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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, 2000

                         COMMISSION FILE NUMBER: 0-26470

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

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                        A CALIFORNIA LIMITED PARTNERSHIP
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


           CALIFORNIA                                           33-0365417
  (STATE OR OTHER JURISDICTION                                (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION)                            IDENTIFICATION NO.)

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

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

       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
$18,666,480 (for purposes of calculating the preceding amount only, all
directors, executive officers and shareholders holding 5% or greater of the
registrant's units are assumed to be affiliates). The number of Units
outstanding as of March 30, 2001 was 18,666.

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                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                        A CALIFORNIA LIMITED PARTNERSHIP

                       INDEX TO ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000


                                                                           PAGE
                                                                           ----
PART I

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

PART II

Item 5:   Market for Registrant's 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.....   14
Item 8:   Financial Statements and Supplementary Data....................   14
Item 9:   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure............................   14

PART III

Item 10:  Directors and Executive Officers of the Registrant.............   15
Item 11:  Executive Compensation........................................    16
Item 12:  Security Ownership of Certain Beneficial Owners
          and Management.................................................   17
Item 13:  Certain Relationships and Related Transactions.................   17

PART IV

Item 14:  Exhibits and Financial Statement Schedules,
          and Reports on Form 8-K........................................   19


                                       2

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                                     PART I

ITEM 1. BUSINESS

OVERVIEW

     American Retirement Villas Properties III, L.P. ("ARVP III"), is the owner
and operator of two assisted living communities, which house and provide
personal care and support services to senior residents. The two assisted living
communities currently in operation are located in Camarillo, California and
Chandler, Arizona and contain an aggregate of 287 units. On February 19, 1999,
we sold three senior apartment complexes we previously owned for approximately
$17.9 million. During the third quarter of 2000, we accepted an offer to sell a
community that we own in partnership with Bradford Square L.P. On December 21,
2000, we sold that community for $8.0 million.

     ARVP III is a California limited partnership that was formed in June of
1989 to develop, finance, acquire and operate senior citizen housing. As at
December 31, 2000 the general partners of ARVP III were ARV Assisted Living,
Inc. ("ARVAL" or "General Partner"), which serves as the Managing General
Partner, Gary L. Davidson, John A. Booty, John S. Jason, Tony Rota, and David P.
Collins (collectively known as " Special Limited Partners"). During fiscal year
2000, Messrs. Davidson, Booty, Jason and Rota elected to become special limited
partners of ARVP III and, therefore, as of March 7, 2001 an amendment to our
Certificate of Limited Partnership was filed with the State of California
indicating that ARVAL is our only general partner. Our General Partner makes all
decisions concerning property acquisitions and dispositions of the communities,
subject to ARVP III limited partners' rights to approve or disapprove of the
sale of substantially all of our assets.

     On September 15, 1989, we began offering a total of 35,000 units at $1,000
per unit. The offering terminated on October 31, 1992 and we realized gross
offering proceeds of $18,665,000. In January and March of 1993, we repurchased
10 units for $8,500 and 3 units for $2,550, from certain of our limited
partners. In the same period we resold 13 units for $14,000. During 1993, we
applied for and earned block grants totaling a gross amount of approximately
$1,081,000 allocated to two of our properties. Total grant funds received
amounted to approximately $1,059,000. All of the proceeds from the offering and
a portion of the proceeds from the block grants were allocated to, and spent on
properties, which we own either directly or through our interest as managing
general partner that holds title to the respective property.

     Although the offering memorandum contained no definite plan to sell any
Assisted Living Communities ("ALCs") in accordance with a timetable, our general
partner projected that ARVP III might sell or finance an ALC after operating
that ALC for a five to seven years period. We have no definite plans to sell our
remaining ALCs at this time. Any future decision regarding sale of our ALCs will
be dependent upon the current and projected operating performance, our needs,
the availability of buyers and buyers' financing and, in general, the relative
merits of continued operation as opposed to sale. On any sale, we may accept
purchase money obligations, unsecured or secured by mortgages as payment,
depending upon then prevailing economic conditions that are customary in the
area in which the property is located, credit of the buyer and available
financing alternatives. In such event, distribution of the sale proceeds to our
partners may be delayed until the notes are paid at maturity, sold, refinanced
or otherwise liquidated.

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 beneficial 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.


                                        3

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     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 the U.S. Bureau of Census data, the
segment of the population over 65 years of age is currently 13% of the total
population, or 35 million people. That number is projected to grow to 20% of the
total population, or 70 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 4.4 million and is
projected to increase to 8.9 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 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 thereby increases 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 ALCs to increase their occupancy and
services to residents requiring lower levels of care than patients in skilled
nursing facilities generally receive.



                                       4

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OUR ASSISTED LIVING SERVICES

     We provide services and care that 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:

o    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.

o    Basic Service and Care Package. The basic service and care package at our
     ALCs generally includes:

          - meals in a restaurant-style 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.

o    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
     catheter, colostomy and ileosotomy care, minor wound care needs and light
     to moderate transferring needs. Specially trained staff provide
     personalized care, specialized activity programs and oversee the medication
     regimens.

     In addition to the base rent, we typically charge between $375 and $1,700
per month plus additional charges 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
our set rates at any time. In addition, we may only be able to lease the units
in our ALCs at rates below our set rates due to limitations imposed on rates by
local market conditions or other factors. Even if we achieve substantial
occupancy at our set rates, our set rates may not allow for our projected cost
recovery and profit if operating expenses increase. In addition, in order to
increase our set rates, we must provide advance notice of rate increases,
generally at least 30 days. Because of this advance notice requirement, we are
not able to reflect cost increases in our set rates until at least several
months after such cost increases occur.



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     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 well being 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:

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

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

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

     We arrange for these services to be provided to residents as needed in
consultation with their physicians and families. At the present time, both of
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.

     Certain risks are inherent with the operation of ALCs. These risks include,
but are not limited to:

     o    our ability to access capital necessary for operations of our ALCs;

     o    governmental regulation;

     o    competition; and

     o    risks common to the assisted living industry.

DEPENDENCE ON THE AVAILABILITY OF ADEQUATE CAPITAL

     We depend heavily on our ability to obtain adequate capital to fund our
operations. Our estimated capital needs for operations over the next 12 months
are $163,496. As of December 31, 2000, we had $8.4 million in cash and cash
equivalents. This means we have cash and cash equivalents to meet our estimated
capital needs for operations for the next 12 months. If, however our operations
costs exceed our projections, we may have to obtain significant additional
financing. There is no assurance that we will be able to obtain the financing on
a timely basis, if at all. If we are unable to obtain the required financing on
a timely basis we may not be able to execute our business plan.

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:

     o    family members providing care at home;

     o    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

     o    acute care hospitals.


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     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 Arizona and localities where
we operate or intend to operate. Changes in 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 the Company 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.

     SSI Payments. A portion of our revenue comes from residents who receive SSI
payments. Approximately 1% of our residents are on SSI programs. Revenue from
these residents is generally lower than the amounts we receive from our other
residents and could be subject to payment delay. 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, assisted living or management revenue.

     Obtaining Residents and Maintaining Rates. As of December 31, 2000, our
ALCs had a combined occupancy rate of 98.7%. Occupancy may drop in our existing
ALCs, primarily due to:

     o    changes in the health of residents;

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

     o    the reassessment of residents' physical and cognitive state.

     There can be no assurance that any ALC will be substantially occupied at
our set rates at any time. In addition, we may only be able to lease the units
in our ALCs at rates below our set rates due to limitations imposed on rates by
local market conditions or other factors. Even if we achieve substantial
occupancy at our set rates, our set rates may not allow for our projected cost
recovery and profit if operating expenses increase. In addition, in order to
increase our set rates, we must provide advance notice of rate increases,
generally at least 30 days. Because of this advance notice requirement, we are
not able to reflect cost increases in our set rates until at least several
months after such cost increases occur. In addition, if we fail to generate
sufficient revenue, we may be unable to make interest and principal payments on
our indebtedness.


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    General Real Estate Risks. The performance of our ALCs is influenced by
factors generally affecting real estate investments, and real estate risks
specific to ALCs including:

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

     o    the attractiveness of properties to residents;

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

     o    competition from other forms of housing;

     o    our ability to provide adequate maintenance and insurance;

     o    general economic climates;

     o    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.

     Requirements 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,
or amendments to the current legislation, may impose requirements with respect
to ensuring access of disabled persons to our properties, and the costs of
compliance could be substantial.

     Geographic Concentration. One of our ALCs is located in Camarillo,
California and one ALC is located in Chandler, Arizona. 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 these states, 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.


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ITEM 2. PROPERTIES

     The following table sets forth, as of December 31, 2000 the location of
each of our ALCs, the date on which operations commenced at each such ALC, the
number of units at each ALC, and our interest in each ALC.

                                     COMMENCED
COMMUNITY            LOCATION        OPERATIONS       UNITS      INTEREST
---------            --------        ----------       -----      ---------
Chandler Villas      Chandler, AZ    September 1992    164       Fee Owned
Villa Las Posas      Camarillo, CA   December 1997     123       Fee Owned

PROMISSORY NOTES RESULTING FROM THE SALE OF HERITAGE POINTE CLAREMONT

     In September 1993, we contracted to sell our then owned Heritage Pointe
Claremont to Claremont Senior Partners ("CSP") for $12,281,900. Our General
Partner is a special limited partner of CSP. The transaction closed on December
30, 1993. The consideration we received from CSP in the sale of Heritage Pointe
Claremont ALC consisted of both $10,000 in cash and cash equivalents and
$12,271,900 in the form of a promissory note.

     The promissory note bears interest at 8.0% and the outstanding balance and
interest are payable from excess cash flows as defined in the CSP partnership
agreement. The promissory note is secured by certain CSP partners' interests in
CSP and matures on January 25, 2010.

     Upon the receipt of the principal and interest payment from CSP in April
1996 and January 1995, a sufficient investment as defined by Statements of
Financial Accounting Standards Board No. 66 was made and the sale was
recognized. As CSP's excess cash flows do not currently exceed the interest
payment requirements, SFAS 66 requires profit on the sale to be recognized under
the cost recovery method as payments are received on the notes. We received
interest payments on these note totaling $12,000, $54,600, $134,000 for the
years ended December 31, 2000, 1999 and 1998 respectively.

ITEM 3. LEGAL PROCEEDINGS

     On June 15, 1999, we, along with five other California limited partnerships
of which ARVAL is the managing general partner including American Retirement
Villas Properties II, Casa Bonita Fullerton, Ltd., Collwood Knolls, L.P., and
San Gabriel Retirement Villa, L.P. (collectively, 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 misrepresentation against PRN Mortgage Capital,
L.L.C. and Red Mountain Funding, L.L.C. ("Defendants"). Defendants filed a
counter-claim for amounts allegedly due under loan commitments between
Defendants and the ARV Partnerships. In July 2000, the ARV Partnerships settled
the dispute with the Defendants. We have received and recorded all amounts due
as a result of the settlement. 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 Unit Holders in the fourth quarter of the
fiscal year.


                                       9
<PAGE>   10

                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED UNITHOLDER MATTERS

     There is no established public trading market for our securities.

     As of March 30, 2001, there were approximately 1,759 Unit Holders of record
owning 18,666 units. For the years ended December 31, 2000, 1999 and 1998, we
made distributions of $226.99 per limited partner unit, $511.24 per limited
partner unit and $68.75 per limited partner unit, respectively. Distributions
for 2000 represent a distribution of earnings of $218.08 and a return of capital
of $8.92. Distributions for 1999 represent a distribution of earnings of $252.81
and a return of capital of $258.43. All of the distributions during 1998
represented a return of capital to the Unit Holders.

ITEM 6. SELECTED FINANCIAL DATA

     The following table presents financial data for each of the last five
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 Results of
Operations" at Item 7. This table is not covered by the Independent Auditors'
Report.

<TABLE>
<CAPTION>
                                                   2000       1999        1998        1997       1996
                                                  -------    -------    --------     -------    -------
                                                             (In thousands, except unit data)
<S>                                               <C>        <C>        <C>          <C>        <C>
Revenues .....................................    $ 8,994    $ 8,645    $  9,490     $ 6,333    $ 6,140
Net income (loss) ............................      4,111      4,767        (378)        229        483
Net income (loss) (per limited partner unit) .     218.08     252.81      (20.06)      12.27      25.63
Total assets .................................     21,315     18,786      31,679      31,241     25,300
Partners' capital ............................      1,832      2,000       6,873       8,547      8,318
Long-term obligations ........................     13,177     15,665      23,072      20,889     16,023
Distributions of earnings (per limited partner
    unit) ....................................     218.08     252.81          --          --      25.02
Distributions - return of capital (per limited
    partner units) ...........................       8.92     258.43       68.75          --         --
Total distributions (per limited partner unit)     226.99     511.24       68.75          --      25.02
</TABLE>

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

LIQUIDITY

     We expect that cash generated from the operations of our properties will be
adequate to pay operating expenses and provide distributions to our partners. On
a long-term basis, our liquidity is sustained primarily from cash flow provided
by operating activities. For the year ended December 31, 2000, net cash provided
by operating activities was $1.8 million compared to $1.0 million for the year
ended December 31, 1999 and $0.6 million for the year ended December 31, 1998.

     Net cash provided by investing activities was $7.5 million for the year
ended December 31, 2000 as compared to net cash provided by investing activities
of $3.8 million for the year ended December 31, 1999, and net cash used in
investing activities of $0.9 million for the year ended December 31, 1998. The
increase in 2000 was primarily a result of proceeds from the sale of ARVP
III/Bradford Square Ltd., sold on December 31, 2000 for $8.0 million.

     Net cash used in financing activities was $3.1 million for the year ended
December 31, 2000 as compared to net cash used in financing activities of $4.5
million for the year ended December 31, 1999, and net cash provided by financing
activities of $1.2 million for the year ended December 31, 1998. Our financing
activities in 2000 consisted of:

     o    principal repayments on notes payable,

     o    cost acquired in related to refinancing on our two ALCs, and

     o    distributions made to partners.


                                       10

<PAGE>   11

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

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

     o    provide a return of equity to ARVP III's limited partners; and

     o    borrow against the increased value of these properties.

     On June 28, 1999 we obtained financing on our two ALCs through a loan
agreement with a major financial institution in the aggregate principle amount
of $13.4 million at an interest rate of 9.15% per annum with a maturity date of
June 28, 2001. As required by the loan agreement, we created a wholly owned
subsidiary, Retirement Inns III, LLC as a special purpose entity for the
financial situation. Our General Partner is a guarantor on the loan for fraud,
material misrepresentation and certain covenants.

    During the fourth quarter of 2000, we received a commitment to refinance the
loan with respect to one of the two ALCs into a thirty-five year HUD backed loan
bearing interest at a rate of 8.06% per annum. We closed the refinancing
transaction in January 2001. With respect to the loan on the other ALC, the
maturity date has been extended to January 2002.

     We are not aware of any trends, other than national economic conditions,
which 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. We believe that if the inflation rate increases we will be able to
pass the subsequent increases in operating expenses onto the residents at the
properties by way of higher rental and assisted living rates. The implementation
of price increases is intended to lead to an increase in revenue however, those
increases may result in an initial decline in occupancy and/or a delay in
increasing occupancy. If this occurs, revenues may remain constant or even
decline.

CAPITAL RESOURCES

     We estimate that we will incur approximately $163,000 for capital
expenditures during 2001 for physical improvements at our two ALCs. The funds
for these improvements should be available from operations.

     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.

RESULTS OF OPERATIONS

The Year Ended December 31, 2000 as compared to the Year Ended December 31, 1999

<TABLE>
<CAPTION>

(DOLLARS IN MILLIONS)                                                                 Increase/
                                                             2000         1999       (decrease)
                                                            ------       ------      ----------
<S>                                                         <C>          <C>              <C>
Revenues:
  Rent .............................................        $ 7.58       $ 7.14           6.2%
  Assisted living ..................................          1.12         1.02           9.2%
  Interest and other revenue .......................          0.29         0.48         (38.3)%
                                                            ------       ------        ------
          Total revenue ............................          8.99         8.64          4.00%
                                                            ------       ------        ------
Costs and expenses:
  Rental property operations .......................          4.42         4.28           3.3%
  Assisted living ..................................          0.68         0.66           3.9%
  General and administrative .......................          0.51         0.41          21.5%
  Depreciation and amortization ....................          1.10         1.06           3.8%
  Property taxes ...................................          0.23         0.25          (8.9)%
  Interest .........................................          1.41         1.50          (6.1)%
                                                            ------       ------        ------
          Total costs and expenses .................          8.35         8.16           2.3%
                                                            ------       ------        ------
          Operating income .........................          0.64         0.48          33.3%
Gain on sale of properties .........................          4.82         4.56           5.7%
                                                            ------       ------        ------
Income (loss) before minority interest and change in
  accounting principle .............................          5.46         5.04           8.3%
Minority interest in operations ....................          1.34         0.18         648.4%
                                                            ------       ------        ------
Income(loss) before change in accounting principle .          4.12         4.86         (15.2)%
Cumulative effect of change in accounting principle             --        (0.10)       (100.0)%
                                                            ------       ------        ------
           Net income ..............................        $ 4.12       $ 4.76         (13.4)%
                                                            ======       ======        ======
</TABLE>



                                       11
<PAGE>   12

The increase in assisted living community rental revenue of $0.44 million from
$7.14 million for the year ended December 31, 1999 to $7.58 million for the year
ended December 31, 2000, or 6.2%, is primarily attributable to:

     o    average occupancy for our assisted living communities increased to
          96.8% for the year ended December 31, 2000 as compared with 94.7% the
          year ended December 31, 1999;

     o    an increase in average rental rate per occupied unit to $1,723 for the
          year ended December 31, 2000 as compared with $1,663 for the year
          ended December 31, 1999;

     o    offset by one and one-half months of rent from the senior apartments
          in 1999 which were sold on February 19, 1999.

The increase in assisted living revenue of $0.10 million from $1.02 million for
the year ended December 31, 1999 to $1.12 million for the year ended December
31, 2000, or 9.2%, is primarily attributable to:

     o    an increase in the assisted living rate from $673 per month for the
          year ended December 31, 1999 compared to $701 per month for the year
          ended December 31, 2000;

     o    offset by the loss of one-third of one month's revenue from Bradford
          Square which was sold on December 21, 2000.

The decrease in interest and other revenue of $0.19 million from $0.48 million
for the year ended December 31, 1999 to $0.29 million for the year ended
December 31, 2000, or (38.3)%, is primarily attributable to:

     o    a decrease in processing and other resident fees for the twelve-month
          period ended December 31, 2000 due to competitor's waiving such fees
          to increase occupancy;

     o    a lack of interest income from notes receivable in connection with the
          sale of three apartment projects in February 1999; and

     o    a decrease in other income from the Claremont Senior Partner note;

     o    offset by an increase in interest earned from bank accounts which
          utilize commercial paper investments.

The increase in rental property operations and assisted living operating
expenses of $0.14 million from $4.28 million for the year ended December 31,
1999 to $4.42 million for the year ended December 31, 2000, or 3.3%, is
primarily attributable to:

     o    an increased in variable expenses that related to increases in
          occupancy in assisted living communities;

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

     o    increased salaries of staff and fringe benefits;

     o    offset by a decrease in expenses from the senior apartments which were
          sold in 1999; and

     o    a small decrease in the expenses of Bradford Square which was sold on
          December 21,2000.

The increase in general and administrative expenses of $0.10 million from $0.41
million for the year ended December 31, 1999 to $0.51 million for the year ended
December 31, 2000, or 21.5%, is primarily attributable to:

     o    increased administration fees paid to our general partner;

     o    increased marketing and advertising expenses; and

     o    increased legal expenses related to the recovery of the interest rate
          lock and commitment fees incurred in connection with the failed
          refinancing of certain notes payable in 1998;

     o    offset by a reduction of expenses, that were previously allocated to
          general and administrative due to cost-cutting efforts.

The decrease in property tax expense of $0.02 million from $0.25 million for the
year ended December 31, 1999 to $0.23 million for the year ended December 31,
2000, or (8.9)%, is primarily related to the sale of our three senior apartments
consummated on February 19, 1999.

The decrease in interest expense of $0.09 million from $1.50 million for the
year ended December 31, 1999 to $1.41 million for the year ended December 31,
2000, or (6.1)%, is primarily related to the following:

     o    a recovery of $112,000 of interest rate lock and commitment fees
          incurred in connection with the failed refinancing of certain notes
          payable in 1998; and

     o    buyer's assumption of the notes payable for the three senior
          apartments sold on February 19, 1999;

     o    offset by an increase in expense from refinancing of two ALCs in June
          1999.

The increase in minority interest in operations of $1.16 million from $0.18
million for the year ended December 31, 1999 to $1.34 million for the year ended
December 31, 2000, or 646.7%, is primarily due to the sale of Bradford Square,
L.P on December 21, 2000.

The cumulative effect of change in accounting principle in 1999 is a result of
the adoption of SOP 98-5 which requires that costs of start-up activities and
organizational costs be expensed as incurred and the write-off of previously
deferred and un-amortized amounts.



                                       12
<PAGE>   13

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>
Revenues:
  Rent ..............................................        $  7.14       $  8.20         (12.9)%
  Assisted living ...................................           1.02          0.97           5.2%
  Interest and other revenue ........................           0.48          0.32          50.0%
                                                             -------       -------       -------
          Total revenue .............................           8.64          9.49          (8.1)%
                                                             -------       -------       -------
Costs and expenses:
  Rental property operations ........................           4.28          5.02         (14.7)%
  Assisted living ...................................           0.66          0.46          43.5%
  General and administrative ........................           0.41          0.55         (25.4)%
  Depreciation and amortization .....................           1.06          1.44         (26.4)%
  Property taxes ....................................           0.25          0.39         (35.9)%
  Interest ..........................................           1.50          1.96         (23.5)%
                                                             -------       -------       -------
          Total costs and expenses ..................           8.16          9.82         (16.9)%
                                                             -------       -------       -------
          Operating income ..........................           0.48         (0.33)        245.5%
Gain on sale of property ............................           4.56          0.13       3,296.0%
                                                             -------       -------       -------
Income (loss) before minority interest and cumulative
  effect of change in accounting principle ..........           5.04         (0.20)      2,620.0%
Minority interest in operations .....................           0.18          0.18           2.7%
                                                             -------       -------       -------
Income (loss) before change in accounting principle .           4.86         (0.38)      1,378.9%
Cumulative effect of change in accounting principle .          (0.10)           --         100.0%
                                                             -------       -------       -------
           Net income (loss) ........................        $  4.76       $ (0.38)      1,360.3%
                                                             =======       =======       =======
</TABLE>

The decrease in assisted living community rental revenue of $1.06 million from
$8.20 million for the year ended December 31, 1998 to $7.14 million for the year
ended December 31, 1999, or (12.9)%, is primarily attributable to:

     o    only one and one-half months of rent in 1999 from our previously owned
          senior apartments (sold on February 19, 1999);

     o    average occupancy for our ALCs decreased to 94.1% for the year ended
          December 31, 1999 as compared with 96.4% for the year ended December
          31, 1998;

     o    offset by an increase in average rental rate per occupied unit to
          $1,663 for the year ended December 31, 1999 as compared with $1,445
          for the year ended December 31, 1998.

The increase in assisted living revenue of $0.05 million from $0.97 million for
the year ended December 31, 1998 to $1.02 million for the year ended December
31, 1999, or 5.2%, is primarily is due to:

     o    an average increase of 3.0% in assisted living resident; and

     o    an increase in assisted living rate from$662 per month for the year
          ended December 31, 1998 compared to $673 per month for the year ended
          December 31, 1999.

The increase in interest income of $0.16 million from $0.32 million for the year
ended December 31, 1998 to $0.48 million for the year ended December 31, 1999,
or 50.0%, is primarily attributable to investments of excess cash during 1999.

The decrease in rental property operations is primary due to the sale of our
three senior apartments (sold on February 19, 1999).

Assisted living operating expenses were approximately the same for the fiscal
year ended December 31, 1999 and the fiscal year ended December 31, 1998.

General and administrative costs of $0.14 million from $0.55 million for the
year ended December 31, 1998 to $0.41 million for the year ended December 31,
1999, or (25.4)%, decreased primarily due to cost cutting-measures.

The decrease in depreciation and amortization expense of $0.38 million from
$1.44 million for the year ended December 31, 1998 to $1.06 million for the year
ended December 31, 1999, or (26.4)%, is primarily related to:

     o    the sale of our three senior apartments sold on February 19, 1999; and

     o    the elimination of amortization of start-up costs due to the adoption
          of SOP 98-5 which required us to write-off all capitalized start-up
          costs in the first quarter 1999.


                                       13

<PAGE>   14

The decrease in property tax expense of $0.14 million from $0.39 million for the
year ended December 31, 1998 to $0.25 million for the year ended December 31,
1999, or (35.9)%, is primarily related to the sale of our three senior
apartments sold on February 19, 1999.

Advertising expenses were approximately the same for the fiscal year ended
December 31, 1999 and the fiscal year ended December 31, 1998.

The decrease in interest expense of $0.46 million from $1.96 million for the
year ended December 31, 1998 to $1.50 million for the year ended December 31,
1999, or (23.5)% is primarily related to:

     o    the buyer's assumption of the notes payable for the three senior
          apartments sold on February 19, 1999; and

     o    the $0.6 million rate lock fee incurred in 1998.

Minority interest in income were approximately the same for the fiscal year
ended December 31, 1999 and the fiscal year ended December 31, 1998.

Cumulative effect of change in accounting principle is a result of the adoption
of SOP 98-5 that required that cost of start-up activities and organizational
costs be expensed as incurred and the write-off of previously deferred and
un-amortized amounts.

FUTURE CASH DISTRIBUTIONS

     On January 11, 2001, we distributed to our limited partners the sales
proceeds from Bradford Square L.P. in the aggregate amount of $4.0 million. We
do not have any plans to make cash distribution in the immediate future. Our
ability to make cash distributions in the future depends on many factors,
including: 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, and our ability to generate
proceeds from the sales of our properties under favorable terms.

ITEM 7A. QUANATITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     We are exposed to market risks related to fluctuations in the interest
rates on our fixed rate notes payable. With respect to our fixed rate notes
payable, changes in the interest rates affect the fair market value of the notes
payable, but not our earnings or 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 the earlier of maturity and any required refinancing of
such debt. We do not currently have any variable interest rate debt and,
therefore, are not subject to interest rate risk associated with variable
interest rate debt. Currently, we do not utilize interest rate swap or exchange
agreements and, therefore, are not subject to interest rate risk associated with
interest rate swaps.

     Less than 1% of our total assets and total contract revenues as of and for
the periods ended December 31, 2000 and 1999 were denominated in currencies
other than the U.S. Dollar; accordingly, we believe that we have no material
exposure to foreign currency exchange risk. This materiality assessment is based
on the assumption that the foreign currency exchange rates could change
unfavorably by 10%. We have no foreign currency exchange contracts.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated 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.



                                       14
<PAGE>   15

                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

As an entity, we have no directors and offices. As of December 31, 2000 our
general partners were: ARV Assisted Living, Inc. ("ARVAL"), which serves as the
Managing General Partner, Gary L. Davidson, John A. Booty, John S. Jason, Tony
Rota, and David P. Collins (collectively known as " Special Limited Partners").
Our General Partner makes all decisions concerning property acquisitions and
dispositions of the communities, subject to the limited partners' rights to
approve or disapprove of the sale of substantially all of our assets. Our
Special Limited Partners elected to be changed from general partners to special
limited partners during the fiscal year of 2000. An amendment to our Certificate
of Limited Partnership has been filed with the State of California as of March
7, 2001.

EXECUTIVE OFFICERS AND DIRECTORS OF OUR GENERAL PARTNER

The following table sets forth-certain information regarding the executive
officers and directors of ARVAL as December 31, 2001.

<TABLE>
<CAPTION>

        NAME                  AGE                   POSITION WITH THE COMPANY
        ----                  ---                   -------------------------
<S>                           <C>      <C>
Douglas M. Pasquale           46       Chief Executive Officer and Chairman of  the Board
Abdo H. Khoury                51       President, Chief  Financial Officer and Secretary of ARVAL
Robertson K. Chandler         44       Senior Vice President, Operations
Laura J. Loda                 42       Senior Vice President Operations (Resigned February 2001)
Maurice J. Dewald             60       Director
David P. Collins              63       Director
John A. Moore                 39       Director
Jeffrey D. Koblentz           33       Director
</TABLE>

     DOUGLAS M. PASQUALE, has served as the Chief Executive Officer of ARVAL
since March, 1999. Mr. Pasquale also serves as a Director of ARVAL, a position
he has held since October 1998 and as the Chairman of the Board of Directors of
ARVAL, a position he has held since December 1999. He joined ARVAL as President
and Chief Operating Officer on June 1, 1998. Prior to joining ARVAL, Mr.
Pasquale was employed from 1986 until 1998 in various capacities by Richfield
Hospitality Services, Inc., and Regal Hotels International-North America, a
leading hotel ownership and hotel management company based in Englewood,
Colorado including as its President and Chief Executive Officer from 1996 to
1998 and as as its Chief Financial Officer from 1994 to 1996.

     ABDO H. KHOURY, Mr. Khoury has served President of ARVAL since January
2001and has served as Chief Financial Officer and Secretary of ARVAL since March
30, 1999. Previously he served as Vice President, Asset Strategy and Treasury of
ARVAL, a position he held from January 1999 until March 1999, and as President
of the Apartment Division, a position he held from May 1997 until January 1999.
Prior to joining ARVAL, Mr Khoury was a principal with Financial Performance
Group in Newport Beach, California, from 1991 to 1997.

     ROBERTSON K. CHANDLER. Mr. Chandler has served as Senior Vice President,
Operations of ARVAL since February 1999. Prior to that time he served as Vice
President of Operations, Home Care and Hospice, with Mariner Specialty Health
Services in Longmont, Colorado, from 1997 to 1999. From 1993 to 1997, he was
Chief Operating Officer and a Director of Colorado Home Care, a home care agency
headquartered in Broomfield, CO.

     LAURA J. LODA. From June 1999 until June 2000, Ms. Loda served as the
Senior Vice President, Human Resources of ARVAL. She served as Vice President,
Operations of ARVAL from February 1999 until February 2001. Ms. Loda resigned
her positions with ARVAL in February 2001. Prior her employment with ARVAL, from
1996 until 1998 Ms. Loda served as the Director of Corporate Human Resources for
Taco Bell, a fast food operation of Tricon Global Restaurants based in Irvine,
California. From 1993 to 1996, Ms. Loda was the Director of Compensation for
Gap, Inc. an international clothing chain based in San Francisco, Calfornia.


                                       15
<PAGE>   16

     MAURICE J. DEWALD, age 60, has served as a Director of ARVAL since 1995.
Mr. Dewald is the Chairman and Chief Executive Officer of Verity Financial
Group, Inc., a firm he founded in 1992. He currently serves as a Director of
Tenet Healthcare Corporation, Dai-Ichi Kangyo Bank of California and Monarch
Funds.

     DAVID P. COLLINS, age 63, has served as a Director of ARVAL since 1985.
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 is President and Chief Executive
Officer of Euro Senior Living, Lisbon, Portugal.

     JOHN A. MOORE, age 39, has served as a Director of ARVAL since 1999. Mr.
Moore 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 had served as an Executive Vice President and Chief Financial Officer
since 1996. Prior to his employment with World Financial Properties, from 1988
until 1996 Mr. Moore worked with Olympia and York as Senior Vice President,
Finance.

     JEFFREY D. KOBLENTZ, age 33, has served as a Director since 2000. Mr.
Koblentz 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 from 1992 until 1998.

None of the directors or officers is related to each any other director or
officer by blood or marriage and none of the directors or officers is involved
in any legal proceedings as described in Section 401(f) of Regulation S-K.

ITEM 11. EXECUTIVE COMPENSATION

As an entity, we have no officers or directors. We are managed by our General
Partner. We compensate our General Partner as set forth in the table below.
Please note that during the fiscal year 2000 the Special Limited Partners were
general partners of ARVP III and, as such, were entitled to the compensation set
forth below (except for compensation which to which ARVAL only is entitled, as
specifically indicated in parenthetical).

<TABLE>
<S>                                     <C>
Acquisition Fees
(ARV Assisted Living, Inc.)             A property acquisition fee of 2% of Gross Offering Proceeds
                                        as defined in the ARVP III Limited Partnership Agreement to
                                        be paid for services in connection with the selection and
                                        purchase of ALCs and related negotiations. In addition, a
                                        development, processing and renovation fee of 3.5% of Gross
                                        Offering Proceeds to be paid for services in connection with
                                        negotiations for or the renovation or improvement of
                                        existing communities and the development, processing or
                                        construction of ALCs developed by us. There were no property
                                        acquisition, development, and renovation fees for the years
                                        ending December 31, 2000, 1999 and 1998.

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 ALCs. Such fees will be paid for services in
                                        connection with the opening and initial operations of the
                                        ALCs 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 ending December 31, 2000, 1999
                                        and 1998.


Property Management Fees
(ARV Assisted Living, Inc.)             A property management fee of 5% of gross revenues paid for
                                        managerial services including general supervision, hiring of
                                        onsite management personnel employed by ARVP III, renting of
                                        units, installation and provision of food service,
                                        maintenance, and other operations. Property management fees
                                        for the years ending December 31, 2000, 1999 and 1998 were
                                        $442,000, $421,000, and $472,000, respectively.
</TABLE>


                                                 16
<PAGE>   17

<TABLE>
<S>                                     <C>
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 management of our affairs including general
                                        administration, coordination of legal, audit, tax, and
                                        insurance matters. Partnership management fees for the years
                                        ending December 31, 2000, 1999 and 1998 were $178,000
                                        $151,000, and $140,000 respectively.

Sale of Partnership Projects
(ARV Assisted Living, Inc.)             The ARVP III,Limited Partnership Agreement neither
                                        specifically authorizes nor prohibits payment or
                                        compensation in the form of real estate commissions to the
                                        General Partners or its affiliates. Any such payments or
                                        compensation are subordinated to a return to ARVP III's
                                        limited partners of their capital contributions plus an 8%
                                        per annum, cumulative, but not compounded, return thereon
                                        from all sources, including prior distribution of cash flow.
                                        Any such compensation shall not exceed 3% of the gross sales
                                        price or 50% of the standard real estate brokerage
                                        commission, whichever is less. Upon the sale of Bradford
                                        Square on December 21, 2000, $240,060 real estate selling
                                        commission was paid to ARVAL. In fiscal 1999, and 1998 no
                                        real estate selling commissions were paid to our ARVAL.

Subordinated Incentive Compensation
(ARV Assisted Living, Inc.)             ARVAL is entitled to receive 15% of the proceeds of sale or
                                        refinancing subordinated to a return of initial Capital
                                        Contributions (as defined in ARVP III Limited Partnership
                                        Agreement) plus cumulative, but not compounded return on
                                        capital contributions varying from 8% to 10% per annum. In
                                        2000, 1999 and 1998, no incentive compensation was paid.

Partnership Interest
(General Partners)                      1% of all items of capital, profit or loss, and liquidating
                                        distributions, subject to a capital account adjustment.

Reimbursed Expenses & Credit
Enhancement (General Partners)          Our General Partner may receive fees for personal guarantees
                                        of loans made to us. All of our expenses shall be 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 General Partner will be 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. The total reimbursements to ARVAL
                                        amounted to $3.1 million, $3.7 million, and $2.5 million for
                                        the years ending December 31, 2000, 1999 and 1998,
                                        respectively.

Finder Fees
(ARV Assisted Living, Inc.)             Our General Partner received finder fees in conjunction with
                                        obtaining grants for the rehabilitation of Cedar Villas and
                                        Villa Azusa. The finders fees amount to 10% of the total
                                        grant money received by us. No finder fees for the years
                                        ending December 31, 2000, 1999 and 1998 were paid.

Indemnity Fees
(General Partners)                      Our General Partner received $96,000 for indemnifying and
                                        holding UHSI, Costa and Husky harmless from any liabilities
                                        as a result of our buy out of them. No indemnity fees for
                                        the years ending December 31, 2000, 1999 and 1998 were paid.
</TABLE>

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Not applicable.




                                       17
<PAGE>   18

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 General Partner receives a management fee of
5% of Gross Revenues (as defined in the ARVP III Limited partnership Agreement).
Because these fees are payable without regard to whether particular communities
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 Partner that a
community be retained or re-financed rather than sold. On the other hand, an
affiliate of the General Partner may earn a real estate commission on sale of a
property, creating incentive to sell what might be a profitable property.

     The General Partner has authority to invest our funds in properties or
entities in which it or any of its affiliate has an interest, provided we
acquire a controlling interest. In any such investment, duplicate property
management or other fees will not be permitted. Our General Partner or any of
its 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 Partner will not commingle our funds with those of any other
person or entity.

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

     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. The General
Partner will seek to reduce any such conflicts by making prospective purchasers
aware of all properties available for sale.



                                       18
<PAGE>   19

                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

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

     (1)  Financial Statements

          o    Independent Auditors' Report;

          o    Consolidated Balance Sheets - December 31, 2000 and 1999;

          o    Consolidated Statements of Operations - Years ended December 31,
               2000, 1999 and 1998;

          o    Consolidated Statements of Partners' Capital - Years ended
               December 31, 2000, 1999 and 1998;

          o    Consolidated Statements of Cash Flows - Years ended December 31,
               2000, 1999 and 1998;

          o    Notes to Consolidated Financial Statements;

          o    Financial Statement Schedule - Schedule III - Real Estate and
               Related Accumulated Depreciation and Amortization - December 31,
               2000.

     (2)  Financial Statement Schedules:

     All financial statement schedules are omitted because they are not
     applicable or the required information is included in the financial
     statements or notes thereto.

     (3)  Exhibits

        Exhibit
        Number      Description
        -------     -----------
          10.1      Loan Agreement by and between Banc One Capital Funding
                    Corporation and Retirement Inns III, LLC (Incorporated by
                    reference to Exhibit 10.1 on Form 10-Q for the fiscal
                    quarter ended 06-30-99)

          10.2      Loan Agreement by and between Banc One Capital Funding
                    Corporation and Retirement Inns III, LLC (Incorporated by
                    reference to Exhibit 10.2 on Form 10-Q for the fiscal
                    quarter ended 06-30-99)

          10.3      Letter Agreement as to the Loans in the aggregate amount of
                    $13,382,200 from Banc One Capital Funding Corporation to
                    Retirement Inns III (Incorporated by reference to Exhibit
                    10.14 on Form 10-Q for the fiscal quarter ended 06-30-99)

          10.4      Note and Agreement as to Retirement Inns III, LLC.
                    (Incorporated by reference to Exhibit 10.16 on Form 10-Q for
                    the fiscal quarter ended 06-30-99)

          10.5      Limited Liability Company Agreement of Retirement Inns III,
                    LLC. (Incorporated by reference to Exhibit 10.18 on Form
                    10-Q for the fiscal quarter ended 06-30-99)

          10.6      Deed of Trust Note of ARV Chandler Villas, L.P. to Red
                    Mortgage Capital, Inc.*

          10.7      Allonge #1 to Deed of Trust Note of ARV Chandler Villas,
                    L.P. to Red Mortgage Capital, Inc.*

          10.8      Deed of Trust between ARV Chandler Villas, L.P. and Fidelity
                    National Title Insurance*

          10.9      Regulatory Agreement for U.S. Department of Housing
                    Multifamily Housing Projects between ARV Chandler Villas,
                    L.P. and Secretary of Housing and Urban Development*

          10.10     Purchase agreement and Escrow instructions between ARVP
                    III/Brandford Square, L.P., and Vintage Senior Housing, LLC*

          10.11     First Amendment to Purchase Agreement and Escrow
                    Instructions between ARV III/Bradford Square, L.P., and
                    Avalon at Bradford Square, LLC, assignee of Vintage Senior
                    Housing, LLC*

          10.12     Second Amendment to Purchase Agreement and Escrow
                    Instructions between ARV III/ Bradford Square, L.P., and
                    Avalon at Bradford Square, LLC*

--------------
* Filed herewith.

(b) Reports on Form 8-K. ARVP III did not file any report on form 8-K for the
    fiscal year ended December 31, 2000.



                                       19
<PAGE>   20

                                   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 III, A CALIFORNIA LIMITED PARTNERSHIP, BY
THE FOLLOWING PERSONS ON OUR BEHALF.


                                             ARV ASSISTED LIVING, INC.

                                             By: /s/ DOUGLAS M. PASQUALE
                                                 -------------------------------
                                                     Douglas M. Pasquale
                                                     Chief Executive Officer

Date: April 2, 2001

     Pursuant to the requirements of the Securities Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>

           SIGNATURE                          TITLE                                   DATE
           ---------                          -----                                   ----
<S>                                <C>                                            <C>
/s/   DOUGLAS M. PASQUALE          Chief Executive Officer                        April 2, 2001
-------------------------------    (Principal Executive Officer)
      Douglas M. Pasquale


/s/   ABDO H. KHOURY               President and Chief Financial Officer          April 2, 2001
-------------------------------    (Principal Financial & Accounting Officer)
      Abdo H. Khoury


/s/   JOHN A. MOORE                Director                                       April 2, 2001
-------------------------------
      John A. Moore


/s/   DAVID P. COLLINS             Director                                       April 2, 2001
-------------------------------
      David P. Collins


/s/   MAURICE J. DEWALD            Director                                       April 2, 2001
-------------------------------
      Maurice J. DeWald


/s/   JEFFREY D. KOBLENTZ          Director                                       April 2, 2001
-------------------------------
      Jeffery D. Koblentz
</TABLE>



                                       20
<PAGE>   21

                           AMERICAN RETIREMENT VILLAS
                           PROPERTIES III, L.P.
                           (A California Limited Partnership)

                           Annual Report - Form 10-K

                           Consolidated Financial Statements and Schedule

                           Items 8 and 14(a)

                           December 31, 2000, 1999 and 1998

                           (With Independent Auditors' Report Thereon)





                                       21
<PAGE>   22

                            Annual Report - Form 10-K

                                Items 8 and 14(a)

             Index to Consolidated Financial Statements and Schedule




                                                                        Page
                                                                        ----
Independent Auditors' Report                                            F-1

Consolidated Balance Sheets - December 31, 2000 and 1999                F-2

Consolidated Statements of Operations - Years ended
  December 31, 2000, 1999 and 1998                                      F-3

Consolidated Statements of Partners' Capital - Years ended
  December 31, 2000, 1999 and 1998                                      F-4

Consolidated Statements of Cash Flows - Years ended
  December 31, 2000, 1999 and 1998                                      F-5

Notes to Consolidated Financial Statements                              F-6

Schedule

Real Estate and Related Accumulated Depreciation and
  Amortization - December 31, 2000                                  Schedule III



All other schedules are omitted, as the required information is not applicable
or the information is presented in the consolidated financial statements or
related notes.

<PAGE>   23

                          INDEPENDENT AUDITORS' REPORT


To ARV Assisted Living, Inc.
   as the Managing General Partner
   of American Retirement Villas Properties III, L.P.:


We have audited the consolidated financial statements of American Retirement
Villas Properties III, L.P., a California limited partnership and subsidiaries,
as listed in the accompanying index. In connection with our audits of the
consolidated financial statements, we have also audited the consolidated
financial statement schedule listed in the accompanying index. These
consolidated financial statements and consolidated financial statement schedule
are the responsibility of management. Our responsibility is to express an
opinion on these consolidated financial statements and consolidated financial
statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Retirement
Villas Properties III, L.P. and subsidiaries as of December 31, 2000 and 1999
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also, in our
opinion, the related consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.


                                            /s/ KPMG LLP


Orange County, California
March 5, 2001



                                      F-1
<PAGE>   24

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

                           Consolidated Balance Sheets

                           December 31, 2000 and 1999
                          (IN THOUSANDS, EXCEPT UNITS)

<TABLE>
<CAPTION>
                                                                          2000             1999
                                                                        --------         --------
<S>                                                                     <C>              <C>
                                     ASSETS

Properties, at cost:
  Land                                                                  $  1,549         $  2,224
  Building and improvements, less accumulated depreciation
    of $2,371 and $2,976 in 2000 and 1999, respectively                   10,111           12,768
  Furniture, fixtures and equipment, less accumulated
    depreciation of $609 and $527 in 2000 and 1999, respectively             510              746
                                                                        --------         --------

      Net properties                                                      12,170           15,738

Cash                                                                       8,458            2,190
Restricted cash                                                              168              168
Loan fees, less accumulated amortization of $403 and
  $240 in 2000 and 1999, respectively                                        176              401
Other assets                                                                 343              289
                                                                        --------         --------

                                                                        $ 21,315         $ 18,786
                                                                        ========         ========
                       LIABILITIES AND PARTNERS' CAPITAL

Notes payable to banks                                                  $ 13,177         $ 13,323
Notes payable to others                                                       --            2,342
Accounts payable                                                              65              116
Accrued expenses                                                             550              486
Amounts payable to affiliates                                                244              118
Distributions payable to Partners                                          5,447              286
                                                                        --------         --------
      Total liabilities                                                   19,483           16,671
                                                                        --------         --------

Minority interest                                                             --              115
                                                                        --------         --------

Partners' capital (deficit):
  General partners                                                            (2)              (2)
  Special limited partners                                                  (138)            (137)
  Limited partners, 18,666 units outstanding at
    December 31, 2000 and 1999                                             1,972            2,139
                                                                        --------         --------

      Total partners' capital                                              1,832            2,000
                                                                        --------         --------
                                                                        $ 21,315         $ 18,786
                                                                        ========         ========
</TABLE>

        See accompanying notes to the consolidated financial statements.



                                      F-2
<PAGE>   25

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

                      Consolidated Statements of Operations

                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                            2000       1999         1998
                                                           ------     -------      -------
                                                         (IN THOUSANDS EXCEPT PER UNIT DATA)

<S>                                                        <C>        <C>          <C>
Revenues:
  Rent                                                    $ 7,582     $ 7,143      $ 8,195
  Assisted living                                           1,115       1,022          977
  Interest                                                    158         206           58
  Other                                                       139         274          260
                                                          -------     -------      -------
    Total operating revenues                                8,994       8,645        9,490
                                                          -------     -------      -------
Costs and expenses:
  Rental property operations (including $2,834,
    $2,450, and $1,518 related to affiliates in
    2000, 1999 and 1998, respectively)                      4,419       4,277        4,307
  Assisted living (including $676, $651, and $361
    related to affiliates in 2000, 1999 and 1998,
    respectively)                                             685         659          463
  General and administrative (including $297, $258,
    and $349 related to affiliates in 2000, 1999 and
    1998, respectively)                                       403         332          552
  Depreciation and amortization                             1,104       1,060        1,439
  Property taxes                                              228         250          393
  Advertising                                                 103          84          115
  Interest                                                  1,410       1,502        2,557
                                                          -------     -------      -------
    Total operating costs and expenses                      8,352       8,164        9,826
                                                          -------     -------      -------
    Operating income (loss)                                   642         481         (336)
Gain on sale of properties                                  4,823       4,562          134
                                                          -------     -------      -------
Income (loss) before income tax, minority interest
  in income of majority owned entities, and
  change in accounting principle                            5,465       5,043         (202)
Income tax expense                                             10          --           --
                                                          -------     -------      -------
Income (loss) before minority interest in income
  of majority owned entities, and change in
  accounting principle                                      5,455       5,043         (202)
Minority interest in income of majority owned entities      1,344         180          176
                                                          -------     -------      -------
Income (loss) before change in accounting principle         4,111       4,863         (378)
Cumulative effect of change in accounting principle            --         (96)          --
                                                          -------     -------      -------
Net income (loss)                                         $ 4,111     $ 4,767      $  (378)
                                                          =======     =======      =======

Net income (loss) per limited partner unit                $218.08    $252.81      $(20.06)
                                                          =======     =======      =======
</TABLE>

         See accompanying notes to the consolidated financial statements



                                      F-3
<PAGE>   26

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

                  Consolidated Statements of Partners' Capital

                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                                                    SPECIAL                        TOTAL
                                                                      GENERAL       LIMITED       LIMITED         PARTNERS'
                                                                      PARTNER       PARTNERS      PARTNERS         CAPITAL
                                                                      -------     ------------    --------        ---------
                                                                               (IN THOUSANDS EXCEPT PER UNIT DATA)

<S>                                                                   <C>          <C>            <C>             <C>
Balance (deficit) at December 31, 1997                                 $ (74)                      $ 8,621         $ 8,547

Distribution to partners ($68.75 per limited partner unit)               (13)                       (1,283)         (1,296)

Net loss                                                                  (3)                         (375)           (378)
                                                                       -----                       -------         -------
Balance (deficit) at December 31, 1998                                   (90)                        6,963           6,873

Distribution to partners ($511.24 per limited partner unit)              (97)                       (9,543)         (9,640)

Net income                                                                48                         4,719           4,767
                                                                       -----                       -------         -------

Balance (deficit) at December 31, 1999                                  (139)                        2,139           2,000
                                                                       -----                       -------         -------
Change in status of general partners to special
  limited partners                                                       137        $(137)

Distribution to partners ($226.95 per limited partner unit)                           (42)          (4,237)         (4,279)

Net income                                                                             41            4,070           4,111
                                                                       -----        -----          -------         -------
Balance (deficit) at December 31, 2000                                 $  (2)       $(138)         $ 1,972         $ 1,832
                                                                       =====        =====          =======         =======
</TABLE>

          See accompanying notes to consolidated financial statements.


                                      F-4
<PAGE>   27

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

                      Consolidated Statements of Cash Flows

                  Years ended December 31, 2000, 1999 and 1998

<TABLE>
<CAPTION>
                                                           2000             1999             1998
                                                          -------         --------         -------
                                                             (IN THOUSANDS EXCEPT PER UNIT DATA)
<S>                                                       <C>             <C>              <C>

Cash flows from operating activities:
  Net income (loss)                                       $ 4,111         $  4,767         $  (378)
  Adjustment to reconcile net income (loss) to
    net cash provided by operating activities:
      Depreciation and amortization                         1,104            1,060           1,439
      Gain on sale of properties                           (4,823)          (4,562)           (134)
      Cumulative effect of change in accounting
        principle                                              --               96              --
      Minority interest in income of majority
        owned entities                                      1,344               20              21
  Change in assets and liabilities:
    (Increase) in restricted cash                              --               (6)             (9)
    Decrease in other assets                                   47               --             265
    (Increase) Decrease in other assets                      (101)             151            (268)
    Increase (decrease) in accounts payable
      and accrued expenses                                     13             (515)           (111)
    Increase (decrease) in amounts payable
      to affiliates                                           126               (4)           (261)
                                                          -------         --------         -------
        Net cash provided by operating activities           1,821            1,007             564
                                                          -------         --------         -------

Cash flows from investing activities:
  Improvements and building construction                       --               --            (885)
  Additions to properties, net                               (168)            (187)           (164)
  Proceeds from sales of properties, net                    7,738            3,962              --
  Cash received for property sold under
    contract                                                   --               --             134
                                                          -------         --------         -------
        Net cash provided by (used in)
          investing activities                              7,570            3,775            (915)
                                                          -------         --------         -------

Cash flows from financing activities:
  Proceeds from notes payable                                  --           13,361           2,429
  Principal repayments on notes payable
    to banks and others                                    (2,488)         (10,162)           (321)
  Proceeds from note receivable                                --            2,765              --
  Loan Fees                                                   (58)            (704)             --
  Distributions paid                                         (577)          (9,752)           (943)
                                                          -------         --------         -------
        Net cash provided by (used in)
          financing activities                             (3,123)          (4,492)          1,165
                                                          -------         --------         -------
        Net increase in cash                                6,268              290             814

Cash at beginning of year                                   2,190            1,900           1,086
                                                          -------         --------         -------
Cash at end of year                                       $ 8,458         $  2,190         $ 1,900
                                                          =======         ========         =======

Supplemental cash flow information - cash paid
  during the year for interest (net of capitalized
  interest of $0, $0, and $35 in 2000, 1999 and
  1998, respectively)                                     $ 1,508         $  1,473         $ 2,553
                                                          =======         ========         =======
</TABLE>

        See accompanying notes to the consolidated financial statements.


                                      F-5
<PAGE>   28

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998


(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     PRINCIPLES OF CONSOLIDATION

          The consolidated financial statements of American Retirement Villas
     Properties III, L.P. (the Partnership) include the accounts of the
     Partnership, ARVP III/Bradford Square, L.P. (ARVP III/BS) and Retirement
     Inns III, LLC. that was created as part of the loan requirements for the
     refinancing in June 1999, Heritage Pointe Ontario Partners, L.P. (HPOP),
     and Heritage Pointe Pomona Partners, L.P. (HPPP) for the years ended
     December 31, 2000, 1999 and 1998. All inter-company balances and
     transactions have been eliminated in consolidation. We consolidate these
     limited partnerships since we have a controlling financial interest.
     Minority interest represents the minority partners' cost to acquire the
     minority interest adjusted by their proportionate share of subsequent
     earnings, losses and distributions.

     BASIS OF ACCOUNTING

          We maintain our records on the accrual method of accounting for
     financial reporting and Federal and state tax purposes.

     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:

             Buildings and improvements................... 27.5 to 35 years
             Furniture, fixtures and equipment............ 3 to 7 years

          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:

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

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

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

     Actual results could differ from those estimates.

     PRE-OPENING COSTS

          Costs such as fees paid for employee training, rent-up and other
     related costs incurred prior to the opening of a retirement community are
     deferred and amortized using the straight-line method over a period of one
     year after the community's opening.


                                      F-6
<PAGE>   29

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

              Notes to Consolidated Financial Statements (Continued)


          In April 1998, the Accounting Standards Executive Committee issued
     Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of Start-up
     Activities," which is effective for fiscal years beginning after December
     15, 1998. The SOP provides guidance on the financial reporting of start-up
     activities and organizational costs. It requires costs of start-up
     activities and organizational costs to be expensed when incurred and, upon
     adoption, the write-off as a cumulative effect of a change in accounting
     principle of any previously capitalized and un-amortized start-up or
     organizational costs. We adopted the provisions of SOP 98-5 in the first
     quarter of 1999 writing off capitalized start-up costs of approximately
     $96,000.

     LOAN FEES

          We amortize loan fees using the effective interest method over the
     term of the respective note payable.

     RENTAL INCOME

          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

          Except for yellow pages advertising, which is expensed over the period
     benefited on a straight-line basis, 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. The Partnership
     received an opinion of counsel as to its tax status prior to the offering
     of limited partnership units, but such opinion is not binding upon the
     Internal Revenue Service.

          Following are the Partnership's 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):

                                     2000                      1999
                              -------------------       -------------------
                               GAAP     TAX BASIS        GAAP     TAX BASIS
                               BASIS       (1)           BASIS       (1)
                              -------------------       -------------------
     Total assets             $21,315    $23,362        $18,786    $19,153
                              =======    =======        =======    =======
     Total liabilities        $19,483    $13,802        $16,671    $16,770
                              =======    =======        =======    =======


                                      F-7
<PAGE>   30

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

              Notes to Consolidated Financial Statements (Continued)


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

<TABLE>
<CAPTION>
                                                            2000         1999        1998
                                                           -------      -------      -----
<S>                                                        <C>          <C>          <C>
     Net income (loss) per financial statements            $ 4,111      $ 4,767      $(378)
     Guaranteed payments(1)                                    502          459        502
     Depreciation differences on properties(1)                 (40)        (105)        92
     Amortization differences on intangible assets(1)           75          102        128
     Deferred income(1)                                         (3)         (89)        20
     Gain on sale of assets(1)                                  74           72         --
     Other(1)                                                   (2)          15         (3)
                                                           -------      -------      -----
              Total income per Federal tax return (1)      $ 4,717      $ 5,221      $ 361
                                                           =======      =======      =====
</TABLE>

     -----------
     (1) Unaudited.

     NET INCOME (LOSS) PER LIMITED PARTNER UNIT

          Net income (loss) per limited partner unit was based on the weighted
     average number of limited partner units outstanding of 18,666 in 2000, 1999
     and 1998.

     RECLASSIFICATIONS

          We have reclassified certain prior period amounts to conform to the
     December 31, 2000 presentation.

(2)  ORGANIZATION AND PARTNERSHIP AGREEMENT

          We were formed on June 28, 1989 for the purpose of acquiring,
     developing and operating assisted living and senior apartment communities.
     The term of the Partnership is 60 years and may be dissolved earlier under
     certain circumstances. We commenced operations on December 28, 1989 when
     the minimum number of units (1,250) had been sold.

          Limited partner units (minimum of 2 units per investor for Individual
     Retirement Accounts, KEOGH'S and pension plans and 5 units for all other
     investors) were offered for sale to the general public. Each limited
     partner unit represents a $1,000 capital contribution. There were 18,666
     Limited Partner units sold through the end of the offering in October 1992
     which represented a cumulative capital investment of $18,666,000, net of
     units repurchased and resold. Under the Partnership Agreement, the maximum
     liability of the Limited Partners is the amount of their capital
     contributions.

          Our Managing General Partner is ARV Assisted Living, Inc. ("ARVAL"), a
     Delaware corporation, and the individual Special Limited Partners are John
     A. Booty, John S. Jason, Gary L. Davidson, Tony Rota and David P. Collins.
     Our Special Limited 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), 0.01% to the General Partners, 0.99%
     to Special Limited Partners and 99% to the Limited Partners. Cost recovery
     deductions for each year are allocated 0.01% to the General Partner, 0.99%
     to Special Limited Partners and 99% to the Limited Partners who are taxable
     investors.


                                      F-8
<PAGE>   31

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

              Notes to Consolidated Financial Statements (Continued)


          Cash available for distribution from operations, which is determined
     at the sole discretion of the General Partner, is to be distributed 0.01%
     to the General Partner, 0.99% to Special Limited Partners and 99% to the
     Limited Partners.

          Upon any sale, refinancing or other disposition of our real
     properties, distributions are to be made 0.01% to the General Partner,
     0.99% to the Special Limited 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 15% to the General Partner and Special Limited Partners,
     and 85% to the Limited Partners, except that after the sale of the
     properties, the proceeds of sale of any last remaining assets owned by us
     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 totaling $442,000,
     $421,000, and $472,000, for the years ended December 31, 2000, 1999 and
     1998, respectively. Additionally, we pay a partnership management fee of
     10% of cash flow before distributions, as defined in the Partnership
     Agreement, amounting to $178,000, $151,000, and $140,000 for the years
     ended December 31, 2000, 1999 and 1998, 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 payroll and
     retirement benefit expenses, repairs and maintenance, and supplies expenses
     paid on our behalf. The total reimbursements to ARVAL, are included in
     rental property operations and general and administrative expenses in the
     accompanying statements of operations and amounted to $3,160,000,
     $3,673,000, and $2,497,000 for the years ended December 31, 2000, 1999 and
     1998, respectively.

          In consideration for services rendered with respect to property
     acquisitions, the Managing General Partner is paid a property acquisition
     fee of a maximum of 2% of the gross offering proceeds. In addition, the
     Managing General Partner is entitled to a development, processing and
     renovation fee of a maximum of 3.5% of gross offering proceeds allocated to
     a particular project. The Managing General Partner is also entitled to a
     maximum fee of 4.5% of gross offering proceeds for rent-up and staff
     training services. There were no property acquisition and development or
     processing and renovation fees paid during the three years ended December
     31, 2000.

          We paid ARVAL $240,060 in real estate selling commission fees upon the
     sale of Bradford Square on December 21, 2000.

          Amounts payable to affiliates at December 31, 2000 and 1999 include
     expense reimbursements and accrued property management and partnership
     management fees.



                                      F-9
<PAGE>   32

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

              Notes to Consolidated Financial Statements (Continued)


(4)  PROPERTIES

          The following table sets forth, as of December 31, 2000 the location
     of each our ALCs, the date on which operations commenced at each such ALC,
     the number of units at each ALC, and our interest in each ALC.


                                                  COMMENCED
     COMMUNITY              LOCATION              OPERATIONS          UNITS
     ---------              --------              ----------          -----
     Chandler Villas        Chandler, AZ        September 1992         164
     Villa Las Posas        Camarillo, CA       December 1997          123

     ARVP III/BRADFORD SQUARE LTD.

          On December 18, 1990, we entered into a limited partnership, ARVP
     III/BS, with an unrelated third party, Bradford Square Ltd. Both partners
     made an initial $1,000 cash contribution. We are the Managing General
     Partner and Bradford Square Ltd. is the Limited Partner, each with a 50%
     interest. Pursuant to the agreement, Bradford Square Ltd. contributed an
     existing community (Bradford Square), to ARVP III/BS, and, we contributed
     cash. Income and loss is generally allocated to the Managing General
     Partner and Bradford Square, Ltd. based on their partnership interests.

          Under the limited partnership agreement between Bradford Square Ltd.,
     and us, we receive a 9% preferred return on 125% of amounts contributed to
     the partnership. The remaining cash flow from operations is divided equally
     between Bradford Square Ltd and us. During 2000, 1999 and 1998, we received
     a preferred return of $ 218,000, $218,000 and $218,000, respectively.

     SALE OF PROPERTY - ARVPIII/BRADFORD SQUARE LTD.

          On December 21, 2000 we sold ARVPIII/BS for $8,002,000. Under the
     limited partnership agreement between Bradford Square Ltd., and ARVP III,
     the distribution of assets on liquidation of the partnership shall be made
     in the following orders:

          First, to ARVPIII one hundred twenty five percent (125%) of the cash
          contributions made by the Partnership;

          Second, in proportion to and to the extent of the positive balance of
          respective capital accounts as of the date of distribution; and

          Third, the balance shall be made 50% to Bradford Square, L.P. and 50%
          to ARVPIII.

          The Partnership received a distribution of $3,622,000 from the sale of
     Bradford Square.

(5)  SALE OF PROPERTY - HERITAGE POINTE CLAREMONT

          In September 1993, we contracted to sell our then owned Heritage
     Pointe Claremont to Claremont Senior Partners ("CSP") for $12,281,900. Our
     General Partner is a special limited partner of CSP. The transaction closed
     on December 30, 1993. The consideration we received from CSP in the sale of
     Heritage Pointe Claremont ALC consisted of both $10,000 in cash and cash
     equivalents and $12,271,900 in the form of a promissory note.

          The promissory note bears interest at 8.0% and the outstanding balance
     and interest are payable from excess cash flows as defined in the CSP
     partnership agreement. The promissory note is secured by certain CSP
     partners' interests in CSP and matures January 25, 2010.

          Upon the receipt of the principal and interest payment from CSP in
     April 1996 and January 1995, a sufficient investment as defined by
     Statements of Financial Accounting Standards Board No. 66 was made and the
     sale was recognized. As CSP's excess cash flows do not currently exceed the
     interest payment requirements, SFAS 66 requires profit on the sale to be
     recognized under the cost recovery method as payments are received on the
     notes. We received interest payments on these note totaling $12,000,
     $54,600, $134,000 for the years ended December 31, 2000, 1999 and 1998
     respectively.


                                      F-10
<PAGE>   33

                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

              Notes to Consolidated Financial Statements (Continued)


(6)  NOTES PAYABLE TO BANKS AND OTHERS

          On January 1, 1993, we obtained notes payable secured by a deed of
     trust on Bradford Square and Chandler Villas. The notes were for 84 months
     and is guaranteed by our General Partners. The interest for the initial
     7-year term was at 5.25% in excess of the seven-year treasury yield as of
     the inception date (6.38% at inception) with annual increases of 2% per
     year, and interest for the second seven-year period at 7 % in excess of the
     seven-year treasury yield as of the reset date with annual increases of 2
     %. On June 1999 we refinanced a note secured on Chandler Villas to a 24
     month loan and on December 21, 2000 we paid the note secured on Bradford
     Square as part of the sale of the property.

          On June 28, 1999, we obtained financing on two communities. As part of
     the loan requirements, we created a wholly owned subsidiary Retirement Inns
     III, LLC. The loan is for 24 months and is secured by the two ALCs; in
     addition, ARV Assisted Living, our General Partner is a guarantor on the
     loan for fraud, material misrepresentation and certain covenants. The
     interest rate is 9.15% per annum and the payments are based upon a 25 year
     principal and interest amortization schedule. During the fourth quarter of
     2000, we received a commitment to refinance the loan with respect to one of
     the two ALCs into thirty-five year HUD backed loan bearing interest at
     8.06% per annum. We closed the refinancing transaction in January 2001.
     With respect to the loan on the other ALC, the maturity date has been
     extended to January 2002.

          At December 31, 2000 and 1999, notes payable to banks and others
     included the following (in thousands):

                                                            2000         1999
                                                           -------      -------
     Note payable to the bank, bearing interest at 9.15%.
       Monthly principle and interest payment of $13.
       Collateralized by two ALCs.                         $13,177      $13,323
                                                           -------       -------
     Notes Payable to Others:

     Notepayable secured by deed of trust on Bradford
       Square, bearing interest rate at 13.2% in the
       year of 1999 and 13.40% in the year of 2000.
       Monthly principle and interest payments $28;
       paid in 2000.                                            --         2,339

     Various notes payable bearing interests ranging
       from 13% to 16%; collateralized by equipment;
       paid in 2000.                                            --             3
                                                           -------       -------
           Notes payable to others                              --         2,342
                                                           -------       -------
                                                           $13,177       $15,665
                                                           =======       =======

          The annual principal payments of notes payable as of December 31, 2000
     are as follows (in thousands):

     Year ending December 31:
         2001                               $ 5,198
         2002                                 7,979
                                            -------
                                            $13,177
                                            =======



                                      F-11
<PAGE>   34
                 AMERICAN RETIREMENT VILLAS PROPERTIES III, L.P.
                       (A California Limited Partnership)

              Notes to Consolidated Financial Statements (Continued)

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

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

     o    provide a return of equity to ARVP III limited partners; and

     o    borrow against the increased value of these properties.

          Due to a failed financing, in 1998 we paid the lender approximately
     $0.7 million of fees for an interest rate lock and $0.10 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 $0.2 million of the interest rate lock fees
     in January 1999. After seeking legal action against the lender, we received
     an additional refund in the amount of $112,000 of the interest rate lock
     fees in July 2000 as full and final settlement. We have included the
     amounts paid and received in interest expense in the accompanying
     statements of operations for the years ended December 31, 2000, 1999 and
     1998.

          On June 28, 1999 we completed the refinancing. The loan is for 24
     months and is secured by the two ALCs; in addition, ARV Assisted Living,
     our 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 American Retirement Villas III, LLC as
     a special purpose entities for the financial situation. The loan term is
     for 24 months with a lender option to extend for 10 years. The interest
     rate is 9.15% per annum and the payments are based upon a 25 year principal
     and interest amortization schedule.

          During the fourth quarter of 2000, we received a commitment to
     refinance the loan with respect to one of the two ALCs into thirty-five
     year HUD backed loan bearing interest at 8.06% per annum. We closed the
     refinancing transaction in January 2001. With respect to the loan on the
     other ALC, the maturity date has been extended to January 2002.

(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 $8,000, $10,000 and $8,000 (as a
     reimbursement to ARVAL) for the years ended December 31, 2000, 1999 and
     1998.

(8)  DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS

          The estimated fair value of the Partnership's financial instruments
     have been determined using available market information and appropriate
     valuation methodologies. However, considerable judgment is required to
     interpret market data to develop the estimates of fair value. Accordingly,
     these estimates 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.

          The carrying amounts reported in the consolidated balance sheets for
     cash, other assets and, accounts payable, accrued liabilities and amounts
     payable to affiliates, approximate fair value due to the short-term nature
     of these instruments. The notes payable bear interest at rates that
     approximate current market rates. Therefore, we believe that the carrying
     value approximates fair value.

(9)  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

<TABLE>
<CAPTION>
                                                          FOR THE QUARTER ENDED
                                         -------------------------------------------------------
                                         DECEMBER 31    SEPTEMBER 30      JUNE 30       MARCH 31
                                         -----------    ------------      -------       --------
<S>                                      <C>            <C>               <C>           <C>
     2000
     Total revenue.....................    $2,280          $2,246          $2,202        $2,266
     Income from operations............       107             119             269           147
     Net income........................     3,769              51             277            64

     1999
     Total revenue.....................    $1,280          $2,027          $2,110        $2,328
     Income (loss) from operations.....       145             (37)            208           165
     Net income (loss).................        96             (80)             (6)        4,757
</TABLE>
                                      F-12
<PAGE>   35

                                  Schedule III

                    AMERICAN RETIREMENT VILLAS PROPERTIES III
                       (A California Limited Partnership)

        Real Estate and Related Accumulated Depreciation and Amortization

                                December 31, 2000
                                 (In thousands)'

<TABLE>
<CAPTION>
                                       INITIAL COSTS                                 GROSS AMOUNT
                                   -----------------------                     -------------------------
                                                                 COSTS
                                                              CAPITALIZED
                      ENCUM-                 BUILDINGS AND     SUBSEQUENT                   BUIDINGS AND
DESCRIPTION           BRANCES       LAND     IMPROVEMENTS    TO ACQUISITION     LAND        IMPROVEMENTS
-----------           -------      ------    -------------   --------------    ------       ------------
<S>                   <C>          <C>          <C>             <C>            <C>          <C>
Villa Las Posas       $ 8,081      $1,210       $  572          $8,666         $1,249          $ 9,238
Chandler Villas         5,096         300        2,902             342            300            3,244
                      -------      ------       ------          ------         ------          -------
                      $13,177      $1,510       $3,474          $9,008         $1,549          $12,482
                      =======      ======       ======          ======         ======          =======
</TABLE>


<TABLE>
<CAPTION>
                                      ACCUMULATED        DATE OF          DEPRECIABLE
                         TOTAL(1)     DEPRECIATION     ACQUISITION       LIVES (YEARS)
                         --------     ------------    -------------      -------------
<S>                      <C>          <C>             <C>                <C>
Villa Las Posas          $10,487         $1,204       December 1987      27-1/2 years
Chandler Villas            3,544          1,167       September 1990     27-1/2 years
                         -------         ------
                         $14,031         $2,371
                         =======         ======
</TABLE>



          Following is a summary of investment in properties for the year ended
     December 31, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                               2000          1999         1998
                                             --------      --------      -------
<S>                                          <C>           <C>           <C>
     Balance at beginning of year            $ 17,968      $ 33,423      $32,922
     Transfer of cost from other
       fixed assets                                --           189           --
     Improvements/construction                     62            51          501
     Disposals                                 (3,999)      (15,695)          --
                                             --------      --------      -------
     Balance at end of year                  $ 14,031      $ 17,968      $33,423
                                             ========      ========      =======
</TABLE>

          Following is a summary of accumulated depreciation and amortization of
     investment in properties for the years ended December 31, 2000, 1999, and
     1998:

<TABLE>
<CAPTION>
                                               2000         1999         1998
                                              -------      -------      ------
<S>                                           <C>          <C>          <C>
     Balance at beginning of year             $ 2,976      $ 5,177      $4,122
     Transfer of accumulated depreciation
       from other fixed assets                     --           92          --
     Additions charged to expense                 566          746       1,055
     Disposals                                 (1,171)      (3,039)         --
                                              -------      -------      ------
     Balance at end of year                   $ 2,371      $ 2,976      $5,177
                                              =======      =======      ======
</TABLE>

------------
(1) Aggregate cost for Federal income tax purposes is $13,554 December 31, 2000.


<PAGE>   36

                                 EXHIBIT INDEX

        Exhibit
        Number      Description
        -------     -----------
          10.1      Loan Agreement by and between Banc One Capital Funding
                    Corporation and Retirement Inns III, LLC (Incorporated by
                    reference to Exhibit 10.1 on Form 10-Q for the fiscal
                    quarter ended 06-30-99)

          10.2      Loan Agreement by and between Banc One Capital Funding
                    Corporation and Retirement Inns III, LLC (Incorporated by
                    reference to Exhibit 10.2 on Form 10-Q for the fiscal
                    quarter ended 06-30-99)

          10.3      Letter Agreement as to the Loans in the aggregate amount of
                    $13,382,200 from Banc One Capital Funding Corporation to
                    Retirement Inns III (Incorporated by reference to Exhibit
                    10.14 on Form 10-Q for the fiscal quarter ended 06-30-99)

          10.4      Note and Agreement as to Retirement Inns III, LLC.
                    (Incorporated by reference to Exhibit 10.16 on Form 10-Q for
                    the fiscal quarter ended 06-30-99)

          10.5      Limited Liability Company Agreement of Retirement Inns III,
                    LLC. (Incorporated by reference to Exhibit 10.18 on Form
                    10-Q for the fiscal quarter ended 06-30-99)

          10.6      Deed of Trust Note of ARV Chandler Villas, L.P. to Red
                    Mortgage Capital, Inc.*

          10.7      Allonge #1 to Deed of Trust Note of ARV Chandler Villas,
                    L.P. to Red Mortgage Capital, Inc.*

          10.8      Deed of Trust between ARV Chandler Villas, L.P. and Fidelity
                    National Title Insurance*

          10.9      Regulatory Agreement for U.S. Department of Housing
                    Multifamily Housing Projects between ARV Chandler Villas,
                    L.P. and Secretary of Housing and Urban Development*

          10.10     Purchase agreement and Escrow instructions between ARVP
                    III/Brandford Square, L.P., and Vintage Senior Housing, LLC*

          10.11     First Amendment to Purchase Agreement and Escrow
                    Instructions between ARV III/Bradford Square, L.P., and
                    Avalon at Bradford Square, LLC, assignee of Vintage Senior
                    Housing, LLC*

          10.12     Second Amendment to Purchase Agreement and Escrow
                    Instructions between ARV III/ Bradford Square, L.P., and
                    Avalon at Bradford Square, LLC*

--------------
* Filed herewith.