<PAGE>   1
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                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                ----------------

                                    FORM 10-K

                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

                         COMMISSION FILE NUMBER: 0-26468
                                ----------------

                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                        A CALIFORNIA LIMITED PARTNERSHIP
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


<TABLE>
<S>                                                      <C>
                    CALIFORNIA                                        33-0278155
   (STATE OR OTHER JURISDICTION OF INCORPORATION         (I.R.S. EMPLOYER IDENTIFICATION NO.)
                 OR ORGANIZATION)

           245 FISCHER AVENUE, SUITE D-1                                 92626
              COSTA MESA, CALIFORNIA                                  (ZIP CODE)
      (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>


                                ----------------

       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 751-7400

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                 TITLE OF CLASS
                          UNITS OF LIMITED PARTNERSHIP
                                ----------------

   Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

   Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes [X] No [ ]

   The aggregate market value of the voting units held by non-affiliates of
registrant, computed by reference to the price at which units were sold, was
$16,696,569 (for purposes of calculating the preceding amount only, all
directors, executive officers and unitholders holding 5% or greater of the
registrant's units are assumed to be affiliates). The number of Units
outstanding as of March 17, 2000 was 35,020.

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


<PAGE>   2
                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                        A CALIFORNIA LIMITED PARTNERSHIP

                       INDEX TO ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999


<TABLE>
<CAPTION>
                                                                    PAGE
                                                                    ----
<S>                                                                 <C>
  PART I

Item 1:     Business............................................     3
Item 2:     Properties..........................................     8
Item 3:     Legal Proceedings...................................     8
Item 4:     Submission of Matters to a Vote of Unit Holders.....     9

 PART II

Item 5:     Market for Our Common Equity and
            Related Unit Holders Matters........................    10
Item 6:     Selected Financial Data.............................    10
Item 7:     Management's Discussion and Analysis of
            Financial Condition and Results of Operations.......    10
Item 7a:    Quantitative and Qualitative Disclosures About
            Market Risk.........................................    13
Item 8:     Financial Statements and Supplementary Data.........    13
Item 9:     Changes in and Disagreements with Accountants on
            Accounting and Financial Disclosure.................    13

 PART III

Item 10:    Our Directors and Executive Officers................    14
Item 11:    Executive Compensation.............................     15
Item 12:    Security Ownership of Certain Beneficial Owners
            and Management......................................    16
Item 13:    Certain Relationships and Related Transactions......    16

 PART IV

Item 14:    Exhibits and Financial Statement Schedules,
            and Reports on Form 8-K.............................    17
</TABLE>


                                       2


<PAGE>   3
                                                   PART I

ITEM 1. BUSINESS

OVERVIEW

        American Retirement Villas Properties II ("ARVP II") operates ten
assisted living communities ("ALCs") in the state of California, nine of which
we own and one of which we lease. On March 2, 1999, we obtained financing and,
through a wholly owned subsidiary, purchased four previously leased ALCs for
approximately $14.3 million. In our ALCs we house and provide personal care and
support services to senior residents in facilities containing an aggregate of
923 units. For the twelve months ended December 31, 1999 and 1998, ARVP II's
ALCs had a total average occupancy of approximately 89%.

        ARVP II was founded in February 1988 as a California limited partnership
to develop, finance, acquire, and operate senior housing, inclusive of ALCs. The
general partners of ARVP II are ARV Assisted Living, Inc., ("ARVAL"), which
serves as Managing General Partner, Gary L. Davidson, John A. Booty, John S.
Jason, and Tony Rota (collectively known as the "General Partners").

        On May 16, 1996, ARVAL tendered for the limited partnership units in
ARVP II, at a net cash price of $720 per unit. Prior to the tender offer ARVAL
owned 110 units. At the close of the tender offer on June 21, 1996, holders of
approximately 15,524 units tendered their units representing approximately 44%
of all outstanding units. On July 26, 1996, ARVAL initiated a second tender
offer to purchase up to 3,715 additional limited partnership units at a net cash
price of $720 per unit less second quarter distributions. At the close of the
second tender offer on August 23, 1996, holders of approximately 2,164 units
tendered their units representing approximately 6.2% of all units. During 1997,
ARVAL acquired 525 additional limited partnership units at a net cash price of
approximately $720 per unit. As of December 31, 1999, ARVAL owns 18,323 units or
approximately 52.3% of the limited partnership units. As such, ARVAL has a
controlling interest in the Partnership.

THE ASSISTED LIVING MARKET

        Assisted Living. Assisted living is a stage in the elder care continuum,
midway between home-based care for lower acuity residents and the more acute
level of care provided by skilled nursing facilities and acute care hospitals.
Assisted living represents a combination of housing, personalized support
services, and health care designed to respond to the individual needs of the
senior population who need help in activities of daily living, but do not need
the medical care provided in a skilled nursing facility.

        We believe our assisted living business benefits from significant trends
affecting the long-term care industry. The first is an increase in the demand
for elder care resulting from the continued aging of the U.S. population, with
the average age of our residents falling within the fastest growing segment of
the U.S. population. While increasing numbers of Americans are living longer and
healthier lives, many gradually require increasing assistance with activities of
daily living, and are not able to continue to age in place at home. The second
trend is the effort to contain health care costs by the government, private
insurers and managed care organizations by limiting lengths of stay, services,
and reimbursement to patients in acute care hospitals and skilled nursing
facilities. Assisted living offers a cost-effective, long-term care alternative
while preserving a more independent lifestyle for seniors who do not need the
broader array of medical services that acute care hospitals and skilled nursing
facilities are required to provide. Other trends include increases in the
financial net worth of the elderly population, the number of individuals living
alone, and the number of women who work outside the home who are less able to
care for their elderly relatives. We believe these trends will result in a
growing demand for assisted living services and communities to fill the gap
between aging at home and aging in more expensive skilled nursing facilities.

        Aging Population. The primary consumers of long-term health care
services are persons over the age of 65. This group represents one of the
fastest growing segments of the population. According to U.S. Bureau of the
Census data, the segment of the population over 65 years of age is currently 13%
of the total population, or 34 million people. That number is projected to grow
to 20% of the total population, or 69 million people, by the year 2030.
Additionally, the number of people aged 85 and older, which comprises the
largest percentage of residents at long-term care facilities, is currently 3.7
million and is projected to increase to 8.5 million by the year 2030.

        We believe that growth in the assisted living industry is being driven
by several factors. Advances in the medical and nutrition fields have increased
life expectancy, resulting in larger numbers of elderly people. Greater numbers
of women in the labor force have reduced the supply of caregivers. Historically,
unpaid women (mostly daughters or daughters-in-law) represented a large portion
of the


                                       3


<PAGE>   4
caregivers for the non-institutionalized elderly. The population of individuals
living alone has increased significantly since 1960, largely as a result of an
aging population in which women outlive men by an average of 6.8 years, rising
divorce rates, and an increase in the number of unmarried individuals.

        Limitation on the Supply of Long-Term Care Facilities. The majority of
states in the U.S. have enacted Certificate of Need or similar legislation,
which generally limits the construction of skilled nursing facilities and the
addition of beds or services in existing skilled nursing facilities. High
construction costs, limitations on government reimbursement for the full cost of
construction, and start-up expenses also constrain growth in the supply of such
facilities. Such legislation benefits the assisted living industry by limiting
the supply of skilled nursing beds for the elderly. Cost factors are placing
pressure on skilled nursing facilities to shift their focus toward higher acuity
care, which enables them to charge more. This contributes to a shortage of lower
acuity care and increasing the pool of potential assisted living residents.

        While Certificates of Need generally are not required for ALCs, except
in a few states, most states do require assisted living providers to license
their communities and comply with various regulations regarding building
requirements and operating procedures and regulations. States typically impose
additional requirements on ALCs over and above the standard congregate care
requirements. Further, the limited pool of experienced assisted living staff and
management, as well as the costs and start-up expenses to construct an ALC,
provide an additional barrier to entry into the assisted living business.

        Cost Containment Pressures of Health Reform. In response to rapidly
rising health care costs, both government and private pay sources have adopted
cost containment measures that encourage reduced lengths of stay in hospitals
and skilled nursing facilities. The federal government has acted to curtail
increases in health care costs under Medicare by limiting acute care hospital
and skilled nursing facility reimbursement to pre-established fixed amounts.
Private insurers have also begun to limit reimbursement for medical services in
general to predetermined "reasonable" charges. Managed care organizations, such
as health maintenance organizations ("HMOs") and preferred provider
organizations ("PPOs") are reducing hospitalization costs by negotiating
discounted rates for hospital services and by monitoring and decreasing
hospitalization. We anticipate that both HMOs and PPOs increasingly may direct
patients away from higher cost nursing care facilities into less expensive ALCs.

        These cost containment measures have produced a "push-down" effect. As
the number of patients being "pushed down" from acute care hospitals to skilled
nursing facilities increases, the demand for residential options such as ALCs to
serve patients who historically have been served by skilled nursing facilities
will also increase. In addition, skilled nursing facility operators are
continuing to focus on improving occupancy and expanding services (and fees) to
subacute patients requiring very high levels of nursing care. As the acuity
level of skilled nursing facility patients rises, the supply of nursing facility
beds will be filled by patients with higher acuity needs who pay higher fees.
This will provide opportunities for assisted living communities to increase
their occupancy and services to residents requiring lower levels of care than
patients in skilled nursing facilities generally receive.

OUR ASSISTED LIVING SERVICES

        We provide services and care which are designed to meet the individual
needs of our residents. The services provided are designed to enhance both the
physical and mental wellbeing of seniors in each of our ALCs by promoting their
independence and dignity in a home-like setting. Our assisted living program
includes the following:

-       Personalized Care Plan. The focus of our strategy is to meet the
        specific needs of each resident. We customize our services beginning
        with the admissions process when the ALC's management staff, the
        resident, the resident's family, and the resident's physician discuss
        the resident's needs and develop a "personalized" care plan. If
        recommended by the resident's physician, additional health care or
        medical services may be provided at the community by a third party home
        health care agency or other medical provider. The care plan is reviewed
        and modified on a regular basis.


                                       4


<PAGE>   5
-       Basic Service and Care Package. The basic service and care package at
        our ALCs generally include:

                -       meals in a communal, "home-like" setting;

                -       housekeeping;

                -       linen and laundry service;

                -       social and recreational programs;

                -       utilities; and

                -       transportation in a van or minibus.

                Other care services can be provided under the basic package
        based upon the individual's personalized health care plan. Our policy is
        to charge base rents that are competitive with similar ALCs in the local
        market.

-       Additional Services. Our assisted living services program offers
        additional levels of care beyond what is offered in the basic package.
        The level of care a resident receives is determined through an
        assessment of a resident's physical and mental health which is conducted
        by the community's assisted living director, with input from other staff
        members. The six-tiered rate structure is based on a point system. We
        assign points to the various care tasks required by the resident, based
        on the amount of staff time and expertise needed to accomplish the
        tasks. The point scale and pricing are part of the admissions agreement
        between the community, the resident and the resident's family. The
        community performs reassessments after the initial 30 days and
        periodically throughout the resident's stay to ensure that the level of
        care we provide corresponds to changes in a resident's condition. The
        types of services included in the assessment point calculation are:

                -       Medication management;

                -       Assistance with dressing and grooming;

                -       Assistance with showering;

                -       Assistance with continence;

                -       Escort services;

                -       Status checks related to a recent hospitalization,
                        illness, history of falls, etc;

                -       Help with psychosocial needs, such as memory deficit or
                        depression;

                -       Special nutritional needs and assistance with eating.

                In addition to the above services, we provide other levels of
        assistance to residents at selected ALCs in order to meet individual
        needs, such as assistance with diabetic care and monitoring, catheter,
        colostomy and ileosotomy care, minor wound care needs and light to
        moderate transferring needs. Specially trained staff provides
        personalized care and specialized activity programs and medical
        directors oversee the medication regimens.

        In addition to the base rent, we typically charge between $375 and
$1,375 per month plus an additional charge for higher levels of assisted living
services. Fee levels vary from community to community and we may charge
additional fees for other specialized assisted living services. We expect that
an increasing number of residents will use additional levels of services as they
age in our ALCs. Our internal growth plan is focused on increasing revenue by
continuing to improve our ability to provide residents with these services.

        There can be no assurance that any ALC will be substantially occupied at
assumed rates at any time. In addition, we may only be able to lease up our ALCs
to full occupancy at rates below those assumed. If operating expenses increase,
local market conditions may limit the extent to which we may increase rates.
Because we must provide advance notice of rate increases, generally at least 30
days, increases may lag behind increases in operating expenses.

   Wellness Program. We have implemented a Wellness Program for residents of our
communities designed to identify and respond to changes in a resident's health
or condition. Together with the resident and the resident's family and
physician, as appropriate, we design a solution to fit that resident's
particular needs. We monitor the physical and mental wellbeing of our residents,
usually at meals and other activities, and informally as the staff performs
services around the facility. Through the Wellness Program we work with:

        -       home health care agencies to provide services the community
                cannot provide;

        -       physical and occupational therapists to provide services to
                residents in need of such therapy; and

        -       long-term care pharmacies to facilitate cost-effective and
                reliable ordering and distribution of medications.


                                       5


<PAGE>   6
        We arrange for these services to be provided to residents as needed in
consultation with their physicians and families. At the present time, all our
ALCs have a comprehensive Wellness Program.

FACTORS AFFECTING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS

        Our business, results of operations and financial condition are subject
to many risks, including those set forth below. Certain statements contained in
this report, including, without limitation, statements containing the words
"believes," "anticipates," "expects," and words of similar import, constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, our performance or achievements, or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. We have made forward-looking
statements in this report concerning, among other things, the level of future
capital expenditures. These statements are only predictions, however; actual
events or results may differ materially as a result of risks facing us. These
risks include, but are not limited to, those items discussed below. Certain of
these factors are discussed in more detail elsewhere in this report, including,
without limitation, under the captions "Business", "Legal Proceedings" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Given these uncertainties, readers are cautioned not to place undue
reliance on such forward-looking statements, which speak only as of the date of
this report. We disclaim any obligation to update any such factors or to
publicly announce the result of any revisions to any of the forward-looking
statements contained herein to reflect future events or developments.

COMPETITION

        The health care industry is highly competitive and we expect that the
assisted living business, in particular, will become more competitive in the
future. Sources of competition include:

        -       family members providing care at home;

        -       numerous local, regional and national providers of assisted
                living and long-term care whose facilities and services range
                from home-based health care to skilled nursing facilities; and

        -       acute care hospitals.

        In addition, we believe that as assisted living receives increased
attention among the public and insurance companies, new competitors focused on
assisted living will enter the market, including hospitality companies expanding
into the market. Some of our competitors operate on a not-for-profit basis or as
charitable organizations, while others have, or are capable of obtaining,
greater financial resources than those available to us.

        We also expect to face increased competition for the acquisition and
development of ALCs. Some of our present and potential competitors are
significantly larger or have, or may obtain, greater financial resources than we
have. These forces could limit our ability to attract residents, attract
qualified personnel, expand our business, or increase the cost of future
acquisitions, each of which could have a material adverse effect on our
financial condition, results of operations and prospects.

GOVERNMENT REGULATION

        Assisted Living. Health care is subject to extensive regulation and
frequent regulatory change. Currently, no federal rules explicitly define or
regulate assisted living. However, we are and will continue to be subject to
varying degrees of regulation and licensing by health or social service agencies
and other regulatory authorities in California and localities where we operate
or intend to operate. Changes in, or the adoption of, such laws and regulations,
or new interpretations of existing laws and regulations, could have a
significant effect on methods and costs of doing business, and on reimbursement
levels from governmental and other payers. In addition, the President and
Congress have proposed in the past, and may propose in future, health care
reforms that could impose additional regulations on us or limit the amounts that
we may charge for our services. We cannot assess the ultimate timing and impact
that any pending or future health care reform proposals may have on the assisted
living, home health care, skilled nursing or health care industry in general. No
assurance can be given that any such reform will not have a material adverse
effect on the business, financial condition or our results of operations.


                                       6


<PAGE>   7
        SSI Payments. A portion of our revenue comes from residents who receive
SSI payments. Revenue from these residents is generally lower than the amounts
we receive from our other residents and could be subject to payment delay.
Approximately 8.6% of our residents are SSI residents. We cannot assure that our
percentage of revenue received from SSI will not increase, or that the amounts
paid by SSI programs will not be further limited. In addition, if we were to
become a provider of services under the Medicaid program, we would be subject to
Medicaid regulations designed to limit fraud and abuse. Violations of these
regulations could result in civil and criminal penalties and exclusion from
participation in the Medicaid program.

RISKS COMMON TO OUR ASSISTED LIVING OPERATIONS

        Staffing and Labor Costs. We compete with other providers of assisted
living and senior housing to attract and retain qualified personnel. We also
rely on the available labor pool of employees, and unemployment rates are low in
many areas where we operate. We make a genuine effort to remain competitive with
other companies in our industry. Therefore, if it is necessary for us to
increase pay and/or enhance benefits to maintain our competitive status in our
industry, our labor costs could rise. We cannot provide assurance that if our
labor costs do increase, they can be matched by corresponding increases in
rental or assisted living revenue.

Obtaining Residents and Maintaining Rates. For the year ended December 31, 1999,
our ALCs had an average combined occupancy rate of 89%. Occupancy may drop in
our ALCs, primarily due to:

        -       changes in the health of residents;

        -       increased competition from other assisted living providers,
                particularly those offering newer ALCs;

        -       the reassessment of residents' physical and cognitive state and
                changes in management and staffing.

        We cannot assure that, at any time, any ALC will be substantially
occupied at assumed rents. In addition, we may only achieve lease-up and full
occupancy at rental rates below those assumed. If operating expenses increase,
local rental market conditions may limit the extent to which we may increase
prices. The implementation of rate increases for residents of new acquisitions
may lag behind increases in operating expenses. In addition, if we fail to
generate sufficient revenue, we may be unable to meet minimum rent obligations
under our long-term operating lease and to make interest and principal payments
on our indebtedness.

   General Real Estate Risks. The performance of our ALCs is influenced by
factors affecting real estate investments, including the general economic
climate. Other real estate risks include:

        -       an oversupply of, or a reduction in demand for, ALCs in a
                particular market;

        -       the attractiveness of properties to residents;

        -       zoning, rent control, environmental quality regulations or other
                regulatory restrictions;

        -       competition from other forms of housing;

        -       our ability to provide adequate maintenance and insurance;

        -       our ability to control operating costs, including maintenance,
                insurance premiums and real estate taxes.

        Real estate investments are also affected by such factors as applicable
laws, including tax laws, interest rates and the availability of financing. Real
estate investments are relatively illiquid and, therefore, limit our ability to
vary our portfolio promptly in response to changes in economic or other
conditions. If we fail to operate our ALCs effectively, it may have a material
adverse effect on our business, financial condition and operating results.

        Possible Environmental Liabilities. Under various federal, state and
local environmental laws, ordinances and regulations, a current or previous
owner or operator of real property may be held liable for the costs of the
removal or remediation of certain hazardous or toxic substances. These include,
without limitation, asbestos-containing materials which could be located on, in
or under such property. Such laws and regulations often impose liability whether
or not the owner or operator knows of, or is responsible for, the presence of
the hazardous or toxic substances. When we acquire land for development or
existing facilities, we typically obtain environmental reports on the properties
as part of our due diligence in order to lessen our risk of exposure.
Nonetheless, the costs of any required remediation or removal of these
substances could be substantial. The owner's liability is generally not limited
under such laws and regulations and could exceed the value of the property and
the aggregate assets of the owner or operator. The presence of these substances
or failure to remediate such substances properly may also adversely affect the
owner's ability to sell or rent the property or to borrow using the property as
collateral. Under these laws and regulations, an owner, operator, or any entity
that arranges for the disposal of hazardous or toxic substances at a disposal
site may also be liable for the costs of any required remediation or removal of
the hazardous or toxic substances at the disposal site. When entering into
leases with health care REITs and other landlords of


                                       7


<PAGE>   8
facilities, we typically enter into environmental indemnity agreements in which
we agree to indemnify the landlord against all risk of environmental liability,
both during the term of the lease and beyond. In connection with the ownership
or operation of our properties or those of our Affiliated Partnerships, we could
be liable for these costs, as well as certain other costs, including
governmental fines and injuries to persons or properties.

        Restrictions Imposed by Laws Benefiting Disabled Persons. Under the
Americans with Disabilities Act of 1990, all places of public accommodation are
required to meet certain federal requirements related to access and use by
disabled persons. A number of additional federal, state and local laws exist
that also may require us to modify existing and planned properties to allow
disabled persons to access the properties. We believe that our properties are
either substantially in compliance with present requirements or are exempt from
them. However, if required changes cost more than anticipated, or must be made
sooner than anticipated, we would incur additional costs. Further legislation
may impose additional burdens or restrictions related to access by disabled
persons, and the costs of compliance could be substantial.

        Geographic Concentration. All of our ALCs are located in California. The
market value of these ALCs and the income generated from properties could be
negatively affected by changes in local and regional economic conditions,
specific laws and the regulatory environment in California, and by acts of
nature. We cannot provide assurance that such geographic concentration will not
have an adverse impact on our business, financial condition, operating results
and prospects.

        Insurance. We believe that we maintain adequate insurance policies,
based on the nature and risks of our business, historical experience and
industry standards. Our business entails an inherent risk of liability. In
recent years, we and other assisted living providers have become subject to an
increasing number of lawsuits alleging negligence or related legal theories,
which may involve large claims and significant legal costs. From time to time we
are subject to such suits because of the nature of our business. We cannot
assure that claims will not arise that exceed our insurance coverage or are not
covered by it. A successful claim against us that is not covered by, or is in
excess of our insurance, could have a material adverse effect on our financial
condition, operating results or liquidity. Claims against us, regardless of
their merit or eventual outcome, may also have a material adverse effect on our
ability to attract residents or expand our business and would consume
considerable management time. We must review our insurance policies annually and
can provide no assurance that we will be able to continue to obtain liability
insurance coverage in the future or that it will be available on acceptable
terms.

ITEM 2. PROPERTIES

        The following table sets forth, as of December 31, 1999, the location,
the date on which operations commenced, number of units, and our interest in the
ALC.


<TABLE>
<CAPTION>
                                           OPERATIONS
        COMMUNITY             LOCATION      COMMENCED    UNITS INTEREST
        ---------             --------      ---------    --------------
<S>                        <C>             <C>           <C>
Retirement Inn of          Burlingame, CA     1989        67   Fee-Owned
Burlingame
Retirement Inn of Campbell Campbell, CA       1989        71   Fee-Owned
Covina Villa               Covina, CA         1988        63   Fee-Owned,
                                                                 subject to
                                                               ground lease
Retirement Inn of Daly     Daly City, CA      1989        94   Fee-Owned
City
Retirement Inn of Fremont  Fremont, CA        1989        69   Fee-Owned
Retirement Inn of          Fullerton, CA      1989        67   Fee-Owned
Fullerton
Montego Heights Lodge      Walnut Creek,      1989       162   Fee-Owned
                           CA
Retirement Inn of          Sunnyvale, CA      1989       123   Fee-Owned
Sunnyvale
Valley View Lodge          Walnut Creek,      1989       124   Fee-Owned
                           CA
Inn at Willow Glen         San Jose, CA       1989        83   Leased
</TABLE>


        On March 2, 1999, we purchased our landlords' fee interests in the
Retirement Inn of Burlingame, Retirement Inn of Campbell, Retirement Inn of
Fremont and Retirement Inn of Sunnyvale.

ITEM 3. LEGAL PROCEEDINGS

        On June 15, 1999, six California limited partnerships of which the
Company is the managing general partner and a majority limited partner -
American Retirement Villas Properties II, American Retirement Villias Properties
III, Casa Bonita Fullerton, Ltd., Collwood Knolls, L.P., and San Gabriel
Retirement Villa, L.P. (the "ARV Partnerships") - filed an action in the
Superior Court for the State of California, County of Orange, seeking a
declaratory judgment and damages for breach of contract, promissory estoppel,
fraud and negligent mispresentation against PRN Mortgage Capital, L.L.C. and Red
Mountain Funding, L.L.C. ("Defendants").


                                       8


<PAGE>   9
        The parties are in the intial states of discovery. Defendants have not
filed a counter-claim, but have threatened in verbal communications to seek
payment by the ARV Partnerships of certain loan commitment fees allegedly owed
to Defendants. The ARV Partnerships believe that they have substantial and
meritorious defenses to the counter-claims threatened by Defendants.

        We are from time to time subject to lawsuits and other matters in the
normal course of business. While we cannot predict the results with certainty,
we do not believe that any liability from any such lawsuits or other matters
will have a material effect on our financial position, results of operations, or
liquidity.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF UNIT HOLDERS

        No matters were submitted to Unitholders during the fiscal year.


                                       9


<PAGE>   10
                                     PART II

ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED UNITHOLDER MATTERS

        There is no established public trading market for our securities. As
noted in Item 1, ARVAL, our Managing General Partner ,tendered for our limited
partnership units in May 1996 and July 1996. During 1997, ARVAL acquired 525
additional units at a net cash price of approximately $720 per unit. As of
December 31, 1999, ARVAL owned 18,323 limited Partnership units or approximately
52.3% of outstanding limited partner units.

        As of December 31, 1999, there were approximately 1,740 Unit Holders of
record owning 35,019.88 units. For the years ended December 31, 1999, 1998 and
1997, we made limited partner distributions of $502.32 per unit, $53.63 per
unit, and $45.24 per unit, respectively. The return of capital for the years
ended December 31, 1999, 1998 and 1997 was $461.33 per unit, $2.38 per unit, and
$0 per unit, respectively. There were distributions of earnings for the years
ended December 31, 1999, 1998 and 1997 of $40.99 per unit, $51.25 per unit, and
$45.24 per unit, respectively.

ITEM 6. SELECTED FINANCIAL DATA

        The following table presents selected financial data for each of our
last five fiscal years. Certain of this financial data has been derived from our
audited financial statements included elsewhere in this Form 10-K and should be
read in conjunction with those financial statements and accompanying notes and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" at Item 7. This table is not covered by the Independent Auditors'
Report.


<TABLE>
<CAPTION>
                                1999           1998          1997          1996         1995
                              --------       --------      --------      --------      --------
                                               (IN THOUSANDS EXCEPT UNIT DATA)
<S>                           <C>            <C>           <C>           <C>           <C>
Revenue                       $ 20,876       $ 19,599      $ 19,044      $ 17,834      $ 16,982

Net income                       1,435          1,813         2,878         1,576           873

Net income
(per limited
partner unit)                    40.99          51.25         81.35         44.55         24.71
Total assets                    38,543         21,836        21,929        20,801        21,524
Partners' capital
(deficit)                       (2,895)        13,439        13,523        12,245        12,819
Notes payable                   39,545          6,170         6,403         6,562         7,212
Per limited partner unit:
Distributions of
earnings                         40.99          51.25         45.24         44.55         24.71
Distributions -
return of Capital               461.33           2.38            --         16.22         39.57
Total distributions
(per limited partner
unit)                           502.32          53.63         45.24         60.77         64.28
</TABLE>


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

LIQUIDITY

        On a long-term basis, our liquidity is sustained primarily from cash
flow provided by operating activities. During 1999, net cash provided by
operating activities was approximately $2.1 million compared to $2.5 million and
$4.7 million for 1998 and 1997, respectively.

        Given the age of the ALCs (ages range from 12 to 24 years with an
average age of 20.5 years), our Managing General Partner has continued our
refurbishment program put in place to repair, maintain and physically improve
our ALCs. We expect to fund repairs and improvement primarily from our operating
cash flow. As a result of the planned renovations, our Managing General Partner
believes that distributions of cash flow from operations will either be reduced
or eliminated to the Partners in the near term. Our General Partners expect that
the cash to be generated from operations of our communities will be adequate to
pay operating expenses, make necessary capital improvements and make required
principal reductions of loans.

        During 1999, net cash used in investing activities was $16.1 million
compared to $1.3 million and $1.2 million for 1998 and 1997, respectively. The
increase was a primarily a result of the purchase of our landlords' interests in
four previously leased assisted living


                                       10


<PAGE>   11
communities, and capital expenditures required to qualify for the refinancing.
In addition, investing activities included property improvements and the
purchase of furniture, fixtures and equipment.

     During 1999, net cash provided by financing activities was $15.1 million
compared to net cash used in financing activities of $2.1 million and $2.0
million for 1998 and 1997, respectively. The components were:

-       A $14.3 million bridge loan which enabled us to purchase four previously
        leased communities from our landlords and

-       Refinancing of the 8 owned properties, as part of the $39.7 million
        refinancing offset by

-       Payment of $21.0 million for the bridge loan and all other indebtedness
        of the eight refinanced properties; and

-       Distributions paid to partners of $18.3 million.

        Our Managing General Partner's Board of Directors approved the
refinancing of 8 ALCs in July 1998 to:

        -       take advantage of lower fixed interest rates available at the
                time through the commercial mortgage backed security market;

        -       provide a return of equity to the limited partners;

        -       borrow against the increased value of these properties; and

        -       finance the purchase of four ALCs that were previously operated
                under long-term operating leases.

        In March 1999, we obtained a bridge loan of approximately $14.7 million,
enabling us to purchase four previously leased properties from our landlords.
The loan was paid off by refinancing.

On June 28, 1999, we obtained financing from a lender on our 8 owned ALCs. The
loan is secured by the various properties, in addition, ARVAL, our Managing
General Partner, is a guarantor on the loan for fraud, material
misrepresentation and certain covenants. As part of the loan requirements, we
created a wholly-owned subsidiary Retirement Inns II, LLC. Most of the loan
proceeds from the refinancing was distributed to the limited partners and
enhanced our liquidity position in the partnership. A 2% structuring fee was
paid to the lender. In 1998, we paid a net $1.3 million rate lock fee for a
refinancing that did not consummate. This charge was taken in the statements of
income presented for 1998. However, we feel we are entitled to a full and
complete return of the rate lock fees paid. We intend to pursue a return of all
fees and are investigating our legal alternatives to that end; however, there
can be no assurances that additional interest rate lock fees will be recovered.

        Our General Partners are not aware of any trends, other than national
economic conditions, which have had or which may be reasonably expected to have
a material favorable or unfavorable impact on revenues or income from the
operations or sale of properties. Our General Partners believe that if the
inflation rate increases, they will be able to recover subsequent increases in
operating expenses from higher rental and assisted living rates. We have notes
payable of approximately $39.5 million as of December 31, 1999.

CAPITAL RESOURCES

        During 1999, we continued our refurbishment program in order to repair,
maintain and physically improve the ten ALCs. We expect that the funds for these
improvements should be available from operations or cash on hand. Other than as
disclosed above, there are no known material trends, favorable or unfavorable,
in our capital resources, and there is no expected change in the mix of such
resources.

YEAR 2000

Our Year 2000 program, implemented worldwide under the direction of our senior
management, was completed on schedule. We did not experience any significant
operational issues nor did our residents experience any problems at our ALCs.
The total cost of our Year 2000 program is approximately $0.1 million. We are
not aware of any obligations related to damages resulting from Year 2000 issues.
We do not believe that any such obligations that may arise in the future will
have a material effect on our business, results of operations, financial
position or liquidity. RESULTS OF OPERATIONS

THE YEAR ENDED DECEMBER 31, 1999 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1998


<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)                                                         Increase/
                                              1999              1998          (decrease)
                                          ------------      ------------      ------------
<S>                                       <C>               <C>               <C>

</TABLE>


                                       11


<PAGE>   12

<TABLE>
<S>                                       <C>               <C>               <C>
Revenue:
  Assisted living community revenue       $       20.4      $       19.1               7.1%
  Interest and other revenue                       0.5               0.5             (15.9)%
                                          ------------      ------------      ------------
          Total revenue                           20.9              19.6               6.5%
                                          ------------      ------------      ------------
Costs and expenses:
  Assisted living operating expenses              12.8              12.0               6.5%
  General and administrative                       1.0               1.1             (18.4)%
  Communities rent                                  .6               1.2             (52.6)%
  Depreciation and amortization                    1.8               1.1              62.2%
  Property taxes                                   0.6               0.5             15.38%
  Advertising                                      0.2               0.2               8.1%
  Interest                                         2.5               1.7             388.4%
                                          ------------      ------------      ------------
          Total costs and expenses                19.5              17.8               5.1%
                                          ------------      ------------      ------------
          Net income                      $        1.4      $        1.8             (15.6)%
                                          ============      ============      ============
</TABLE>


        The increase in assisted living community revenue is attributable to:

        -       the increase in assisted living penetration to 56.8% for the
                year ended December 31, 1999 compared with 53.4% for the year
                ended December 31, 1998; and

        -       the increase in average rate per occupied unit to $2,066 for the
                year ended December 31, 1999 as compared with $1,921 the year
                ended December 31, 1998;

        The increase in assisted living operating expenses is attributable to:

        -       staffing requirements related to increased assisted living
                services provided;

        -       increased wages of staff; and

        -       normal operating expense increases.

        The decrease in general and administrative costs are primarily due to
        cost-cutting efforts.

        The decrease in communities rent is due to the purchase, during March
        1999, of four previously leased communities.

        The increase in depreciation and amortization is due to the four
        previously leased communities that now are owned which resulted in
        depreciation and amortization expense.

        The increase in interest expense is related to the loans for the
        purchase of the four previously leased communities, in March of 1999,
        and to the refinancing on June 28, 1999 of the eight owned properties
        partially offset by the loan fees charged to interest expense in 1998.


THE YEAR ENDED DECEMBER 31, 1998 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1997


<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)                                                     Increase/
                                             1998            1997         (decrease)
                                          ----------      ----------      ----------
<S>                                       <C>             <C>             <C>
Revenue:
  Assisted living community revenue       $     19.1      $     18.7             1.8%
  Interest and other revenue                     0.5             0.3            71.8%
                                          ----------      ----------      ----------
          Total revenue                         19.6            19.0             2.9%
                                          ----------      ----------      ----------
Costs and expenses:
  Assisted living operating expenses            12.0            11.3             6.4%
  General and administrative                     1.1             1.3           (16.7)%
  Communities rent                               1.2             1.2             0.9%
  Depreciation and amortization                  1.1             1.1            (1.1)%
  Property taxes                                 0.5             0.5             6.7%
  Advertising                                    0.2             0.2            (9.1)%
  Interest                                       1.7             0.5           213.0%
                                          ----------      ----------      ----------
          Total costs and expenses              17.8            16.1            10.0%
                                          ----------      ----------      ----------
          Net income                      $      1.8      $      2.9           (37.0)%
                                          ==========      ==========      ==========
</TABLE>


        The increase in assisted living community revenue is attributable to:

        -       the increase in assisted living penetration to 53.4% for the
                year ended December 31, 1998 compared with 46.2% for the year
                ended December 31, 1997;

        -       the increase in average rate per occupied unit to $1,921 for the
                year ended December 31, 1998 as compared with $1,802 the year
                ended December 31, 1997;


                                       12


<PAGE>   13
                offset by:

        -       the decrease in average occupancy for our ALCs to 89.0% for the
                year ended December 31, 1998 as compared with 92.0% for the year
                ended December 31, 1997.

        The increase in interest and other revenue is attributable to:

        -       interest bearing bank accounts used during 1998; and

        -       the increase in processing and other resident fees for the year
                ended December 31, 1998.

        The increase in assisted living operating expenses is attributable to:

        -       staffing requirements related to increased assisted living
                services provided; and

        -       increased wages of staff.

        The decrease in general and administrative costs are attributable to:

        -       the reduction of legal expenses paid in 1998 for the Casa Amigo
                litigation; and

        -       the reduction of the partnership management fee in 1998 related
                to decreased partnership cash flow.

        Depreciation and amortization, property taxes and advertising expenses
remained constant between years.

        The increase in interest expense is related to $1.3 million of interest
rate lock, less $0.2 million in lock fees returned and commitment fees incurred
in connection with the failed refinance of certain notes payable.

FUTURE CASH DISTRIBUTIONS

        Our General Partners believe that our ability to make cash distributions
to limited partners depends on factors such as our ability to rent the available
units and maintain high occupancies and rates, our ability to control both
operating and administrative expenses, our ability to maintain adequate working
capital, the absence of any losses from uninsured property damage or future
litigation, our ability to generate proceeds from the sales of properties and
our ability to renew the final existing lease under favorable terms.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        We are exposed to market risks related to fluctuations in interest rates
on our fixed rate notes payable. Currently, we do not utilize interest rate
swaps. You should be aware that many of the statements contained in this section
are forward looking and should be read in conjunction with our disclosures under
the heading "Forward-Looking Statements."

        For fixed rate debt, changes in interest rates generally affect the fair
market value of the debt instrument, but not our earnings or cash flows.
Conversely, for variable rate debt, changes in interest rates generally do not
impact fair market value of the debt instrument, but do affect our future
earnings and cash flows. We do not have an obligation to prepay fixed rate debt
prior to maturity, and as a result, interest rate risk and changes in fair
market value should not have a significant impact on the fixed rate debt until
we would be required to refinance such debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The Financial Statements and the Report of Independent Auditors are
listed at Item 14 and are included beginning on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

        None.


                                       13


<PAGE>   14
                                    PART III

ITEM 10. OUR DIRECTORS AND EXECUTIVE OFFICERS

INDIVIDUAL GENERAL PARTNERS

JOHN A. BOOTY, age 61, one of ARVAL's founders, retired in September 1996 after
serving as president since the date of ARVAL's inception in 1985. Since his
retirement he has served as a consultant to ARVAL and most recently as a
Director until September 1999. He also served as interim president of ARVAL from
October 1997 to January 1998 and as interim chief executive officer from October
1997 to December 1997.

DAVID P. COLLINS, age 62, has served ARVAL in several capacities since 1981. He
is a past president of ARV Assisted Living International, Inc., a wholly-owned
subsidiary of ARVAL. From 1985 to January 1998, Mr. Collins was a senior vice
president of ARVAL, responsible for investor relations and for capital formation
for ARVAL and affiliated entities. Mr. Collins currently serves as a director of
ARVAL.

GARY L. DAVIDSON, age 65, an attorney and one of ARVAL's founders, previously
practiced law in Orange County. During his professional career, he has been
active in numerous business and professional sports ventures. In 1979, he
co-founded the predecessor to ARVAL. In October 1997, Mr. Davidson resigned as
Chief Executive Officer, Director and Chairman of the Board of ARVAL.

JOHN S. JASON, age 64, was associated with KPMG LLP for 6 years. In 1979, he
co-founded the predecessor to ARVAL. In February 1993, Mr. Jason retired from
his positions as a Director and as Executive Vice President of ARVAL.

TONY ROTA, age 71, is a licensed real estate broker, and has been active in real
estate investments since 1958. In 1979, he co-founded the predecessor to ARVAL.
In November 1992, Mr. Rota retired from his positions as a Director and as Vice
President of ARVAL.

EXECUTIVE OFFICERS OF ARV ASSISTED LIVING, INC. ("ARVAL")


DOUGLAS M. PASQUALE, age 45, was appointed president and chief executive officer
of ARVAL on March 26, 1999. He joined ARVAL as president and chief operating
officer on June 1, 1998, and was named a Director in October 1998 and chairman
in December of 1999. Prior to joining ARVAL, Mr. Pasquale was employed for 12
years by Richfield Hospitality Services, Inc., and Regal Hotels
International-North America, a leading hotel ownership and hotel management
company based in Englewood, Colorado. He served as its president and chief
executive officer from 1996 to 1998 and as chief financial officer from 1994 to
1996.

ABDO H. KHOURY, age 50, was appointed senior vice president and chief financial
officer of ARVAL on March 30, 1999. Previously he had served ARVAL as vice
president, asset strategy and treasury, since January 1999, and as president of
the Apartment Division since coming to ARVAL in May 1997. Mr. Khoury's prior
background includes more than 25 years in accounting and real estate. He was a
principal with Financial Performance Group in Newport Beach, CA, from 1991 to
1997.

DIRECTORS OF ARVAL

For a description of Messrs. Pasquale, and Collins, please see above.

MAURICE J. DEWALD, age 59, is chairman and chief executive officer of Verity
Financial Group, Inc., a firm he founded in 1992. He currently is a director of
Tenet Healthcare Corporation, Dai-Ichi Kangyo Bank of California and Monarch
Funds.

JOHN A. MOORE, age 38, is a Principal of Lazard Freres Real Estate Investors
L.L.C. and its Chief Financial Officer. He joined Lazard in 1998 from World
Financial Properties, where he was Executive Vice President and Chief Financial
Officer from 1996. Previously, he worked with Olympia and York as Senior Vice
President, Finance. Mr. Moore joined Olympia and York in 1988.

JEFFREY D. KOBLENTZ, age 32, is a Vice President of Lazard Freres Real Estate
Investors L.L.C. He joined Lazard in 1998 from Arthur Andersen LLP, where he was
a Manager in the Real Estate Services Group. Mr. Koblentz joined Arthur Andersen
in 1992.


                                       14


<PAGE>   15
ITEM 11. EXECUTIVE COMPENSATION

The following table summarizes the compensation earned by our General Partners.


<TABLE>
<S>                                     <C>
Acquisition Fees
(ARV Assisted Living, Inc.)             A property acquisition fee of 2% of Gross Offering Proceeds to be
                                        paid for services in connection with the selection and purchase of
                                        Projects and related negotiations. In addition, a development,
                                        processing and renovation fee of 5.5% of Gross Offering Proceeds to
                                        be paid for services in connection with negotiations for or the
                                        renovation or improvement of existing ALCs and the development,
                                        processing or construction of Projects we have developed. There
                                        were no property acquisitions, development, processing and
                                        renovation fees for the years ended December 31, 1999, 1998 and
                                        1997.

Rent-Up and Staff Training Fees
(ARV Assisted Living, Inc.)             Rent-up and staff training fees of 4.5% of the Gross Offering
                                        Proceeds allocated to each specific acquired or developed Project.
                                        Such fees will be paid for services in connection with the opening
                                        and initial operations of the Projects including, without
                                        limitation, design and implementation of the advertising,  direct
                                        solicitation and other campaigns to attract residents and the
                                        initial hiring and training of managers, food service specialists,
                                        activities directors and other personnel employed in the individual
                                        communities. There were no rent-up and staff training fees for the
                                        years ended December 31, 1999, 1998 and 1997.

Property Management Fees
(ARV Assisted Living, Inc.)             A property management fee of 5% of gross revenue is paid for
                                        managerial services including general supervision, hiring of onsite
                                        management personnel employed by ARVAL, renting of units,
                                        installation and provision of food service, maintenance, and other
                                        operations. For the years ended December 31, 1999, 1998 and 1997,
                                        the property management fee amounted to $1,037,000, $974,000, and
                                        $952,000, respectively.

Partnership Management Fees
(ARV Assisted Living, Inc.)             A partnership management fee of 10% of cash flow before
                                        distributions is paid for implementing our business plan,
                                        supervising and managing our affairs including general
                                        administration and coordination of legal, audit, tax, and insurance
                                        matters. For the years ended December 31, 1999, 1998 and 1997, our
                                        partnership management fee amounted to $348,000, $333,000, and
                                        $422,000, respectively.

Sale of Partnership Projects
(General Partners)                      The Limited Partnership Agreement permits payment in the form of
                                        real estate commissions to the General Partners or their
                                        Affiliates. Any such compensation shall not exceed 3% of the gross
                                        sales price or 50% of the standard real estate brokerage
                                        commission, whichever is less. For the years ended December 31,
                                        1999, 1998 and 1997, no real estate commissions were paid.

Subordinated Incentive Compensation
(ARV Assisted Living, Inc.)             ARVAL is entitled to receive 15% of the Proceeds of Sale or
                                        Refinancing subordinated to a return to the limited partners of
                                        Initial Capital Contributions plus an 8%-10% (depending on the
                                        timing of the limited partners' investment) per annum cumulative,
                                        but not compounded, return thereon from all sources. For the years
                                        ended December 31, 1999, 1998 and 1997, no incentive compensation
                                        was earned.

Partnership Interest
(General Partners)                      1% of all items of capital, profit or loss, and liquidating
                                        Distributions, subject to a capital account adjustment, is paid to our
                                        General Partners.
</TABLE>


                                       15


<PAGE>   16
<TABLE>
<S>                                     <C>
Reimbursed Expenses
(General Partners)                      All of our expenses are billed directly to and paid by us.  Our
                                        General Partners may be reimbursed for the actual cost of goods and
                                        materials obtained from unaffiliated entities and used for or by
                                        us. Our Managing General Partner is reimbursed for administrative
                                        services necessary to our prudent operation, provided that such
                                        reimbursement is at the lower of its actual cost or the amount
                                        which we would be required to pay to independent parties for
                                        comparable administrative services in the same geographic location.
                                        Total reimbursements to ARVAL amounted to $9.4 million, $7.1
                                        million, and $6.6 million for the years ended December 31, 1999,
                                        1998 and 1997, respectively.
</TABLE>


SEE FOOTNOTE 3 OF NOTES TO FINANCIAL STATEMENTS (TRANSACTIONS WITH AFFILIATES).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.


<TABLE>
<CAPTION>
                                NAME AND ADDRESS OF           AMOUNT AND NATURE OF        PERCENT OF
TITLE OF CLASS                    BENEFICIAL OWNER            BENEFICIAL OWNERSHIP          CLASS
--------------                  -------------------           --------------------        ----------
<S>                                                              <C>                        <C>
Limited Partnership           ARV Assisted Living, Inc.          18,323 units               52.3%
      Units                   245 Fischer Ave., D-1              Direct ownership
                              Costa Mesa, CA 92626
</TABLE>


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        Other than the compensation earned by our General Partners, as set out
under ITEM 11 above, no General Partner or Affiliate receives any direct or
indirect compensation from us. Our Managing General Partner receives a
management fee of 5% of Gross Revenues. Because these fees are payable without
regard to whether particular ALCs are generating Cash Flow or otherwise
benefiting us, a conflict of interest could arise in that it might be to the
advantage of our General Partners that a community be retained or refinanced
rather than sold. On the other hand, an Affiliate of our General Partners may
earn a real estate commission on sale of a property, creating incentive to sell
what might be a profitable property.

        Our General Partners have authority to invest our funds in properties or
entities in which they or any Affiliate have an interest, provided we acquire a
controlling interest. In any such investment, duplicate property management or
other fees will not be permitted. Our General Partners or Affiliates may,
however, purchase property in their own names and temporarily hold title to
facilitate acquisition for us, provided that such property is purchased by us at
cost (including acquisition, closing and carrying costs). Our General Partners
will not commingle our funds with those of any other person or entity.

        Conflicts of interest exist to the extent that ALCs owned or operated
compete, or are in a position to compete for residents, general managers or key
employees with ALCs owned or operated by our General Partners and Affiliates in
the same geographic area. Our General Partners seek to reduce any such conflicts
by offering such persons their choice of residence or employment on comparable
terms in any ALC.

Effective January 1, 1997, ARVAL established a savings plan (the "Savings Plan")
that qualifies as a deferred salary arrangement under Section 401(k) of the
Internal Revenue Code. Under the Savings Plan, participating employees who are
at least 21 years of age may defer a portion of their pretax earnings, up to the
Internal Revenue Service annual contribution limit. ARVAL matches 25% of each
employee's contributions up to a maximum of 6% of the employee's earnings.
Employees are eligible to enroll at the first enrollment date following the
start of their employment (July 1 or January 1). ARVAL matches employees'
contributions beginning on the first enrollment date following one year of
service or 1,000 hours of service. Our Total Savings Plan expense was $22,000
and $20,000 for the years ended December 31, 1999 and 1998, respectively and
included in the reimbursed expense amount in item 11 above.

        Further conflicts may exist if and to the extent that other affiliated
owners of ALCs seek to refinance or sell at the same time as us. Our General
Partners seek to reduce any such conflicts by making prospective purchasers
aware of all ALCs available for sale.

                                     PART IV


                                       16


<PAGE>   17
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this Report:

        -       Independent Auditors' Report;

        -       Balance Sheets - December 31, 1999 and 1998;

        -       Consolidated Statements of Income

        -       Years Ended December 31, 1999, 1998 and 1997;

        -       Consolidated Statements of Partners' Capital

        -       Years Ended December 31, 1999, 1998 and 1997;

        -       Consolidated Statements of Cash Flows

        -       Years Ended December 31, 1999, 1998 and 1997;

        -       Notes to Financial Statements; and - Financial Statement
                Schedule

        -       Schedule III

        -       Real Estate and Related Accumulated Depreciation and
                Amortization

        -       December 31, 1999.

(b) Reports on Form 8-K. The Registrant did not file any 8-K reports during the
last quarter of 1999.

(c) Exhibit 27 - Financial Data Schedule.


                                       17


<PAGE>   18
                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, we have duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

AMERICAN RETIREMENT VILLAS PROPERTIES II, A CALIFORNIA LIMITED PARTNERSHIP, BY
THE FOLLOWING PERSONS ON OUR BEHALF.

/s/ DOUGLAS M. PASQUALE
-----------------------

By: Douglas M. Pasquale, President, Chief Executive Officer and Chairman of the
Board of ARVAL, Managing General Partner

/s/  ABDO H. KHOURY

By: Abdo H. Khoury, Senior Vice President, Chief Financial Officer of ARVAL,
Managing General Partner

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on our behalf of and in the
capacities and on the dates indicated.


<TABLE>
<CAPTION>
                SIGNATURE                                   TITLE                             DATE
                ---------                                   -----                             ----
<S>                                        <C>                                           <C>
/s/ DOUGLAS M. PASQUALE                    President, Chief Executive Officer and        March 30, 2000
     Douglas M. Pasquale                   Chairman of the Board of ARVAL,
                                           Managing General Partner

/s/ ABDO H. KHOURY                         Senior Vice President and Chief               March 30, 2000
     Abdo H. Khoury                        Financial Officer of ARVAL, Managing
                                           General Partner
</TABLE>


                                       18


<PAGE>   19
                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                       (A California Limited Partnership)

                            Annual Report - Form 10-K

                        Financial Statements and Schedule

                                Items 8 and 14(a)

                        December 31, 1999, 1998 and 1997

                   (With Independent Auditors' Report Thereon)


                                       19


<PAGE>   20
                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                       (A California Limited Partnership)

                            Annual Report - Form 10-K

                                Items 8 and 14(a)

                   Index to Financial Statements and Schedule


<TABLE>
<CAPTION>
                                                                           PAGE
                                                                           ----
<S>                                                                        <C>
Independent Auditors' Report                                               F-1

Consolidated Balance Sheets - December 31, 1999 and 1998                   F-2

Consolidated Statements of Income - Years ended December 31, 1999, 1998    F-3
and 1997

Consolidated Statements of Partners' Capital (Deficit) - Years ended       F-4
December 31, 1999, 1998 and 1997

Consolidated Statements of Cash Flows - Years ended December 31, 1999,     F-5
1998 and 1997

Notes to Consolidated Financial Statements                                 F-6

Schedule

Real Estate and Related Accumulated Depreciation and Amortization -
     December 31, 1999                                                     F-12
</TABLE>


All other schedules are omitted, as the required information is inapplicable or
the information is presented in the financial statements or related notes.


                                       20


<PAGE>   21
                          INDEPENDENT AUDITORS' REPORT

ARV Assisted Living, Inc.
   as the Managing General Partner
   of American Retirement Villas Properties II:

We have audited the consolidated financial statements of American Retirement
Villas Properties II, a California limited partnership, and subsidiary as listed
in the accompanying index. In connection with our audits of the consolidated
financial statements, we have also audited the financial statement schedule
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule 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, consolidated the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Retirement Villas Properties II and subsidiary 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. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

                                                      /s/KPMG LLP

Orange County, California
March 2, 2000


                                      F-1
<PAGE>   22
                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                       (A California Limited Partnership)

                           Consolidated Balance Sheets
                           December 31, 1999 and 1998
                          (In thousands, except units)


<TABLE>
<CAPTION>
                                   ASSETS                         1999           1998
                                                                --------       --------
<S>                                                             <C>            <C>
Properties, at cost:
   Land                                                         $ 11,453       $  2,903
   Buildings and improvements, less accumulated
     depreciation of $7,248 and $6,435 in 1999 and 1998,
     respectively                                                 20,662         14,448
   Leasehold property and improvements, less
     accumulated depreciation of $1,244 and $5,752 in 1999
     and 1998, respectively                                          209            616
   Furniture, fixtures and equipment, less
     accumulated depreciation of $1,145 in 1999 and 1998           1,373          1,193
                                                                --------       --------

         Net properties                                           33,697         19,160

Cash                                                               2,002            953
Other assets, including impound accounts of
    $1,112 and $898 in 1999 and 1998, respectively                 2,844          1,723
                                                                --------       --------
                                                                $ 38,543       $ 21,836
                                                                ========       ========
                         LIABILITIES AND PARTNERS'

CAPITAL (DEFICIT)

Liabilities:
   Notes payable                                                $ 39,545       $  6,170
   Accounts payable                                                  155            698
   Accrued expenses                                                1,426            569
   Amounts payable to affiliate                                      304            453
   Distributions payable to Partners                                   8            507
                                                                --------       --------

         Total liabilities                                        41,438          8,397
                                                                --------       --------

Commitments and contingencies

Partners' capital (deficit):
   General partners                                                  119            282
   Limited partners, 35,020 units authorized,
     issued and outstanding                                       (3,014)        13,157
                                                                --------       --------

         Total partners' capital (deficit)                        (2,895)        13,439
                                                                --------       --------

                                                                $ 38,543       $ 21,836
                                                                ========       ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-2


<PAGE>   23
                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                       (A California Limited Partnership)

                        Consolidated Statements of Income

                  Years ended December 31, 1999, 1998 and 1997

                     (In thousands, except amounts per unit)


<TABLE>
<CAPTION>
                                                 1999         1998         1997
                                                -------      -------      -------
<S>                                             <C>          <C>          <C>
Revenues:
   Rent                                         $16,411      $15,400      $15,638
   Assisted living                                4,014        3,663        3,094
   Interest                                         141          105           17
   Other                                            310          431          295
                                                -------      -------      -------

         Total revenues                          20,876       19,599       19,044
                                                -------      -------      -------

Costs and expenses:
   Rental property operations
     (including $6,044, $5,849,
     and $5,896 related to affiliates
     in 1999, 1998 and 1997, respectively)       10,375       10,276       10,050

   Assisted living (including $2,311,             2,402        1,727        1,235
   $1,653 and $1,211 related to
   affiliates in 1999, 1998 and 1997,
   respectively)
   General and administrative
     (including $607, $690, and $843
     related to affiliates in
     1999, 1998 and 1997, respectively)           1,004        1,118        1,342
   Communities rent                                 563        1,187        1,176
   Depreciation and amortization                  1,802        1,111        1,123
   Property taxes                                   610          529          496
   Advertising                                      217          201          221
   Interest                                       2,468        1,637          523
                                                -------      -------      -------

         Total costs and expenses                19,441       17,786       16,166
                                                -------      -------      -------

         Net income                             $ 1,435      $ 1,813      $ 2,878
                                                =======      =======      =======

Net income per limited partner unit             $ 40.99      $ 51.25      $ 81.35
                                                =======      =======      =======
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-3
<PAGE>   24
                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                       (A California Limited Partnership)

             Consolidated Statements of Partners' Capital (Deficit)

                  Years ended December 31, 1999, 1998 and 1997

                     (In thousands, except amounts per unit)


<TABLE>
<CAPTION>
                                                                           TOTAL
                                                                         PARTNERS'
                                            GENERAL       LIMITED         CAPITAL
                                           PARTNERS       PARTNERS       (DEFICIT)
                                           --------       --------       --------
<S>                                        <C>            <C>            <C>
Balance at December 31, 1996               $    270       $ 11,975       $ 12,245

Distribution to partners ($45.24 per
limited partner unit)                           (16)        (1,584)        (1,600)

Net income                                       29          2,849          2,878
                                           --------       --------       --------

Balance at December 31, 1997                    283         13,240         13,523

Distribution to partners ($53.63 per
limited partner unit)                           (19)        (1,878)        (1,897)

Net income                                       18          1,795          1,813
                                           --------       --------       --------

Balance at December 31, 1998                    282         13,157         13,439

Distribution to partners ($502.32 per
limited partner unit)                          (177)       (17,592)       (17,769)

Net income                                       14          1,421          1,435
                                           --------       --------       --------

Balance at December 31, 1999               $    119       $ (3,014)      $ (2,895)
                                           ========       ========       ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   25
                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                       (A California Limited Partnership)

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 1999, 1998 and 1997

                                 (In thousands)


<TABLE>
<CAPTION>
                                                                   1999           1998           1997
                                                                 --------       --------       --------
<S>                                                              <C>            <C>            <C>
Cash flows from operating activities:
   Net income                                                    $  1,435       $  1,813       $  2,878
   Adjustments to reconcile net income
     to net cash provided by operating activities:
       Depreciation and amortization                                1,802          1,111          1,123
       Change in assets and liabilities:
        (Increase) decrease in other assets                        (1,321)          (641)           434
        Increase in accounts payable and accrued expenses             315             21            183
        Increase (decrease) in amounts payable to affiliate          (149)           176             88
                                                                 --------       --------       --------

               Net cash provided by operating activities            2,082          2,480          4,706
                                                                 --------       --------       --------

Cash flows used in investing activities:
   Capital expenditures                                            (1,647)        (1,281)        (1,198)
   Purchase of previously leased communities                      (14,692)             -              -
   Refund of purchase deposit, net                                    199              -              -
                                                                 --------       --------       --------
               Net cash used in investing activities              (16,140)        (1,281)        (1,198)
                                                                 --------       --------       --------
Cash flows from financing activities:
   Principal repayments on notes payable                          (21,006)          (233)          (159)
   Proceeds from notes payable                                     54,381              -              -
   Distributions paid                                             (18,268)        (1,870)        (1,862)
                                                                 --------       --------       --------
        Net cash provided by (used in) financing activities        15,107         (2,103)        (2,021)
                                                                 --------       --------       --------
               Net increase (decrease) in cash                      1,049           (904)         1,487

Cash at beginning of year                                             953          1,857            370
                                                                 --------       --------       --------

Cash at end of year                                              $  2,002       $    953       $  1,857
                                                                 ========       ========       ========

Supplemental disclosure of cash flow information -
   cash paid during the year for interest                        $  2,208       $  1,637       $    523
                                                                 ========       ========       ========

Supplemental disclosure of noncash financing activities:
   Distributions accrued to partners                             $      8       $    450       $    442
                                                                 ========       ========       ========
</TABLE>


          See accompanying notes to consolidated financial statements.


                                      F-5
<PAGE>   26
                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                       (A California Limited partnership)

                   Notes to Consolidated Financial Statements

                        December 31, 1999, 1998 and 1997

(1)     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        BASIS OF ACCOUNTING

                American Retirement Villas Properties II maintains records on
        the accrual method of accounting for financial reporting and Federal and
        state tax purposes.

        PRINCIPLES OF CONSOLIDATION

                The consolidated financial statements include the accounts of
        the Company and its subsidiaries. Subsidiaries, which include limited
        partnerships and limited liability companies in which we have
        controlling interests, have been consolidated into the financial
        statements. All significant intercompany balances and transactions have
        been eliminated in consolidation.


        CARRYING VALUE OF REAL ESTATE

                Property, furniture and equipment are stated at cost less
        accumulated depreciation which is charged to expense on a straight-line
        basis over the estimated useful lives of the assets as follows:


<TABLE>
<S>                                                   <C>
        Buildings and improvements .............      27.5 to 35 years
        Leasehold property and improvements ....      Lease term
        Furniture, fixtures and equipment ......      3 to 7 years
</TABLE>


                We review our long-lived assets for impairment when events or
        changes in circumstances indicate that the carrying amount of the assets
        may not be recoverable. In reviewing recoverability, we estimate the
        future cash flows expected to result from using the assets and
        eventually disposing of them. If the sum of the expected future cash
        flows (undiscounted and without interest charges) is less than the
        carrying amount of the asset, an impairment loss is recognized based
        upon the asset's fair value.

        USE OF ESTIMATES

        In the preparation of our financial statements in conformity with
   generally accepted accounting principles, we have made estimates and
   assumptions that affect the following:

                -       reported amounts of assets and liabilities at the date
                        of the financial statements;

                -       disclosure of contingent assets and liabilities at the
                        date of the financial statements; and

                -       reported amounts of revenues and expenses during the
                        reporting period.

                Actual results could differ from those estimates.

        IMPOUND ACCOUNTS

                The U.S. Department of Housing and Urban Development ("HUD")
        finances certain of our properties. HUD holds our funds in impound
        accounts for payment of property taxes, insurance and future property
        improvements (replacement reserves) on these properties. We include
        these impound accounts in other assets.

        LOAN FEES


                                      F-6
<PAGE>   27
                We amortize loan fees using the interest method over the term of
        the notes payable and include them in other assets.

        REVENUE RECOGNITION

                Rent agreements with tenants are on a month-to-month basis. We
        apply advance deposits to the first month's rent. Revenue is recognized
        in the month earned for rent and assisted living services.

        ADVERTISING COSTS

                We expense all advertising costs as they are incurred.

        INCOME TAXES

                Under provisions of the Internal Revenue Code and the California
        Revenue and Taxation Code, partnerships are generally not subject to
        income taxes. For tax purposes, any income or losses realized are those
        of the individual partners, not the Partnership.

                We have not requested a ruling from the Internal Revenue Service
        to the effect that we will be treated as a partnership and not an
        association taxable as a corporation for Federal income tax purposes. We
        have received an opinion of counsel as to our tax status prior to the
        offering of limited partnership units, but such opinion is not binding
        upon the Internal Revenue Service.

                Following are our assets and liabilities as determined in
        accordance with generally accepted accounting principles ("GAAP") and
        for Federal income tax reporting purposes at December 31 (in thousands):


<TABLE>
<CAPTION>
                                              1999                      1998
                                       --------------------      --------------------
                                        GAAP         TAX          GAAP         TAX
                                        BASIS      BASIS (1)      BASIS      BASIS (1)
                                       -------      -------      -------      -------
<S>                                    <C>          <C>          <C>          <C>
        Total assets ............      $38,543      $43,270      $21,836      $35,231
                                       =======      =======      =======      =======
        Total liabilities .......      $41,438      $41,438      $ 8,397      $ 8,089
                                       =======      =======      =======      =======
</TABLE>


        Following are the differences between the financial statement and tax
return income (in thousands):


<TABLE>
<CAPTION>
                                                         1999          1998          1997
                                                       -------       -------       -------
<S>                                                    <C>           <C>           <C>
Net income per financial statements                    $ 1,435       $ 1,813       $ 2,878
Depreciation differences on property (1)                  (495)         (344)         (496)
Amortization differences on intangible assets (1)           28          (158)          (47)
Other (1)                                                   60            34           178
                                                       -------       -------       -------
Taxable income per Federal tax return(1)               $ 1,028       $ 1,345       $ 2,513
                                                       =======       =======       =======
</TABLE>


        (1) Unaudited

        NET INCOME PER LIMITED PARTNER UNIT

                We based net income per limited partner unit on the
        weighted-average number of limited partner units outstanding of 35,020
        in 1999, 1998 and 1997.

(2)     ORGANIZATION AND PARTNERSHIP AGREEMENT

                We were formed on February 9, 1988 for the purpose of acquiring,
        developing and operating residential retirement communities. Our term is
        59 years and may be dissolved earlier under certain circumstances.
        Limited Partner units (minimum of 2 units per investor for Individual
        Retirement Accounts, KEOGHs and pension plans and 5 units for all other
        investors) were offered for sale to the general public. A maximum number
        of 35,000 units were offered at $1,000 per unit and an additional 25
        units were issued in lieu of commissions. We were initially capitalized
        by a $1,000 contribution from a Limited Partner and a $500 contribution
        from our General Partners. We reached our maximum capitalization in
        October 1989, representing a total capital investment of $35,000,000. In
        June 1990, we repurchased and effectively retired 5 units for $4,600
        (the balance of unreturned initial contributions) from a Limited
        Partner. Under the Partnership Agreement, the maximum liability of the
        Limited Partners is the amount of their capital contributions.


                                      F-7
<PAGE>   28
                Our Managing General Partner is ARV Assisted Living, Inc.
        ("ARVAL"), a Delaware corporation, and the individual General Partners
        are John A. Booty, John S. Jason, Gary L. Davidson and Tony Rota. Our
        General Partners are not required to make capital contributions to the
        Partnership.

                Profits and losses for financial and income tax reporting
        purposes shall generally be allocated, other than cost recovery
        deductions (as defined in the Partnership Agreement), 1% to the General
        Partners and 99% to the Limited Partners. Cost recovery deductions for
        each year are allocated 1% to our General Partners and 99% to the
        Limited Partners who are taxable investors.

                Cash available for distribution from operations, which is
        determined at the sole discretion of the Managing General Partner, is to
        be distributed 1% to the General Partners and 99% to the Limited
        Partners.

                Upon any sale, refinancing or other disposition of our real
        properties, distributions are to be made 1% to our General Partners and
        99% to the Limited Partners until the Limited Partners have received an
        amount equal to 100% of their capital contributions plus an amount
        ranging from 8% to 10% (depending upon the timing of the Limited
        Partner's investment) of their capital contributions per annum,
        cumulative but not compounded, from the date of each Partner's
        investment. The cumulative return is to be reduced, but not below zero,
        by the aggregate amount of prior distributions from all sources.
        Thereafter, distributions are to be 15% to our General Partners and 85%
        to the Limited Partners, except that after the sale of the properties,
        the proceeds of sale of any last remaining assets we own are to be
        distributed in accordance with positive capital account balances.

(3)     TRANSACTIONS WITH AFFILIATES

                Our properties are managed by ARVAL. For this service we pay a
        property management fee of 5% of gross revenues amounting to $1,037,000,
        $974,000, and $952,000, for the year ended December 31, 1999, 1998 and
        1997, respectively. Additionally, we pay a Partnership management fee of
        10% of cash flow before distribution, as defined in the Partnership
        Agreement, amounted to $348,000, $333,000, and $422,000, for the year
        ended December 31, 1999, 1998 and 1997, respectively. Payment of the
        Partnership management fee out of cash flow is subordinated to a
        quarterly noncumulative distribution from each property to the Limited
        Partners of an amount equal to an annualized return, per quarter, of
        7.5% of Capital Contributions allocated to each property.

                We reimburse ARVAL for certain expenses such as repairs and
        maintenance, supplies, and payroll and retirement benefit expenses they
        pay on our behalf. The total reimbursements to ARVAL are included in
        rental property operations, assisted living and general and
        administrative expenses in the accompanying statements of income
        amounted to $9.4 million, $7.1 million, and $6.6 million for the years
        ended December 31, 1999, 1998 and 1997, respectively.

                Prior to 1995, we paid our Managing General Partner an
        investment advisory fee for services rendered with respect to property
        acquisitions up to a maximum of 2% of the gross offering proceeds. In
        addition, our Managing General Partner was entitled to a development and
        processing fee of a maximum of 5.5% of gross offering proceeds allocated
        to a particular project. Investment advisory and development and
        processing fees were capitalized to properties to the extent that gross
        offering proceeds were allocated to the respective properties acquired.

                Amounts payable to affiliates at December 31, 1999 and 1998
        include expense reimbursements and accrued property management and
        partnership management fees.


                                      F-8
<PAGE>   29
(4)     PROPERTIES

                The following table sets forth, as of December 31, 1999, the
        location, the date on which operations commenced and number of units in
        the property.


<TABLE>
<CAPTION>
                                                            OPERATIONS
             COMMUNITY                 LOCATION              COMMENCED                      UNITS
             ---------              -------------          ------------                    ------
<S>                                 <C>                    <C>                             <C>
Retirement Inn of Burlingame        Burlingame, CA             1989                          67
Retirement Inn of Campbell          Campbell, CA               1989                          71
Covina Villa                        Covina, CA                 1988                          63
Retirement Inn of Daly City         Daly City, CA              1989                          94
Retirement Inn of Fremont           Fremont, CA                1989                          69
Retirement Inn of Fullerton         Fullerton, CA              1989                          67
Montego Heights Lodge               Walnut Creek, CA           1989                         162
Retirement Inn of Sunnyvale         Sunnyvale, CA              1989                         123
Valley View Lodge                   Walnut Creek, CA           1989                         124
Inn at Willow Glen                  San Jose, CA               1989                          83
</TABLE>


(5)     COMMITMENTS AND CONTINGENCIES

        LEASE COMMITMENTS:

        Covina Villa

                In October 1988, we purchased Covina Villa, an existing assisted
        living community in Covina, California. In conjunction with the
        acquisition, we assumed a ground lease, expiring in 2037, covering the
        land on which the community is built. Pledged as collateral for the
        ground lease is a security interest in the community property and in all
        furniture, fixtures and equipment which we place in the community. Rent
        expense under the ground lease for 1999, 1998 and 1997 was $115,000,
        $116,000, and $110,000, respectively.

        Retirement Inns of America

                In April 1989, we acquired the operations of eight existing
        assisted living communities located throughout California from
        Retirement Inns of America, Inc. As part of the purchase agreement, we
        acquired certain assets and assumed certain liabilities relating to the
        operations of the communities. We purchased three of the communities and
        assumed a tenant's position under long-term operating leases for the
        other five communities. On March 2, 1999, we purchased our landlords'
        fee interests in four of the five operating leases. Rent expense under
        the operating leases for 1999, 1998 and 1997 was $448,000, $1,071,000,
        and $1,066,000, respectively.

                Future minimum lease payments under all ground and community
        leases, which are treated as operating leases, are as follows (in
        thousands):


<TABLE>
<S>                                           <C>
Year ending December 31:
2000                                          $  350
2001                                             350
2002                                             350
2003                                             350
2004                                             147
Thereafter                                     4,976
                                               -----
                                              $6,523
                                              ======
</TABLE>


                                      F-9
<PAGE>   30
        LITIGATION

                On September 27, 1996, we filed actions seeking declaratory
        judgements against the landlords of the Retirement Inn of Campbell
        ("Campbell") and the Retirement Inn of Sunnyvale ("Sunnyvale"). We
        leased the Campbell and Sunnyvale ALCs under long-term leases, which
        were assumed when the ALCs were acquired. A dispute arose as to the
        amount of rent due during the 10-year lease renewal periods that
        commenced in August 1995 for Campbell and March 1996 for Sunnyvale.

                Two other communities we leased, the Retirement Inn of Fremont
        and the Retirement Inn at Burlingame were owned by entities that are
        related to the entities that own the Campbell and Sunnyvale communities.
        We have mutually negotiated the terms of a purchase agreement involving
        the sale of the landlords' fee interest in all four ALCs and settlement
        of all claims. On March 2, 1999, we obtained financing and, through a
        wholly owned subsidiary, purchased the landlords' interests in four
        previously leased ALCs for approximately $14.3 million.

(6)     NOTES PAYABLE

        On June 28, 1999, we obtained financing on our 8 owned ALCs. The loan is
        for 24 months and is secured by the various properties; in addition,
        ARVAL, our Managing General Partner, is a guarantor on the loan for
        fraud, material misrepresentation and certain covenants. As part of the
        loan requirements, we created a wholly-owned subsidiary Retirement Inns
        II, LLC. The loan term is for 24 months with a lender option to extend
        for 10 years. The interest rate is 9.15% and the payments are based upon
        a 25 year principal and interest amortization schedule.

        At December 31, 1999 and 1998, notes payable included the following (in
        thousands):


<TABLE>
<CAPTION>
                                                                                    1999         1998
                                                                                  -------      -------
<S>                                                                               <C>          <C>
HUD issued note payable, bearing interest at 7.5%; Monthly principal and
   interest payments of $26; Due August 1, 2018; collateralized by deed of
   Trust on the Montego Heights property; repaid in 1999                          $    --      $ 3,225

HUD issued note payable, bearing interest at 8.25%; Monthly principal and
   interest payments of $23; Due November 1, 2016; collateralized by deed of
   Trust on the Valley View Lodge property; repaid in 1999                             --        2,631

Note payable to bank, bearing interest at 1% in Excess of the bank's prime
   rate (7.75% at December 31, 1998); monthly principal and Interest
   payments of $5; due January 10, 2003; Collateralized by deed of trust on
   the Fullerton
   Property; repaid in 1999                                                            --          255

Notes payable to bank, bearing interest at 9.15%
   Monthly principal and interest payments $337
   Collateralized by various properties                                            39,527           --

Various notes payable, bearing interest at rates from 8.67% to 10.39%,
   payable in monthly principal and Interest installments of $3 and all
   unpaid Principal and interest due on or before November 1,
   2000; collateralized by equipment                                                   18           59
                                                                                  -------      -------
                                                                                  $39,545      $ 6,170
                                                                                  =======      =======
</TABLE>


        The annual principal payments of the notes payable are as follows (in
        thousands):


<TABLE>
<S>                                            <C>
Year ending December 31:
2000                                              469
2001                                           39,076
                                               ------
                                               $39,545
                                               =======
</TABLE>


Our Managing General Partner's Board of Directors approved the refinancing of 8
assisted living communities in July 1998 to:


                                      F-10
<PAGE>   31
        -       take advantage of lower fixed interest rates available at the
                time through the commercial mortgage backed security market;

        -       provide a return of equity to the limited partners;

        -       borrow against the increased value of these properties; and

        -       purchase four ALCs that were previously operated under long-term
                operating leases.

                In conjunction with this financing, we paid the lender
        approximately $1.3 million of fees for an interest rate lock and $0.1
        million for loan commitment and other fees. The lender terminated the
        loan commitment and underlying interest rate lock in October 1998 due to
        adverse market conditions. The lender returned $0.3 million of the
        interest rate lock fees in January 1999. We have included the remaining
        $1.1 million of fees in interest expense in the accompanying statements
        of income for 1998. We believe that we are entitled to a full and
        complete return of the rate lock fees paid. Although there can be no
        assurances that additional interest rate lock fees will be returned, we
        intend to vigorously pursue a return of all fees and will seek legal
        recourse if necessary. The refinancing was completed in June 1999
        through another source.

(7)     EMPLOYEE BENEFIT PLANS

                Effective January 1, 1997, ARVAL established a savings plan (the
        "Savings Plan") that qualifies as a deferred salary arrangement under
        Section 401(k) of the Internal Revenue Code. Under the Savings Plan,
        participating employees who are at least 21 years of age may defer a
        portion of their pretax earnings, up to the Internal Revenue Service
        annual contribution limit. ARVAL matches 25% of each employee's
        contributions up to a maximum of 6% of the employee's earnings.
        Employees are eligible to enroll at the first enrollment date following
        the start of their employment (July 1 or January 1). ARVAL matches
        employees' contributions beginning on the first enrollment date
        following one year of service or 1,000 hours of service. Our Savings
        Plan expense was $22,000, $20,000 and $21,000 (as a reimbursement to
        ARVAL) for the years ended December 31, 1999, 1998 and 1997.

(8)     DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

                The estimated fair values of our financial instruments have been
        determined using available market information and appropriate valuation
        methodologies. However, considerable judgment is necessarily required to
        interpret market data to develop the estimates of fair value.
        Accordingly, the estimates presented herein are not necessarily
        indicative of the amounts that could be realized in a current market
        exchange. The use of different market assumptions or estimation
        methodologies may have a material impact on the estimated fair value
        amounts.

        NOTES PAYABLE

                For notes payable with variable interest rates, fair value is
        the amount reported as payable in the financial statements. For notes
        payable with fixed rates of interest, fair value is estimated using the
        rates currently offered for bank borrowings with similar terms. As of
        December 31, 1999 there were no notes payable with variable interest
        rates. The fair market value of the fixed rate notes is approximately
        $39.5 million.


                                      F-11
<PAGE>   32
                                  Schedule III

                    AMERICAN RETIREMENT VILLAS PROPERTIES II
                       (A California Limited Partnership)

        Real Estate and Related Accumulated Depreciation and Amortization

                                December 31, 1999
                                 (In thousands)


<TABLE>
<CAPTION>
                                                                                   LEASEHOLD
                                                                     BLDGS         PROPERTY         COSTS
                                                                      AND             AND         CAPITALIZED
                                                                    IMPROVE-        IMPROVE-      SUBSEQUENT
DESCRIPTION                       ENCUMBRANCES        LAND           MENTS           MENTS       TO ACQUISITION       LAND
                                  ------------     ----------      ----------      ----------    --------------    ----------
<S>                               <C>              <C>             <C>             <C>           <C>               <C>
Covina Villa Retirement Inns:            $ --            $ --           1,850            $ --      $      667            $ --
   Burlingame                           3,187              --              --             938           1,751           1,536
   Campbell                             1,554              --              --             814           2,788           2,002
   Daly City                            3,661             500           1,178              --             730             500
   Fremont                              2,833              --              --             567           1,715           1,247
   Fullerton                            1,897             500             982              --             973             500
   Willow Glen                             --              --              --           1,011             442              --
   Sunnyvale                            8,255              --              --           1,431           5,294           3,765
   Valley View                         10,881           1,000           4,018              --           1,307           1,000
Montego Heights                         7,259             900           7,800              --           1,660             903
                                   ----------      ----------      ----------      ----------      ----------      ----------
                                   $   39,527      $    2,900      $   15,828      $    4,761      $   17,327      $   11,453
                                   ==========      ==========      ==========      ==========      ==========      ==========
</TABLE>


<TABLE>
<CAPTION>
                                                     LEASEHOLD
                                      BLDGS          PROPERTY                        ACCUMU-            DATE             DEPRE-
                                       AND             AND                           MULATED             OF              CIABLE
                                     IMPROVE-        IMPROVE-         TOTAL           DEPRE-           ACQUI-            LIVES
DESCRIPTION                           MENTS           MENTS            (1)           CIATION           SITION           (YEARS)
                                   ----------      ----------      ----------      ----------        ----------        ----------
<S>                                <C>             <C>             <C>             <C>               <C>               <C>
Covina Villa Retirement Inns:      $    2,517      $       --      $    2,517      $      964           10/88              35
   Burlingame                           1,153              --           2,689              34            4/89             8.5(2)
   Campbell                             1,600              --           3,602              47            4/89             6.3(2)
   Daly City                            1,908              --           2,408             686            4/89              35
   Fremont                              1,035              --           2,282              31            4/89             7.8(2)
   Fullerton                            1,955              --           2,455             600            4/89              35
   Willow Glen                             --           1,453           1,453           1,244            4/89             8.7(2)
   Sunnyvale                            2,960              --           6,725              88            4/89             7.0(2)
   Valley View                          5,325              --           6,325           1,774            4/89              35
Montego Heights                         9,457              --          10,360           3,024           11/89              35
                                   ----------      ----------      ----------      ----------
                                   $   27,910      $    1,453      $   40,816      $    8,492
                                   ==========      ==========      ==========      ==========
</TABLE>


(1)     Aggregate cost for Federal income tax purposes is $43,334 as of December
        31, 1999.

(2)     Leasehold property and improvements are amortized over remaining terms
        of ground leases, which are shorter than the estimated useful lives.


                                      F-12
<PAGE>   33
Following is a summary of investment in properties for the years ended December
31, 1999, 1998 and 1997:


<TABLE>
<CAPTION>
                                    1999           1998          1997
                                  --------       --------      --------
<S>                               <C>            <C>           <C>
Balance at beginning of year      $ 30,155       $ 29,405      $ 28,770
Improvements/construction           15,238            750           635
Transfer NBV to LLCs                (1,613)            --            --
Disposals                           (2,964)            --            --
                                  --------       --------      --------

Balance at end of year            $ 40,816       $ 30,155      $ 29,405
                                  ========       ========      ========
</TABLE>


Following is a summary of accumulated depreciation and amortization of
investment in properties for the years ended December 31, 1999, 1998, and 1997:


<TABLE>
<CAPTION>
                                    1999           1998          1997
                                  --------       --------      --------
<S>                               <C>            <C>           <C>
Balance at beginning of year      $ 12,187       $ 11,513      $ 10,795
Transfer NBV to LLCs                (1,613)            --            --
Disposals                           (2,964)            --            --
Additions charged to expense           881            674           718
                                  --------       --------      --------

Balance at end of year            $  8,491       $ 12,187      $ 11,513
                                  ========       ========      ========
</TABLE>


                                      F-13
<PAGE>   34
                                  EXHIBIT INDEX


<TABLE>
<CAPTION>
  EXHIBIT
  NUMBER                  DESCRIPTION
  ------                  -----------
<S>                       <C>
   27                     Financial Data Schedule
</TABLE>