations,
       and Statement No. 142, Goodwill and Other Intangible Assets. Statement
       141 requires that the purchase method of accounting be used for all
       business combinations initiated after June 30, 2001 as well as all
       purchase method business combinations completed after June 30, 2001.


                                       13
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)



(2)    Summary of Significant Accounting Policies (continued)

       New Accounting Pronouncements (continued)

       Statement 141 also specifies criteria intangible assets acquired in a
       purchase method business combination must meet to be recognized and
       reported apart from goodwill. Statement 142 will require that goodwill
       and intangible assets with indefinite useful lives no longer be
       amortized, but instead tested for impairment at least annually in
       accordance with the provisions of Statement 142. Statement 142 will also
       require that intangible assets with definite useful lives be amortized
       over their respective estimated useful lives to their estimated residual
       values, and reviewed for impairment.

       The Fund is required to adopt the provisions of Statement 141
       immediately, except with regard to business combinations initiated prior
       to July 1, 2001, and Statement 142 effective January 1, 2002.
       Furthermore, any goodwill and any intangible asset determined to have an
       indefinite useful life that are acquired in a purchase business
       combination completed after June 30, 2001 will not be amortized, but will
       continue to be evaluated for impairment in accordance with the
       appropriate pre-Statement 142 accounting literature. Goodwill and
       intangible assets acquired in business combinations completed before July
       1, 2001 will continue to be amortized prior to the adoption of Statement
       142.

       As of the date of adoption, the Fund expects to have unamortized goodwill
       in the amount of $4,237,000 which will be subject to the transition
       provisions of Statement 142. Amortization expense related to goodwill was
       $253,000 in 2001, 2000 and 1999.

       FASB Statement No. 143, Accounting for Asset Retirement Obligations
       (Statement No. 143), which was released in August 2001, addresses
       financial accounting and reporting for obligations associated with the
       retirement of tangible long-lived assets and for the associated asset
       retirement costs. Statement No. 143 requires an enterprise to record the
       fair value of an asset retirement obligation as a liability in the period
       in which it incurs a legal obligation associated with the retirement of
       tangible long-lived assets that result from the acquisition,
       construction, development and or normal use of the assets. The enterprise
       also is to record a corresponding increase to the carrying amount of the
       related long-lived asset (i.e., the associated asset retirement costs)
       and to depreciate that cost over the life of the asset.

       The liability is changed at the end of each period to reflect the passage
       of time (i.e., accretion expense) and changes in the estimated future
       cash flows underlying the initial fair value measurement. Because of the
       extensive use of estimates, most enterprises will record a gain or loss
       when they settle the obligation. The Fund is required to adopt Statement
       No. 143 for its fiscal year beginning January 1, 2003.

       On October 3, 2001, the Financial Accounting Standards  Board issued FASB
       Statement  No. 144, Accounting for the Impairment or Disposal of Long-
       Lived Assets (Statement No. 144), which addresses financial accounting
       and reporting for the impairment or disposal of long-lived  assets.
       While  Statement No. 144 supersedes FASB Statement No. 121,

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

             Notes to Consolidated Financial Statements (continued)



(2)    Summary of Significant Accounting Policies (continued)

       New Accounting Pronouncements (continued)

       Accounting for the Impairment of Long-Lived Assets and for Long-Lived
       Assets to Be Disposed Of, it retains many of the fundamental provisions
       of that Statement.

       Statement No. 144 also supersedes the accounting and reporting provisions
       of APB Opinion No. 30, Reporting the Results of Operations--Reporting the
       Effects of Disposal of a Segment of a Business, and Extraordinary,
       Unusual and Infrequently Occurring Events and Transactions, for the
       disposal of a segment of a business. However, it retains the requirement
       in Opinion 30 to report separately discontinued operations and extends
       that reporting to a component of an entity that either has been disposed
       of (by sale, abandonment, or in a distribution to owners) or is
       classified as held for sale. Statement No. 144 is effective for the Fund
       for fiscal years beginning after December 15, 2001 and interim periods
       within those fiscal years.

(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% in 2001 and 6%
       in 2000 and 1999 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, 2001 and 2000, the amounts deferred
       under this agreement, including interest at 9% per annum, aggregated
       $978,000 and $937,000, 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 partnership interests. Loans outstanding under
       this arrangement, including accumulated interest from inception of the
       loan at 9% per annum, were $1,240,000 and $1,188,000 at December 31, 2001
       and 2000, 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

             Notes to Consolidated Financial Statements (continued)


(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):


                                                 2001         2000        1999
                                               --------     -------     --------

         Management and administration fees     $ 3,295     $ 3,629    $  3,368
         Drugs and medical supplies purchases     4,344       3,601       3,012
         Nursing and rehabilitation services      5,718       4,848       3,429
         Interest expense on borrowings              93          94          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
       62%, 64% and 67% in 2001, 2000 and 1999, respectively, of total operating
       expenses.

(4)    Debt

       Effective June 12, 2000, the Fund established a revolving credit facility
       with a maximum borrowing limit of $4,000,000. Borrowing under the credit
       facility will bear interest at a floating rate, which shall equal the
       announced commercial prime rate. The bank shall review the credit
       facility each year for a one-year extension. This credit facility has
       been reaffirmed until June 1, 2002. There were no borrowings outstanding
       under either the line of credit agreement or the revolving credit
       facility at December 31, 2001 and 2000. Borrowings are secured primarily
       by the accounts receivable of the Fund.

       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 its 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 provide for a term of five years at an interest rate
       of 9.75%. Monthly payments of $229,886 are based on a 20-year
       amortization schedule with a balloon payment due at the end of the five
       year term.




                                       16
<PAGE>
                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)



(4)    Debt (continued)

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


                                         2001           2000
                                    -------------   ------------
        Mortgage notes payable
           Maryland facilities      $     10,474    $    10,667
           Woodlands facility              5,475          5,575
           Frederick facility              4,673          4,758
           Hamilton facility               2,726          2,776
                                   -------------   ------------
                                          23,348         23,776
        Less current portion                (435)          (397)
                                   -------------   ------------
                                    $     22,913    $    23,379
                                   =============   ============



       The mortgage loans mature in 2005. Principal payments on the mortgage
       loans during the next four years are as follows: $435,000 in 2002,
       $519,000 in 2003, $564,000 in 2004 and $21,830,000 in 2005.

       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.

       Cash outflows from operating activities included interest paid of
       $2,134,000, $2,082,000 and $1,602,000 in 2001, 2000 and 1999,
       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 as disclosed on the
       statements of cash flows in 2001 and 1999 and reserves of $666,000 in
       2000. Cash distributions per unit aggregated $2.12 in 2001, 2000 and
       1999.

(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


                                       17

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(7)    Fair Value of Financial Instruments (continued)

       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 debt approximates its fair value.

(8)    Certain Significant Risks and Uncertainties

       The Fund receives revenues from Medicare, Medicaid, private insurance,
       self-pay residents, other third party payors and long-term care
       facilities which utilize our pharmacy and other specialty medical
       services. 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
       increasing influence of managed care payors and competition for patients,
       have resulted in reduced rates of reimbursement for services provided by
       the Fund.

       In recent years, several significant actions have been taken with respect
       to Medicare and Medicaid reimbursement including the following:

     o The  adoption of the  Medicare  Prospective  Payment  System  pursuant to
Balanced  Budget  Act of 1997,  as  modified  by the  Medicare  Balanced  Budget
Refinement  Act  ("BBRA")  and the Benefit  Improvement  Protection  Act of 2000
("BIPA").

     o The repeal of the "Boren Amendment" federal payment standard for Medicaid
payments to nursing facilities.

     o A number  of the  provisions  of the BBRA and BIPA  enactments  providing
additional funding for Medicare  participating skilled nursing facilities expire
on September 30, 2002. Expiring provisions are estimated to, on average,  reduce
per  beneficiary  per diems by $30.  Moreover,  CMS has  indicated its desire to
complete refinements to the case mix classification system as part of the Fiscal
2003  rule-making.  Under the law,  when these  revisions are  implemented,  the
add-on's  authorized  by the BBRA and BIPA will expire.  Combined,  the Medicare
skilled nursing  facility sector face an 18% reduction in the average median per
diems.  If the Fund were to  experience  an 18% decline in our  current  average
Medicare  rate per patient  day,  the  estimated  annual  reduction  in Medicare
revenues of approximately $2,800,000 would have a material adverse affect on our
financial position,  results of operations,  and cash flows. Trade organizations
representing  the skilled  nursing  facility  sector are  aggressively  pursuing
strategies to minimize the potential impact of the "Medicare Rate Cliff".

                                       18

<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(8)    Certain Significant Risks and Uncertainties (continued)

     o The 1997 Act included several provisions affecting Medicaid. The 1997 Act
repealed the "Boren Amendment" federal payment standard for Medicaid payments to
nursing facilities  effective October 1, 1997. The Boren Amendment required that
Medicaid payments to certain health care providers be reasonable and adequate in
order to cover the costs of efficiently  and  economically  operated  healthcare
facilities.  Under the 1997 Act, states must now use a public notice and comment
period in order to determine rates and provide  interested  parties a reasonable
opportunity  to  comment on  proposed  rates and the  justification  for and the
methodology  used in  calculating  such  rates.  With the repeal of the  Federal
payment  standards,  there can be no assurances that budget constraints or other
factors  will not cause  states  to reduce  Medicaid  reimbursement  to  nursing
facilities and pharmacies or that payments to nursing  facilities and pharmacies
will be made on timely basis.  The 1997 Act also grants  greater  flexibility to
states to establish  Medicaid managed care projects without the need to obtain a
federal waiver.  Although these projects  generally exempt  institutional  care,
including  nursing  facilities,  no assurances  can be given that these projects
ultimately will not change the  reimbursement  methodology for nursing  facility
services from fee-for-service to managed care negotiated or capitated rates. The
Fund anticipates that federal and state  governments will continue to review and
assess alternative health care delivery systems and payment methodologies.

     o The BIPA  enactment  mandates a phase out of  intergovernmental  transfer
("IGT") transactions by states whereby states artificially initiate the payments
to certain public facilities to increase federal matching funds. This action may
reduce federal support for a number of state Medicaid plans. The reduced federal
payments  may  impact  aggregate  available  funds  requiring  states to further
contain  payments to  providers.  The Fund  operates in several  states that may
experience a contraction of federal matching funds.

       It is not possible to fully quantify the effect of recent legislation,
       the interpretation or 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 adversely affect the Fund's business. There can be
       no assurance that payments under government 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 revenue reimbursement process, which in the Fund's industry is
       complex and can involve lengthy delays between the time that revenue is
       recognized and the time that reimbursement amounts are settled.



                                       19


<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                             Partnership Information



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 2001 as filed with the
Securities and Exchange Commission is available to partners without charge on
request by writing to:

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


                                    Auditors

         KPMG LLP
         1600 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