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

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

                                   FORM 10-K/A

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                         COMMISSION FILE NUMBER: 0-26980

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

                            ARV ASSISTED LIVING, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<CAPTION>
                      DELAWARE                                           33-0160968
<S>                                                          <C> 
    (STATE OR OTHER JURISDICTION OF INCORPORATION            (I.R.S. EMPLOYER IDENTIFICATION NO.)
                   OR ORGANIZATION)

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

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

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

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

<TABLE>
            TITLE OF CLASS                      NAME OF EACH EXCHANGE ON WHICH REGISTERED
            --------------                      -----------------------------------------
<S>                                                     <C>  
       COMMON STOCK, NO PAR VALUE                        AMERICAN STOCK EXCHANGE
</TABLE>

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

     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 [ ]

     As of March 25, 1999, the aggregate market value of the voting stock held
by non-affiliates of registrant was $28,971,032 (for purposes of calculating the
preceding amount only, all directors, executive officers and shareholders
holding 5% or greater of the registrant's Common Stock are assumed to be
affiliates). The number of shares of Common Stock of the registrant outstanding
as of March 25, 1999 was 15,873,498.

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<PAGE>   2

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT

      The following table set forth certain information regarding our executive
officers and directors as of March 31, 1999.

<TABLE>
<CAPTION>
                        NAME                 AGE                   POSITION WITH THE COMPANY
                        ----                 ---                   -------------------------
<S>                                         <C>       <C>
               Douglas M. Pasquale           44        Chief Executive Officer, President, Chief Operating 
                                                       Officer and Director
               Patricia J. Gifford           51        Senior Vice President and Chief Medical Officer
               Abdo Khoury                   49        Senior Vice President, Chief Financial Officer and
                                                       Secretary
               John A. Booty                 60        Director
               Robert P. Freeman             54        Director
               David P. Collins              61        Director
               Kenneth M Jacobs              40        Director
               Maurice J. Dewald             59        Director
               Murry N. Gunty                32        Director
</TABLE>

     DOUGLAS M. PASQUALE. Mr. Pasquale was appointed chief executive officer on
March 29, 1999. He joined us as president and chief operating officer on June 1,
1998, and was named a director in October 1998. Prior to joining the Company,
Mr. Pasquale was employed for 12 years by Richfield Hospitality Services, Inc.,
and Regal Hotels International-North America, a leading hotel ownership and
hotel management company based in Englewood, CO. He served as its president and
chief executive officer from 1996 to 1998 and as chief financial officer from
1994 to 1996.

     PATRICIA J. GIFFORD, M.D. Dr. Gifford, a geriatrician, was appointed senior
vice president and chief medical officer on June 12, 1998. Prior to joining the
company she served as medical director for the Monarch Healthcare medical group,
an independent practice association made up of 130 primary care physicians in
Southern California. She joined Monarch in 1996 as clinical director, Subacute
Service. From 1995 to 1998 Dr. Gifford also served as medical director of
Wellness and Geriatrics for Saddleback Memorial Medical Center in Laguna Hills,
CA, a role that became a part-time position when she joined Monarch. From 1995
to 1997, she also served part-time as medical director of the Freedom Village
Continuing Care Residential Community in Lake Forest, CA. Dr. Gifford was
clinical director of Geriatrics at Huntington Memorial Hospital in Pasadena, CA
from 1990 to 1995.

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

     JOHN A. BOOTY. Mr. Booty, one of our founders, retired in September 1996
after serving as president since the Company's inception in 1985. Since his
retirement he has served as a consultant to the Company. He also served as
interim president from October 1997 to January 1998 and as interim chief
executive officer from October 1997 to December 1997. He has served as a
director of the Company since 1985.

     ROBERT P. FREEMAN. Mr. Freeman, a private investor, was a principal and
chief investment officer of Lazard Freres Real Estate Investors LLC, as well as
a managing director of Lazard Freres & Co. LLC, from 1992 through April 1999. He
currently is a director of American Apartment Communities, Atlantic American
Properties Trust, Commonwealth Atlantic Properties, The Fortress Group and
Kapson Senior Quarters Corp. He has served as a director of the Company since
1997.

     DAVID P. COLLINS. Mr. Collins has served the Company in several capacities
since 1981. He currently is president of ARV Assisted Living International,
Inc., our wholly owned subsidiary. He has served as a director of the Company
since 1985.

     KENNETH M. JACOBS. Mr. Jacobs is a managing director in the Banking Group
of Lazard Freres & Co., LLC, a position he has held since 1991. He has served as
a director of the Company since 1997.

     MAURICE J. DEWALD. Mr. DeWald is chairman and chief executive officer of
Verity Financial Group, Inc., a firm he founded in 1992. He currently is a
director of Tenet Healthcare Corporation, Dai-Ichi Kangyo Bank of California and
Monarch Funds. He has served as a director of the Company since 1995.



                                       2

<PAGE>   3

     MURRY N. GUNTY. Mr. Gunty, a private investor, was a principal of Lazard
Freres Real Estate Investors LLC, from 1995 through April 1999. From 1993 to
1995 he was associated with J. E. Robert Company, a real estate investment
company. He currently is a director of Atlantic American Properties Trust,
Kapson Senior Quarters Corp., The Fortress Group and The Rubenstein Company. He
has served as a director of the Company since 1997.

INFORMATION ON COMMITTEES OF THE BOARD AND MEETINGS

      The Board established a Compensation Committee and an Audit Committee at
or about the time of the initial public offering of our common stock in October
1995. In addition, our Board has occasionally appointed special committees of
one or more directors to analyze and/or take action on items of interest to the
Board.

      The Compensation Committee establishes salaries, incentives and other
forms of compensation for directors and executive officers, administers the 1995
Stock Option and Incentive Plan (the "1995 Stock Option Plan") and recommends
policies relating to benefit plans. During the year ended December 31, 1998, the
Compensation Committee consisted of John J. Rydzewski, Maurice J. DeWald and
Murry N. Gunty. The Compensation Committee met 11 times during the year ended
December 31, 1998 and at least two members were in attendance at every meeting.

      The Audit Committee reviews our accounting practices, internal accounting
controls and financial results and oversees the engagement of our independent
auditors. The Audit Committee, during the year ended December 31, 1998,
consisted of Maurice J. DeWald, R. Bruce Andrews and Robert P. Freeman. The
Audit Committee met two times in year ended December 31, 1998 and at least two
members were in attendance at every meeting.

      During the year ended December 31, 1998, there were 13 meetings of the
Board and all directors attended at least 75% of the meetings of the Board.

COMPENSATION OF DIRECTORS

      Prior to January 28, 1998, non-employee directors received $12,000 as an
annual retainer, paid quarterly in advance, and $500 for each meeting of the
Board or committee of the Board that they attended. Commencing January 28, 1998,
the annual retainer was increased to $18,000 and the per meeting fee to $1,000.
In addition, an annual committee chairmanship fee of $3,000 was added as of
January 28, 1998. In October 1995, the Company established the 1995 Stock Option
Plan which provides, among other things, that each non-employee director who is
initially elected or appointed to the Board will, upon such election or
appointment, be automatically granted an option to purchase 10,000 shares of
Common Stock, vesting at the rate of 2,500 per year measured from the date of
grant, at an exercise price equal to the fair market value of the Common Stock
on the date of grant. In addition, every fourth year following the date on which
such non-employee director is elected or appointed, on the date of the annual
meeting of the shareholders of the Company, if such person has continuously
served as a non-employee director, such non-employee director shall
automatically receive an option to purchase 10,000 shares of Common Stock, at an
exercise price equal to the fair market value of the Common Stock on the date of
grant, vesting at the rate of 2,500 per year measured from the date of grant. In
addition, as of January 28, 1998, each non-employee director participates in a
stock-based cash compensation plan that is intended to provide them with
compensation on a deferred basis and link their interests more directly with
those of our shareholders. Under the plan, 2,500 "stock units" (each stock unit
is deemed to be equivalent to one outstanding share of Common Stock) are
credited on each January 1 to each non-employee director who served as a
non-employee director for the entire preceding calendar year. Stock units are
payable in cash based on the fair market value of the Common Stock at the time
the payment is triggered and are fully vested at the time of crediting. Stock
units become payable on the first to occur of:

     -    three years after the date such stock units were first credited;
     -    a change of control of the Company, as defined by the plan;
     -    the director's no longer serving as a member of our Board of Directors
          (for any reason); or
     -    termination of the plan.




                                       3
<PAGE>   4

ITEM 11.  EXECUTIVE COMPENSATION

Summary Compensation Table

     The following table sets forth certain information with respect to
compensation earned by individuals who served as Chief Executive Officer and the
four next most highly compensated executive officers whose annual salary and
bonus exceeded $100,000, and two additional individuals (the "Named Executive
Officers") for the year ended December 31, 1998, the nine-month period ended
December 31, 1997 and the fiscal year ended March 31, 1997. In October 1997, the
Company changed its fiscal year end from March 31 to December 31. Accordingly,
the nine-month period ended December 31, 1997 (denoted below as 1997T) is the
transition period beginning April 1, 1997 and ending December 31, 1997.

<TABLE>
<CAPTION>
                                                                                                  LONG-TERM                        
                                                              ANNUAL COMPENSATION                COMPENSATION           OTHER      
                   NAME AND                          -------------------------------------     AWARDS SECURITIES      COMPENSATION 
              PRINCIPAL POSITION                     YEAR         SALARY (1)         BONUS    UNDERLYING OPTIONS(1)    (2)(3)(4)   
              ------------------                     ----         ----------         -----    ---------------------    ---------   
<S>                                                 <C>         <C>                 <C>              <C>              <C>       
     Howard G. Phanstiel,                             1998       $  354,167       $  189,578          100,000         $1,008,360
        Chairman and Chief Executive Officer          1997T          16,186               --          150,000                685
        (appointed December 5, 1997 and               1997               --               --               --                 --
        resigned March 24, 1999)                                                                                     
     Douglas M. Pasquale                              1998          175,000          137,500          150,000              4,586
        President and Chief Operating Officer         1997T              --               --               --                 --
         (appointed June 1, 1998)                     1997               --               --               --                 --
     Sheila M. Muldoon,                               1998          185,000           37,500           25,000            194,249
        Senior Vice President, General Counsel        1997T         132,250           15,583               --              4,502
        and Secretary                                 1997          156,981            7,000           20,000              2,624
        (resigned March 19, 1999)                                                                                    
     Abdo H. Khoury                                   1998          125,000           17,314            7,500              8,868
        Vice President, Asset Strategy                1997T          30,000            3,000           22,500             60,983
        And Treasury                                  1997               --               --               --                 --
     Patricia J. Gifford                              1998          108,333           30,000           30,000              2,229
        Vice President, Chief Medical                 1997T              --               --               --                 --
        Officer                                       1997               --               --               --                 --
        (appointed June 12, 1998)                                                                                    
     Graham P. Espley-Jones,                          1998          122,500               --           10,000            602,738
        Executive Vice President and                  1997T         149,587           33,242               --              7,303
        Chief Financial Officer                       1997          193,882               --           10,000              7,226
        (resigned July 31, 1998)                                                                                     
     Eric K. Davidson,                                1998          134,135           25,783            5,000             45,439
        Senior Vice President                         1997T         112,500           33,783               --              6,149
        (resigned September 30, 1998)                 1997          132,230            6,167           20,000              5,741
</TABLE>

------------
(1)     Amounts shown include cash compensation earned by the executive
        officers. The amounts do not include the value of certain perquisites
        that in the aggregate did not exceed the lesser of either $50,000 or 10
        percent of the total annual salary and bonus reported for the named
        executive officer.

(2)     Includes payments for consulting services provided (after resignation)
        during the year ended December 31, 1998, by Mr. Espley-Jones of $30,648.
        During the nine-month period ended December 31, 1997, we paid consulting
        fees to Mr. Khoury for services prior to his employment of $59,624.

(3)     Also includes premiums for term life, medical, dental and disability
        insurance purchased for the benefit of certain of the Named Executive
        Officers in the following amounts: Mr. Phanstiel -- $8,360, $685 and $0;
        Mr. Pasquale -- $4,586, $0 and $0; Ms. Muldoon -- $9,249, $4,502 and
        $2,624; Mr. Khoury -- $8,868, $1,359 and $0; Dr. Gifford -- $2,229, $0
        and $0; Mr. Espley-Jones -- $7,859, $7,303 and $7,226; and Mr. Davidson
        -- $6,687, $6,149 and $5,741 for the year ended December 31, 1998, the
        nine-month period ended December 31, 1997, and the fiscal year ended
        March 31, 1997, respectively. These amounts represent insurance premiums
        we paid over what we pay for other similarly situated employees.

(4)     Includes payments and accruals in accordance with Separation Agreements
        (see "-- Employment Agreements"): Mr. Phanstiel -- $1,000,000; Ms.
        Muldoon -- $185,000; Mr. Espley-Jones -- $564,231 and Mr. Davidson --
        $38,752.




                                       4
<PAGE>   5

OPTION GRANTS IN LAST FISCAL YEAR

      The following table sets forth-certain information regarding options
granted during the year ended December 31, 1998 to the Named Executive Officers
pursuant to the 1995 Stock Option Plan.

<TABLE>
<CAPTION>
                                                                                                      POTENTIAL REALIZABLE   
                                                                                                         VALUE AT ASSUMED    
                                  NUMBER OF       PERCENT OF                                           ANNUAL RATES OF STOCK 
                                 SECURITIES      TOTAL OPTIONS                                        PRICE APPRECIATION FOR 
                                 UNDERLYING       GRANTED TO       EXERCISE                               OPTION TERM(3)     
                                  OPTIONS        EMPLOYEES IN       PRICE          EXPIRATION       ----------------------------
     NAME                         GRANTED(1)     FISCAL YEAR(2)    PER SHARE          DATE              5%                10%
     ----                        -----------     --------------    ---------     ---------------    ----------        ----------
<S>                              <C>             <C>               <C>           <C>                <C>               <C>       
     Howard G. Phanstiel .....     100,000            11.9%          $16.00      January 1, 2008    $1,006,231        $2,549,988
     Douglas M. Pasquale .....     150,000            17.9%           11.13         June 1, 2008     1,049,940         2,660,753
     Sheila M. Muldoon .......      25,000             3.0%           13.75       March 19, 2008       216,183           547,849
     Patricia J. Gifford .....      30,000             3.6%           11.75        June 15, 2008       221,685           561,794
     Abdo H. Khoury ..........       7,500             0.9%           13.75       March 19, 2008        64,855           164,355
</TABLE>

------------
(1)     These options were granted for a term of 10 years, subject to
        termination in certain events related to termination of employment, and
        become exercisable in four annual installments beginning in 2001.

(2)     In 1998, we granted options to employees to purchase an aggregate of
        837,500 shares under the 1995 Stock Option Plan and this number was used
        in calculating the percentage set forth in this column. During 1998,
        options to purchase 773,452 shares under the 1995 Stock Option Plan were
        canceled due to termination of employment.

(3)     Assumed rates of stock price appreciation are calculated based on
        requirements promulgated by the Securities and Exchange Commission and
        are for illustrative purposes only. Actual stock prices will vary from
        time to time based upon market factors and our financial performance.
        There can be no assurance that the assumed rates of appreciation will be
        achieved.

 FISCAL YEAR-END OPTION VALUES.

      None of the Named Executive Officers exercised options during the year
ended December 31, 1998. The following table sets forth certain information
regarding options held as of the end of such fiscal year by each of the Named
Executive Officers.

<TABLE>
<CAPTION> 
                                                                 NUMBER OF SECURITIES               VALUE OF UNEXERCISED
                                  SHARES                        UNDERLYING UNEXERCISED              IN-THE-MONEY OPTIONS
                                 ACQUIRED                     OPTIONS AT FISCAL YEAR-END            AT FISCAL YEAR-END(1)
                                   ON         VALUE         ------------------------------      ------------------------------ 
     NAME                       EXERCISE    REALIZED        EXERCISABLE      UNEXERCISABLE      EXERCISABLE      UNEXERCISABLE
     ----                       --------    --------        -----------      -------------      -----------      -------------
<S>                            <C>         <C>              <C>              <C>               <C>                <C> 
     Howard G. Phanstiel           --           --                --           250,000           $     --           $     --
     Douglas M. Pasquale           --           --                --           150,000                 --                 --
     Sheila M. Muldoon             --           --            10,000            45,000                 --                 --
     Patricia J. Gifford           --           --                --            30,000                 --                 --
     Abdo H. Khoury                --           --                --            30,000                 --                 --
</TABLE>

------------
(1)   Options are "in-the-money" if the fair market value of the underlying
      securities on that date exceeds the exercise price of the option. Based on
      the last sale price of $6.13 per share of Common Stock on December 31,
      1998 (as reported on the American Stock Exchange), none of the options
      held by the Named Executive Officers were "in the money" at year end.

 EMPLOYMENT AGREEMENTS

      We have entered into employment agreements with each of the Named
Executive Officers.

      On December 5, 1997, we entered into an employment agreement with Howard
G. Phanstiel, which was amended and restated as of December 21, 1998. Mr.
Phanstiel's employment agreement required him to devote his full productive time
to the Company during the term of the agreement, unless otherwise permitted by
the Board, and to refrain from competing with us in the business of assisted
living or long-term healthcare for a period of one year following expiration of
the term of the agreement.



                                       5
<PAGE>   6

     Mr. Phanstiel's employment agreement as amended provided for a base salary,
performance-based increases in the base salary each year beginning in 1999, a
guaranteed bonus of $93,750 payable July 1, 1998, 1999, 2000 and 2001, and
additional bonuses based on the achievement of agreed-upon targets in the range
of 30% to 90% of his base salary. Mr. Phanstiel was granted an option to
purchase 150,000 shares of Common Stock upon the execution of his employment
agreement and, as of January 2, 1998, received an additional option to purchase
100,000 shares of Common Stock. Mr. Phanstiel's employment agreement provides
that we could terminate Mr. Phanstiel without cause by making him a payment
equal to the greater of: 

     -    the two times the sum of his current annual base salary plus target
          bonus (defined as 60% of his then current base salary); or
     -    the sum of his current annual base salary plus divided by 12 and
          multiplied by the number of remaining months from termination and
          December 5, 2001, plus target bonuses through that date; and
     -    the payment of premiums for COBRA benefits for the maximum period of
          eligibility.

     The agreement further provided that if Mr. Phanstiel voluntarily terminates
his employment, he would receive a lump-sum payment equal to three months' base
salary. The covenant not to compete discussed above is not applicable, however,
in the event severance pay is waived. On March 24, 1999, Mr. Phanstiel resigned
as Chief Executive Officer and Chairman of the Board pursuant to a separation 
agreement with us.

     On June 1, 1998, we entered into an employment agreement with Douglas
M. Pasquale. Mr. Pasquale's employment agreement has an initial termination date
of June 1, 2001; provided, however, that if we have not given Mr. Pasquale
written notice of our intent to terminate the agreement at least two years prior
to the termination date, the term will automatically be extended for successive
periods of one year. Mr. Pasquale's employment agreement requires him to devote
his full productive time to the Company during the term of the agreement, unless
otherwise permitted by the Board, and to refrain from competing with us in the
business of assisted living or long-term healthcare for a period of one year
following expiration of the term of the agreement.

     Mr. Pasquale's employment agreement provides for a base salary,
performance-based increases in the base salary each year beginning in 1999, a
guaranteed bonus of 37.5% of his base salary, and additional bonuses based on
the achievement of agreed-upon targets. Mr. Pasquale was granted an option to
purchase 150,000 shares of Common Stock upon the execution of his employment
agreement and an additional 90,000 shares as of January 2, 1999. Mr. Pasquale's
employment agreement is being renegotiated in light of his promotion to Chief
Executive Officer and the option to acquire 90,000 shares has not been issued.
Mr. Pasquale's employment agreement provides that we may terminate Mr. Pasquale
without cause by making him a payment equal to the greater of: 

     -    the sum of his current annual base salary plus target bonus plus any
          additional bonus paid in the last twelve months; or
     -    the sum of his current annual base salary plus his minimum bonus
          divided by 12 and multiplied by the number of remaining months under
          the employment agreement plus any additional bonus paid in the last
          twelve months; and 
     -    the payment of premiums for COBRA benefits for the maximum period of
          eligibility.

     The agreement further provides that if Mr. Pasquale's voluntarily
terminates his employment, he will receive a lump-sum payment equal to three
months' base salary. The covenant not to compete discussed above is not
applicable, however, in the event severance pay is waived.

     On April 23, 1997, we entered into a written employment agreement, as
amended, with Ms. Muldoon. The agreement required Ms. Muldoon to devote her full
productive time to the Company during the term of the agreement, unless
otherwise permitted by the Board, and to refrain from competing with us in the
business of assisted living or long-term healthcare for a period of one year
following expiration of the term of the agreement. The agreement included
provisions for a base salary paid on a monthly basis, annual increases in Base
Salary and bonuses no later than December 31 of each year, both as determined at
the discretion of the Compensation Committee following receipt of
recommendations therefore from our management. Ms. Muldoon was granted certain
stock options. We had the right to terminate Ms. Muldoon without cause by making
her a cash payment equal to one year's base salary. On March 19, 1999, Ms.
Muldoon resigned as our Senior Vice President and General Counsel pursuant to a
separation agreement with us. She continues to advise us under the terms of a
consulting agreement that expires on May 31, 1999 unless earlier terminated by
either party.

     During 1998, we entered into written employment agreements with Mr. Khoury
and Dr. Gifford. These agreements require Mr. Khoury and Dr. Gifford to devote
their full productive time to the Company during the term of the agreement,
unless otherwise permitted by the Board, and to refrain from competing with us
in the business of assisted living or long-term healthcare for a period of one
year following expiration of the term of the agreements. The agreements include
provisions for a base salary paid on a monthly basis, annual increases in Base
Salary and bonuses no later than December 31 of each year, both as determined at
the discretion of the Compensation Committee following receipt of
recommendations therefore from our management. Mr. Khoury and Dr. Gifford have




                                       6
<PAGE>   7
also been granted certain stock options.

Change in Control Arrangements.

      To better assure that the Named Executive Officers would continue to
provide independent leadership consistent with our best interests in the event
of an actual or threatened change of control of the Company, the employment
agreements of each of the Named Executive Officers provide certain protections
in the event of a change in control. A "change in control" of the Company is
defined as a change in ownership such that any one person, or more than one
person acting as a group, would have possession of more than 50% of the total
fair market value or the total voting power of the our capital stock; or a
change in effective control of the Company such that any one person or more than
one person acting as a group would acquire ownership of capital stock possessing
50% or more of our voting power, or a majority of the members of the Board was
replaced during any 12 month period by directors whose appointment or election
was not endorsed by a majority of the members of the Board prior to the date of
such appointment or election; or a change in the ownership of a substantial
portion of our assets such that any one person or more than one person acting as
a group would acquire, within a 12 month period, assets from us having a total
fair market value equal to or more than 33 1/3% of the total fair market value
of all of our assets immediately prior to such acquisitions. Upon any "change in
control," the Named Executive Officers other than Mr. Pasquale whose employment
agreements have not otherwise been terminated are entitled to receive lump sum
payments equal to one times the total compensation received during the
immediately preceding calendar year in the event their employment is terminated,
voluntarily or involuntarily, within three months thereafter. In addition, the
stock option agreements between the Company and the Named Executive Officers
include a provision authorizing the Compensation Committee to accelerate vesting
of the options, and the Compensation Committee has authorized such vesting
acceleration in the Employment Agreements discussed above in the event of a
change in control.

     Mr. Pasquale's employment agreement also provides for certain protections
in the event of a change in control. Mr. Pasquale's employment agreement defines
a "change in control" as any of the following:

          -    the acquisition by any person or group of greater than 50% of the
               combined voting power of our outstanding voting securities;
          -    the acquisition by any person other than Prometheus of greater
               than 20% of our outstanding voting securities if the Board
               determines that a change of control has occurred;
          -    the replacement of a majority of the members of the Board during
               any 12 month period by directors whose appointment or election
               was not endorsed by a majority of the members of the Board prior
               to the date of such appointment or election; or
          -    the date on which any person acquired assets from us that have
               total fair market value equal to or more than 33 1/3% of the
               total fair market value of all of our assets.

     Following a change of control, in the event that Mr. Pasquale's employment
is terminated for any reason, with or without cause, voluntarily within nine
months of the change of control, or involuntarily within 12 months of a change
of control, in lieu of his severance payment, if any, the Company will pay Mr.
Pasquale the sum of:

          -    his base salary and his accrued vacation pay;
          -    reimbursement for expenses through the date of the change of
               control; and
          -    three times the sum of his base salary and target bonus (equal 
               to 60% of his base salary).

  In addition, in the event that Mr. Pasquale's employment is terminated
voluntarily within nine months of a change of control or involuntarily within 12
months of a change of control, any stock options held by Mr. Pasquale will
become fully vested.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     Our Compensation Committee consisted of John J. Rydzewski, Robert P. 
Freeman and Maurice J. DeWald during the year ending December 31, 1998. Mr. 
Rydzewski resigned as a member of our Board and the Compensation Committee as 
of January 13, 1999. No member of the Compensation Committee is or was either 
an officer or employee of ARV.

     THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE SHALL NOT BE DEEMED 
FILED FOR PURPOSES OF THE SECURITIES ACT OF 1933 OR THE SECURITIES AND EXCHANGE 
ACT OF 1934, AS AMENDED, NOR SHALL IT BE DEEMED TO BE INCORPORATED BY 
REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS 10-K INTO 
ANY FILINGS OF THE COMPANY PURSUANT TO EITHER OF THE SUCH ACTS, EXCEPT TO THE 
EXTENT THE COMPANY SPECIFICALLY INCORPORATES THE REPORT BY REFERENCE THEREIN.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

      Decisions regarding compensation of our executive officers, including
those related to stock and stock options, are considered by the Compensation
Committee, based upon the recommendations and analysis performed by our senior
management. The Compensation Committee (the "Committee") is currently composed
of Maurice J. DeWald and Robert P. Freeman. Until January 12, 1999, when he
resigned from our Board of Directors, the Committee was chaired by John J.
Rydzewski. Subsequent to January 12, 1999, Maurice J. DeWald has chaired the
committee.




                                       7
<PAGE>   8

      In the recent past, ARV has undergone a period of transition. A new
professional management team was retained over the past year to develop and
implement strategies for growth and profitability, implement needed management
systems and processes, and build value for shareholders. Uncertainty resulting
from a number of issues negatively influenced the effectiveness of ARV's
compensation arrangements and increased the difficulty of attracting and
retaining qualified key employees.

     Existing compensation practices had evolved on an "ad hoc" basis. The terms
and provisions of senior management hiring packages had been individually
negotiated and varied from one individual to another. Increases in base salary,
bonus and stock option programs were based on recommendations of management
without any strict criteria regarding company performance or industry standards.

Compensation Study

     In the fall of 1998, the Committee retained a nationally known compensation
consulting firm to review our compensation programs. Objectives of the study
included:

          -    an assessment of ARV's current compensation practice;
          -    recommendations for a philosophical underpinning and framework
               for the design and administration of an appropriate compensation
               program going forward; and
          -    a review of existing employment agreements to assess market
               competitiveness.

      Key recommendations arising from the study included:

          -    adoption of a compensation framework for ARV's senior management
               team that will help to manage the level, mix and focus of
               compensation appropriately going forward;
          -    establishment of base salary grades for corporate office
               employees to provide a more consistent basis for the
               administration of individual salary levels;
          -    formalization of annual bonus opportunities in the form of a
               basic management incentive plan that provides specified incentive
               opportunities contingent on the level of achievement against
               pre-established goals and performance objectives supporting ARV's
               business objectives; and
          -    adoption of consistent guidelines for the award of stock options
               to key employees.


     The review of the employment agreements in force found that base salary
practices were within the competitive range of industry practice. Formal salary
ranges have been adopted to provide continuing consistent, competitive
administration. Pursuant to the consultant's recommendation, a formal bonus
program has been implemented which follows general industry competitive
practice. Stock option guidelines have been developed to administer competitive
grants on a go-forward basis.

Employment Agreements for Named Executive Officers

     The basic compensation for Howard G. Phanstiel Chief Executive Officer and
Chairman of the Board is as specified in his employment agreement, which was
approved by the Committee on December 5, 1997, and amended as of December 21,
1998, again as approved by the Committee. Under Mr. Phanstiel's amended
employment agreement, there was no set term of employment. However, upon
termination of the agreement without cause, Mr. Phanstiel was to receive the
greater of (i) an amount equal to two years' base pay and target bonus, or (ii)
an amount equal to the sum of Mr. Phanstiel's then monthly base pay times the
number of months remaining until December 5, 2001, plus a target bonus through
such termination date. For purposes of termination, "target bonus" was defined
as 60% of Mr. Phanstiel's base pay. Pursuant to the terms of a separation
agreement, Mr. Phanstiel resigned as Chief Executive Officer and Chairman of the
Board in March 1999.

     The basic compensation level for Douglas M. Pasquale as President and Chief
Operating Officer is specified in his employment agreement, which was approved
by the Committee on June 1, 1998. Mr. Pasquale's employment agreement has an
initial termination date of June 1, 2001; provided, however, that if the Company
does not notify Mr. Pasquale in writing of its intent to terminate the agreement
at least two years before the termination date, the term will automatically be
extended for successive periods of one year. Mr. Pasquale's employment agreement
is being renegotiated in light of his promotion to Chief Executive Officer
following the resignation of Howard G. Phanstiel.



                                       8
<PAGE>   9
     The basic compensation for Graham Espley-Jones for Fiscal 1998 was set
prior to the Company's initial public offering and prior to the creation of the
Committee. As a privately-help company, the Company's compensation procedures
were determined by the Board of Directors and were informal. Commencing on
October 1, 1995, Mr. Espley-Jones, then our Chief Financial Officer, entered
into a three-year employment agreement ending September 30, 1998, subject to
automatic renewal unless otherwise notified. During the fiscal year ended March
31, 1997 and in July of 1997, Mr. Espley-Jones' agreement was amended to state
that he receive at least two years' notice prior to the termination date. Under
a separation agreement with the Company, Mr. Espley-Jones resigned as Chief
Financial Officer effective July 31, 1998. Following his resignation, the
Company and Mr. Espley-Jones entered into a consulting agreement under which Mr.
Espley-Jones was paid an hourly rate (with an incentive compensation component
for successful completion of stated objectives within the stated time frame) for
services rendered. The consulting agreement was terminated in February 1999.

     The basic compensation level for Patricia J. Gifford, M.D., is specified in
her employment agreement, which was approved by the Committee on June 15, 1998.
Dr. Gifford's employment agreement has an initial termination date of June 15,
2000. Under this agreement, she may be terminated without cause upon payment to
her of an amount equal to the remaining amount of her base salary that would
have been paid if employment continued through the end of the initial two-year
term.

     The compensation level for the remaining two Named Executive Officers,
Sheila M. Muldoon and Abdo Khoury, both of whom were given written employment
agreements, are examined yearly when the Compensation Committee reviews the
compensation of all officers and highly compensated employees of the Company.
Ms. Muldoon's agreement, as amended, commenced April 23, 1997. Under this
agreement, she could be terminated without cause upon payment to her of an
amount equal to 12 months' base salary. Pursuant to the terms of a separation
agreement and consulting agreement, Ms. Muldoon resigned as Senior Vice
President, Secretary and General Counsel in March 1999 and acts as Special
Counsel to the President until the happening of certain stated events or May 31,
1999, whichever is earlier. Mr. Khoury's agreement commenced December 5, 1997,
and is being re-evaluated since his promotion to Senior Vice President, Chief 
Financial Officer and Secretary in March 1999.

Fiscal 1998 Executive Compensation Components

Executive compensation consists of three components: base salary, bonus and
long-term incentive awards.

BASE SALARY. Base salaries for the named Executive Officers were established in
their respective employment contracts, resulting in payment, during Fiscal 1998
of $354,167, $175,000, $122,500, $108,333, $185,000 and $125,000 to Mr.
Phanstiel, Mr. Pasquale, Mr. Espley-Jones, Dr. Gifford, Ms. Muldoon and Mr.
Khoury respectively. The salaries of all Named Officers are subject to
performance-based increases in each year.

BONUS. Mr. Phanstiel was entitled to a guaranteed bonus of $93,750 and
additional bonuses based on achievement of agreed-upon targets in the range of
$31,250 to $156,250. Mr. Pasquale is entitled to a guaranteed bonus of $112,500
and additional bonuses based on achievement of agreed-upon targets up to a
maximum of $112,500.

     For Fiscal 1998, Dr. Gifford was paid a guaranteed bonus of $30,000 as
stated in her employment agreement.

     Regarding the remaining Named Officers, for Fiscal 1998, bonuses were
awarded at the discretion of management, subject to the approval of the
Committee. In Fiscal 1998, no bonus was paid to Mr. Espley-Jones. Bonuses of
$37,500 and $17,314 were paid to Ms. Muldoon and Mr. Khoury, respectively, in
recognition of performance in 1998.

Long Term Incentive Awards. Stock options are granted to provide a long-term
incentive opportunity that is directly linked to shareholder value. Under his
employment agreement, Howard G. Phanstiel was granted an option to purchase
100,000 shares of ARV common stock during Fiscal 1998, at an exercise price
equal to the market value on the date of grant ($16). The option would have
become exercisable in 25% annual increments on October 17, 1999, 2000, 2001 and
2002, respectively. Mr. Phanstiel's options to purchase ARV stock terminated on
his resignation.

     As part of his employment agreement, Douglas M. Pasquale was granted an
option to purchase 150,000 shares of common stock during Fiscal 1998. The
exercise price is equal to the market value of the Common Stock on the date of
grant ($11.13) and the option becomes exercisable in 25% annual increments on
June 1, 2000, 2001, 2002 and 2003, respectively.




                                       9
<PAGE>   10
     Under her employment agreement, Dr. Gifford was granted an option to
purchase 30,000 shares of common stock during Fiscal 1998. The exercise price is
equal to the market value of our common stock on the date of the grant ($11.75)
and the option becomes exercisable in 25% annual increments on June 15, 2000,
2001, 2002, and 2003, respectively.

     Ms. Muldoon and Mr. Khoury were granted options to purchase 25,000 and
7,500 shares, respectively, during Fiscal 1998. The exercise price is equal to
the market value of our common stock on the date of the grant ($13.75) and the
options become exercisable in 25% annual increments on March 19, 2000, 2001,
2002, and 2003, respectively. Ms. Muldoon's options to purchase ARV stock
terminated on her resignation.

     In Fiscal 1998, we granted stock options to 94 employees, 8 of whom were
hired in that period.

Policy with Respect to Section 162(m)

     Section 162(m) of the Code includes potential limitations on the
deductibility for federal income tax purposes of compensation in excess of $1
million paid or accrued with respect to any of the executive officers whose
compensation is required to be reported in the Company's proxy statement.
Qualifying performance-based compensation is not subject to the deduction limit
if certain requirements are met. For fiscal 1998, the Committee does not
contemplate that there will be any such nondeductible compensation.


                         COMPENSATION COMMITTEE

                         MAURICE J. DEWALD, CHAIR
                         ROBERT P. FREEMAN


     THE FOLLOWING PERFORMANCE GRAPH SHALL NOT BE DEEMED FILED FOR PURPOSES OF
THE SECURITIES ACT OF 1933 OR THE SECURITIES AND EXCHANGE ACT OF 1934, AS
AMENDED, NOR SHALL IT BE DEEMED TO BE INCORPORATED BY REFERENCE BY ANY GENERAL
STATEMENT INCORPORATING BY REFERENCE THIS 10-K INTO ANY FILINGS OF THE COMPANY
PURSUANT TO EITHER OF THE SUCH ACTS, EXCEPT TO THE EXTENT THE COMPANY
SPECIFICALLY INCORPORATES THE GRAPH BY REFERENCE THEREIN.

Performance Graph

     The following line graph compares the yearly percentage change in the
cumulative total shareholder return on the Common Stock against the cumulative
total return of a peer group of nine assisted living companies selected by the
Company (the "Peer Group") and the AMEX Market Value Index, each for the period
from October 19, 1995 to December 31, 1998. The performance graph assumes the
investment of $100 on October 19, 1995 in the Common Stock and in each index
(except the AMEX Market Value Index, which assumes investment on September 30,
1995), and that all dividends were reinvested.

     The Peer Group consists of Alternative Living Services, Inc.; Assisted
Living Concepts, Inc.; Carematrix Corporation; Greenbriar Corporation; Emeritus
Corporation; Just Like Home, Inc.; Karrington Health, Inc.; Regent Assisted
Living, Inc.; and Sunrise Assisted Living, Inc. All of the companies in the Peer
Group are weighted by their respective market capitalization. Atria
Communities, Inc. was deleted from the Peer Group in 1998 because it became a
private company.

                COMPARISON OF 39 MONTH CUMULATIVE TOTAL RETURN*
  AMONG ARV ASSISTED LIVING INC., THE AMEX MARKET VALUE INDEX AND A PEER GROUP


<TABLE>
<CAPTION>

                                                                                           
Peer Group Cumulative Return                      Weighted Cumulative Total Return         
                                           ----------------------------------------------  
(Weighted Average by Market Value)         10/19/95   3/96      3/97      12/97     12/98  
<S>                                        <C>        <C>      <C>       <C>       <C>
ARV Assisted Living, Inc.                    100       121        70       114        44

Peer Group Weighted Average                  100       115        84       125       129   

AMEX Market Value                            100       105       107       130       132
</TABLE>

-----------------
*  $100 INVESTED ON 10/19/95 IN STOCK OR 9/30/95
   IN INDEX -- INCLUDING REINVESTMENT OF DIVIDENDS.
   FISCAL YEAR ENDING DECEMBER 31.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of March 25, 1999 (based on a total of
15,873,498 outstanding shares of Common Stock) by each of our directors, each of
the Named Executive Officers and all executive officers and directors as a
group. Except as otherwise indicated, we believe the persons named in the table
have sole voting and investment power with respect to all shares beneficially
owned, subject to community property laws where applicable.

     Amounts and percentages listed below include warrants and options that are
exercisable within 60 days of March 25, 1999.


<TABLE>
<CAPTION>
                                                                             AMOUNT OF
                                                                        SHARES BENEFICIALLY        PERCENTAGE OF SHARES
                  NAME AND ADDRESS OF BENEFICIAL OWNER(1)                     OWNED                 BENEFICIALLY OWNED
                  ---------------------------------------               -------------------         ------------------
<S>                                                                           <C>                        <C>  
     Prometheus Assisted Living LLC(2) ...........................            7,595,069                    47.9%
     Robert P. Freeman (2) .......................................                2,500                       *
     Murry N. Gunty (2) ..........................................                2,500                       *
     Kenneth M. Jacobs (2) .......................................                2,500                       *
     John A. Booty(3)(4) .........................................              519,356                     3.3%
     David P. Collins(3)(5) ......................................              510,815                     3.2%
     Douglas M. Pasquale .........................................                2,000                       *
     Abdo H. Khoury ..............................................                  500                       *
     Patricia J. Gifford .........................................                    0                       *
     Maurice J. DeWald(6) ........................................               11,000                       *
     All directors and executive officers as a group (9 persons)..            8,646,240                    54.4%
</TABLE>

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

*    Less than 1%.

(1)  Except where otherwise noted, the address of the Company's directors and
     executive officers is c/o ARV Assisted Living, Inc., 245 Fischer Avenue,
     Costa Mesa, California 92626.

(2)  Messrs. Freeman and Gunty are each Directors of Kapson Senior Quarters and
     The Fortress Group, and prior to April 1999 were Principals of LFREI, the
     managing member of Prometheus. Mr. Jacobs is a Managing Director of Lazard
     Freres & Co, LLC, the managing member of LFREI. Mr. Jacobs has voting and
     investment power over the securities held by Prometheus and may be deemed
     to beneficially own Prometheus' shares. Mr. Jacobs disclaims beneficial
     ownership of Prometheus' shares except to the extent of his pecuniary
     interest therein. Each of Messrs. Freeman, Gunty and Jacobs has 2,500
     options exercisable within 60 days of March 25, 1999.




                                       10
<PAGE>   11

(3)  Excludes 329,600 shares owned of record by our employee stock ownership
     plan (the "ESOP"), of which Messrs. Pasquale and Khoury are trustees.

(4)  Of the 519,356 shares beneficially owned by Mr. Booty, 359,028 shares are
     held by the Booty Family Trust (as to which Mr. Booty has shared voting and
     investment power), 1,328 shares are held in Mr. Booty's name alone, 79,500
     shares are owned by the Karen A. Booty Charitable Remainder Trust of which
     Mr. Booty has sole voting and investment power, and the remaining 79,500
     shares are owned by the John A. Booty Charitable Remainder Uni Trust (of
     which Mr. Booty has sole voting and investment power).

(5)  Of the 510,815 shares beneficially owned by Mr. Collins, 98,678 are held of
     record by the D & V Collins Family Limited Partnership (as to which Mr.
     Collins has shared voting and investment power), 410,501 shares are held by
     the Collins Family Community Property Trust (as to which Mr. Collins has
     shared voting and investment power) and 9,743 shares are held by the David
     P. Collins Annuity Trust. Excludes 8,993 shares beneficially owned by Mr.
     Collins held of record by the ESOP on December 31, 1998.

(6)  Of the 11,000 shares beneficially owned by Mr. DeWald, as non-employee
     directors, Mr. Dewald holds 3,500 and 7,500 are options exercisable within
     60 days of March 25, 1999.


SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

  As of March 25, 1999, the following persons are known to the Company to be the
  beneficial owners of more than five percent of the Company's Common Stock. The
  numbers shown on the table should be interpreted in light of the related
  footnote.

<TABLE>
<CAPTION>
                                     NAME AND ADDRESS OF                  AMOUNT AND NATURE OF        
    TITLE OF CLASS                     BENEFICIAL OWNER                   BENEFICIAL OWNERSHIP       PERCENT OF CLASS
    --------------                   -------------------                  --------------------       ----------------
<S>                                 <C>                                   <C>                       <C>  
        Common            Prometheus Assisted Living LLC (1)                   7,595,069                  47.9 %
                              Thirty Rockefeller Plaza, 63rd Floor
                              New York, NY 10020

        Common            Dimensional Fund Advisors Inc. (2)                     914,700                   5.76%
                              1299 Ocean Avenue, 11th Floor
                              Santa Monica, CA 90401
</TABLE>

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

(1)  According to the Schedule 13D filed on January 26, 1998 by Prometheus
     Assisted Living LLC.

(2)  According to Schedule 13G dated February 11, 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     John A. Booty, former President of the Company and the current Vice
Chairman of the Board of Directors, provided consulting services to the Company
for which Mr. Booty was paid a varying sum not to exceed $30,000 per month for
development and acquisition services between October 1996 and September 1997.
During the nine-month period ended December 31, 1997 and the fiscal year ended
March 31, 1997, Mr. Booty was paid $175,000 and $180,000 for consulting
services, respectively. No consulting fees were paid to Mr. Booty during the
year ended December 31, 1998.

     We utilize the services of J&D Design, as well as others, for interior
design work at our communities. The principal of J&D Design is Joan Davidson,
wife of former Senior Vice President Eric Davidson and daughter-in-law of the
former Chairman, President and Chief Executive Officer, Gary Davidson. Services
provided by J&D Design include design work and the purchase of furniture,
fixtures and equipment ("FF&E") for developed ALCs and rehabilitation of
existing or newly acquired ALCs. We paid J&D Design approximately $560,000,
$755,000 and $431,000 for the year ended December 31, 1998, the nine-month
period ended December 31, 1997 and the fiscal year ended March 31, 1997,
respectively, a portion of which was for design services and a portion of which
was for reimbursement of costs for FF&E.

     Mr. R. Bruce Andrews, a former member of our Board of Directors, is
President of Nationwide Health Properties, Inc. ("NHP"), a Health Care REIT. NHP
is the owner of 16 ALCs which are leased to the Company. Of that number, leases
for 13 ALCs were entered into prior to November 29, 1995, the date Mr. Andrews
became a Board member, and leases for three ALCs were entered into during Mr.
Andrews' tenure as Board member. Lease payments have aggregated approximately
$11.3 million, $8.2 million and $10.3 million for the year ended December 31,
1998, the nine-month period ended December 31, 1997 and the fiscal year ended
March 31, 1997, respectively.



                                       11
<PAGE>   12

     John J. Rydzewski, a former member of our Board of Directors and
Compensation Committee, is a principal in the investment banking firm of
Benedetto, Gartland and Company, Inc. ("BG&C"). We retained BG&C to provide
advice concerning our investment in Senior Income Fund L.P., a Delaware limited
partnership owning four congregate care facilities in Southern California. We
paid BG&C approximately $206,000 during the fiscal year ended March 31, 1997. No
amounts were paid to BG&C during the year ended December 31, 1998 and the nine
month period ended December 31, 1997.

     Robert P. Freeman, a Director of the Company, is a private investor. From
1992 through April 1999 Mr. Freeman was a Principal and Chief Investment Officer
of LFREI, the managing member of Prometheus Assisted Living, LLC, as well as a
Managing Director of Lazard Freres & Co., LLC, the managing member of LFREI.
Murry N. Gunty, a Director of the Company, is a private investor. From 1995
through April 1999, Mr. Gunty was a Principal of LFREI, the managing member of
Prometheus Assisted Living, LLC. Messrs. Freeman and Gunty both serve as
Directors of Kapson Senior Quarters Corp. and The Fortress Group. Kenneth M.
Jacobs, also a Director of the Company, is a Managing Director of Lazard Freres
& Co., LLC, the managing member of LFREI. On October 29, 1997, Prometheus
committed to purchase $60,000,000 aggregate principal amount of the Company's
6.75% Convertible Subordinated Notes due 2007. Pursuant to a related agreement,
Prometheus previously purchased 1,921,012 shares of Common Stock for an
aggregate purchase price of $26,894,168. In connection with these transactions,
the Company entered into a registration rights agreement with Prometheus and a
Stockholders Agreement with Prometheus and LFREI. Pursuant to the registration
rights agreement between the Company and Prometheus, the Company granted
Prometheus limited demand registration rights to facilitate the resale of
certain securities owned by it and certain piggyback rights to sell a portion of
its securities in connection with certain offerings of securities of the
Company.

     Pursuant to the Stockholders Agreement, as amended, as of October 30, 1997,
the Board was expanded to its nine members, and Messrs. Freeman, Jacobs and
Gunty, each nominees of Prometheus, were appointed as our Directors. Until the
occurrence of a termination event, at each annual or special meeting of our
shareholders, Prometheus had the right pursuant to the Stockholders
Agreement and our Bylaws to designate three nominees to the Board if the Board
is a single class or one designee per class if the Board is divided into three
classes. A termination event occurred if either:

     -    Prometheus no longer owns at least 5% of the Common Stock on a fully
          diluted basis; or
     -    Prometheus no longer owns at least $25 million of Common Stock.

     The Stockholders Agreement, as amended, further provided that during a
standstill period of three years (which period is subject to early termination
in certain circumstances), Prometheus would be subject to certain limitations
and restrictions relating to, among other matters, acquisitions of additional
shares of Common Stock (generally limiting Prometheus to beneficially owning no
more than 49.9% of the shares of Common Stock on a fully diluted basis),
transfers of Common Stock held by Prometheus and seeking representation on the
Board other than as contemplated by the Stockholders Agreement. In addition,
during the standstill period, Prometheus was required to vote all shares of
Common Stock owned by it representing an aggregate ownership in excess of 35.8%
of the outstanding shares of Common Stock in one of the following two manners:
in accordance with the recommendation of the Board or proportionally in
accordance with the votes of the other holders of Common Stock. Prometheus was
also required to vote its shares of Common Stock in favor of the election of all
directors nominated by our nominating committee, if any, or the Board, provided
such nominations are in accordance with certain provisions of the Amended
Stockholders Agreement. Prometheus currently owns 7,595,069 shares, or
approximately 47.9%, of our Common Stock.

     On October 21, 1998, we announced that a termination event occurred on
October 12, 1998, when the price of our common stock dropped to a point where
LFREI no longer beneficially owned our common stock having a market value of at
least $25 million. As a result of the termination event, LFREI's standstill
obligations would have terminated on January 11, 1999. However, on December 7,
1997, the Superior Court of the State of California, County of Orange issued an
order in favor of LFREI's cross complaint concluding that their standstill
obligations terminated as of April 1998.

     To address certain structural issues in connection with tax credit
partnerships, Pacific Demographics Corporation ("Pacific Demographics")
(formerly ARVTC, Inc.), was formed in August 1994 by Messrs. Booty, Collins and
Espley-Jones, as well as three former officers, to provide certain development
services for these partnerships in exchange for cash and deferred development
fees generated by the tax credit partnerships. In order to lessen potential
conflicts of interest, in July 1995, the Company's then principal shareholders,
who included but were not limited to Messrs. Booty, Collins and Espley-Jones
sold Pacific Demographics, Inc. to the Company for $100,000 in cash. In
addition, they formed a general partnership, Hunter Development ("Hunter"), and
became co-developers with Pacific Demographics and retained the right to receive
20% of all developer fees up to a maximum of $850,000. Subsequently each of the
general partners of Hunter assigned his interest in Hunter to Redhill
Development, LLC. Of the maximum amount of $850,000 which could be distributed,
$300,428 has been distributed to date of which Messrs. Booty, Collins and
Espley-Jones have received $111,627, $65,714 and $37,153, respectively.



                                       12

<PAGE>   13

PART IV

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

(c) EXHIBITS: The following exhibits are filed as part of, or incorporated by
reference into this report on Form 10-K/A:


<TABLE>
<CAPTION>
    EXHIBIT          
    NUMBER                               DESCRIPTION
    ------                               -----------
<S>              <C>
       2          Agreement and Plan of Merger, by and between ARV Assisted
                  Living, Inc. and ARV Delaware, Inc., incorporated by reference
                  to the Company's Proxy Statement for the 1997 Meeting of
                  Shareholders of ARV Assisted Living, Inc., filed with the
                  Securities and Exchange Commission on Schedule 14A on December
                  31, 1997.

       3.1        Certificate of Incorporation of ARV Delaware, Inc.,
                  incorporated by reference to the Company's Proxy Statement for
                  the 1997 Meeting of Shareholders of ARV Assisted Living, Inc.,
                  filed with the Securities and Exchange Commission on Schedule
                  14A on December 31, 1997.

       3.2        By-laws of ARV Delaware, Inc., as amended, incorporated by
                  reference to our 8-K filed October 21, 1998.

       4.1        Rights Agreement, dated May 14, 1998, between ARV Assisted
                  Living Inc., and ChaseMellon Shareholder Services LLC which
                  includes the form of Certificate of Determination of the
                  Series D Junior Participating Preferred Stock of ARV Assisted
                  Living, Inc. as Exhibit A, the form of Right Certificate as
                  Exhibit B, and the Summary of Rights to Purchase Preferred
                  Shares as Exhibit C, incorporated by reference to our 10-Q
                  filed with the Securities and Exchange Commission on May 15,
                  1998.

       4.2        First Amendment to the Right Agreement, dated October 21,
                  1998, by and between ARV Assisted Living Inc., and ChaseMellon
                  Shareholder Services LLC, incorporated by reference to our *-K
                  filed October 21, 1998.

       10.1       Purchase and Sale Agreement by and between 270 Center
                  Associates, Limited Partnership and ARV Assisted Living, Inc.
                  dated as of February 12, 1998, incorporated by reference to
                  Exhibit 10.1 to our 8-K filed with the Securities and Exchange
                  Commission on May 11, 1998.

       10.2       Amendment to Purchase and Sale Agreement by and between 270
                  Center Associated, Limited Partnership and ARV Assisted
                  Living, Inc. dated as of March 2, 1998, incorporated by
                  reference to Exhibit 10.2 to our 8-K filed with the Securities
                  and Exchange Commission on May 11, 1998.

       10.3       Second Amendment to Purchase and Sale Agreement by and between
                  270 Center Associated, Limited Partnership and ARV Assisted
                  Living, Inc. dated as of April 10, 1998, incorporated by
                  reference to Exhibit 10.3 to our 8-K filed with the Securities
                  and Exchange Commission on May 11, 1998.

       10.4       Purchase and Sale Agreement by and between TH Group, Inc. and
                  ARV Assisted Living, Inc. dated as of February 12, 1998,
                  incorporated by reference to Exhibit 10.4 to our 8-K filed
                  with the Securities and Exchange Commission on May 11, 1998.

       10.5       Amendment to Purchase and Sale Agreement by and between TH
                  Group, Inc. and ARV Assisted Living, Inc. dated as of March 2,
                  1998, incorporated by reference to Exhibit 10.5 to our 8-K
                  filed with the Securities and Exchange Commission on May 11,
                  1998.

       10.6       Second Amendment to Purchase and Sale Agreement by and between
                  TH Group, Inc. and ARV Assisted Living, Inc. dated as of April
                  10, 1998, incorporated by reference to Exhibit 10.6 to our 8-K
                  filed with the Securities and Exchange Commission on May 11,
                  1998.

       10.7       Purchase and Sale Agreement by and between The Hillsdale
                  Group, LP and ARV Assisted Living, Inc. dated as of February
                  12, 1998, incorporated by reference to Exhibit 10.7 to our 8-K
                  filed with the Securities and Exchange Commission on May 11,
                  1998.

       10.8       Amendment to Purchase and Sale Agreement by and between The
                  Hillsdale Group, LP and ARV Assisted Living, Inc. dated as of
                  March 2, 1998, incorporated by reference to Exhibit 10.8 to
                  our 8-K filed with the Securities and Exchange Commission on
                  May 11, 1998.

       10.9       Second Amendment to Purchase and Sale Agreement by and between
                  The Hillsdale Group, LP and ARV Assisted Living, Inc. dated as
                  of April 6, 1998, incorporated by reference to Exhibit 10.9 to
                  our 8-K filed with the Securities and Exchange Commission on
                  May 11, 1998.

       10.10      Executive Employment Agreement, dated December 5, 1997, by and
                  between ARV Assisted Living, Inc. and Howard G. Phanstiel,
                  incorporated by reference to our 10-Q filed with the
                  Securities and Exchange Commission on August 14, 1998.

       10.11      Amendment to Executive Employment Agreement, effective
                  December 5, 1997, by and between ARV Assisted Living,
</TABLE>





                                       13
<PAGE>   14

<TABLE>
<CAPTION>
    EXHIBIT          
    NUMBER                                  DESCRIPTION
    ------                                  -----------
<S>              <C>
                  Inc. and Howard G. Phanstiel, incorporated by reference to our
                  10-Q filed with the Securities and Exchange Commission on
                  August 14, 1998.

       10.12      Executive Employment Agreement, as amended, dated June 1,
                  1998, by and between ARV Assisted Living, Inc. and Douglas M.
                  Pasquale, incorporated by reference to our 10-Q filed with the
                  Securities and Exchange Commission on August 14, 1998.

       10.13      Employment Agreement, as amended, dated June 15, 1998, by and
                  between ARV Assisted Living, Inc. and Patricia J. Gifford, MD,
                  incorporated by reference to our 10-Q filed with the
                  Securities and Exchange Commission on August 14, 1998.

       10.14      Loan and Security Agreement, dated November 16, 1998, by and
                  between Bayspring Village, LLC, Inn at Lakewood Development,
                  LLC, Laurel Ridge Development, LLC, Lynnbrooke - Irvine, LLC
                  and Finova Capital Corporation.

       10.15      Master Loan and Security Agreement, dated October 30, 1998, by
                  and between Berkshire Renovation, LLC, Encino Renovation, LLC,
                  Rossmore Renovation, LLC and Finova Capital Corporation.

       10.16      Schedule to Master Loan and Security Agreement, dated October
                  30, 1998, by and between Berkshire Renovation, LLC, Encino
                  Renovation, LLC, Rossmore Renovation, LLC and Finova Capital
                  Corporation.

       10.17      Projected Cash Shortfall Protection Agreement, dated November
                  16, 1998, by and between ARV Assisted Living, Bayspring
                  Village, LLC, Inn at Lakewood Development, LLC, Laurel Ridge
                  Development, LLC, Lynnbrooke - Irvine, LLC, and Finova Capital
                  Corporation.

       10.18      Projected Cash Shortfall Protection Agreement, dated November
                  16, 1998, by and between ARV Assisted Living, Berkshire
                  Renovation, LLC, Encino Renovation, LLC, Rossmore Renovation,
                  LLC and Finova Capital Corporation.

       10.19      Purchase and Sale Agreement, dated March 19, 1999, by and
                  between ARV Assisted Living, Inc., Bella Vita ARV, Inc., Aspen
                  Amber Park, LLC, Aspen Bella Vita, LLC, Aspen Gayton Terrace,
                  LLC and Aspen Wyndham Lakes, LLC.

       10.20      Separation and Mutual Release Agreement, dated March 23, 1999, 
                  by and between Howard G. Phanstiel and ARV Assisted Living, 
                  Inc.

       10.21      Separation and Mutual Release Agreement, dated March 17, 1999, 
                  by and between Sheila M. Muldoon and ARV Assisted Living, 
                  Inc.

       99.1       Complaint in ARV Assisted Living, Inc. v. Lazard Freres Real
                  Estate Investors LLC, et al., case no. 787788, incorporated by
                  reference to our 8-K filed with the Securities and Exchange
                  Commission on May 26, 1998.
</TABLE>



                                       14

<PAGE>   15

                                   SIGNATURES



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

                                     ARV ASSISTED LIVING, INC.

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

                                     Date: April 30, 1999


     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                      President and Chief Executive Officer           April 30, 1999
----------------------------------------------- 
              Douglas M. Pasquale               
                                                
              /s/ ABDO H. KHOURY                         Senior Vice President and Chief                 April 30, 1999
-----------------------------------------------          Financial Officer
                Abdo H. Khoury                           
                                                
               /s/ JOHN A. BOOTY                         Director                                        April 30, 1999
----------------------------------------------- 
                 John A. Booty                  
                                                
             /s/ DAVID P. COLLINS                        Director                                        April 30, 1999
----------------------------------------------- 
               David P. Collins                 
                                                
             /s/ MAURICE J. DEWALD                       Director                                        April 30, 1999
----------------------------------------------- 
               Maurice J. DeWald                
                                                
             /s/ ROBERT P. FREEMAN                       Director                                        April 30, 1999
----------------------------------------------- 
               Robert P. Freeman                
                                                
              /s/ MURRY N. GUNTY                         Director                                        April 30, 1999
----------------------------------------------- 
                Murry N. Gunty                  
                                                
             /s/ KENNETH M. JACOBS                       Director                                        April 30, 1999
----------------------------------------------- 
               Kenneth M. Jacobs                
</TABLE>




                                       15
<PAGE>   16


<TABLE>
<CAPTION>
    EXHIBIT          
    NUMBER                               DESCRIPTION
    ------                               -----------
<S>              <C>
       2          Agreement and Plan of Merger, by and between ARV Assisted
                  Living, Inc. and ARV Delaware, Inc., incorporated by reference
                  to the Company's Proxy Statement for the 1997 Meeting of
                  Shareholders of ARV Assisted Living, Inc., filed with the
                  Securities and Exchange Commission on Schedule 14A on December
                  31, 1997.

       3.1        Certificate of Incorporation of ARV Delaware, Inc.,
                  incorporated by reference to the Company's Proxy Statement for
                  the 1997 Meeting of Shareholders of ARV Assisted Living, Inc.,
                  filed with the Securities and Exchange Commission on Schedule
                  14A on December 31, 1997.

       3.2        By-laws of ARV Delaware, Inc., as amended, incorporated by
                  reference to our 8-K filed October 21, 1998.

       4.1        Rights Agreement, dated May 14, 1998, between ARV Assisted
                  Living Inc., and ChaseMellon Shareholder Services LLC which
                  includes the form of Certificate of Determination of the
                  Series D Junior Participating Preferred Stock of ARV Assisted
                  Living, Inc. as Exhibit A, the form of Right Certificate as
                  Exhibit B, and the Summary of Rights to Purchase Preferred
                  Shares as Exhibit C, incorporated by reference to our 10-Q
                  filed with the Securities and Exchange Commission on May 15,
                  1998.

       4.2        First Amendment to the Right Agreement, dated October 21,
                  1998, by and between ARV Assisted Living Inc., and ChaseMellon
                  Shareholder Services LLC, incorporated by reference to our *-K
                  filed October 21, 1998.

       10.1       Purchase and Sale Agreement by and between 270 Center
                  Associates, Limited Partnership and ARV Assisted Living, Inc.
                  dated as of February 12, 1998, incorporated by reference to
                  Exhibit 10.1 to our 8-K filed with the Securities and Exchange
                  Commission on May 11, 1998.

       10.2       Amendment to Purchase and Sale Agreement by and between 270
                  Center Associated, Limited Partnership and ARV Assisted
                  Living, Inc. dated as of March 2, 1998, incorporated by
                  reference to Exhibit 10.2 to our 8-K filed with the Securities
                  and Exchange Commission on May 11, 1998.

       10.3       Second Amendment to Purchase and Sale Agreement by and between
                  270 Center Associated, Limited Partnership and ARV Assisted
                  Living, Inc. dated as of April 10, 1998, incorporated by
                  reference to Exhibit 10.3 to our 8-K filed with the Securities
                  and Exchange Commission on May 11, 1998.

       10.4       Purchase and Sale Agreement by and between TH Group, Inc. and
                  ARV Assisted Living, Inc. dated as of February 12, 1998,
                  incorporated by reference to Exhibit 10.4 to our 8-K filed
                  with the Securities and Exchange Commission on May 11, 1998.

       10.5       Amendment to Purchase and Sale Agreement by and between TH
                  Group, Inc. and ARV Assisted Living, Inc. dated as of March 2,
                  1998, incorporated by reference to Exhibit 10.5 to our 8-K
                  filed with the Securities and Exchange Commission on May 11,
                  1998.

       10.6       Second Amendment to Purchase and Sale Agreement by and between
                  TH Group, Inc. and ARV Assisted Living, Inc. dated as of April
                  10, 1998, incorporated by reference to Exhibit 10.6 to our 8-K
                  filed with the Securities and Exchange Commission on May 11,
                  1998.

       10.7       Purchase and Sale Agreement by and between The Hillsdale
                  Group, LP and ARV Assisted Living, Inc. dated as of February
                  12, 1998, incorporated by reference to Exhibit 10.7 to our 8-K
                  filed with the Securities and Exchange Commission on May 11,
                  1998.

       10.8       Amendment to Purchase and Sale Agreement by and between The
                  Hillsdale Group, LP and ARV Assisted Living, Inc. dated as of
                  March 2, 1998, incorporated by reference to Exhibit 10.8 to
                  our 8-K filed with the Securities and Exchange Commission on
                  May 11, 1998.

       10.9       Second Amendment to Purchase and Sale Agreement by and between
                  The Hillsdale Group, LP and ARV Assisted Living, Inc. dated as
                  of April 6, 1998, incorporated by reference to Exhibit 10.9 to
                  our 8-K filed with the Securities and Exchange Commission on
                  May 11, 1998.

       10.10      Executive Employment Agreement, dated December 5, 1997, by and
                  between ARV Assisted Living, Inc. and Howard G. Phanstiel,
                  incorporated by reference to our 10-Q filed with the
                  Securities and Exchange Commission on August 14, 1998.

       10.11      Amendment to Executive Employment Agreement, effective
                  December 5, 1997, by and between ARV Assisted Living,
</TABLE>


<PAGE>   17

<TABLE>
<CAPTION>
    EXHIBIT          
    NUMBER                                  DESCRIPTION
    ------                                  -----------
<S>              <C>
                  Inc. and Howard G. Phanstiel, incorporated by reference to our
                  10-Q filed with the Securities and Exchange Commission on
                  August 14, 1998.

       10.12      Executive Employment Agreement, as amended, dated June 1,
                  1998, by and between ARV Assisted Living, Inc. and Douglas M.
                  Pasquale, incorporated by reference to our 10-Q filed with the
                  Securities and Exchange Commission on August 14, 1998.

       10.13      Employment Agreement, as amended, dated June 15, 1998, by and
                  between ARV Assisted Living, Inc. and Patricia J. Gifford, MD,
                  incorporated by reference to our 10-Q filed with the
                  Securities and Exchange Commission on August 14, 1998.

       10.14      Loan and Security Agreement, dated November 16, 1998, by and
                  between Bayspring Village, LLC, Inn at Lakewood Development,
                  LLC, Laurel Ridge Development, LLC, Lynnbrooke - Irvine, LLC
                  and Finova Capital Corporation.

       10.15      Master Loan and Security Agreement, dated October 30, 1998, by
                  and between Berkshire Renovation, LLC, Encino Renovation, LLC,
                  Rossmore Renovation, LLC and Finova Capital Corporation.

       10.16      Schedule to Master Loan and Security Agreement, dated October
                  30, 1998, by and between Berkshire Renovation, LLC, Encino
                  Renovation, LLC, Rossmore Renovation, LLC and Finova Capital
                  Corporation.

       10.17      Projected Cash Shortfall Protection Agreement, dated November
                  16, 1998, by and between ARV Assisted Living, Bayspring
                  Village, LLC, Inn at Lakewood Development, LLC, Laurel Ridge
                  Development, LLC, Lynnbrooke - Irvine, LLC, and Finova Capital
                  Corporation.

       10.18      Projected Cash Shortfall Protection Agreement, dated November
                  16, 1998, by and between ARV Assisted Living, Berkshire
                  Renovation, LLC, Encino Renovation, LLC, Rossmore Renovation,
                  LLC and Finova Capital Corporation.

       10.19      Purchase and Sale Agreement, dated March 19, 1999, by and
                  between ARV Assisted Living, Inc., Bella Vita ARV, Inc., Aspen
                  Amber Park, LLC, Aspen Bella Vita, LLC, Aspen Gayton Terrace,
                  LLC and Aspen Wyndham Lakes, LLC.

       10.20      Separation and Mutual Release Agreement, dated March 23, 1999, 
                  by and between Howard G. Phanstiel and ARV Assisted Living, 
                  Inc.

       10.21      Separation and Mutual Release Agreement, dated March 17, 1999, 
                  by and between Sheila M. Muldoon and ARV Assisted Living, 
                  Inc.

       99.1       Complaint in ARV Assisted Living, Inc. v. Lazard Freres Real
                  Estate Investors LLC, et al., case no. 787788, incorporated by
                  reference to our 8-K filed with the Securities and Exchange
                  Commission on May 26, 1998.
</TABLE>