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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004



OR



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



FOR THE TRANSITION PERIOD FROM  TO



COMMISSION FILE NUMBER: 0-26468



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AMERICAN RETIREMENT VILLAS

PROPERTIES II,

A CALIFORNIA LIMITED
PARTNERSHIP

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)



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|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|CALIFORNIA                                                     |  | 33-0278155                          
|(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) |  | (I.R.S. EMPLOYER IDENTIFICATION NO.)
|                                                               | 
|501 S. FOURTH AVENUE, SUITE 140, LOUISVILLE, KY                |  | 40202                               
|(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE)                        |  | (ZIP CODE)                          



REGISTRANTS
TELEPHONE NUMBER, INCLUDING AREA CODE: (502) 719-1600



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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-Q or any amendment to this Form
10-Q.    Yes  x    No ̈



The aggregate market value of the voting units held by non-affiliates of
registrant, computed by reference to the price at which units were sold, was $5,445,178 (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 June 30, 2004 was 35,020.



Indicate by check mark whether the registrant is accelerated filer (as defined in Rule 12b-2 of the Act).    Yes ̈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 $5,445,178 through August 9, 2004.



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PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS



American Retirement Villas Properties II,

A
California Limited Partnership

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands)



|                                                                                                                                             |  |               |        |   |                   |   |        |  
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ----------------- | - | ------ | -
|                                                                                                                                             |  | JUNE 30, 2004 |        |   | DECEMBER 31, 2003 |  
|ASSETS                                                                                                                                       |  |               |        |   |                   |   |        |  
|Properties, at cost:                                                                                                                         |  |               |        |   |                   |   |        |  
|Land                                                                                                                                         |  | $             | 11,453 |   |                   | $ | 11,453 |  
|Buildings and improvements, less accumulated depreciation of $11,251 and $10,822 at June 30, 2004 and December 31, 2003,
respectively        |  |               | 18,354 |   |                   |   | 18,753 |  
|Leasehold property and improvements, less accumulated depreciation of $1,505 and $1,457 at June 30, 2004 and December 31, 2003,
respectively |  |               | 328    |   |                   |   | 369    |  
|Furniture, fixtures and equipment, less accumulated depreciation of $1,848 and $1,580 at June 30, 2004 and December 31, 2003,
respectively   |  |               | 1,457  |   |                   |   | 1,453  |  
|Construction in progress                                                                                                                     |  |               | 182    |   |                   |   | 264    |  
|                                                                                                                                             |  |               |        |   |                   |   |        |  
|Net properties                                                                                                                               |  |               | 31,774 |   |                   |   | 32,292 |  
|                                                                                                                                             |  |              
|Cash and cash equivalents                                                                                                                    |  |               | 4,510  |   |                   |   | 4,069  |  
|Amounts receivable from affiliate                                                                                                            |  |               | 271    |   |                   |   |       |  
|Deferred financing costs, less accumulated amortization of $94 and $80 at June 30, 2004 and December 31, 2003, respectively                  |  |               | 888    |   |                   |   | 900    |  
|Other assets, including impound accounts of $2,235 and $2,464 at June 30, 2004 and December 31, 2003, respectively                           |  |               | 3,290  |   |                   |   | 3,244  |  
|                                                                                                                                             |  |               |        |   |                   |   |        |  
|                                                                                                                                             |  | $             | 40,733 |   |                   | $ | 40,505 |  
|                                                                                                                                             |  |               |        |   |                   |   |        |  
|LIABILITIES AND PARTNERS DEFICIT                                                                                                            |  |               |        |   |                   |   |        |  
|Notes payable                                                                                                                                |  | $             | 41,339 |   |                   | $ | 41,506 |  
|Accounts payable                                                                                                                             |  |               | 60     |   |                   |   | 84     |  
|Accrued expenses                                                                                                                             |  |               | 2,835  |   |                   |   | 2,718  |  
|Amounts payable to affiliate                                                                                                                 |  |               |       |   |                   |   | 380    |  
|Tenant prepaid rent and assisted living services                                                                                             |  |               | 108    |   |                   |   | 33     |  
|Distributions payable                                                                                                                        |  |               | 18     |   |                   |   | 18     |  
|                                                                                                                                             |  |               |        |   |                   |   |        |  
|Total liabilities                                                                                                                            |  |               | 44,360 |   |                   |   | 44,739 |  
|                                                                                                                                             |  |               |        |   |                   |   |        |  
|Commitments and contingencies                                                                                                                |  |               |       |   |                   |   |       |  
|                                                                                                                                             |  |              
|Partners deficit:                                                                                                                           |  |               |        |   |                   |   |        |  
|General partners                                                                                                                             |  |               | 1      |   |                   |   | 1      |  
|Special limited partners                                                                                                                     |  |               | 105    |   |                   |   | 105    |  
|Limited partners, 35,020 units authorized, issued and outstanding                                                                            |  |               | (3,733 | ) |                   |   | (4,340 | )
|                                                                                                                                             |  |               |        |   |                   |   |        |  
|Total partners deficit                                                                                                                      |  |               | (3,627 | ) |                   |   | (4,234 | )
|                                                                                                                                             |  |               |        |   |                   |   |        |  
|                                                                                                                                             |  | $             | 40,733 |   |                   | $ | 40,505 |  
|                                                                                                                                             |  |               |        |   |                   |   |        |  



See accompanying notes
to the unaudited condensed consolidated financial statements.



2



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American Retirement Villas Properties II,

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,
|                                           |  | 2004                                |       | 2003 |                                   |       | 2004 |  | 2003
|Revenues:                                  |  |                                     |       |      |                                   |       |      |  |      |        |  |   |       
|Rent                                       |  | $                                   | 5,278 |      | $                                 | 4,713 |      |  | $    | 10,592 |  | $ | 9,477 
|Assisted living                            |  |                                     | 1,068 |      |                                   | 1,053 |      |  |      | 2,186  |  |   | 2,054 
|Interest and other                         |  |                                     | 99    |      |                                   | 92    |      |  |      | 240    |  |   | 225   
|                                           |  |                                     |       |      |                                   |       |      |  |      |        |  |   |       
|Total revenues                             |  |                                     | 6,445 |      |                                   | 5,858 |      |  |      | 13,018 |  |   | 11,756
|                                           |  |                                     |       |      |                                   |       |      |  |      |        |  |   |       
|Costs and expenses:                        |  |                                     |       |      |                                   |       |      |  |      |        |  |   |       
|Rental property operations                 |  |                                     | 3,459 |      |                                   | 3,256 |      |  |      | 6,901  |  |   | 6,285 
|Assisted living                            |  |                                     | 764   |      |                                   | 699   |      |  |      | 1,530  |  |   | 1,341 
|General and administrative                 |  |                                     | 339   |      |                                   | 490   |      |  |      | 635    |  |   | 886   
|Communities rent                           |  |                                     | 109   |      |                                   | 92    |      |  |      | 217    |  |   | 185   
|Depreciation                               |  |                                     | 375   |      |                                   | 375   |      |  |      | 745    |  |   | 741   
|Property taxes                             |  |                                     | 184   |      |                                   | 160   |      |  |      | 365    |  |   | 286   
|Advertising                                |  |                                     | 126   |      |                                   | 112   |      |  |      | 254    |  |   | 214   
|Interest                                   |  |                                     | 882   |      |                                   | 900   |      |  |      | 1,764  |  |   | 1,805 
|                                           |  |                                     |       |      |                                   |       |      |  |      |        |  |   |       
|Total costs and expenses                   |  |                                     | 6,238 |      |                                   | 6,084 |      |  |      | 12,411 |  |   | 11,743
|                                           |  |                                     |       |      |                                   |       |      |  |      |        |  |   |       
|Net income (loss)                          |  | $                                   | 207   |      | $                                 | (226  | )    |  | $    | 607    |  | $ | 13    
|                                           |  |                                     |       |      |                                   |       |      |  |      |        |  |   |       
|Net income (loss) per limited partner unit |  | $                                   | 5.87  |      | $                                 | (6.40 | )    |  | $    | 17.18  |  | $ | .35   
|                                           |  |                                     |       |      |                                   |       |      |  |      |        |  |   |       



See accompanying notes
to the unaudited condensed consolidated financial statements.



3



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American Retirement Villas Properties II,

A California Limited Partnership

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)



|                                                                                            |  |                                   |       |   |      |   |       |  
|------------------------------------------------------------------------------------------- |  | --------------------------------- | ----- | - | ---- | - | ----- | -
|                                                                                            |  | FOR THE SIX MONTHS ENDED JUNE 30, |      
|                                                                                            |  | 2004                              |       |   | 2003 |  
|Cash flows from operating activities:                                                       |  |                                   |       |   |      |   |       |  
|Net income                                                                                  |  | $                                 | 607   |   |      | $ | 13    |  
|Adjustments to reconcile net income to net cash provided by operating activities:           |  |                                   |       |   |      |   |       |  
|Depreciation and amortization                                                               |  |                                   | 759   |   |      |   | 788   |  
|Change in assets and liabilities:                                                           |  |                                   |       |   |      |   |       |  
|Other assets                                                                                |  |                                   | (277  | ) |      |   | 98    |  
|Accounts payable and accrued expenses                                                       |  |                                   | 324   |   |      |   | 128   |  
|Tenant prepaid rent and assisted living services                                            |  |                                   | 75    |   |      |   | (30   | )
|Amounts receivable from affiliates                                                          |  |                                   | (651  | ) |      |   | (30   | )
|                                                                                            |  |                                   |       |   |      |   |       |  
|Net cash provided by operating activities                                                   |  |                                   | 837   |   |      |   | 967   |  
|                                                                                            |  |                                   |       |   |      |   |       |  
|Cash flows from investing activities:                                                       |  |                                   |       |   |      |   |       |  
|Capital expenditures                                                                        |  |                                   | (458  | ) |      |   | (556  | )
|                                                                                            |  |                                   |       |   |      |   |       |  
|Net cash used in investing activities                                                       |  |                                   | (458  | ) |      |   | (556  | )
|                                                                                            |  |                                   |       |   |      |   |       |  
|Cash flows from financing activities:                                                       |  |                                   |       |   |      |   |       |  
|Principal repayments on notes payable                                                       |  |                                   | (167  | ) |      |   | (132  | )
|Decrease in impound accounts                                                                |  |                                   | 229   |   |      |   | 122   |  
|                                                                                            |  |                                   |       |   |      |   |       |  
|Net cash provided by (used in) financing activities                                         |  |                                   | 62    |   |      |   | (10   | )
|                                                                                            |  |                                   |       |   |      |   |       |  
|Net increase in cash and cash equivalents                                                   |  |                                   | 441   |   |      |   | 401   |  
|Cash and cash equivalents at beginning of period                                            |  |                                   | 4,069 |   |      |   | 2,366 |  
|                                                                                            |  |                                   |       |   |      |   |       |  
|Cash and cash equivalents at end of period                                                  |  | $                                 | 4,510 |   |      | $ | 2,767 |  
|                                                                                            |  |                                   |       |   |      |   |       |  
|Supplemental disclosure of cash flow information - cash paid during the period for interest |  | $                                 | 1,641 |   |      | $ | 1,653 |  
|                                                                                            |  |                                   |       |   |      |   |       |  



See accompanying notes
to the unaudited condensed consolidated financial statements.



4



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American Retirement Villas Properties II,

A California Limited Partnership

Notes to Condensed Consolidated Financial Statements

(Unaudited)



June 30, 2004



(1) SIGNIFICANT ACCOUNTING POLICIES



Basis of Presentation



The accompanying condensed consolidated financial statements of American Retirement Villas Properties II, A California Limited Partnership and its
subsidiaries (the Partnership or ARVPII) 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 its 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, 2003, 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 include the accounts of the
Partnership and its subsidiaries. Subsidiaries, which include limited partnerships and limited liability companies in which the Partnership has controlling interests, have been consolidated into the financial statements. 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                       
|Leasehold property and improvements |  | Lease term or life of asset, if shorter
|Furniture, fixtures and equipment   |  | 3 to 7 years                           



The Partnerships
management 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s management 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. At June 30, 2004, the Partnerships management does not believe that the carrying value or the depreciation periods of its long-lived assets require any material adjustment
nor were any made during the quarter.



5



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Use of Estimates



In the preparation of the Partnerships condensed 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:



| |  | 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 expenses during the reporting period.
| | - | ---------------------------------------------------------



Actual results could differ from those estimates.



Cash and Cash Equivalents



For purposes of reporting cash balances, the Partnerships management 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 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.



Deferred Financing Costs



The Partnership defers and amortizes financing costs using the effective
interest method over the term of the respective notes payable. Amortization of deferred financing costs is recorded in interest expense in the condensed consolidated statements of operations.



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. Amounts received in advance of the period the services are performed are deferred and recorded as tenant prepaid rents and assisted living services.



General Liability Insurance



The Partnership is insured 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.



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 35,020 in the three month and six month periods ended June 30, 2004 and 2003. The Special Limited Partners and the
General Partners share of earnings, 1% for both, is deducted from earnings before computing earnings per limited partner unit. During April 2004, the General Partner acquired all of the four Special Limited Partnership interests.



|                                                             |  |                            |         |   |                          |   |          |               |  |   |               |   |  |   |        |  
|------------------------------------------------------------ |  | -------------------------- | ------- | - | ------------------------ | - | -------- | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                                             |  | For the Three Months Ended |         |   | For the Six Months Ended |  
|                                                             |  | June 30, 2004              |         |   | June 30,2003             |   |          | June 30, 2004 |  |   | June 30, 2003 |  
|                                                             |  | (in whole dollars)         |        
|Net income (loss) as reported                                |  | $                          | 207,723 |   |                          | $ | (226,388 | )             |  | $ | 607,623       |   |  | $ | 12,508 |  
|Less: Net income (loss) attributable to SLPs and GP         |  |                            | (2,077  | ) |                          |   | 2,264    |               |  |   | (6,076        | ) |  |   | (125   | )
|                                                             |  |                            |         |   |                          |   |          |               |  |   |               |   |  |   |        |  
|Net income (loss) attributable to Limited Partners           |  | $                          | 205,646 |   |                          | $ | (224,124 | )             |  | $ | 601,547       |   |  | $ | 12,383 |  
|                                                             |  |                            |         |   |                          |   |          |               |  |   |               |   |  |   |        |  
|Weighted average number of Limited Partner units Outstanding |  |                            | 35,020  |   |                          |   | 35,020   |               |  |   | 35,020        |   |  |   | 35,020 |  
|Net income (loss) per Limited Partner unit                   |  | $                          | 5.87    |   |                          | $ | (6.40    | )             |  | $ | 17.18         |   |  | $ | .35    |  
|                                                             |  |                            |         |   |                          |   |          |               |  |   |               |   |  |   |        |  



6



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Recent Accounting Pronouncements



In January 2003 and as revised in December 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) No. 46 revised, Consolidation of Variable Interest Entities  an interpretation of ARB No. 51, which requires a variable interest entity to be consolidated by a company if that company is subject to a majority
of the risk of loss from the variable interest entitys activities or is entitled to receive a majority of the entitys residual returns or both. Prior to FIN No. 46, a company included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. FIN No. 46 also requires disclosures about variable interest entities that the company is not required to consolidate but in which it has a significant variable interest.
Effective January 1, 2004, the Partnership adopted FIN No. 46. The adoption did not have a material effect on the Partnerships condensed consolidated financial statements.



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. The Partnerships adoption of SFAS
No. 145 in 2003 has had no material effect on the condensed consolidated statements of operations.



In November 2002, the FASB issued FASB Interpretation of (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 condensed consolidated financial statements.



Reclassifications



The Partnership has
reclassified certain prior period amounts to conform to the June 30, 2004 presentation.



(2) TRANSACTIONS WITH AFFILIATES



The Partnership has an agreement with ARV Assisted Living, Inc. (ARV), the Partnerships Managing General Partner and a wholly owned
subsidiary of Atria Senior Living Group, Inc. (Atria), providing for a property management fee of five percent of gross revenues amounting to $651,000 and $587,000 for the six-month periods and $336,000 and $292,000 for the three-month
periods ended June 30, 2004 and 2003, respectively. 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 $132,000 and $99,000
for the six-month periods and $59,000 and $36,000 for the three month periods ended June 30, 2004 and 2003, respectively. The Partnership has significant transactions with affiliates. Had the Partnership been operated as an unaffiliated entity, the
accompanying condensed consolidated financial statements could have been materially different.



On March 24, 2004, ARVP II Acquisition, L.P., a wholly owned subsidiary of ARV, filed with the SEC an Offer to Purchase for Cash on Schedule 14A relating to (i) a tender offer for all of the limited partnership units
of the Partnership that ARV does not own and (ii) a solicitation of the holders of the outstanding units for consent to a proposal to effect a merger transaction pursuant to which ARV would acquire the entire equity interest in the Partnership. The
offer period for limited partners to both tender their units and vote on the proposed merger has been extended through August 26, 2004.



(3) NOTES PAYABLE



Notes payable consist of the following at (in thousands):



|                                                                                                                                                                                         |  |               |        |                   |   |       
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | ----------------- | - | ------
|                                                                                                                                                                                         |  | June 30, 2004 |        | December 31, 2003
|HUD insured notes payable, bearing interest ranging from 7.25% to 8.06%. Monthly principal and interest payments of $297; due through January
2037; collateralized by various properties |  | $             | 41,339 |                   | $ | 41,506
|                                                                                                                                                                                         |  |               |        |                   |   |       



7



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The annual principal payments of the notes payable at June 30, 2004 are as follows (in thousands):



|                                  |  |   |       
|--------------------------------- |  | - | ------
|For twelve months ending June 30, |  |   |       
|2005                              |  | $ | 305   
|2006                              |  |   | 330   
|2007                              |  |   | 358   
|2008                              |  |   | 387   
|2009                              |  |   | 419   
|Thereafter                        |  |   | 39,540
|                                  |  |   |       
|                                  |  | $ | 41,339
|                                  |  |   |       



(4)
COMMITMENTS 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



RESULTS OF OPERATIONS



The following table sets forth a comparison of the six months ended June 30,
2004 and the six months ended June 30, 2003.



Operating Results

For the Six Months Ended June 30, 2004 and 2003

(Unaudited)

(Dollars in thousands)



|                           |  |                                   |        |                                 |   |        |  |         |  
|-------------------------- |  | --------------------------------- | ------ | ------------------------------- | - | ------ |  | ------- | -
|                           |  | For the Six Months Ended June 30, |        | Percentage Increase/ (decrease) |  
|                           |  | 2004                              |        | 2003                            |  
|Revenues:                  |  |                                   |        |                                 |   |        |  |         |  
|Rent                       |  | $                                 | 10,592 |                                 | $ | 9,477  |  | 11.8    | %
|Assisted living            |  |                                   | 2,186  |                                 |   | 2,054  |  | 6.4     |  
|Interest and other         |  |                                   | 240    |                                 |   | 225    |  | 6.7     |  
|                           |  |                                   |        |                                 |   |        |  |         |  
|Total revenues             |  |                                   | 13,018 |                                 |   | 11,756 |  | 10.7    |  
|                           |  |                                   |        |                                 |   |        |  |         |  
|Costs and expenses:        |  |                                   |        |                                 |   |        |  |         |  
|Rental property operations |  |                                   | 6,901  |                                 |   | 6,285  |  | 9.8     |  
|Assisted living            |  |                                   | 1,530  |                                 |   | 1,341  |  | 14.1    |  
|General and administrative |  |                                   | 635    |                                 |   | 886    |  | (28.3   | )
|Communities rent           |  |                                   | 217    |                                 |   | 185    |  | 17.3    |  
|Depreciation               |  |                                   | 745    |                                 |   | 741    |  | .5      |  
|Property taxes             |  |                                   | 365    |                                 |   | 286    |  | 27.6    |  
|Advertising                |  |                                   | 254    |                                 |   | 214    |  | 18.7    |  
|Interest                   |  |                                   | 1,764  |                                 |   | 1,805  |  | (2.3    | )
|                           |  |                                   |        |                                 |   |        |  |         |  
|Total costs and expenses   |  |                                   | 12,411 |                                 |   | 11,743 |  | 5.7     | %
|                           |  |                                   |        |                                 |   |        |  |         |  
|Net income                 |  | $                                 | 607    |                                 | $ | 13     |  | 4,569.2 | %
|                           |  |                                   |        |                                 |   |        |  |         |  



Rent revenues
increased $1,115,000, or 11.8%, from $9,477,000 for the six-month period ended June 30, 2003 to $10,592,000 for the six-month period ended June 30, 2004 primarily due to the following:



| |  | the increase in average occupancy to 85.9% for the six months ended June 30, 2004 from 80.3% for the six months ended June 30, 2003; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------



| |  | the average rental rate per occupied unit increased to $2,223 for the six months ended June 30, 2004 as compared with $2,137 for the six months ended June 30, 2003.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------



Assisted living revenues increased $132,000, or
6.4%, from $2,054,000 for the six-month period ended June 30, 2003 to $2,186,000 for the six-month period ended June 30, 2004 primarily due to an increase in the residents receiving assisted living services to 511 for the six-month period ended June
30, 2004 as compared with 450 for the six-month period ended June 30, 2003.



8



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Interest and other revenue increased $15,000, or 6.7%, from $225,000 for the six-month period ended June
30, 2003 to $240,000 for the six-month period ended June 30, 2004 primarily due to an increase in net new resident processing fees.



Rental property operations expenses increased $616,000, or 9.8%, from $6,285,000 for the six-month period ended June 30, 2003 to $6,901,000 for the
six-month period ended June 30, 2004 primarily due to increases in payroll and related benefits expense as well as an increase in other expenses such as food; repairs and maintenance; and equipment rental expense.



Assisted living expenses increased $189,000, or 14.1%, from $1,341,000 for
the six-month period ended June 30, 2003 to $1,530,000 for the six-month period ended June 30, 2004 primarily due to an increase in payroll and related benefits.



General and administrative expenses decreased $251,000, or 28.3%, from $886,000 for the six-month period ended June 30, 2003
to $635,000 for the six-month period ended June 30, 2004 primarily due to higher general liability insurance costs in 2003 related to specific case reserves.



Community rent expense increased $32,000, or 17.3%, from $185,000 for the six-month period ended June 30, 2003 to $217,000 for the six-month period ended
June 30, 2004 primarily due to higher additional rent payments as a result of increased revenues in one of the Partnerships leased communities.



Property tax expense increased $79,000, or 27.6%, from $286,000 for the six-month period ended June 30, 2003 to $365,000 for the six-month period ended
June 30, 2004 due to higher tax assessments in 2004.



Advertising expense increased $40,000, or 18.7%, from $214,000 for the six-month period ended June 30, 2003 to $254,000 for the six-month period ended June 30, 2004 primarily due to additional advertising to increase occupancy.



The decrease in interest expense of $41,000, or 2.3%, was due to principal
repayments of the outstanding loan balances and a decrease in amortization of deferred financing costs.



The following table sets forth a comparison of the three months ended June 30, 2004 and the three months ended June 30, 2003.



Operating Results

For the Three Months Ended June 30, 2004 and 2003

(Unaudited)

(Dollars in thousands)



|                           |  |                                     |       |      |                                 |       |   |  |        |   
|-------------------------- |  | ----------------------------------- | ----- | ---- | ------------------------------- | ----- | - |  | ------ | --
|                           |  | For the Three Months Ended June 30, |       |      | Percentage Increase/ (decrease) |      
|                           |  | 2004                                |       | 2003 |                                 |      
|Revenues:                  |  |                                     |       |      |                                 |       |   |  |        |   
|Rent                       |  | $                                   | 5,278 |      | $                               | 4,713 |   |  | 12.0   | % 
|Assisted living            |  |                                     | 1,068 |      |                                 | 1,053 |   |  | 1.4    |   
|Interest and other         |  |                                     | 99    |      |                                 | 92    |   |  | 7.6    |   
|                           |  |                                     |       |      |                                 |       |   |  |        |   
|Total revenues             |  |                                     | 6,445 |      |                                 | 5,858 |   |  | 10.0   |   
|                           |  |                                     |       |      |                                 |       |   |  |        |   
|Costs and expenses:        |  |                                     |       |      |                                 |       |   |  |        |   
|Rental property operations |  |                                     | 3,459 |      |                                 | 3,256 |   |  | 6.2    |   
|Assisted living            |  |                                     | 764   |      |                                 | 699   |   |  | 9.3    |   
|General and administrative |  |                                     | 339   |      |                                 | 490   |   |  | (30.8  | ) 
|Communities rent           |  |                                     | 109   |      |                                 | 92    |   |  | 18.5   |   
|Depreciation               |  |                                     | 375   |      |                                 | 375   |   |  | 0.0    |   
|Property taxes             |  |                                     | 184   |      |                                 | 160   |   |  | 15.0   |   
|Advertising                |  |                                     | 126   |      |                                 | 112   |   |  | 12.5   |   
|Interest                   |  |                                     | 882   |      |                                 | 900   |   |  | (2.0   | ) 
|                           |  |                                     |       |      |                                 |       |   |  |        |   
|Total costs and expenses   |  |                                     | 6,238 |      |                                 | 6,084 |   |  | 2.5    | % 
|                           |  |                                     |       |      |                                 |       |   |  |        |   
|Net income (loss)          |  | $                                   | 207   |      | $                               | (226  | ) |  | (191.6 | )%
|                           |  |                                     |       |      |                                 |       |   |  |        |   



9



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Rent revenues increased $565,000, or 12.0%, from $4,713,000 for the three month period ended June 30,
2003 to $5,278,000 for the three month period ended June 30, 2004 primarily due to the following:



| |  | the increase in average occupancy to 85.3% for the three months ended June 30, 2004 from 81.8% for the three months ended June 30, 2003; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| |  | the average rental rate per occupied unit increased to $2,233 for the three months ended June 30, 2004 as compared with $2,078 for the three months ended June 30, 2003.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Assisted living revenues increased $15,000 or
1.4%, from $1,053,000 for the three-month period ended June 30, 2003 to $1,068,000 for the three-month period ended June 30, 2004 primarily due to an increase in the residents receiving assisted living services to 506 for the three-month period
ended June 30, 2004 as compared with 461 for the three-month period ended June 30, 2003.



Interest and other revenue increased $7,000, or 7.6%, from $92,000 for the three-month period ended June 30, 2003 to $99,000 for the three-month period ended June 30, 2004 primarily due to an increase in net new
resident processing fees.



Rental property operations expenses
increased $203,000, or 6.2%, from $3,256,000 for the three-month period ended June 30, 2003 to $3,459,000 for the three-month period ended June 30, 2004 primarily due to increases in payroll and related benefits expense as well as an increase in
other expenses such as food and repairs and maintenance expense.



Assisted living expenses increased $65,000, or 9.3%, from $699,000 for the three-month period ended June 30, 2003 to $764,000 for the three-month period ended June 30, 2004 primarily due to an increase in payroll and related benefits.



General and administrative expenses decreased $151,000, or
30.8%, from $490,000 for the three-month period ended June 30, 2003 to $339,000 for the three-month period ended June 30, 2004 primarily due to higher general liability insurance costs in 2003 related to specific case reserves.



Community rent expense increased $17,000, or 18.5%, from $92,000 for the
three-month period ended June 30, 2003 to $109,000 for the three-month period ended June 30, 2004 primarily due to higher additional rent payments as a result of increased revenues in one of the Partnerships leased communities.



Property tax expense increased $24,000, or 15%, from $160,000 for the
three-month period ended June 30, 2003 to $184,000 for the three-month period ended June 30, 2004 due to higher tax assessments in 2004.



Advertising expense increased $14,000, or 12.5%, from $112,000 for the three-month period ended June 30, 2003 to $126,000 for the three-month period ended
June 30, 2004 primarily due to additional advertising to increase occupancy.



The decrease in interest expense of $18,000, or 2.0%, was due to principal repayments of the outstanding loan balances and a decrease in amortization of deferred financing costs.



LIQUIDITY AND CAPITAL RESOURCES



On a long-term basis, the Partnerships liquidity is sustained
primarily from cash flow provided by operating activities. With respect to distributions of cash flow from operations, the Managing General Partner is currently assessing both the capital improvement and operating needs of the Partnership and
attempting to determine the amount of funds necessary to satisfactorily meet those needs. Consequently, pending that determination, the Partnerships ability to make future distributions of cash flow to the Partners, if any, will remain
uncertain and the amount, if any, that might be distributed cannot be predicted.



The Partnerships management expects that cash generated from the operations of the Partnerships properties will be adequate to pay operating expenses and current capital requirements for the next 12
months. During the six-month period ended June 30, 2004 cash provided by operating activities was $837,000 compared with $967,000 during the six-month period ending June 30, 2003. The decrease was primarily due to an increase in amounts receivable
from affiliates.



During the six-month period ended June 30,
2004, cash used in investing activities was $458,000 compared to $556,000 used during the six-month period ended June 30, 2003. The decrease resulted from lower capital expenditures at the communities during 2004. Management contemplates spending
approximately $784,000 for recurring capital expenditures during 2004 for physical improvements at the communities while it continues to assess long-term capital improvement needs.



10



---

During the six-month period ended June 30, 2004 cash generated in financing activities was $62,000 as
compared to cash used totaling $10,000 for the six-month period ended June 30, 2003. This change was primarily due to a decrease in the impound accounts.



The Partnerships management believes that it maintains adequate insurance coverage, based on the nature and risks of its business, historical
experience and industry standards. The Partnerships business entails an inherent risk of liability. In recent years, the Partnership and other assisted living providers have become subject to an increasing number of lawsuits alleging
negligence or related legal theories, which may involve large claims and significant legal costs. From time to time the Partnership is subject to such suits because of the nature of its business. Claims may arise that could exceed, or be excluded
from, the Partnerships insurance coverage limits or policies.



The 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 the
Partnerships operations.



IMPACT OF
INFLATION, DEFLATION AND CHANGING PRICES



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



FORWARD-LOOKING STATEMENTS



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



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



The Partnership is exposed to market risks related to fluctuations in the interest rates on the 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, is not subject to interest rate risk associated with variable interest rate debt. Currently, the Partnership does not utilize interest rate swaps.



ITEM 4. CONTROLS AND PROCEDURES



The Partnerships Managing General Partner, including the Chief
Executive Officer and Chief Financial Officer of ARV have conducted an evaluation of the effectiveness of the design and operation of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934) as of the end of the period covered by this quarterly



11



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report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure
controls and procedures are effective in ensuring that all material information required to be filed in this quarterly report has been made known to them in a timely fashion. There have been no significant changes in internal controls, or in factors
that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.



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



During April 2004, ARV
acquired all of the four Special Limited Partnership Interests for approximately $105,000.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY-HOLDERS



On March 24, 2004, ARVP II Acquisition, L.P., a wholly owned subsidiary of ARV filed with the SEC an Offer to Purchase for
Cash on Schedule 14A relating to (i) a tender offer for all of the limited partnership units of the Partnership that ARV does not own and (ii) a solicitation of the holders of the outstanding units for consent to a proposal to effect a merger
transaction pursuant to which ARV would acquire the entire equity interest in the Partnership. The offer period for limited partners to both tender their units and vote on the proposed merger has been extended through August 26, 2004.



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 Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                    
|     | 
|31.2 |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                    
|     | 
|32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|     | 
|32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



|(b) | Reports on Form 8-K.
|--- | --------------------



None.



12



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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 II, A CALIFORNIA LIMITED PARTNERSHIP
|                      |  |                                                                            | 
|Date: August 16, 2004 |  |                                                                            |  |                                                         |  |                        
|                      |  | By:                                                                        |  | ARV ASSISTED LIVING, INC., its managing General Partner
|                      |  |                                                                            | 
|                      |  |                                                                            |  | By:                                                     |  | /s/ JOHN A. MOORE      
|                      |  |                                                                            |  |                                                         |  | John A. Moore          
|                      |  |                                                                            |  |                                                         |  | Chief Executive Officer
|                      |  |                                                                            | 
|                      |  |                                                                            |  | By:                                                     |  | /s/ MARK JESSEE        
|                      |  |                                                                            |  |                                                         |  | Mark Jessee            
|                      |  |                                                                            |  |                                                         |  | Chief Financial Officer



13