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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C.
20549

FORM 10-Q

|(Mark One)                                            
|------------------------------------------------------
|                                                      
|x                                                     
|                                                      
|                                                      
|                                                      
|OR                                                    
|                                                      
|o                                                     
|                                                      
|                                                      
|                                                      
|COMMISSION FILE NUMBER: 0-26470                       
|                                                      
|AMERICAN RETIREMENT VILLAS  PROPERTIES III, L.P.      
|(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
|                                                      



|CALIFORNIA                                                                            |  | 33-0365417                          
|------------------------------------------------------------------------------------- |  | ------------------------------------
|(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)                        |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)
|                                                                                      |  |                                     
|245 FISCHER AVENUE, D-1 COSTA MESA, CA                                                |  | 92626                               
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                                               |  | (ZIP CODE)                          
|                                                                                      |  |                                     
|REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA
CODE:                    (714) 751-7400

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 o
|----- | ----

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
unitholders holding 5% or greater of the registrants units are assumed to be affiliates). The number of Units outstanding as of July 31, 2003 was 18,666.

Indicate by check mark whether the registrant is accelerated filer (as defined in Rule 12b-2 of the Act).

|Yes o | No x
|----- | ----

The aggregate
market value of the voting and non-voting units held by non-affiliates computed by reference to the price at which the units were last sold was $18,666,480, as of June 30, 2003.

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PART I - FINANCIAL INFORMATION  ITEM 1 - FINANCIAL STATEMENTS

American Retirement Villas Properties
III, L.P. (a California limited partnership)  Condensed Consolidated Balance Sheets  (Unaudited) (In thousands)

|                                                                                                                                         |  | JUNE 30,  2003 |        | DECEMBER 31, 2002 |  
|---------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------ | ----------------- | -
|                                                                                                                                         |  |                |        |                   |  
|ASSETS                                                                                                                                   |  |                |        |                   |  
|Properties, at cost:                                                                                                                     |  |                |        |                   |  
|Land                                                                                                                                     |  | $              | 1,549  |                   | $
|Buildings and improvements, less accumulated depreciation of $3,321 and $3,088 at June 30, 2003 and December 31, 2002, respectively      |  |                | 9,564  |                   |  
|Furniture, fixtures and equipment, less accumulated depreciation of $339 and $1,034 at June 30, 2003 and December 31, 2002,
respectively |  |                | 523    |                   |  
|                                                                                                                                         |  |                |        |                   |  
|Net properties                                                                                                                           |  |                | 11,636 |                   |  
|Cash and cash equivalents                                                                                                                |  |                | 3,639  |                   |  
|Loan fees, less accumulated amortization of $136 and $91 at June 30, 2003 and December 31, 2002, respectively                            |  |                | 322    |                   |  
|Collateral deposit                                                                                                                       |  |                |       |                   |  
|Other assets, including impound accounts                                                                                                 |  |                | 793    |                   |  
|                                                                                                                                         |  |                |        |                   |  
|                                                                                                                                         |  | $              | 16,390 |                   | $
|                                                                                                                                         |  |                |        |                   |  
|LIABILITIES AND PARTNERS CAPITAL (DEFICIENCY)                                                                                           |  |                |        |                   |  
|Notes payable                                                                                                                            |  | $              | 17,938 |                   | $
|Accounts payable                                                                                                                         |  |                | 26     |                   |  
|Accrued expenses                                                                                                                         |  |                | 489    |                   |  
|Amounts payable to affiliate                                                                                                             |  |                | 54     |                   |  
|Tenant prepaid rent and assisted living services                                                                                         |  |                | 100    |                   |  
|Distributions payable                                                                                                                    |  |                | 49     |                   |  
|                                                                                                                                         |  |                |        |                   |  
|Total liabilities                                                                                                                        |  |                | 18,656 |                   |  
|                                                                                                                                         |  |                |        |                   |  
|Commitments and contingencies                                                                                                            |  |                |        |                   |  
|Partners capital (deficit):                                                                                                             |  |                |        |                   |  
|General partners capital                                                                                                                |  |                | (2     | )                 |  
|Special limited partners                                                                                                                 |  |                | (179   | )                 |  
|Limited partners capital, 18,666 units outstanding                                                                                      |  |                | (2,085 | )                 |  
|                                                                                                                                         |  |                |        |                   |  
|Total partners capital (deficiency)                                                                                                     |  |                | (2,266 | )                 |  
|                                                                                                                                         |  |                |        |                   |  
|                                                                                                                                         |  | $              | 16,390 |                   | $
|                                                                                                                                         |  |                |        |                   |  

See accompanying notes to the unaudited condensed consolidated financial
statements.

2



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American Retirement Villas Properties III, L.P. (a California limited partnership)  Condensed Consolidated Statements of Operations 
(Unaudited) (In thousands, except unit data)

|                                                           |  | For The Three Months Ended  June 30, |       | For The Six Months Ended  June 30, |  
|---------------------------------------------------------- |  | ------------------------------------ | ----- | ---------------------------------- | -
|                                                           |  |                                      |       |                                    |  
|                                                           |  | 2003                                 |       | 2002                               |  
|                                                           |  |                                      |       |                                    |  
|Revenues:                                                  |  |                                      |       |                                    |  
|Rent                                                       |  | $                                    | 1,625 |                                    | $
|Assisted living                                            |  |                                      | 135   |                                    |  
|Interest                                                   |  |                                      | 6     |                                    |  
|Other                                                      |  |                                      | 30    |                                    |  
|                                                           |  |                                      |       |                                    |  
|Total revenues                                             |  |                                      | 1,796 |                                    |  
|                                                           |  |                                      |       |                                    |  
|Costs and expenses:                                        |  |                                      |       |                                    |  
|Community property operations                              |  |                                      | 934   |                                    |  
|Assisted living                                            |  |                                      | 109   |                                    |  
|General and administrative                                 |  |                                      | 85    |                                    |  
|Depreciation and amortization                              |  |                                      | 180   |                                    |  
|Property taxes                                             |  |                                      | 54    |                                    |  
|Advertising                                                |  |                                      | 19    |                                    |  
|Interest                                                   |  |                                      | 322   |                                    |  
|                                                           |  |                                      |       |                                    |  
|Total operating costs and expenses                         |  |                                      | 1,703 |                                    |  
|                                                           |  |                                      |       |                                    |  
|Income (loss) from operations before franchise tax expense |  |                                      | 93    |                                    |  
|Franchise tax expense                                      |  |                                      | 6     |                                    |  
|                                                           |  |                                      |       |                                    |  
|Net income (loss)                                          |  | $                                    | 87    |                                    | $
|                                                           |  |                                      |       |                                    |  
|Income (loss) Per limited partner unit:                    |  |                                      |       |                                    |  
|                                                           |  |                                      |       |                                    |  
|Net income (loss)                                          |  | $                                    | 4.61  |                                    | $
|                                                           |  |                                      |       |                                    |  

See accompanying notes to the unaudited condensed consolidated financial
statements.

3



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American Retirement Villas Properties III, L.P.  (a California limited partnership)  Condensed Consolidated Statements of Cash Flows  (Unaudited)
 (In thousands)

|                                                                                            |  | FOR THE SIX MONTHS ENDED JUNE 30, |        
|------------------------------------------------------------------------------------------- |  | --------------------------------- | -------
|                                                                                            |  |                                   |        
|                                                                                            |  | 2003                              |        
|                                                                                            |  |                                   |        
|Cash flows from operating activities:                                                       |  |                                   |        
|Net income                                                                                  |  | $                                 | 213    
|Adjustments to reconcile net income to net cash provided by operating activities:           |  |                                   |        
|Depreciation and amortization                                                               |  |                                   | 360    
|Change in assets and liabilities:                                                           |  |                                   |        
|Restricted cash                                                                             |  |                                   |       
|Other assets                                                                                |  |                                   | (261   
|Tenant prepaid rent and services                                                            |  |                                   | 65     
|Accounts payable and accrued expenses                                                       |  |                                   | (141   
|Amounts payable to affiliates, net                                                          |  |                                   | (14    
|                                                                                            |  |                                   |        
|Net cash provided by operating activities                                                   |  |                                   | 222    
|                                                                                            |  |                                   |        
|Cash flows used in investing activities:                                                    |  |                                   |        
|Capital expenditures                                                                        |  |                                   | (237   
|                                                                                            |  |                                   |        
|Net cash used in investing activities                                                       |  |                                   | (237   
|                                                                                            |  |                                   |        
|Cash flows used in financing activities:                                                    |  |                                   |        
|Principal repayments on notes payable                                                       |  |                                   | (11,872
|Borrowing under refinancing                                                                 |  |                                   | 12,240 
|Replacement reserve under refinancing                                                       |  |                                   | (24    
|Loan fees paid                                                                              |  |                                   | (101   
|Collateral deposit under refinancing                                                        |  |                                   | 2,000  
|Distributions paid                                                                          |  |                                   |       
|                                                                                            |  |                                   |        
|Net cash used in financing activities                                                       |  |                                   | 2,243  
|                                                                                            |  |                                   |        
|Net increase (decrease) in cash and cash equivalents                                        |  |                                   | 2,228  
|Cash and cash equivalents at beginning of period                                            |  |                                   | 1,411  
|                                                                                            |  |                                   |        
|Cash and cash equivalents at end of period                                                  |  | $                                 | 3,639  
|                                                                                            |  |                                   |        
|Supplemental disclosure of cash flow information - cash paid during the period for interest |  | $                                 | 695    
|                                                                                            |  |                                   |        

See accompanying notes to the unaudited condensed consolidated financial
statements.

4



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American Retirement Villas Properties III, L.P.  (a California limited partnership)  Notes to Condensed Consolidated Financial Statements 
(Unaudited)

June 30, 2003

(1)   CRITICAL ACCOUNTING POLICIES

BASIS OF PRESENTATION

Basis of Presentation

The accompanying condensed
consolidated financial statements of American Retirement Villas Properties III, L.P. (the Partnership or ARVP III) are presented pursuant to the rules and regulations of the Securities and Exchange Commission
(SEC) for interim reporting.  As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America can be condensed
or omitted.

The condensed consolidated financial statements include all normal and recurring adjustments that the Partnership considers necessary for the fair
presentation of our financial position and operating results.  For further information, refer to the consolidated financial statements and notes in the Partnerships Form 10-K for fiscal year ended December 31, 2002, which is on file with
the SEC.

The results of operations can vary during each quarter of the year.  Therefore, the results and trends in these interim consolidated financial
statements may not be the same as those for the full year.

Basis of Accounting

The Partnerships
financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America.

Principles of Consolidation

The condensed consolidated financial statements of the Partnership include the accounts of the Partnership, Retirement Inns III, LLC, ARV Chandler Villas, L.P and ARV Villa Las Posas,
L.P.  Retirement Inns III, LLC , ARV Chandler Villas L.P. and ARV Villa Las Posas, L.P. which are 100% owned by the Partnership. All intercompany balances and transactions have been eliminated in consolidation.

Carrying Value of Real Estate

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

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

The Partnership reviews its 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, the Partnership estimates the future undiscounted 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 the Partnerships consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, management has made estimates and assumptions that affect the following:

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| | reported amounts of assets and liabilities at the date of the financial statements;         
|- | --------------------------------------------------------------------------------------------
| | disclosure of contingent assets and liabilities at the date of the financial statements; and
| | reported amounts of revenues and expenses during the reporting period.                      

Actual results
could differ from those estimates.

Cash and Cash Equivalents

For purposes of reporting cash balances, the
Partnership considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Impound Accounts

The lenders hold certain Partnerships funds in impound accounts for payment of property taxes, insurance premiums and future property improvements (replacement reserves) on these
properties.  The Partnership includes these impound accounts in other assets. At June 30, 2003 and December 31, 2002 the impounds were $309,000 and $352,000, respectively.

Collateral
Deposit

The Partnership was required by the lender to deposit $2.0 million dollars into a collateral deposit account held by the lender as part of the
modification agreement to extend the maturity date, increase the debt and change the interest rate on one of the Partnerships loans.   The deposit was released in May 2003, as part of the refinancing of this loan on April 10, 2003,
to a thirty-five year HUD insured loan.

Loan Fees

The Partnership amortizes loan fees using the effective
interest method over the term of the respective notes payable, and includes them in other assets.

Revenue Recognition

Residency agreements with residents are on a month-to-month basis. The Partnership applies advance deposits to the first months rent.  Revenue is recognized in the period in which
services are provided.  Revenue received in advance of the period the services are performed is recorded in tenant prepaid rents and services.

General Liability Insurance

For the year 2002 through March 31, 2003, the Partnership utilized third-party insurance for losses and liabilities associated with general and professional liability claims subject
to established deductible levels on a per occurrence basis.  Losses up to these deductible levels are accrued based upon the Partnerships estimates of the aggregate liability for claims incurred based on the Partnerships experience
and appropriate actuarial principles.  As of April 2003, the Partnership was able to secure general and professional liability insurance with a $1,000 deductible per occurrence.

Net
Income Per Limited Partner Unit

The Partnership based net income per limited partner unit on the weighted-average number of limited partner units outstanding of
18,666 in the periods ended June 30, 2003 and 2002.  Special Limited Partners and General Partners share of earnings, 1% for both, is deducted from earnings before computing earnings per limited partner unit.

Reclassifications

The Partnership has reclassified certain prior period amounts to conform to the June 30, 2003 presentation.

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New Accounting Pronouncements

In April 2002, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards (SFAS) No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.  SFAS No. 145
eliminates the requirement to classify gains and losses from the extinguishment of indebtedness as extraordinary, requires certain lease modifications to be treated the same as a sale-leaseback transaction, and makes other technical corrections to
existing pronouncements.  SFAS No. 145 is effective for fiscal years beginning after May 15, 2002, with earlier adoption encouraged. Adoption of this statement did not have a material effect on the Partnerships consolidated financial
statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities.  SFAS No. 146 requires
companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Examples of costs covered by the standard include lease termination costs and
certain employee severance costs that are associated with a restructuring, discontinued operation, plant closing, or other exit or disposal activity.  SFAS No. 146 is effective prospectively for exit or disposal activities initiated after
December 31, 2002, with earlier adoption encouraged. Adoption of this statement did not have a material effect on the Partnerships consolidated financial statements.

In November 2002, the FASB issued FASB Interpretation (FIN) No. 45, Guarantors Accounting and Disclosure Requirement for Guarantees, Including Indirect Guarantees and
Indebtedness of Others, an interpretation of SFAS Nos. 5, 57 and 107 and rescission of FIN No. 34, Disclosure of Indirect Guarantees of Indebtedness of Others.  FIN No. 45 elaborates on the disclosure requirements for the
annual and interim financial statements of the guarantor.  It also requires that a guarantor recognize a liability at the inception of the guarantee for the fair value of the obligation undertaken.  The Partnership adopted the recognition
and measurement provision of FIN No. 45 beginning January 1, 2003, while the disclosure provisions became effective at December 31, 2002.  Adoption of this interpretation did not have a material effect on the Partnerships consolidated
financial statements.

In January 2003, FIN No. 46 Consolidation of Variable Interest Entities, an interpretation of
Accounting Research Bulletin No. 51, was issued.  FIN No. 46 requires that a company consolidate variable interest entities if that company is subject to a majority of the risk of loss from the entitys activities or the company receives a
majority of the entitys residual returns.  FIN No. 46 also requires certain disclosures about variable interest entities in which a company has a significant interst, regardless of whether consolidation is required.  The Partnership
adopted the consolidation provisions of FIN No. 46 beginning January 1, 2003, while certain disclosures requirements became effective for all financial statements issued after January 31, 2003, regardless of when the variable interest entities were
established.  The Partnership currently has no variable interest entities, therefore, the adoption of this interpretation had no effect on the Partnerships condensed consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Instruments with Characteristics of Both Liabilities and Equity, which establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope, which may have previously been reported as
equity, as a liability (or an asset in some circumstances). This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after
June 15, 2003. Adoption of SFAS No. 150 will not have a material effect on the Partnerships consolidated financial position or results of operations.

Managing General
Partner

On April 23, 2003, the managing general partner became a wholly-owned subsidiary of Prometheus Assisted Living LLC (Prometheus) pursuant to an
Agreement and Plan of Merger entered into on January 3, 2003 by and among the managing general partner, Prometheus and a subsidiary of Prometheus.

(2)  TRANSACTIONS WITH AFFILIATES

The Partnership has an agreement with ARV Assisted Living, Inc. (ARV), our Managing General Partner, providing for a property management fee of five
percent of gross revenues amounting to $179,000 and $168,000 for the six-month periods and $89,000 and $83,000 for the three-month periods ended June 30, 2003 and 2002, respectively and is included in community property operation expenses. 
Additionally, the Partnership accrues a partnership management fee of ten percent of cash flow before distributions, as defined in the Partnership Agreement, which amounted to $48,000 and $28,000 for the six-month periods and $21,000 and $13,000 for
the three-month periods ended June 30, 2003 and 2002, respectively and is included in general and administration expenses.  The Partnership has

7



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significant transactions with affiliates, had the Partnership been operated as an unaffiliated entity the accompanying financial statements could have been materially
different.

(3)  NOTES PAYABLE

Notes payable consist of the following at June 30, 2003 and December 31,
2002 (in thousands):

|                                                                                                                                                          |  | 2003 |        | 2002 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | ---- | -
|                                                                                                                                                          |  |      |        |      |  
|Note payable to the bank, bearing interest at 6.05%.  Monthly principal and interest payments of $70; due through May 2038;
collateralized by an ALC      |  | $    | 12,231 |      | $
|Note payable to the bank, bearing interest at 8.50%; monthly principal and interest payment of $96 for December 31, 2002, due January
2004                |  |      |       |      |  
|Note payable to the bank, bearing interest at 8.06%.  Monthly principal and interest payments of $41; due through February 2036;
collateralized by an ALC |  |      | 5,707  |      |  
|                                                                                                                                                          |  |      |        |      |  
|Total notes payable                                                                                                                                       |  | $    | 17,938 |      | $
|                                                                                                                                                          |  |      |        |      |  

The annual principal payments of the notes payable at June 30, 2003 are as
follows (in thousands):

|2004       |  | $ | 143    | 
|---------- |  | - | ------ | 
|2005       |  |   | 152    | 
|2006       |  |   | 163    | 
|2007       |  |   | 174    | 
|2008       |  |   | 185    | 
|Thereafter |  |   | 17,121 | 
|           |  |   |        | 
|           |  | $ | 17,938 | 
|           |  |   |        | 

On January 9, 2001 ARVP III refinanced one of the two ALCs with a
thirty-five year HUD insured loan, bearing interest at 8.06%. The prior debt was extinguished, resulting in an extraordinary loss due to the remaining costs, which were written off at the time of the refinancing.  With respect to the loan on
the other ALC, on February 1, 2002, the lender agreed to increase the principal sum of the loan to $11,980,000, the maturity date was extended, and the interest rate was changed to 8.50% per annum.  As a condition to the extension, the
principal increase and the rate change, the lender required a $2.0 million cash collateral deposit, and the Partnerships Managing General Partner to guaranty $1.0 million of the loan. On April 10, 2003, the Partnership completed its
refinancing for $12,240,000 million which primarily paid off the remaining balance of $11,980,000 million loan; with a 35 year HUD insured loan, bearing interest at 6.05% per annum, with interest and principal payable monthly, secured by an
ALC.

(4)  COMMITMENT AND CONTINGENCIES

Other than the ordinary routine litigation that is incidental to,
and arises in the normal course of, the business of the Partnership, there are no material legal proceedings pending against the Partnership. While the Partnership cannot predict the results with certainty, it does not believe that any liability
from any such lawsuits or other matters will have a material effect on its financial position, results of operations, or liquidity.

ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

On April 23, 2003, the managing general partner became a wholly-owned subsidiary of Prometheus Assisted Living LLC
(Prometheus) pursuant to an Agreement and Plan of Merger entered into on January 3, 2003 by and among the managing general partner, Prometheus and a subsidiary of Prometheus.

RESULTS
OF OPERATIONS

The following table sets forth a comparison of the six months ended June 30, 2003 and the six months ended June 30, 2002. The percentage increase
(decrease) is based upon our Condensed Consolidated Statements of Operations and will not compute using the rounded amounts below.

8



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Operating Results before Franchise Tax Expense For the Six Months Ended June 30, 2003 and 2002 (Unaudited) (Dollars in millions)

|                                    |  | June 30, |      | Increase/  (decrease) |  
|----------------------------------- |  | -------- | ---- | --------------------- | -
|                                    |  |          |      |                      
|                                    |  | 2003     |      | 2002                  |  
|                                    |  |          |      |                       |  
|Revenues:                           |  |          |      |                       |  
|Rent                                |  | $        | 3.23 |                       | $
|Assisted living                     |  |          | 0.27 |                       |  
|Interest and other                  |  |          | 0.10 |                       |  
|                                    |  |          |      |                       |  
|Total revenues                      |  |          | 3.60 |                       |  
|                                    |  |          |      |                       |  
|Costs and expenses                  |  |          |      |                       |  
|Rental property operations          |  |          | 1.79 |                       |  
|Assisted living                     |  |          | 0.21 |                       |  
|General and administrative          |  |          | 0.22 |                       |  
|Depreciation and amortization       |  |          | 0.36 |                       |  
|Property taxes                      |  |          | 0.10 |                       |  
|Interest                            |  |          | 0.70 |                       |  
|                                    |  |          |      |                       |  
|Total costs and expenses            |  |          | 3.38 |                       |  
|                                    |  |          |      |                       |  
|Income before franchise tax expense |  | $        | 0.22 |                       | $
|                                    |  |          |      |                       |  

The increase in rental revenue of $0.20 million, or 6.5%, from $3.03 million
for the six-month period ended June 30, 2002 to $3.23 million for the six-month period ended June 30, 2003 is primarily due to the following:

| |  | an increase average rental rate per occupied unit to $2,095 for the six months ended June 30, 2003 as compared with $2,030 for the six months ended June 30, 2002; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the increase in average occupancy to 90.7% for the six months ended June 30, 2003 from 86.9% for the six months ended June 30, 2002.                                  

The decrease in assisted living revenue of $0.04 million from $0.31 million for the six-month period ended June 30, 2002 to $0.27 million for the six-month period ended June 30, 2003, or (12.1)%
is primarily attributable to:

| |  | a decrease in the assisted living rate from $681 per month for the six-month period ended June 30, 2002 as compared with $625 per month for the six-months ended June 30, 2003;
and                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | a decrease  in the average number of assisted living residents from 75 residents for the six-month period ended June 30, 2002, as compared with 72 residents for the six-month period
ended June 30, 2003.

The decrease in interest and other revenue of $0.03 million from $0.13 million for the six-month period ended June 30, 2002
to $0.10 million for the six-month period ended June 30, 2003, or (22.9)% is primarily attributable to:

| |  | lower interest payment from promissory note; partially offset by
| | - | ----------------------------------------------------------------
| |  | an increase in application processing fees.                     

Rental property operations and assisted
living expenses increased by $0.01 million, or 1.0%, from $1.99 million for the six-month period ended June 30, 2002 to $2.0 million for the six-month period ended June 30, 2003, primarily due to:

| |  | increase in staff payroll costs and fringe benefit including workman compensation insurance;
| | - | --------------------------------------------------------------------------------------------
| |  | increase in variable expenses; partially offset by                                          
| |  | decrease in utilities, rental and leases, and outside service expenses.                     

General and
administrative expenses is relatively constant in both period ended June 30, 2003 and 2002.

Depreciation and amortization expense decreased $0.03 million, or (8.4)%,
from $0.39 million for the six-month period ended June 30, 2002 to $0.36 million for the six-month period ended June 30, 2003 is due to the following:

9



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| |  | a decrease in depreciation expense due to assets that are fully depreciated; and  
| | - | ----------------------------------------------------------------------------------
| |  | a decrease in amortization of loan fees as the result of longer term of the notes.

The increase in property tax expense of $0.01 million or 12.0% from $0.09 million for the six-month period ended June 30, 2002 to $0.10 million for the six-month period ended June 30, 2003, is due
to the increase in propertiesassessment value.

The decrease in interest expense of $0.01million or (2.2)% from $0.71 million for the six-month period ended June
30, 2002 to $0.70 million for the six-month period ended June 30, 2003, is primarily attributable to the refinancing of the loan to a lower interest rate and better terms.

The following table sets forth a comparison of the three months ended June 30, 2003 (the 2003 Quarter) and the three months ended June 30, 2002 (the 2002 Quarter). The
percentage increase (decrease) is based upon our Condensed Consolidated Statements of Operations and will not compute using the rounded amounts below.

Operating Results before
Franchise Tax Expense For the Three Months Ended June 30, 2003 and 2002 (Unaudited) (Dollars in millions)

|                                           |  | June 30, |      | Increase/  (decrease) |  
|------------------------------------------ |  | -------- | ---- | --------------------- | -
|                                           |  |          |      |                      
|                                           |  | 2003     |      | 2002                  |  
|                                           |  |          |      |                       |  
|Revenues:                                  |  |          |      |                       |  
|Rent                                       |  | $        | 1.63 |                       | $
|Assisted living                            |  |          | 0.14 |                       |  
|Interest and other                         |  |          | 0.03 |                       |  
|                                           |  |          |      |                       |  
|Total revenues                             |  |          | 1.79 |                       |  
|                                           |  |          |      |                       |  
|Costs and expenses                         |  |          |      |                       |  
|Rental property operations                 |  |          | 0.93 |                       |  
|Assisted living                            |  |          | 0.11 |                       |  
|General and administrative                 |  |          | 0.10 |                       |  
|Depreciation and amortization              |  |          | 0.18 |                       |  
|Property taxes                             |  |          | 0.05 |                       |  
|Interest                                   |  |          | 0.33 |                       |  
|                                           |  |          |      |                       |  
|Total costs and expenses                   |  |          | 1.70 |                       |  
|                                           |  |          |      |                       |  
|Income (loss) before franchise tax expense |  | $        | 0.09 |                       | $
|                                           |  |          |      |                       |  

The increase in rental revenue of $0.13 million, or 8.3%, from $1.50 million
for the quarter ended June 30, 2002 to $1.63 million for the quarter ended June 30, 2003 primarily due to the following:

| |  | an increase in average rental rate per occupied unit to $2,097 for the three months ended June 30, 2003 as compared with $2,045 for the three months ended June 30, 2002;
and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the increase in average occupancy to 92.5% for the three months ended June 30, 2003 from 85.5% for the three months ended June 30, 2002.                                     

The decrease in assisted living revenue of $0.01 million from $0.15 million for the three-month period ended June 30, 2002 to $0.14 million for the three-month period ended June 30, 2003, or
(5.6)% is primarily attributable to:

| |  | a decrease in the assisted living rate from $674 per month for the three-month period ended June 30, 2002 as compared with $621 per month for the three-months ended June 30,
2003; offset by                
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | an increase  in the average number of assisted living residents to 72 residents for the three-month period ended June 30, 2003, as compared with 71 residents for the three-month period
ended June 30, 2002.

The decrease in interest and other revenue of $0.05 million from $0.08 million for the three-month period ended June 30,
2002 to $0.03 million for the three-month period ended June 30, 2003, or (56.6)% is primarily attributable to:

| |  | a lack of interest payment on the promissory notes; partially offset by
| | - | -----------------------------------------------------------------------
| |  | an increase in application processing fees.                            

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Rental property operations and assisted living expenses increased by $0.06 million, or 6.2%, from $0.98 million for the three-month period ended
June 30, 2002 to $1.04 million for the three-month period ended June 30, 2003, primarily due to:

| |  | increase in staff payroll costs and fringe benefit including workman compensation insurance;
| | - | --------------------------------------------------------------------------------------------
| |  | increased variable expenses; partially offset by                                            
| |  | decrease in utilities expenses.                                                             

General and administrative expenses decreased $0.03
million, or (22.4)%, from $0.13 million for the quarters ended June 30, 2002 to $0.10 million for the quarter ended June 30, 2003 is primarily due to the decrease in professional and accounting fees.

Depreciation and amortization expense decreased $0.03 million, or (15.9)%, from $0.21 million for the quarters ended June 30, 2002 to $0.18 million for the quarter ended June 30, 2003 is due to
the following:

| |  | a decrease in depreciation related to assets that are fully depreciated; and      
| | - | ----------------------------------------------------------------------------------
| |  | a decrease in amortization of loan fees as the result of longer term of the notes.

The decrease in interest expense of $0.04 million or (11.3)% from 0.37 million for the three-month period ended June 30, 2002 to $0.33 million for the three-month period ended June 30, 2003, is
primarily attributable to the refinancing of the loan to a lower interest rate and better terms.

LIQUIDITY AND CAPITAL RESOURCES

We expect that cash generated from the operations of our properties will be adequate to pay operating expenses and provide distributions to our partners for the next 12 months.  On a
long-term basis, our liquidity is sustained primarily from cash flow provided by operating activities.  During the six-month period ended June 30, 2003 cash provided by operating activities was $0.22 million compared to $0.19 million during the
six-month period ended June 30, 2002.  The increase was primarily due to:

| |  | an increase in net income, adjusted by                                    
| | - | --------------------------------------------------------------------------
| |  | lower depreciation and amortization expense; offset by                    
| |  | an increase in other assets;                                              
| |  | an increase in tenant prepaid rent and services;                          
| |  | a decrease in the net change in accounts payable and accrued expenses, and
| |  | a decrease in the net change in amounts payable to affiliates.            

During the six-month
period ended June 30, 2003, our net cash used in investing activities was $0.24 million compared to cash used in investing activities of $0.16 million for the corresponding period in 2002.  The increase was a result of the physical improvements
at our two assisted living communities.

During the six-month period ended June 30, 2003, our net cash provided by financing activities was $2.24 million compared to
cash used in financing activities of $2.04 million for the corresponding period in 2002.  The financing activities for the six-months ended June 30, 2003 consist of:

| |  | borrowing under refinancing;                               
| | - | -----------------------------------------------------------
| |  | releasing collateral deposit;                              
| |  | a decrease in loan fees paid; offset by                    
| |  | principal repayments on notes payable;                     
| |  | an increase in the capital expenditure replacement reserve.

We estimate that we will
incur approximately $244,000 for capital expenditures during 2003 for physical improvements at our communities. As of June 30, 2003 we have made approximately $237,000 in capital expenditures.  Funds for these improvements are expected to be
available from operations.

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In order to protect ourself against lawsuits and claims relating to general and professional liability, we maintain third party insurance
policies in amounts and covering risks that are consistent with industry practice. Under the terms of such insurance policies, our coverage is provided subject to varying deductible levels and liability amounts. As a result of poor industry loss
experience, a number of insurance carriers have stopped providing insurance coverage to the assisted living industry, and those remaining have drastically increased premiums and deductible amounts. Consistent with this trend, our general liability
coverage is subject to significant deductible levels on a per occurrence basis.  For the nine months ended December 31, 2002 and the three months ended March 31, 2003 our general liability deductible per occurrence was materially
increased.  As of April 1, 2003, our general liability deductible was reduced to $1,000 per occurrence.  Losses up to these deductible levels are accrued based upon our estimates of the aggregate liability for claims incurred based on our
experience and appropriate actuarial principles. As the result of these continuing uncertainties in both deductible amounts and premiums, there can be no assurance that we will be able to obtain all desired insurance coverage in the future on
commercially reasonable terms or at all.

Our Managing General Partner is not aware of any trends, other than national economic conditions, which have had or which may
be reasonably expected to have a material favorable or unfavorable impact on revenues or income from our operations or sale of properties. Our General Partner believes that if the inflation rate increases, they will be able to recover subsequent
increases in operating expenses from higher rental and assisted living rates.

IMPACT OF INFLATION, DEFLATION AND CHANGING PRICES

To date, inflation has not had a significant impact on the Partnership.  Inflation could, however, affect our future revenues and operating income due to our dependence on the senior resident
population, most of who rely on relatively fixed incomes to pay for our services.  The monthly charges for the residents unit and assisted living services are influenced by the location of the community and local competition.  Our
ability to increase revenues in proportion to increased operating expenses may be limited.  We typically do not rely to a significant extent on governmental reimbursement programs.  In pricing our services, we attempt to anticipate
inflation levels, but there can be no assurance that we will be able to respond to inflationary pressures in the future. The Partnership could be effected by deflation since, as noted above, we rely on seniors with relatively fixed incomes.

FORWARD-LOOKING STATEMENTS

A number of matters and subject areas discussed in this report, that is not historical
or contain current facts, deal with potential future circumstances, operations and prospects.  The discussion of these matters and subject areas is qualified by the inherent risks and uncertainties surrounding future expectations generally, and
also may materially differ from our actual future experience as a result of such factors as: the effects of competition and economic conditions on the occupancy levels in our communities; our ability under current market conditions to maintain and
increase our resident charge without adversely affecting the occupancy level; our ability to control community operation expenses without adversely affecting the occupancy level and the level of resident charges; the ability of our operations to
generate cash flow sufficient to service our debt, capital expenditures and other fixed payment requirements; and our ability to find sources of financing and capital on satisfactory terms to meet our cash requirements to the extent that they are
not met by operations.  We have attempted to identify, in context, certain of the factors that we currently believe may cause actual future results to differ from our current expectations regarding the matters or subject areas discussed in this
report.  These and other risks and uncertainties are detailed in our reports filed with the Securities and Exchange Commission, including our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q.

ITEM 3. QUANATITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Partnership is exposed to market risks related to fluctuations in the
interest rates on our fixed rate notes payable. With respect to the Partnerships fixed rate notes payable, changes in the interest rates affect the fair value of the notes payable, but not the Partnerships earnings or cash flows. 
The Partnership does not have an obligation to prepay fixed rate debt prior to maturity, and as a result, interest rate risk and changes in fair value should not have a significant impact on the fixed rate debt until the earlier of maturity and any
required refinancing of such debt.  The Partnership does not currently have any variable interest rate debt and, therefore, are not subject to interest rate risk associated with variable interest rate debt. Currently, the Partnership does not
utilize interest rate swaps.

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ITEM 4. CONTROLS AND PROCEDURES

As of the end of the quarter ended June 30, 2003, the
Partnerships Management, including the Chief Executive Officer and Chief Financial Officer of the managing general partner, ARV, has evaluated the effectiveness of the Partnerships disclosure controls and procedures, as such term is
defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended.  Based on that evaluation, ARVs Chief Executive Officer and Chief Financial Officer concluded that the Partnerships disclosure controls
and procedures were effective as of June 30, 2003 to ensure that information required to be disclosed by the Partnership in reports that it files or submits under the Securities and Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in Security and Exchange Commission rules and forms.  There was no change in the Partnerships internal controls over financial reporting during the Partnerships quarter ended June 30, 2003
that materially effected, or is reasonably likely to materially effect, the Partnerships internal controls over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Other than the ordinary routine litigation that is incidental to, and arises in the normal course of,
the business of the Partnership, there are no material legal proceedings pending against the Partnership. While the Partnership cannot predict the results with certainty, it does not believe that any liability from any such lawsuits or other matters
will have a material effect on its financial position, results of operations, or liquidity.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

| | 31.1  | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Qxley Act of 2002, as revised by Section 404,
dated August 14, 2003. | 
| | ----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |       |                                                                                                                                                                                                          | 
| | 31.2  | Certification of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as revised by Section 404, dated
August 14, 2003. | 
| |       |                                                                                                                                                                                                          | 
| | 32.1  | Certification of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 14, 2003.                            | 
| |       |                                                                                                                                                                                                          | 
| | 32.2  | Certification of the Chief Financial Office Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated August 14, 2003.                             | 
| |       |                                                                                                                                                                                                          | 
| | 10.24 | Allonge #1 to Deed of Trust Note of ARV Las Posas, L.P. to Red Mortgage Capital, Inc.                                                                                                                    | 
| |       |                                                                                                                                                                                                          | 
| | 10.25 | Deed of Trust between ARV Las Posas, L.P. and Fidelity National Title Insurance Company and Red Mortgage Capital, Inc.                                                                                   | 
| |       |                                                                                                                                                                                                          | 
| | 10.26 | Regulatory Agreement Nursing Homes for U.S. Department of Housing Multifamily Housing and Urban Development between Retirement Inns III, LLC and Federal Housing Commissioner.                           | 
| |       |                                                                                                                                                                                                          | 
| | 10.27 | Security Agreement between ARV Las Posas, L.P. and Red Mortgage Capital, Inc..                                                                                                                           | 
| |       |                                                                                                                                                                                                          | 
| | 10.28 | Exhibit B to Security Agreement and Financing Statements (the Collateral).                                                                                                                           | 

(b)     Reports on Form 8-K.

13



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The Partnership filed an 8-K report regarding the change in independent accountants on May 9, 2003.

SIGNATURES

Pursuant to the requirements 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, L.P., A CALIFORNIA LIMITED PARTNERSHIP, BY THE FOLLOWING PERSONS ON OUR BEHALF.
| | --------------------------------------------------------------------------------------------------------------------------



|Date: August 14, 2003 |                               |                                                    
|--------------------- | ----------------------------- | ---------------------------------------------------
|                      | ARV ASSISTED LIVING, INC.,   
|                      | its managing General Partner
|                      |                               |                                                    
|                      | By:                           | /s/ DOUGLAS M. PASQUALE                            
|                      |                               |                                                    
|                      |                               | Douglas M. PasqualeChief Executive Officer         
|                      |                               |                                                    
|                      | By:                           | /s/ ABDO H. KHOURY                                 
|                      |                               |                                                    
|                      |                               | Abdo H. KhouryPresident and Chief Financial Officer

14