MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARNERSHIP

                               1999 Annual Report

                                 April 10, 2000

Dear Investor:

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

OPERATIONS

         Fund revenues and profitability decreased in 1999 when compared to 1998
because during 1998 the Fund recognized  extraordinary  revenue  relating to the
favorable resolution of a long-standing  Maryland Medicaid  reimbursement issue.
The  settlement  of this issue  resulted  in the  recognition  of  approximately
$2,100,000 in revenue  during fiscal year 1998 that related to cost report years
1994 through 1997.  Compared to 1997,  profitability of the Fund's seven nursing
centers during 1999 improved by $597,000.

         Overall 1999 revenues of $51,278,000  decreased $2,830,000 or 5.2% from
the same period in 1998.  This decrease is primarily due to additional  Medicaid
revenue,  which was  recognized  in fiscal year 1998 related to  adjustments  to
third  party  receivable  balances.  Partially  offsetting  the  decrease in the
Medicaid  revenue  was  growth in  Medicare  revenue of  approximately  $870,000
relating to higher Medicare census.  In fiscal year 1999 Medicare census made up
11.5% of the overall census as compared to 9% in fiscal year 1998.

         Revenue  from  private  and  other  patients  decreased  $1,156,000  to
$9,965,000 in 1999 as compared to  $11,121,000 in 1998.  This decrease  resulted
from decreasing private and veterans  administration  census and lower insurance
and assisted living rates.

         Operating  expenses  increased  $214,000  or less than one  percent  in
fiscal year 1999 as compared to 1998.  Salaries and benefits increased $960,000,
or  approximately  3.6%,  in fiscal  year  1999 as  compared  to the prior  year
primarily  driven by  annual  cost of living  increases.  Additionally,  overall
inflationary  increases and a year-end  adjustment to the bad debt reserve added
additional  expense  of  approximately  $1,334,000  or  3.3%.  Offsetting  these
increases  was a decrease in the costs of  ancillary  services,  which  declined
$2,080,000  for the twelve  months ended  December 31, 1999 as compared to the
same period in the prior year.  This  decrease is primarily  due to a decrease
in the cost of Physical, Speech, Occupational and Respiratory therapies. In
response to Medicare's  conversion to the Prospective Payment System,
the contracts with the therapy providers were re-negotiated to reduce cost.

         Management and administrative  fees decreased $154,000 or approximately
4.3% in 1999 as compared to 1998.  This decrease is due to the management  fees,
which are  calculated  based on net revenues,  and are reflective of the revenue
decrease in fiscal year 1999 as  compared  to 1998.  General and  administrative
costs increased $92,000 in fiscal year 1999 as compared to 1998.

                                        1


<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARNERSHIP


OPERATIONS (continued)

         Interest expense  decreased  $125,000 in 1999 as compared to 1998. This
decrease is the result of  refinancing  the mortgage at lower interest rates and
the effect of principal amortization.  The refinancing was effective on February
28, 1998.

FINANCING

         On March 3, 1998, the Fund entered into a renewal  commitment  with our
existing bank to refinance all of the existing indebtedness.  Under the terms of
the refinancing, the mortgages were scheduled to mature on February 28, 2000. On
February 28, 2000 the Fund  executed a three-month  extension  with the bank and
the existing  indebtedness is now scheduled to mature on May 31, 2000. Under the
terms of the  extension,  the mortgages  continue to bear interest at LIBOR plus
1.55%.  The Fund's  managers  have  secured a new  long-term  commitment  from a
different  bank to  refinance  the existing  indebtedness  as well as the Fund's
$4,000,000  line of credit (which is designated for working capital needs and is
secured  primarily by the accounts  receivable of the Fund). The Fund's managers
believe the refinancing will close prior to the May 31, 2000 maturity date.

CASH DISTRIBUTIONS

         On February 15, 2000 the Fund made its fourth quarter 1999 distribution
to partners of $826,410.  This  distribution  was funded by fourth  quarter 1999
operations and reserves of approximately $168,000. During 1999 operations funded
90% of the  distributions  to partners while the balance was funded by reserves.
Review of the 2000 budget  suggests  operations  from the seven nursing  centers
will be sufficient to fund a similar distribution in 2000.

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.  Recently,  Genesis Health Ventures,  Inc (the parent
company  of  our  Development   General  Partner)  announced  its  intention  to
restructure  the  company's  capital,  following  its  inability to make certain
scheduled  debt  service  payments.  This  action is not  expected to affect the
operation  or  management  of  the  Fund's  seven  nursing  facilities.  We  are
continuing to evaluate disposition alternatives and will keep you advised of any
developments.

Very truly yours,

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

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

                                        2


<PAGE>


                          INDEPENDENT AUDITORS' REPORT

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

We have  audited  the  accompanying  consolidated  balance  sheets  of  Meridian
Healthcare Growth and Income Fund Limited  Partnership (the Fund) as of December
31, 1999 and 1998 and the related consolidated statements of earnings, partners'
capital  (deficit) and cash flows for each of the years in the three-year period
ended  December  31,  1999.  These  consolidated  financial  statements  are the
responsibility  of the Fund's  management.  Our  responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the financial position of Meridian Healthcare
Growth and Income Fund Limited Partnership as of December 31, 1999 and 1998, and
the  results of its  operations  and its cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally  accepted
accounting principles.

February 18, 2000
Philadelphia, Pennsylvania

                                        3

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP
               Consolidated Balance Sheets (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                                     December 31,
                                                                        --------------------------------------
                                                                              1999                  1998
                                                                        ---------------       ----------------
Assets
Current assets
<S>                                                                     <C>                   <C>
    Cash and cash equivalents                                           $        2,511        $         2,928
    Accounts receivable, net of allowance for doubtful
      accounts of $1,048 in 1999 and $479 in 1998                                7,224                  7,279
    Estimated third-party payor settlements                                        342                    882
    Prepaid expenses and other current assets                                      478                    565
                                                                        ---------------       ----------------
Total current assets                                                            10,555                 11,654
                                                                        ---------------       ----------------

Property and equipment
    Land and improvements                                                        1,902                  1,858
    Buildings and improvements                                                  44,204                 43,304
    Furniture and equipment                                                      5,131                  4,617
                                                                        ---------------       ----------------
                                                                                51,237                 49,779
    Accumulated depreciation                                                   (17,891)               (16,126)
                                                                        ---------------       ----------------
                                                                                33,346                 33,653
                                                                        ---------------       ----------------
Goodwill, net                                                                    4,745                  4,998
                                                                        ---------------       ----------------
Total assets                                                            $       48,646        $        50,305
                                                                        ===============       ================

Liabilities and Partners' Capital (Deficit)
Current liabilities
    Current portion of long-term debt                                   $       22,605        $           720
    Accrued compensation and related costs                                         778                    941
    Accounts payable and other accrued expenses
      Trade                                                                      1,002                  1,389
      Related party                                                              1,924                  1,795
    Estimated third-party payor settlements                                      1,934                  2,093
                                                                        ---------------       ----------------
Total current liabilities                                                       28,243                  6,938
                                                                        ---------------       ----------------

Deferred management fee payable                                                    894                    852
Loan payable to Development General Partner                                      1,137                  1,086
Long-term debt                                                                      --                 22,616
                                                                        ---------------       ----------------
                                                                                 2,031                 24,554
                                                                        ---------------       ----------------

Partners' capital (deficit)
    General partners                                                              (132)                  (128)
    Assignee limited partners; 1,540,040 units issued and outstanding           18,504                 18,941
                                                                        ---------------       ----------------
Total partners' capital                                                         18,372                 18,813
                                                                        ---------------       ----------------

Total liabilities and partners' capital                                 $       48,646        $        50,305
                                                                        ===============       ================

</TABLE>



See the accompanying notes to consolidated financial statements.

                                        4

<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,
                                                        -------------------------------------------------
                                                              1999             1998             1997
                                                        ---------------   --------------   --------------


Revenues

<S>                                                     <C>               <C>              <C>
    Medicaid and Medicare patients                      $       41,031    $      42,641    $      38,154
    Private and other patients                                   9,965           11,121           11,103
    Investment and other income                                    282              346              311
                                                        ---------------   --------------   --------------
                                                                51,278           54,108           49,568
                                                        ---------------   --------------   --------------


Expenses

    Operating, including $6,441, $7,400 and $6,760
      to related parties                                        40,396           40,182           39,463
    Management and administration fees
      to related parties                                         3,368            3,522            3,184
    General and administrative                                     902              810              635
    Depreciation and amortization                                2,018            1,972            1,988
    Interest expense                                             1,729            1,854            2,030
                                                        ---------------   --------------   --------------
                                                                48,413           48,340           47,300
                                                        ---------------   --------------   --------------

Net earnings                                            $        2,865    $       5,768    $       2,268
                                                        ===============   ==============   ==============



Net earnings per unit of assignee
   limited partnership interest - basic
   (computed based on 1,540,040 units
    outstanding in 1999, 1998 and 1997)                 $         1.84    $        3.71    $        1.46
                                                        ===============   ==============   ==============

</TABLE>






See the accompanying notes to consolidated financial statements.

                                        5

<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, 1996                 $        (143)   $       17,532    $       17,389

Net earnings                                            23             2,245             2,268

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

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

Net earnings                                            58             5,710             5,768

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

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

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
                                             ==============   ===============   ===============


</TABLE>

See the accompanying notes to consolidated financial statements.

                                        6

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERHSIP

                      Consolidated Statements of Cash Flows

                             (Dollars in thousands)

<TABLE>
<CAPTION>

                                                                         Years Ended December 31,
                                                             -----------------------------------------------

                                                                  1999            1998             1997
                                                             -------------   --------------  ---------------

Cash flows from operating activities
<S>                                                          <C>             <C>             <C>
    Net earnings                                             $      2,865    $       5,768   $        2,268
    Adjustments to reconcile net earnings to net cash
       provided by operating activities
          Depreciation of property and equipment                    1,765            1,721            1,671
          Amortization of intangibles                                 253              250              317
          Minority interest in net earnings of operating
            partnerships                                               34               24               26
          Increase in loan payable to Development General Partner      51               51               51
          Increase in deferred management fee payable                  42               40               42
          Change in other assets and liabilities
                Accounts receivable                                    55             (842)              (8)
                Estimated third-party payor settlements, net          381           (2,680)           1,038
                Prepaid expenses and other current assets              87               --              (51)
                Accrued compensation and related costs               (163)            (113)          (1,361)
                Accounts payable and other accrued expenses          (177)           1,048               27
                                                             -------------   --------------  ---------------

Net cash provided by operating activities                           5,193            5,267            4,020
                                                             -------------   --------------  ---------------

Cash flows from investing activities -
    additions to property and equipment                            (1,458)            (535)            (830)
                                                             -------------   --------------  ---------------

Cash flows from financing activities
    Line of credit borrowings, net                                     --               --           (1,000)
    Repayment of long-term debt                                      (731)            (699)            (557)
    Distributions to partners                                      (3,306)          (3,306)          (3,306)
    Distributions to minority interests                              (115)             (74)             (14)
                                                             -------------   --------------  ---------------

Net cash used in financing activities                              (4,152)          (4,079)          (4,877)
                                                             -------------   --------------  ---------------

Net increase (decrease) in cash and cash equivalents                 (417)             653           (1,687)
Cash and cash equivalents, beginning of year                        2,928            2,275            3,962
                                                             -------------   --------------  ---------------

Cash and cash equivalents, end of year                       $      2,511    $       2,928   $        2,275
                                                             =============   ==============  ===============
</TABLE>

See the accompanying notes to consolidated financial statements.

                                        7


<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

                   Notes to Consolidated Financial Statements

                        December 31, 1999, 1998 and 1997


(1)    Organization and Operations

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

       The Fund owns 98.99% limited  partnership  interests in 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.  Total patient days available and occupancy (unaudited)
       at the facilities in each of the three years were as follows:

                                    Available
                     Year              Days            Occupancy

                     1999            429,000            87.90%
                     1998            429,000            91.70%
                     1997            429,000            93.20%


(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.

                                        8


<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,  1999,  in the
       aggregate,  the Fund's  operating  partnerships  have recorded  assets of
       $478,000  for cost  report  receivables  and  $1,934,000  for cost report
       liabilities  relating to Medicare  and  Medicaid  cost  reports that have
       accumulated for the for the years 1997, 1998 and 1999.

       Revisions to prior year cost reimbursement settlements resulted in an
       increase to revenues of $389,913, $3,094,000 and $342,000 for fiscal
       years ended in 1999, 1998 and 1997  respectively. The revenue adjustments
       for 1999 and 1997 are primarily due to the revision of the estimated
       settlements  based upon final and interim audit settlements of the open
       cost report years.  The majority of the 1998 adjustments resulted from
       the favorable  resolution of a Maryland Medicaid issue which related to
       cost reports for years 1994 through 1997. Maryland Medicaid had proposed
       an audit adjustment reducing the amount of cost allowed for reimbursement
       of the fees paid to the Fund's manager as the state auditor took the
       position  that the manager was a related party. Upon appeal by the Fund,
       the State of Maryland determined that the Fund's manager was not a
       related  party and that fees paid to


                                        9

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)



(2)    Summary of Significant Accounting Policies (continued)

       Revenue (continued)

       the manager were reimbursable under the state Medicaid program subject
       to the applicable cost center ceilings.

       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  receives  covered  skilled nursing  facility
       care. While the Fund has prepared certain estimates of the impact of PPS,
       it is not possible to fully quantify the effect of the  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 PPS will not be greater than estimated
       or that these legislative  changes or any future  healthcare  legislation
       will not  adversely  affect  the  business  of the Fund.  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.

       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.

                                       10


<PAGE>


                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(2)    Summary of Significant Accounting Policies (continued)

       Goodwill

       Goodwill  arising  from the Fund's  purchase of its  limited  partnership
       interests in the operating  partnerships  is amortized on a straight-line
       basis over thirty years.  Accumulated amortization of goodwill aggregated
       $2,919,000 and $2,667,000 at December 31, 1999 and 1998, 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 the partners. The distributive
       share of the Fund's earnings, deductions and credits are included in each
       partner's federal and state income tax returns.

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

                                                                       1999        1998          1997
                                                                   ----------  -----------   -----------

<S>                                                                <C>         <C>           <C>
      Net earnings per consolidated statements of earnings         $   2,865   $    5,768    $    2,268
      Accelerated depreciation deducted for income
        tax purposes over straight-line depreciation
        deducted for financial reporting purposes                       (164)        (195)         (228)
      Amortization of goodwill deducted for financial reporting
        purposes, not deducted for income tax purposes                   251          241           248
      Differences in timing of revenue recognition
        for financial reporting purposes and
        income tax purposes, primarily related to cost
        reimbursement settlements                                        (38)      (2,275)          422
      Differences in timing of expense deductions for
        financial reporting purposes and income tax purposes             516          (70)         (197)
                                                                   ----------  -----------   -----------

      Taxable earnings                                             $   3,430   $    3,469    $    2,513
                                                                   ==========  ===========   ===========

</TABLE>

                                       11

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)



(2)    Summary of Significant Accounting Policies (continued)

       Use of Estimates

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

       Segment Disclosures

       In June 1997 the  Financial  Accounting  Standards  Board issued SFAS No.
       131,  "Disclosure about Segments of an Enterprise and Related Information
       ("SFAS No. 131").  SFAS No. 131  establishes  new standards for reporting
       information about operating  segments in annual financial  statements and
       requires  selected   information  about  operating  segments  in  interim
       financial  reports.  SFAS No. 131 also establishes  standards for related
       disclosures  about  products  and  services,  geographic  areas and major
       customers.  This  statement  has no  impact  on  the  Fund's  results  of
       operations, financial condition, or liquidity. The operations of the Fund
       are managed and its  performance is evaluated  based on the  consolidated
       results or operations and financial position of the Fund.

(3)    Related Party Transactions

       The nursing  centers owned by the operating  partnerships  are managed by
       MHC, an affiliate of the Development General Partner.  Under the terms of
       the management  agreements,  the operating  partnerships are obligated to
       pay monthly management fees at an annual rate equal to 6% of each nursing
       center's revenue.  However,  payment of one-half of the fees incurred for
       the  management  of the  Mooresville,  Salisbury  and  Woodlands  nursing
       centers was  deferred  during the  two-year  period  commencing  with the
       Fund's  acquisition  of  partnership  interests  in 1988 and 1989.  As of
       December 31, 1999 and 1998, the amounts  deferred  under this  agreement,
       including  interest at 9% per annum,  aggregated  $894,000 and  $852,000,
       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,


                                       12

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)

(3)     Related Party Transactions (continued)

        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   $1,137,000   and  $1,086,000  at  December  31,  1999  and  1998,
        respectively.  The Fund is  obligated  to repay these loans when certain
        specified  financial  criteria are met, the most significant of which is
        the payment of a preferred  return to the assignee  limited  partners as
        defined in the Fund's partnership agreement.

        Transactions  with the Fund's General  Partners and their affiliates for
        the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
                                                       1999         1998        1997
                                                     --------     -------     --------

<S>                                                 <C>          <C>         <C>
            Management and administration fees      $   3,368    $  3,522    $   3,184
            Drugs and medical supplies purchases        3,012       2,447        2,230
            Nursing and rehabilitation services         3,429       4,953        4,530
            Interest expense on borrowings                 93          91           93
</TABLE>


       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%,  65%,  and 64% in  1999,  1998  and  1997,  respectively,  of  total
       operating expenses.

(4)    Debt

       Effective  February  28,  1998 the Fund  renewed its  $4,000,000  line of
       credit  agreement  which is  designated  for  working  capital  needs and
       issuance of letters of credit.  This  agreement  expired on February  28,
       2000.  Effective  February 28, 2000, the Fund extended its line of credit
       through  May 31,  2000 at which time any and all  outstanding  borrowings
       under the agreement become due.  Borrowings are secured  primarily by the
       accounts  receivable of the Fund. Any outstanding  cash borrowings  under
       the facility bear  interest  based on a LIBOR rate plus 155 basis points.
       There were no borrowings or letters of credit outstanding at December 31,
       1999 and 1998.

       Effective February 28, 1998, the Fund refinanced all existing mortgages .
       Under the terms of the refinancing, the mortgages matured on February 28,

                                       13

<PAGE>

                   MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)

(4)    Debt (continued)

       2000.  Effective  February  28,  2000  the  Fund  extended  all  existing
       mortgages through May 31, 2000. The mortgages bear interest at LIBOR plus
       1.55%. The Fund's managers have secured a new long-term commitment from a
       bank to  refinance  the  existing  indebtedness  as  well  as the  Fund's
       $4,000,000  line of credit (which is designated for working capital needs
       and is secured primarily by the accounts  receivable of the Fund).  The
       Fund's  managers believe the refinancing will close prior to the May 31,
       2000  maturity date.

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

                                              1999             1998
                                         -------------   --------------
           Mortgage notes payable

             Maryland facilities         $     15,640    $      16,049
             Woodlands facility                 5,586            5,773
             Frederick facility                 1,047            1,153
             Hamilton facility                    332              361
                                         -------------   --------------
                                               22,605           23,336
           Less current portion               (22,605)            (720)
                                         -------------   --------------
                                         $          0    $      22,616
                                         =============   ==============


       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
       $1,602,000,   $1,738,000   and   $1,803,000  in  1999,   1998  and  1997,
       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 1999, 1998 and 1997. Cash  distributions  per
       unit aggregated $2.12 in 1999, 1998 and 1997.

(6)    Employee Benefit Plans

       Certain   employees  of  the  Fund's  nursing  centers  are  eligible  to
       participate in the Genesis Health  Ventures,  Inc.  Retirement  Plan. The
       Plan covers all  employees  having  1,000 hours or more service in a plan
       year.  Employees'  contributions  to the plan may be  matched by the Fund
       based on years of service.  During the plan years ended December 31, 1999
       and 1998,

                                       14


<PAGE>


                 MERIDIAN HEALTHCARE GROWTH AND INCOME FUND
                               LIMITED PARTNERSHIP

             Notes to Consolidated Financial Statements (continued)


(6)    Employee Benefit Plans (continued)

       a company match of 50% of employee contributions up to 3% of the
       employee's  annual gross salary was accrued.  Additionally,  the Plan
       provides for discretionary employer contributions based on profits.

       Certain  other  employees of the Fund's  nursing  centers are eligible to
       participate in Meridian  Healthcare,  Inc. Union Retirement  Savings Plan
       which qualified under Section 401(K) of the Internal  Revenue  Service
       Code.  Employees of the company  covered by a collective  bargaining
       agreement are eligible for  participation  in the Plan on the first day
       of the  quarter  following  the date  1,000 or more hours of service are
       completed  and after  attaining  the age of 21. In accordance with the
       terms of the plan,  employees may elect to contribute a percentage of
       their respective annual compensation to the plan, subject to certain
       limitations.  The Fund is  obligated  to  match  50% of each employee's
       contribution up to 3% of their respective annual compensation.

       Charges to operations in connection with these plans aggregated  $209,000
       in 1999, $185,000 in 1998 and $139,000 in 1997.

(7)    Commitments and Contingencies

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

(8)    Fair Value of Financial Instruments

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

       The carrying value of the Fund's floating-rate debt approximates its fair
       value.

                                       15


<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  Partnership's  Annual  Report on Form 10-K for 1999 as filed with
the Securities and Exchange  Commission is available to partners  without charge
on request by writing to:

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

                                    Auditors

         KPMG LLP
         111 South Calvert Street
         Baltimore, Maryland 21202

                                  Legal Counsel

         Piper Marbury Rudnick & Wolfe LLP
         6225 Smith Avenue
         Baltimore, Maryland 21209

                               Further Information

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

For further  information  or questions  regarding your  investment,  please call
Jennifer Zepp, Investment Coordinator, at 410-547-3033

                                       16