APPLE RESIDENTIAL INCOME TRUST INC, 424B3, 1997-06-27

APPLE RESIDENTIAL INCOME TRUST INC
424B3, 1997-06-27
REAL ESTATE INVESTMENT TRUSTS

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SUMMARY OF SUPPLEMENT TO PROSPECTUS
(SEE THE SUPPLEMENT FOR ADDITIONAL INFORMATION):

Supplement No. 3 dated June 24, 1997 (incorporating Supplement No. 1 and
Supplement No. 2):

(1) Reports on the acquisition by the Company of nine apartment
complexes.

(2) Reports on the granting to Cornerstone Realty Income Trust, Inc. of a
right to acquire up to 9.8% of the Company's outstanding Shares.

(3) Reports on the election of a fifth member to the Board of Directors
and the composition of Board Committees.

(4) Reports on the Company obtaining an unsecured line of credit to
facilitate property acquisitions.

(5) Provides certain other updated information concerning the Company and
its properties.

As of June 1, 1997, the Company had closed the sale of 2,084,444 Shares at $9
per Share, and 3,999,045 Shares at $10 per Share, representing aggregate gross
proceeds to the Company of $58,750,446, and proceeds net of selling commissions
and marketing expenses of $53,251,401. The Company endeavors continually to
invest proceeds in the acquisition of additional apartment communities as
promptly as practicable after the receipt of such proceeds. As of June 1, 1997,
substantially all of the proceeds of the offering available for investment in
properties had been so invested.

Cornerstone Realty Income Trust, Inc. will receive fees and expense
reimbursements in connection with the Company's acquisitions and the management
of the properties and the Company. In connection with the nine property
acquisitions described in the Supplement, Apple Realty Group, Inc., an Affiliate
of the Advisor, or Cornerstone Realty Income Trust, Inc., as
successor-in-interest to Apple Realty Group, Inc., will receive property
acquisition fees totaling $1,300,917.

<PAGE>

SUPPLEMENT NO. 3 DATED JUNE 24, 1997
TO PROSPECTUS DATED NOVEMBER 19, 1996
(INCORPORATING SUPPLEMENTS NO. 1 AND NO. 2)

APPLE RESIDENTIAL INCOME TRUST, INC.

The following information supplements the Prospectus of Apple Residential
Income Trust, Inc. dated November 19, 1996 and is part of such Prospectus.
Prospective investors should carefully review the Prospectus and this
Supplement. THIS SUPPLEMENT NO. 3 INCORPORATES AND THEREBY REPLACES SUPPLEMENT
NO. 1 DATED FEBRUARY 10, 1997 AND SUPPLEMENT NO. 2 DATED APRIL 28, 1997.

TABLE OF CONTENTS TO SUPPLEMENT NO. 3

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Status of the Offering................................................................. S-2
Developments Involving Cornerstone Realty Income Trust, Inc............................ S-2
Additional Director; Committee Members................................................. S-3
Unsecured Line of Credit............................................................... S-3
Property Acquisitions.................................................................. S-4
Security Ownership of Certain Beneficial Owners and Management ........................ S-22
Management's Discussion and Analysis of Financial Condition and Results of Operations . S-22
Experts ............................................................................... S-24
Update on Experience of Prior Programs................................................. S-25
Index to Financial Statements.......................................................... F-1

</TABLE>

The Prospectus and Supplements thereto contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Such forward-looking statements include, without
limitation, statements as to anticipated renovations to Company properties and
anticipated improvements in property operations from completed and planned
property renovations, and the possible acquisition by Cornerstone Realty Income
Trust, Inc. of Shares in the Company or the business or assets of the Company.
Such forward-looking statements involve known and unknown risks, uncertainties
and other factors which may cause the actual results, performance or
achievements of the Company to be materially different from the results of
operations or plans expressed or implied by such forward-looking statements.
Such factors include, among other things, unanticipated adverse business
developments affecting the Company, the properties or Cornerstone Realty Income
Trust, Inc., as the case may be, adverse changes in the real estate markets and
general and local economic and business conditions. Investors should review the
more detailed risks and uncertainties set forth under the caption "Risk Factors"
in the Prospectus. Although the Company believes that the assumptions underlying
the forward-looking statements contained in the Prospectus or the Supplements
are reasonable, any of the assumptions could be inaccurate, and therefore there
can be no assurance that the forward-looking statements included in the
Prospectus and Supplements will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included in
the Prospectus or the Supplements, the inclusion of such information should not
be regarded as a representation by the Company or any other person that the
results or conditions described in such forward-looking statements or the
objectives and plans of the Company will be achieved.

S-1

<PAGE>

STATUS OF THE OFFERING

As of June 1, 1997, the Company had closed the sale to investors of 2,084,444
Shares at $9 per Share, and 3,999,045 Shares at $10 per Share, representing
aggregate gross proceeds to the Company of $58,750,446, and proceeds net of
selling commissions and marketing expenses of $53,251,401. These totals include
417,777 Shares purchased by Cornerstone Realty Income Trust, Inc., as described
below under "Developments Involving Cornerstone Realty Income Trust, Inc. --
Authorization For Additional Share Issuance."

DEVELOPMENTS INVOLVING CORNERSTONE REALTY INCOME TRUST, INC.

AUTHORIZATION FOR ADDITIONAL SHARE ISSUANCE. On February 10, 1997, in
response to a request from Cornerstone Realty Income Trust, Inc.
("Cornerstone"), the Company's Board of Directors authorized the grant to
Cornerstone of a continuing right to purchase such number of Shares of the
Company as would, following any such purchase, be up to but not in excess of
9.8% of the total number of Shares of the Company then outstanding. This right
will continue for so long as the Company's Initial Offering continues, and the
purchase price for such Shares under such right will be the current public
offering price less the Selling Commissions and Marketing Expense Allowance
payable with respect thereto. Shares sold to Cornerstone pursuant to this right
would be in addition to, and not part of, the offering made by the Prospectus.

The Company elected to grant to Cornerstone this ongoing right because it
determined that the issuance of Shares in this manner would represent an
appropriate and financially prudent method of raising additional equity for the
Company. Glade M. Knight, who is a Director and the Chairman and President of
the Company, also serves as a Director, and the Chairman and Chief Executive
Officer of Cornerstone. To the extent that Cornerstone exercises its right to
acquire up to 9.8% of the outstanding Shares of the Company, Cornerstone may
become one of the largest, or perhaps the largest, shareholder of the Company,
with commensurate voting power.

On April 25, 1997, Cornerstone exercised the right described above and
purchased 417,777 Shares of the Company for approximately $3.76 million.
Cornerstone owns approximately 6.9% of the Shares of the Company outstanding on
June 1, 1997.

POSSIBLE ACQUISITION OF THE COMPANY BY CORNERSTONE. As described in the
Prospectus, under "Investment Objectives and Policies-Sale and Refinancing
Policies," the Company has granted to Cornerstone a right of first refusal to
purchase the properties and business of the Company. Cornerstone has stated its
intention, by the end of 1997, to evaluate the acquisition of the Company and,
if the Board of Directors of Cornerstone determines it is in the best interests
of Cornerstone and its shareholders, to offer to acquire the Company or its
assets. Any decision to combine the Company and Cornerstone can only be made by
the respective Boards of Directors, and depending on the structure of the
transaction, the respective shareholders, of the two companies. Accordingly,
there can be no assurance that Cornerstone will seek to acquire the Company or
its assets or that any proposal by Cornerstone to acquire the Company or its
assets would be consummated. Nevertheless, prospective investors in the Company
should consider and evaluate the possibility of Cornerstone acquiring the
Company or its assets in making an investment decision relative to the Company.

PROVIDING OF CERTAIN SERVICES BY CORNERSTONE. As described in the Prospectus
under "The Advisor and Affiliates," the Company has entered into contracts with
Apple Residential Advisors, Inc. ("ARA"), Apple Residential Management Group,
Inc. ("ARMG"), and Apple Realty Group, Inc. ("ARG"), pursuant to which ARA, ARMG
and ARG, respectively, have agreed to provide certain Company management,
property management and property acquisition and disposition services to the
Company in exchange for certain compensation described therein. ARA and ARMG
have entered into subcontracts with Cornerstone, each of which subcontracts has
been approved by the Company, pursuant to which Cornerstone has agreed to
provide to the Company the services previously agreed to be provided by ARA and
ARMG in exchange for the compensation previously agreed to be paid by the
Company to ARA and ARMG. Further, Cornerstone has acquired all the assets of ARG
(consisting principally of

S-2

<PAGE>

ARG's contract with the Company) for consideration totalling $2 million, and
pursuant to such acquisition has assumed the obligations of ARG to the Company
in exchange for the compensation previously agreed to be paid by the Company to
ARG.

The effect of the foregoing transactions is that Cornerstone will now render
to the Company services previously agreed to be rendered by ARA, ARMG and ARG,
in exchange for the compensation previously agreed to be paid by the Company. It
is not expected that any of these transactions will have any material effect on
the Company.

CORNERSTONE OPERATIONS. Through June 1, 1997, Cornerstone had sold
approximately $354 million in common shares to approximately 14,000 investors,
and had acquired 47 apartment communities in Virginia, North Carolina, South
Carolina and Georgia. The aggregate cost of the 47 properties (including capital
improvements thereto) was approximately $412 million. The purchase price of all
such properties was paid either using the proceeds from the sale of common
shares or using the proceeds from an unsecured line of credit which was
subsequently repaid using proceeds from the sale of common shares, except that
at June 1, 1997, approximately $81 million remained unpaid on such line of
credit. See also "Update on Experience of Prior Programs" herein.

ADDITIONAL DIRECTOR; COMMITTEE MEMBERS

As referenced in the Prospectus under "Management," a fifth Director of the
Company has been elected. The fifth Director is Lisa B. Kern. Information on Ms.
Kern is set forth below.

LISA B. KERN. Ms. Kern, age 36, is a portfolio manager with Davenport & Co.
of Virginia, Inc., in Richmond, Virginia. Before joining Davenport as Vice
President in 1996, Ms. Kern advised clients in the areas of investments and
estate planning. She began her investment career in 1982 as a financial planner
and later District Manager with IDS/American Express Advisory. In 1985, Ms. Kern
received her CFP designation. In 1989, Ms. Kern joined Crestar Bank's Trust and
Investment Management Group as a Vice President. Ms. Kern is a graduate of
Randolph Macon College and received her MBA from Virginia Commonwealth
University in 1991.

The current members of the Company's Executive Committee are Glade M. Knight,
Penelope W. Kyle and Bruce H. Matson. The current members of the Audit Committee
are Penelope W. Kyle, Ted W. Smith and Lisa B. Kern. The current members of the
Compensation Committee are Bruce H. Matson, Penelope W. Kyle and Lisa B. Kern.
For a description of the functions of the Executive, Audit and Compensation
Committees, see the Prospectus under the headings "Management-Committees of
Directors," and "Management-The Incentive Plan."

UNSECURED LINE OF CREDIT

As contemplated by the discussion in the Prospectus under the heading
"Business and Properties - Properties Owned by the Company" the Board of
Directors has authorized, and the Company has obtained, an unsecured line of
credit, which is designed to facilitate the timely acquisition of properties
deemed attractive by management. The unsecured line of credit the ("Unsecured
Line of Credit") is from First Union National Bank of Virginia. The borrowing is
a revolving loan for a principal amount not to exceed at any time $10 million.
The loan bears interest at a floating rate equal to the one month London
interbank offered rate ("LIBOR") plus 2%, requires monthly payments of interest
and has a due date of March 31, 1998. Although the Unsecured Line of Credit is
currently unsecured, the lender may require the securing of the loan with first
mortgages on the Company's properties if the principal amount of any advance is
not repaid within six months of the date of funding. As of June 1, 1997, the
unpaid balance on the Unsecured Line of Credit was approximately $5.14 million
and the interest rate on the Unsecured Line of Credit was 7.6805%.

The Company has also obtained a line of credit from First Union National Bank
of Virginia in the amount of $1 million for general corporate purposes. The
terms of such borrowing are the same of those under the Unsecured Line of
Credit.

S-3

<PAGE>

As the size of the Company grows, it is possible that the size of the
Unsecured Line of Credit will be increased or that the Company will obtain
another unsecured line of credit to facilitate the timely acquisition of
properties.

PROPERTY ACQUISITIONS

As of the date of this Supplement, the Company owns the following properties:

NUMBER OF DATE OF
NAME LOCATION UNITS ACQUISITION
- ----------------------------- ---------------- ----------- --------------
Brookfield .................. Dallas, TX 232 1-28-97
Eagle Crest ................. Irving, TX 484 1-30-97
Tahoe ....................... Arlington, TX 240 1-31-97
Mill Crossing ............... Arlington, TX 184 2-21-97
Polo Run .................... Arlington, TX 224 3-31-97
Wildwood .................... Euless, TX 120 3-31-97
Toscana ..................... Dallas, TX 192 3-31-97
Arbors on Forest Ridge ...... Bedford, TX 210 4-25-97
Pace's Cove ................. Dallas, TX 328 6-24-97

Additional information on these properties is provided below.

BROOKFIELD APARTMENTS
DALLAS, TEXAS

On January 28, 1997, the Company purchased the Brookfield Apartments, a
232-unit apartment complex having an address of 4060 Preferred Place, Dallas,
Texas (the "Property").

The seller was unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $5,458,485, which was paid entirely in cash
using proceeds from the sale of Shares. Title to the Property was conveyed to
the Company by limited warranty deed.

LOCATION. The following information is based in part upon information
provided by the Dallas Chamber of Commerce.

The Property is located in south Dallas, within the Dallas/Fort Worth
Consolidated Metropolitan Statistical area, or as it is called locally, "The
Metroplex." The Dallas/Fort Worth Metroplex is in the north-central part of
Texas and is composed of nine counties. The 1996 population of The Metroplex was
approximately 4,400,000. Dallas is the second largest city in the state, behind
Houston.

The economy of the Dallas/Fort Worth area is complex and diversified. Key
economic factors include a large manufacturing base (including as products
military hardware, electronics, automobiles, industrial equipment, oil-field
parts, food products and chemicals), banking, insurance services,
communications, oil and gas production and air transportation. Major employers
in the area include Texas Instruments, Southwestern Bell, General Motors, J. C.
Penney, NationsBank and Vought Aircraft Company.

The Metroplex is also an established transportation center for the nation.
The Dallas/Fort Worth International Airport occupies approximately 17,800 acres
of land between the two cities. It is the largest commercial airport in the
United States in terms of land area, and is the fourth busiest airport in the
world, with 1,700 daily arrivals and departures.

The area also has a well-established system of interstate highways and
supporting secondary routes. The Metroplex is located at the hub of Interstates
35, 45, 20 and 30. Two outer loops, Interstate 635 in Dallas and Interstate 820
in Fort Worth, surround the respective cities.

The many institutions of higher learning in the area include Southern
Methodist University, the University of Texas at Dallas, the University of Texas
at Arlington, the University of North Texas, and Texas Christian University.

S-4

<PAGE>

The Property is located in a well-established area of Dallas near the Red
Bird Mall. The area is characterized by various retail centers, restaurants and
businesses. Downtown Dallas is an approximately 15-minute drive from the
Property. The Property is an approximately 25-minute drive from Dallas/Fort
Worth International Airport.

DESCRIPTION OF THE PROPERTY. The Property consists of 232 garden-style
apartments located in 15 two- and three-story buildings on approximately seven
acres of land. The Property was completed in 1984.

The Company believes that the Property has generally been well maintained and
is generally in good condition. However, the Company has budgeted approximately
$232,000 (and as of June 1, 1997 had expended approximately $180,000) for
repairs and improvements, including clubhouse renovation, painting, wood
replacement, and parking lot repair.

The Property offers seven different unit types. The unit mix and rents
currently being charged new tenants as of June, 1997 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ----------------------------------------- ------------- ---------
39 One bedroom, one bath 578 $400
9 One bedroom, one bath (view) 578 410
36 One bedroom, one bath w/sunroom 658 435
12 One bedroom, one bath w/sunroom (view) 658 440
24 One bedroom, one bath w/WD connections 669 460
48 One bedroom, one bath w/WD connections,
FP, bookshelves 661 450
64 Two bedrooms, two baths w/WD
connections,
FP, bookshelves 913 590

The apartments provide a combined total of approximately 165,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased gradually. As an
example, a two-bedroom, two-bath apartment rented for $520 in 1992, $520 in
1993, $530 in 1994, $545 in 1995, and $565 in 1996. The average effective annual
rental per square foot at the Property for 1992, 1993, 1994, 1995 and 1996 was
$7.11, $7.11, $7.24, $7.45 and $7.72, respectively.

The buildings are wood frame construction with a combination of brick veneer
and masonite hardboard exteriors on reinforced concrete slab foundations. Roofs
are sloped fiberglass shingles on plywood.

The Property has an outdoor swimming pool with a large deck, a hot tub, a
controlled access entrance and exit gate, and covered parking for approximately
232 vehicles. The Property also includes a clubhouse with a leasing office.
There is also uncovered paved parking for residents.

Apartment units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment unit has a television hook-up,
mini-blinds, drapes on sliding glass doors and individually controlled heating
and air-conditioning unit. Each kitchen is equipped with a refrigerator/freezer
with ice maker, electric range and oven, dishwasher and garbage disposal. Also,
as indicated in the table above, some units have a woodburning fireplace, a
utility area with washer/dryer connections, bookshelves, ceiling fans or a
sunroom. The owner of the Property pays for cold water, sewer service, gas usage
for hot water and trash removal. Tenants pay for their electricity service,
which includes cooking, lighting, heating and air-conditioning.

There are at least 10 apartment properties which compete with the Property.
All offer similar amenities and generally have rents that are higher when
compared with those of the Property. Based on a recent market survey, the
Advisor estimates that occupancy in nearby competing properties now averages
approximately 95%.

S-5

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According to information provided by the seller, physical occupancy at the
Property averaged approximately 92% in 1992, 93% in 1993, 93% in 1994, 94% in
1995 and 97% in 1996. On June 1, 1997, the Property was 99% occupied. The
residents are a mix of blue-collar and white-collar workers, students and
retired persons.

The following table sets forth the 1996 real estate tax information on the
Property:

ASSESSED
JURISDICTION VALUE RATE TAX
---------------------- ------------- ----------- --------------
County of Dallas ..... $5,038,370 $0.46255 $ 23,304.98
City of Dallas ...... 5,038,370 2.13063 107,349.02
--------------
Total ............... $130,654.00

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $4,180,480) will be depreciated over a
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.

The Advisor and the Company believe that the Property is and will be continue
to be adequately covered by property and liability insurance.

ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company paid Apple Realty Group, Inc. a property acquisition fee
equal to 2% of the purchase price of the Property, or $109,170. Cornerstone
Realty Income Trust, Inc. will serve as property manager for the Property and
for its services will be paid by the Company a monthly management fee equal to
5% of the gross revenues of the Property plus reimbursement of certain expenses.

EAGLE CREST I & II APARTMENTS
IRVING, TEXAS

On January 30, 1997, the Company purchased the Eagle Crest I & II Apartments,
a 484-unit apartment complex having an address of 4013 West Northgate, Irving,
Texas (the "Property").

The seller was unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $15,650,000, which the Company paid entirely
in cash using proceeds from the sale of Shares. Title to the Property was
conveyed to the Company by limited warranty deed.

LOCATION. See above under "Brookfield Apartments" for a description of the
greater Dallas/Fort Worth Consolidated Metropolitan Statistical Area, which
includes Irving, Texas.

Irving is approximately eight miles west of the Dallas central business
district and approximately 25 miles east of downtown Fort Worth. Irving is a
relatively young city with a majority of its development occurring during the
latter half of this century. The location of Irving between Dallas and Fort
Worth, and near Dallas/Fort Worth International Airport, has enabled it to
garner a large portion of the area's recent commercial and industrial
development.

Irving is the site of Las Colinas, one of the nation's largest master-planned
real estate developments. The development occupies approximately 12,500 acres
and includes residential developments, office space, research, distribution and
light industrial facilities, four golf courses, the Las Colinas Sports Club and
an equestrian center.

Las Colinas is targeted to large employers and is the home of numerous
regional and national businesses. The Irving employment sector is primarily
white-collar. Significant employers in Las Colinas include Exxon, GTE, Aetna,
Abbott Laboratories, Boeing, US Sprint, Computer Associates, Allstate

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Insurance, Zale Jewelers and the Federal Home Loan Bank Board. In addition,
Columbia/HCA Health Care Corporation recently signed an agreement to buy
approximately 28 acres in the development. The plans for the land include a
community hospital with medical office complex and a full-service acute-care
facility.

Irving has a well-defined highway system. The city is connected to Dallas by
State Highway 114 on the northeast, State Highway 183 in its central portion and
Interstate 30 on the south.

The Property is located off of Belt Line Road in Irving. The immediate
neighborhood includes other multi-family communities, and residential,
commercial and retail development. The Property is conveniently located near
restaurants, businesses, schools, and churches, and is readily accessible from
Highways 161 and 183. The Property is an approximately 5-minute drive from
Dallas/Fort Worth International Airport.

DESCRIPTION OF THE PROPERTY. The Property consists of 484 apartment units in
31 two- and three-story buildings on approximately 18 acres of land. There are
296 apartment units in Phase I, which was built in 1983, and 188 apartment units
in Phase II, which was built in 1985.

The Company believes that the Property has generally been well maintained and
is generally in good condition. However, the Company has budgeted approximately
$968,000 (and as of June 1, 1997 had expended approximately $185,000) for
repairs and improvements, including clubhouse renovations, structural repair of
shrink/swell soil conditions, painting, and wood replacement.

The Property offers a wide range of units types. The unit mix and rents
currently being charged new tenants as of June, 1997 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- -------------------------------------- ------------- -----------
116 ...... One bedroom, one bath 698 $500-$520
120 ...... One bedroom, one bath 796 535-555
4 ...... One bedroom, one bath, sunroom, bar 798 570
48 ...... One bedroom, one bath 896 585-605
24 ...... Two bedrooms, one bath 912 585-605
63 ...... Two bedrooms, two baths 1023 660-685
80 ...... Two bedrooms, two baths 1089 685-705
1 ...... Two bedrooms, two baths, sunroom 1123 720
4 ...... Two bedrooms, two baths, sunroom, bar 1189 745
21 ...... Two bedrooms, two baths 1124 740-760
3 ...... Two bedrooms, two baths, sunroom 1224 800

The apartments provide a combined total of approximately 429,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased gradually. As an
example, a one-bedroom, one-bath apartment rented for $445 in 1992, $445 in
1993, $445 in 1994, $469 in 1995, and $485 in 1996. The average effective annual
rental per square foot at the Property for 1992, 1993, 1994, 1995 and 1996 was
$7.17, $7.17, $7.17, $7.56 and $7.81, respectively.

The buildings are wood frame construction with a combination of brick veneer
and masonite hardboard siding on reinforced concrete slab foundations. Roofs are
sloped fiberglass shingles over plywood.

The Property has three outdoor swimming pools, two jacuzzis, three laundry
facilities, a fitness building, gas grills and ice machines. The Property also
has a clubhouse with a leasing office. There is ample paved parking for
residents.

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Each apartment unit has wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and individually controlled heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, double stainless
steel sink, a dishwasher and garbage disposal. All apartment units include
washer/dryer connections for full-sized appliances. Some apartment units feature
additional amenities, such as linen closets, a fireplace with mantle, ceiling
fans, a pantry closet, a dry bar, an entertainment center, vaulted ceilings, a
sunroom and greenhouse windows. The owner of the Property pays for cold water,
gas for hot water, sewer service, and trash removal. The tenants pay for their
electricity usage, which includes cooking, lighting, heating and
air-conditioning.

There are at least four apartment properties which compete with the Property.
All offer similar amenities and generally have rents that are comparable to
those of the Property. Based on a recent telephone survey, the Advisor estimates
that occupancy in nearby competing properties now averages approximately 97%.

According to information provided by the seller, physical occupancy at the
Property averaged approximately 95% in 1992, 94% in 1993, 95% in 1994, 95% in
1995 and 97% in 1996. On June 1, 1997, the Property was 92% occupied. The
tenants are a mix of white-collar and blue-collar workers.

The following tables set forth the 1996 real estate tax information on the
Property:

PHASE I

ASSESSED
JURISDICTION VALUE RATE TAX
- ------------------------------ ------------- ----------- -------------
County of Dallas ............. $7,900,000 $0.46255 $ 36,541.45
City of Irving ............... 7,900,000 0.50860 40,179.40
Irving School District ....... 7,900,000 1.66340 131,408.60
-------------
Total ........................ $208,129.45

PHASE II

ASSESSED
JURISDICTION VALUE RATE TAX
- ------------------------------ ------------- ----------- --------------
County of Dallas ............. $5,119,340 $0.46255 $ 23,679.51
City of Irving ............... 5,119,340 0.50860 26,036.96
Irving School District ....... 5,119,340 1.66340 85,155.10
--------------
Total ........................ $134,871.57
Grand Total .................. $343,001.02

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $12,550,235) will be depreciated over a
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.

The Advisor and the Company believe that the Property is and will be continue
to be adequately covered by property and liability insurance.

ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company paid Apple Realty Group, Inc. a property acquisition fee
equal to 2% of the purchase price of the Property, or $313,000. Cornerstone
Realty Income Trust, Inc. will serve as property manager for the Property and
for its services will be paid by the Company a monthly management fee equal to
5% of the gross revenues of the Property plus reimbursement of certain expenses.

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TAHOE APARTMENTS
ARLINGTON, TEXAS

On January 31, 1997, the Company purchased the Tahoe Apartments, a 240-unit
apartment complex having an address of 2308 Fair Oaks Drive, Arlington, Texas
(the "Property").

The seller was unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $5,690,000, which was paid entirely in cash
using proceeds from the sale of Shares. Title to the Property was conveyed to
the Company by limited warranty deed.

LOCATION. See above under "Brookfield Apartments" for a description of the
greater Dallas/Fort Worth Consolidated Metropolitan Statistical Area, which
includes Arlington, Texas.

The Property is located in the city of Arlington, which is located between
Dallas and Fort Worth. Arlington is approximately 13 miles east of the Fort
Worth Central Business district and approximately 20 miles west of the Dallas
Central Business District.

Owing in large part to its location between Dallas and Fort Worth, Arlington
has become a focus of business development in the area. Major employers include
General Motors, National Semiconductor, Johnson & Johnson, Doskocil
Manufacturing Company and Arlington Memorial Hospital. The area is also the site
of several large warehousing and distribution companies whose primary market is
the Metroplex.

The University of Texas at Arlington has an enrollment of approximately
23,000 students. Arlington also serves as a major medical center for its own
population and for residents of outlying communities as well. Arlington Memorial
Hospital has a staff of approximately 1,680 and HCA South Arlington Medical
Center has approximately 640 employees, making both of them among the largest
employers in the city.

The immediate area surrounding the Property consists of other multifamily
housing, residential, commercial and retail development. The Property is
conveniently located near restaurants, businesses, schools and churches, and is
readily accessible from Interstate 20 and Interstate 30.

DESCRIPTION OF THE PROPERTY. The Property consists of 240 garden-style
apartment units in 18 two- and three-story buildings on approximately 9.8 acres
of land. The Property was built in 1979.

The Company believes that the Property has generally been well maintained and
is generally in good condition. However, the Company has budgeted approximately
$316,000 (and as of June 1, 1997 had expended approximately $225,000) for
repairs and improvements including clubhouse renovation, retaining wall repairs,
landscaping, exterior painting and exterior siding replacement.

The Property offers five different unit types. The unit mix and rents
currently being charged new tenants as of June, 1997 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
---------- ------------------------ ------------- ---------
64 ....... One bedroom, one bath 480 $385
64 ....... One bedroom, one bath 575 415
48........ One bedroom, one bath 634 450
32 ....... Two bedrooms, two baths 941 620
32 ....... Two bedrooms, two baths 1,027 675

The apartments provide a combined total of approximately 161,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
one bedroom, one bath apartment rented for $320 in 1992, $345 in 1993, $365 in
1994, $394 in 1995, and $404 in 1996. The average effective annual rental per
square foot at the Property for 1992, 1993, 1994, 1995 and 1996 was $6.41,
$6.91, $7.31, $7.89, and $8.09, respectively.

S-9

<PAGE>

The buildings are wood frame construction with a combination of brick veneer
and masonite hardboard exteriors on reinforced concrete slab foundations. Roofs
are sloped fiberglass shingles over plywood.

The Property has an outdoor swimming pool, a hot tub, two laundry facilities,
a fitness center, a sand volleyball court and covered parking for approximately
32 vehicles. The Property also has a clubhouse with a leasing office. There is
also uncovered paved parking for residents.

Each apartment unit has wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up, miniblinds, vertical blinds and an individually controlled heating and
air-conditioning unit. Each kitchen is equipped with a refrigerator/freezer with
icemaker, electric range and oven, dishwasher, microwave and garbage disposal.
Some units have a woodburning fireplace and washer/dryer connections. The owner
of the Property pays for cold water, sewer service, natural gas for hot water
and trash removal. Tenants pay for their electricity service, which includes
cooking, lighting, heating and air-conditioning.

There are at least four apartment properties which compete with the Property.
All offer similar amenities and generally have rents that are higher when
compared with those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy in nearby competing properties now averages
approximately 94%.

According to information provided by the seller, physical occupancy at the
Property averaged approximately 94% in 1992, 93% in 1993, 95% in 1994, 89% in
1995 and 94% in 1996. On June 1, 1997, the Property was 96% occupied. The
tenants are a mix of white-collar and blue-collar workers.

The following table sets forth the 1996 real estate tax information on the
Property:

ASSESSED
JURISDICTION VALUE RATE TAX
------------------ ------------- ----------- --------------
County of Tarrant $4,500,000 $1.90619 $ 85,778.37
City of Arlington 4,500,000 0.64000 28,800.00
--------------
Total ........... $114,578.37

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $4,553,689) will be depreciated over a
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.

The Advisor and the Company believe that the Property is and will continue to
be adequately covered by property and liability insurance.

ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company paid Apple Realty Group, Inc. a property acquisition fee
equal to 2% of the purchase price of the Property, or $113,800. Cornerstone
Realty Income Trust, Inc. will serve as property manager for the Property and
for its services will be paid by the Company a monthly management fee equal to
5% of the gross revenues of the Property plus reimbursement of certain expenses.

MILL CROSSING APARTMENTS
ARLINGTON, TEXAS

On February 21, 1997, the Company purchased the Mill Crossing Apartments, a
184-unit apartment complex having an address of 2713 North Collins, Arlington,
Texas (the "Property").

The seller was unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $4,544,121, which was paid entirely in cash
using proceeds from the sale of Shares. Title to the Property was conveyed to
the Company by limited warranty deed.

S-10

<PAGE>

LOCATION. The Property is located in the city of Arlington, Texas, which is
part of "The Metroplex." For information on The Metroplex, see "Brookfield
Apartments" herein. For information on Arlington, see "Tahoe Apartments" herein.

DESCRIPTION OF THE PROPERTY. The Property consists of 184 garden-style
apartment units in 14 two-story buildings on approximately eight acres of land.
The Property was built in 1979.

The Company believes that the Property has generally been well maintained and
is generally in good condition. However, the Company has budgeted approximately
$234,000 (and as of June 1, 1997 had expended approximately $192,000) for
repairs and improvements, including painting, clubhouse renovations and parking
lot repair.

The Property offers several different unit types. The unit mix and rents
currently being charged new tenants as of June, 1997 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ---------------------------------- ------------- ---------
24 ....... Efficiency 452 $380
48 ....... One bedroom/one bath 553 400
24 ....... One bedroom/one bath downstairs 652 435
24 ....... One bedroom/one bath upstairs 652 450
24 ....... Two bedrooms/two baths downstairs 860 575
24 ....... Two bedrooms/two baths upstairs 860 585
8 ....... Two bedrooms/two baths 1,075 650
8 ....... Two bedrooms/two baths/view 1,075 670

The apartments provide a combined total of approximately 127,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates of the past five years have generally increased. As an example, a
one bedroom, one bath apartment rented for $351 in 1992, $360 in 1993, $380 in
1994, $385 in 1995, and $395 in 1996. The average effective annual rental per
square foot at the Property for 1992, 1993, 1994, 1995 and 1996 was $6.77,
$6.95, $7.33, $7.43 and $7.62, respectively.

The Property has an outdoor swimming pool, clubhouse with leasing office, and
two laundry facilities. There is ample paved parking for the tenants.

Each apartment unit has wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up, miniblinds and an individually controlled heating and air conditioning
unit. Each kitchen is equipped with a refrigerator/freezer, electric range and
oven, dishwasher, microwave and garbage disposal. Certain units also feature a
woodburning fireplace, bookshelves or vaulted ceilings, and all two-bedroom
units have washer/dryer connections for full-sized appliances. The owner of the
Property pays for cold water, natural gas for hot water, sewer service and trash
removal. Tenants pay for their electricity usage, which includes cooking,
lighting, heating and air conditioning.

There are at least six apartment properties that compete with the Property.
All offer similar amenities and generally have rents that are higher when
compared with those at the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy in nearby competing properties now averages
approximately 96%.

S-11

<PAGE>

According to information provided by the seller, physical occupancy at the
Property averaged approximately 92% in 1992, 93% in 1993, 94% in 1994, 93% in
1995 and 94% in 1996. On June 1, 1997, the Property was 95% occupied. The
tenants are a mix of white-collar and blue-collar workers.

The following table sets forth the 1996 real estate tax information on the
Property:

ASSESSED
JURISDICTION VALUE TAX RATE TAX
------------------ ------------- ----------- ----------
County of Tarrant $3,600,000 $1.90619 $68,623
City of Arlington 3,600,000 0.64000 23,040
----------
Total ........... $91,663

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $3,681,329) will be depreciated over a
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.

The Advisor and the Company believe that the Property is and will continue to
be adequately covered by property and liability insurance.

ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company paid Apple Realty Group, Inc. a property acquisition fee
equal to 2% of the purchase price of the Property, or $90,882. Cornerstone
Realty Income Trust, Inc. will serve as property manager for the Property and
for its services will be paid by the Company a monthly management fee equal to
5% of the gross revenues of the Property plus reimbursement of certain expenses.

POLO RUN APARTMENTS
ARLINGTON, TEXAS

On March 31, 1997, the Company purchased the Polo Run Apartments, a 224-unit
apartment complex having an address of 901 Greenway Glen Drive, Arlington, Texas
(the "Property").

The seller was unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $6,858,974, which was paid entirely using the
Unsecured Line of Credit. The Company subsequently repaid this borrowed amount
using proceeds from the sale of Shares. Title to the Property was conveyed to
the Company by limited warranty deed.

LOCATION. The Property is located off of Road to Six Flags in Arlington,
Texas, which is part of "The Metroplex." For information on The Metroplex, see
"Brookfield Apartments" herein. For information on Arlington, see "Tahoe
Apartments" herein.

The immediate area surrounding the Property consists of other multi-family
housing and residential, commercial and retail development. The Property is
located near restaurants, businesses, schools and churches, and is readily
accessible from Interstates 20 and 30. The Property is an approximately 20- to
25-minute drive from both downtown Dallas and downtown Fort Worth, as well as
the Dallas/Fort Worth International Airport.

DESCRIPTION OF THE PROPERTY. The Property consists of 224 garden-style
apartment units located in 23 two-story buildings on approximately 9.2 acres of
land. The Property was completed in 1984.

The Company believes that the Property has generally been well maintained and
is generally in very good condition. However, the Company has budgeted
approximately $224,000 (and as of June 1, 1997 had expended approximately
$200,000) for repairs and improvements, including painting, siding repairs, pool
renovations and clubhouse renovations.

S-12

<PAGE>

The Property offers four units types. The unit mix and rents currently being
charged new tenants as of June, 1997 are as follows:

<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- --------------------------------------------------- ------------- ---------
<S> <C> <C> <C>
56 ....... One bedroom, one bathroom w/fireplace 656 $450
16 ....... One bedroom, one bathroom w/fireplace and dining
room 720 495
88 ....... Two bedrooms, two bathrooms w/fireplace and dining
room 913 575
64 ....... Two bedrooms, two bathrooms w/fireplace, dining
room and vanity 981 590

</TABLE>

The apartments provide a combined total of approximately 191,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
two-bedroom, two-bath apartment rented for $485 in 1992, $495 in 1993, $510 in
1994, $530 in 1995, and $560 in 1996. The average effective annual rental per
square foot at the Property for 1992, 1993, 1994, 1995 and 1996 was $6.42,
$6.55, $6.75, $7.01 and $7.41, respectively.

The buildings are wood frame construction with combination brick veneer and
masonite hardboard exteriors on reinforced concrete slab foundations.
Roofs are sloped fiberglass shingled on plywood.

The Property has two outdoor swimming pools and a clubhouse with weight room,
party room (with full bar and kitchen), billiards, steam rooms and a leasing
office. There is ample paved parking for tenants.

Apartment units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up, miniblinds and an individually controlled heating and air conditioning
unit. Each kitchen is equipped with a refrigerator/freezer, electric range and
oven, microwave oven, dishwasher and garbage disposal. Each unit also includes a
wood-burning fireplace and a washer and dryer. The owner of the Property pays
for cold water, sewer service, gas usage for hot water and trash removal.
Tenants pay for their electricity service, which includes cooking, lighting,
heating and air conditioning.

There are at least six apartment properties which compete with the Property.
All offer similar amenities and generally have rents that are comparable to
those of the Property. Based on a recent telephone survey, the Advisor estimates
that occupancy in nearby competing properties now averages approximately 93%.

According to information provided by the seller, physical occupancy at the
Property averaged approximately 94% in 1992, 95% in 1993, 93% in 1994, 94% in
1995 and 96% in 1996. On June 1, 1997, the Property was 92% occupied. The
residents are a mix of white-collar and blue-collar workers, students and
retired persons.

The following table sets forth the 1996 real estate tax information on the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
------------------ --------------- ----------- -------------
County of Tarrant $5,175,000 $1.90619 $ 98,645.13
City of Arlington 5,175,000 0.64000 33,120.00
-------------
Total ........... $131,765.13

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $5,967,124) will be depreciated over a
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.

S-13

<PAGE>

The Advisor and the Company believe that the Property is and will continue to
be adequately covered by property and liability insurance.

ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company will pay Cornerstone Realty Income Trust, Inc. a property
acquisition fee equal to 2% of the purchase price of the Property, or $137,179.
Cornerstone Realty Income Trust, Inc. will serve as property manager for the
Property and for its services will be paid by the Company a monthly management
fee equal to 5% of the gross revenues of the Property plus reimbursement of
certain expenses.

WILDWOOD APARTMENTS
EULESS, TEXAS

On March 31, 1997, the Company purchased the Wildwood Apartments, a 120-unit
apartment complex having an address of 200 West Bear Creek, Euless, Texas (the
"Property").

The seller was unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $3,963,519, which was paid entirely using the
Unsecured Line of Credit. The Company subsequently repaid such borrowing on the
Unsecured Line of Credit using proceeds from the sale of Shares. Title to the
Property was conveyed to the Company by limited warranty deed.

LOCATION. The Property is located in Euless, within Tarrant County, which is
a part of "The Metroplex." For information on The Metroplex see "Brookfield
Apartments" herein.

The Property is located in the northern portion of Euless. Euless is located
between Dallas and Fort Worth, approximately 17 miles east of the Fort Worth
central business district and approximately 20 miles west of the Dallas central
business district.

DESCRIPTION OF THE PROPERTY. The Property consists of 120 garden-style
apartments located in 10 two-story buildings on approximately 10 acres of land.
The Property was built in 1984.

The Company believes that the Property has generally been well maintained and
is generally in very good condition. However, the Company has budgeted
approximately $120,000 (and as of June 1, 1997 had expended approximately
$15,000) for certain repairs and improvements, including painting, siding
repair, pool renovations and clubhouse renovations.

The Property offers eight different unit types. The unit mix and rents
currently being charged new tenants as of June, 1997 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ----------- ------------------------------------- ------------- ---------
17 ........ One bedroom, one bathroom 525 $469
7 ........ One bedroom, one bathroom (upgraded) 525 499
13 ........ One bedroom, one bathroom 650 519
11 ........ One bedroom, one bathroom (upgraded) 650 539
16 ........ One bedroom, one bathroom 750 549
16 ........ One bedroom, one bathroom (upgraded) 750 579
16 ........ Two bedrooms, two bathrooms 900 750
24 ........ Two bedrooms, two bathrooms 1,000 780

S-14

<PAGE>

The apartments provide a combined total of approximately 90,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example a
one-bedroom, one-bath apartment rented for $340 in 1992, $340 in 1993, $355 in
1994, $395 in 1995, and $420 in 1996. The average effective annual rental per
square foot at the Property for 1992, 1993, 1994, 1995 and 1996 was $6.96,
$6.96, $7.27, $8.09 and $8.60, respectively.

The buildings are wood frame construction with a combination of brick veneer
and wood siding on concrete slab foundations. Roofs are pitched and covered with
composition shingles.

The Property has an outdoor swimming pool with a waterfall, a jacuzzi,
covered picnic areas, a playground, a sand volleyball court, basketball courts,
a laundry room and a health club. The Property also has a clubhouse. There is
ample paved parking for tenants, and there are 124 covered parking spaces.

Apartments units have wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment has a cable television hook-up,
miniblinds and an individually controlled heating and air conditioning unit.
Units also include ceiling fans, intrusion alarms, private balconies and
door-to-door trash and recycling service. Each kitchen is equipped with a
refrigerator-freezer, electric range and oven, dishwasher, microwave oven and
garbage disposal. All but 24 of the units have a fireplace and all of the
two-bedroom units include full-sized washer/dryer connections. The Property also
has valet laundry service with free delivery for tenants without washers and
dryers. The owner of the Property pays for gas usage for hot water and trash
removal. Tenants pay for their electricity service, which includes cooking,
lighting, heating and air conditioning. Historically, the owner of the Property
was responsible for water and sewer charges. However, in February, 1997, the
Property was converted to individually-metered water and sewer service. As
leases are renewed or replaced, the tenants will become responsible for these
charges.

There are at least six apartment properties which compete with the Property.
All offer similar amenities and generally have rents that are comparable when
compared with those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy in nearby competing properties now averages
approximately 94%.

According to information provided by the seller, physical occupancy at the
Property averaged approximately 93% in 1992, 94% in 1993, 94% in 1994, 95% in
1995 and 96% in 1996. On June 1, 1997, the Property was 89% occupied. The
residents are a mix of white-collar and blue-collar workers, students and
retired persons.

The following table sets forth the 1996 real estate tax information on the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
-------------------------- --------------- ----------- -------------
County of Tarrant ........ $3,150,000 $1.10161 $34,700.59
Grapevine School District 3,150,000 1.53779 48,440.39
Total ................... $83,140.97

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $3,173,068) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.

The Advisor and the Company believe that the Property is and will continue to
be adequately covered by property and liability insurance.

S-15

<PAGE>

Property, or $79,270. Cornerstone Realty Income Trust, Inc. will serve as
property manager for the Property and for its services will be paid by the
Company a monthly management fee equal to 5% of the gross revenues of the
Property plus reimbursement of certain expenses.

TOSCANA APARTMENTS
DALLAS, TEXAS

On March 31, 1997, the Company purchased the Toscana Apartments, a 192-unit
apartment complex having an address of 17910 Kelly Boulevard, Dallas, Texas (the
"Property").

The seller was unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $5,854,531. The Company paid all but $125,000
in cash using proceeds from the sale of Shares, and the balance was paid using
the Unsecured Line of Credit. The borrowed amount was subsequently repaid using
proceeds from the sale of Shares. Title to the Property was conveyed to the
Company by limited warranty deed.

LOCATION. The Property is located near the intersection of Kelly and
Frankford in the north section of Dallas, Texas, which is part of "The
Metroplex." For information on The Metroplex, see "Brookfield Apartments,"
herein.

The area surrounding the Property consists principally of other multi-family
housing and residential, commercial and retail development. The Property is
approximately a 20-minute drive from downtown Dallas and an approximately
20-minute drive from the Dallas/Fort Worth International Airport.

DESCRIPTION OF THE PROPERTY. The Property consists of 192 garden-style
apartment units in six two-story buildings on approximately four acres of land.
The Property was completed in 1986.

The Company believes that the Property has generally been well maintained and
is generally in good condition. However, the Company has budgeted approximately
$192,000 (and as of June 1, 1997 had expended approximately $15,000) for repairs
and improvements, including painting, clubhouse renovations, and parking area
repair.

The Property offers six different units types. The unit mix and rents
currently being charged new tenants as of June, 1997 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
- ---------- ------------------------------------- ------------- ---------
64 ....... Efficiency 500 $439
52 ....... One bedroom, one bathroom 600 510
12 ....... One bedroom, one bathroom 650 520
8 ....... One bedroom, one bathroom 650 520
42 ....... One bedroom, one bathroom 700 550
14 ....... One bedroom, one bathroom (upgraded) 700 575

The apartments provide a combined total of approximately 115,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
650 square-foot apartment rented for $395 in 1992, $395 in 1993, $425 in 1994,
$470 in 1995, and $490 in 1996. The average effective annual rental per square
foot at the Property for 1992, 1993, 1994, 1995 and 1996 was $7.68, $7.68,
$8.26, $9.13 and $9.52, respectively.

The buildings are wood frame construction with a combination of brick veneer,
stucco and painted wood siding on concrete slab foundations. Roofs are sloped
fiberglass shingles on plywood.

S-16

<PAGE>

The Property has an outdoor swimming pool with a fountain, a jacuzzi and
cabana, a volleyball area, an exercise/weights room, a sauna, three tanning
beds, an aerobics room with aerobics classes offered, a billiard room, limited
access gates and covered parking. The Property also includes a clubhouse. There
is ample paved parking for tenants.

Each apartment unit has wall-to-wall carpeting in the living areas and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up, miniblinds and an individually controlled heating and air conditioning
unit. Each kitchen is equipped with a refrigerator/freezer with icemaker,
electric range and oven, microwave, dishwasher and garbage disposal. Each unit
also includes a wood burning fireplace, a stacked washer/dryer unit, ceiling
fans, alarm system and vaulted ceilings. The owner of the Property pays for cold
water, sewer service, gas usage for hot water and trash removal. Tenants pay for
their electricity usage, which includes cooking, lighting, heating and air
conditioning.

According to information provided by the seller, physical occupancy at the
Property averaged approximately 95% in 1992, 95% in 1993, 94% in 1994, 96% in
1995 and 96% in 1996. On June 1, 1997, the Property was 97% occupied. The
residents are primarily white-collar workers.

The following table sets forth the 1996 real estate tax information on the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
- ----------------------------------- --------------- ----------- -------------
County of Denton .................. $4,519,210 $0.26690 $ 12,061.77
City of Dallas .................... 5,030,870 0.67010 33,711.86
Carrollton-Farmers School District 5,030,870 1.46190 73,546.29
Total ............................ 119,319.92

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $5,096,574) will be depreciated over a
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.

The Advisor and the Company believe that the Property is and will continue to
be adequately covered by property and liability insurance.

ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company will pay Cornerstone Realty Income Trust, Inc. a property
acquisition fee equal to 2% of the purchase price of the Property, or $117,091.
Cornerstone Realty Income Trust, Inc. will serve as property manager for the
Property and for its services will be paid by the Company a monthly management
fee equal to 5% of the gross revenues of the Property plus reimbursement of
certain expenses.

THE ARBORS ON FOREST RIDGE APARTMENTS
BEDFORD, TEXAS

On April 25, 1997, the Company purchased The Arbors on Forest Ridge
Apartments, a 210-unit apartment complex having an address of 2200 Forest Ridge
Drive, Bedford, Texas (the "Property").

The seller was unaffiliated with the Company, the Advisor and their
Affiliates. The purchase price was $7,748,907. The Company borrowed the entire
purchase price under the Unsecured Line of Credit. The Company plans to repay
this borrowed amount using proceeds from the future sale of Shares. Title to the
Property was conveyed to the Company by limited warranty deed.

S-17

<PAGE>

LOCATION. The Property is located in Bedford within Tarrant County, which is
part of "The Metroplex." For information on The Metroplex see "Brookfield
Apartments" herein.

Bedford is located between Dallas and Fort Worth, being approximately 15
miles east of the Fort Worth central business district and approximately 20
miles west of the Dallas central business district. The immediate area
surrounding the Property consists of other multi-family and single-family
housing and commercial and retail development. The Property is located near
restaurants, businesses, schools and churches, and is readily accessible from
Interstates 121 and 183. The Property is an approximately 10-minute drive from
the Dallas/Fort Worth International Airport.

DESCRIPTION OF THE PROPERTY. The Property consists of 210 garden-style
apartment units located in 19 two-story buildings on approximately 8.9 acres of
land. The Property was completed in 1986.

The Company believes that the Property has generally been well maintained and
is generally in good condition. However the Company had budgeted $210,000 (and
as of June 1, 1997 had expended approximately $20,000) for repairs and
improvements, including painting, siding repairs, pool renovations and clubhouse
renovations.

The Property offers a variety of unit types. The unit mix and rents currently
being charged new tenants as of June, 1997 are as follows:

<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE
QUANTITY TYPE FOOTAGE MONTHLY RENTAL
- ---------- ------------------------------------------------------ ------------- ---------------
<S> <C> <C> <C>
8........ Contemporary One Bedroom/One Bath Basic 581 $456
10........ Contemporary One Bedroom/One Bath w/Fireplace 581 466
2........ Contemporary One Bedroom/One Bath large 604 461
8........ Contemporary One Bedroom/One Bath large w/Fireplace 615 471
9........ Luxury One Bedroom/One Bath Down 684 536
9........ Luxury One Bedroom/One Bath Up 684 541
14........ Luxury One Bedroom/One Bath Down w/Fireplace 684 541
14........ Luxury One Bedroom/One Bath Up w/Fireplace 684 546
8........ Luxury One Bedroom/One Bath w/View 684 552
12........ Luxury One Bedroom/One Bath w/View w/Fireplace 684 557
8........ Conventional One Bedroom/One Bath Lofted Study 716 536
11........ Conventional One Bedroom/One Bath Lofted Study
w/Fireplace 716 541
9........ Conventional One Bedroom/One Bath Lofted Study Large
w/Fireplace 750 550
12........ Executive One Bedroom/One Bath Down 775 572
12........ Executive One Bedroom/One Bath Up 775 582
12........ Executive One Bedroom/One Bath Down w/Fireplace 775 582
12........ Executive One Bedroom/One Bath Up w/Fireplace 775 593
10........ Executive One Bedroom/One Bath Study Down 871 640
10........ Executive One Bedroom/One Bath Study Up 893 651
4........ Executive One Bedroom/One Bath Study Down w/Fireplace 871 651
4........ Executive One Bedroom/One Bath Study Up
w/Fireplace 893 661
6........ Executive One Bedroom/One Bath Study
Down w/View 871 661
6........ Executive One Bedroom/One Bath Study Up w/View 893 666

</TABLE>

The apartments provide a combined total of approximately 169,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
one-bedroom, one-bath apartment ("executive-down") rented for $455 in 1992, $460
in 1993, $500 in 1994, $545 in 1995 and $560 in 1996. The average effective
annual rental per square foot at the Property for 1992, 1993, 1994, 1995 and
1996 was $6.58, $6.65, $7.52, $7.88 and $8.10, respectively.

S-18

<PAGE>

The buildings are wood frame construction with a combination of brick veneer
and wood siding on concrete slab foundations. Roofs are pitched composition
shingles.

The Property includes a swimming pool and deck, hot tub/whirlpool, weight
room, sand volleyball court, basketball court, gas grills, picnic area, laundry
room, curb-side trash pick-up and access gates. The Property also has a
clubhouse. There is ample paved parking for tenants, each of whom is assigned
one covered parking space and one uncovered parking space.

Each apartment unit has wall-to-wall carpeting in the living area and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up and an individually controlled heating and air conditioning unit. Each
apartment has ceiling fans and a privatebalcony or patio, and maid service is
available for an extra charge. Each kitchen has a refrigerator/freezer with ice
maker, electric range and oven, dishwasher, microwave and garbage disposal. All
the apartment units except the junior one bedroom units have a fireplace. Some
units also feature decorator bookcases, pass through bar, vaulted ceilings and
washer/dryer connections. Currently, the owner of the Property pays for cold
water, sewer service and trash removal. The tenants pay for their electricity
service, which includes cooking, lighting, heating, hot water and air
conditioning. The apartment units have recently been separately metered for
water and sewer charges, and it is expected that tenants will bear these charges
as leases are renewed or new leases are entered into.

There are at least five apartment properties which compete with the Property.
All offer similar amenities and generally have rents that are comparable to
those of the Property. Based on a recent telephone survey, the Advisor estimates
that occupancy in nearby competing properties now averages approximately 91%.

According to information provided by the seller, physical occupancy at the
Property averaged approximately 93% in 1992, 94% in 1993, 96% in 1994, 95% in
1995 and 96% in 1996. On June 1, 1997, the Property was 94% occupied. The
residents are a mix of white-collar and blue-collar workers and retired persons.

The following table sets forth the 1996 real estate tax information on the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
----------------- ---------------- ---------- -------------
County of
Tarrant.......... $5,600,000 $2.54706 $142,635.58

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $7,117,532) will be depreciated over a
27.5 years on a straight-line basis. The basis of the personal property portion
will be depreciated in accordance with the modified accelerated cost recovery
system of the Code. Amounts to be spent by the Company on repairs and
improvements will be treated for tax purposes as permitted by the Code based on
the nature of the expenditures.

The Advisor and the Company believe that the Property is and will continue to
be adequately covered by property and liability insurance.

ACQUISITION AND MANAGEMENT SERVICES AND FEES. In consideration of services
rendered to the Company in connection with the selection and acquisition of the
Property, the Company will pay Cornerstone Realty Income Trust, Inc. a property
acquisition fee equal to 2% of the purchase price of the Property, or $154,978.
Cornerstone Realty Income Trust, Inc. will serve as property manager for the
Property and for its services will be paid by the Company a monthly management
fee equal to 5% of the gross revenues of the Property plus reimbursement of
certain expenses.

S-19

<PAGE>

PACE'S COVE APARTMENTS
DALLAS, TEXAS

On June 24, 1997, the Company purchased the Pace's Cove Apartments, a
328-unit apartment complex at 13100 Pandora Drive in Dallas, Texas (the
"Property"). The seller was unaffiliated with the Company, the Advisor, and
their Affiliates. The purchase price was $9,277,355. The Company borrowed the
entire purchase price under the Unsecured Line of Credit and will seek to repay
this borrowed amount using proceeds from the future sale of Shares. Title to the
Property was conveyed to the Company by limited warranty deed.

LOCATION. The Property is located in the northern portion of Dallas within
"The Metroplex." For information on The Metroplex see "Brookfield Apartments"
herein.

The neighborhood surrounding the Property consists of other multi-family and
single-family housing and commercial and retail development. The Property is an
approximately 20-minute drive from Dallas/Fort Worth International Airport and
an approximately 15-minute drive from downtown Dallas.

DESCRIPTION OF THE PROPERTY. The Property consists of 328 garden-style
apartment units located in 19 two- and three-story buildings on approximately 13
acres of land. The Property was constructed in 1982.

The Company believes that the Property has generally been well maintained and
is generally in good condition. However, the Company has budgeted approximately
$75,000 for certain repairs and improvements, including clubhouse renovations.

The Property offers a variety of unit types. The unit mix and rents currently
being charged new tenants as of the date of this Supplement are as follows:

APPROXIMATE
INTERIOR
QUANTITY TYPE SQUARE FOOTAGE MONTHLY RENTAL
- ------------ ----------------- -------------------- ----------------
42......... One bedroom/
one bath 504 $420
42......... One bedroom/
one bath upstairs 504 430
40......... One bedroom/
one bath 572 440
40......... One bedroom/
one bath upstairs 572 450
42......... One bedroom/one
bath w/fireplace 690 520
42......... One bedroom/one
bath w/fireplace
upstairs 690 530
20......... . One bedroom/one
bath/den
w/fireplace 757 605
30......... Two bedrooms/two
baths w/fireplace 925 645
30......... Two bedrooms/two
baths w/fireplace 1,026 680

The apartments provide a combined total of approximately 220,000 square feet
of net rentable area.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have generally increased. As an example, a
downstairs one-bedroom, one-bath apartment (504 square feet) rented for $330 in
1992, $330 in 1993, $370 in 1994, $390 in 1995, and $420 in 1996. The average
effective annual rental per square foot at the Property for 1992, 1993, 1994,
1995, and 1996 was $7.14, $7.14, $8.01, $8.44, and $9.09, respectively.

S-20

<PAGE>

The buildings are wood-frame construction with a combination of brick veneer
and stucco with painted trim on concrete slab foundations. Roofs are pitched and
covered with asphalt shingles on plywood sheathing.

The Property has two outdoor swimming pools, a hot tub and jacuzzi,
volleyball area, fitness center, laundry facility and covered parking for
approximately 328 vehicles. The Property also includes a clubhouse with a
leasing office. There is also ample uncovered paved parking for residents.

Each apartment unit has wall-to-wall carpeting in the living area and vinyl
floors in the kitchen and bath. Each apartment unit has a cable television
hook-up, miniblinds, and an individual heating and air-conditioning unit. Each
kitchen has a refrigerator/freezer, electric range and oven, dishwasher and
garbage disposal. Each unit has full-sized washer/dryer connections and a
security alarm. The owner of the Property pays for cold water, sewer charges and
trash removal. The tenants pay for electricity service, which includes cooking,
lighting, heating, hot water and air-conditioning.

There are at least seven apartment properties that compete with the Property.
All offer similar amenities and generally have rents that are lower when
compared with those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy at nearby competing properties now averages
approximately 95%.

According to information provided by the Seller, physical occupancy at the
Property averaged approximately 92% in 1992, 91% in 1993, 93% in 1994, 94% in
1995, and 93% in 1996. As of June 4, 1997, the Property was 90% occupied. The
residents are a mix of white-collar and blue-collar workers.

The following table sets forth the 1996 real estate tax information on the
Property.

JURISDICTION ASSESSED VALUE RATE TAX
---------------- ---------------- ---------- -------------
City of Dallas . $7,895,980 $0.46255 $ 36,522.86
County of
Dallas.......... 7,895,980 2.13063 168,234.12
Total........... $204,756.98

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $6,204,450) will be depreciated over 27.5
years on a straight-line basis. The basis of the personal property portion will
be depreciated in accordance with the modified accelerated cost recovery system
of the Code. Amounts to be spent by the Company on repairs and improvements will
be treated for tax purposes as permitted by the Code based on the nature of the
expenditures.

The Advisor and the Company believe that the Property will be adequately
covered by property and liability insurance.

ACQUISITION AND MANAGEMENT SERVICES AND FEES. The Company will pay
Cornerstone Realty Income Trust, Inc. a property acquisition fee equal to 2% of
the purchase price of the Property, or $185,547. Cornerstone Realty Income
Trust, Inc. will also serve as property manager for the Property and for its
services will be paid by the Company a monthly management fee equal to 5% of the
gross revenues of the Property plus reimbursement of certain expenses.

S-21

<PAGE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As described above under "Developments Involving Cornerstone Realty Income
Trust - Authorization for Additional Share Issuance," on June 1, 1997,
Cornerstone owned approximately 6.9% of the Company's outstanding Shares.
Cornerstone's address is 306 East Main Street, Richmond, Virginia 23219. As of
June 1, 1997, no other person was the beneficial owner of more than five percent
of any class of the registrant's voting securities.

The following table shows the beneficial ownership of the Company's Shares by
the Company's directors and executive officers as of June 1, 1997.

AMOUNT AND NATURE
OF
BENEFICIAL
NAME OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ----------------------------- -------------------- -----------------
Glade M. Knight.............. 5,555.56 *
Ted W. Smith................. 0 0
Penelope W. Kyle............. 0 0
Bruce H. Matson.............. 0 0
Lisa B. Kern................. 0 0
All Directors and
Executive Officers as a
Group...................... 5,555.56 *
- ----------

* Less than 1% of outstanding Shares

In addition, at June 1, 1997, Glade M. Knight owned 170,000 Class B
Convertible Shares of the Company, and each of Debra A. Jones and Stanley J.
Olander, Jr. owned 15,000 Class B Convertible Shares, constituting collectively
all of the Company's issued and outstanding Class B Convertible Shares.
Information on the Class B Convertible Shares of the Company is set forth under
the caption "Principal and Management Stockholders" in the Prospectus. Ms. Jones
and Mr. Olander are officers of Cornerstone.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

The following discussion is based upon the unaudited financial statements of
the Company as of March 31, 1997 and the financial statements of the Company as
of December 31, 1996. The information should be read in conjunction with the
Company's financial statements and notes thereto and the pro forma financial
statements and notes thereto of the Company included elsewhere in this
Supplement. The Company is operated and has elected to be treated as a REIT for
federal income tax purposes.

LIQUIDITY AND CAPITAL RESOURCES. There was a significant change in the
Company's liquidity during the quarter ended March 31, 1997. During the quarter,
the Company closed the sale to investors of 4,643,239 Shares (1,666,667 at $9
per Share and 2,976,572 at $10 per Share) representing gross proceeds to the
Company of $44,765,718 and net proceeds after payment of selling commissions and
other costs of $39,893,637. The Company capitalized $210,600 of improvements to
its various properties during the quarter. It is anticipated that some
$1,874,000 in additional capital improvements will be completed during the next
year on the current portfolio. The source to fund these improvements is from
equity raised and set aside specifically for the improvements and from the
expected sale of additional Shares.

S-22

<PAGE>

During the quarter ended March 31, 1997, the Company made seven acquisitions
of residential rental properties as follows:

PROPERTY NAME DATE ACQUIRED UNITS PURCHASE PRICE LOCATION
- ------------------------ --------------- ------- ---------------- -------------
Brookfield Apartments .. January 1997 232 $ 5,458,485 Dallas, TX
Eagle Crest Apartments . January 1997 484 $15,650,000 Irving, TX
Tahoe Apartments........ January 1997 240 $ 5,690,560 Arlington, TX
Mill Crossing
Apartments.............. February 1997 184 $ 4,544,121 Arlington, TX
Polo Run Apartments ... March 1997 224 $ 6,858,974 Arlington, TX
Wildwood Apartments .... March 1997 120 $ 3,963,519 Euless, TX
Toscana Apartments .... March 1997 192 $ 5,854,531 Dallas, TX

Cash and cash equivalents totaled $1,383,740 at March 31, 1997.

While the Company is always assessing potential acquisitions, no material
commitments existed on May 1, 1997 for the purchase of additional properties.
The Company's only on-going commitment for capital expenditures is to the
renovation of its existing portfolio. Equity funds have been raised in
conjunction with the acquisition of properties to fund capital expenditures for
currently held properties. In addition, the Company will acquire new properties
as funds are available.

The Company has short-term cash flow needs to conduct the operation of its
properties. The rental income generated from the properties supplies sufficient
cash to provide for the payment of these operating expenses.

The Company's capital resources are expected to grow with the continued sale
of its Shares and through operations.

RESULTS OF OPERATIONS. As operations of the Company began in January 1997, a
comparison of the quarters ended March 31, 1997 and 1996 cannot be made. The
Company's property operations for the three months ended March 31, 1997 reflect
the operations of the Company's seven acquisitions from their respective
acquisition dates. For the three months ended March 31, 1997, rental income was
$1,155,766.

The economic occupancy levels for the Company's properties averaged 92% at
the end of the three months ended March 31, 1997. Overall, the average rental
rate for the portfolio was $516 per month for the three months ended March 31,
1997.

The Company's other source of income is the investment of its cash and cash
reserves. Interest income for the three months ended March 31, 1997 was $84,934.

Total expenses for the first three months of 1997 was $684,445. The operating
expense ratio (the ratio of rental expenses, excluding general and
administrative, amortization and depreciation expense, to rental income) was 40%
for the three months ended March 31, 1997. General and administrative expenses
totaled 7% of total rental income for the three months ended March 31, 1997.
This percentage is expected to decrease as the Company's asset base and rental
income grow. These expenses represent the administrative expenses of the Company
as distinguished from the operations of the Company's properties. Depreciation
expense for the quarter ended March 31, 1997 was $137,689.

The Company does not believe that inflation had any significant impact on the
operation of the Company during the three months ended March 31, 1997. Future
inflation, if any, would likely cause increased operating expenses, but the
Company believes that increases in expenses would be offset by increases in
rental income. Inflation may also cause capital appreciation of the Company's
properties over time, as rental rates and replacement costs increase.

S-23

<PAGE>

EXPERTS

The balance sheets of Apple Residential Income Trust, Inc. at December 31,
1996 and August 7, 1996 (date of inception), appearing in the Prospectus,
Supplement No. 3 and the Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their reports thereon appearing
elsewhere therein and herein, and are included in reliance upon such reports
given upon the authority of such firm as experts in accounting and auditing.

Certain statements of income and direct operating expenses of properties,
included herein, have been included herein in reliance on the reports of L.P.
Martin & Company, P.C., independent certified public accountants, also included
herein, and upon the authority of said firm as experts in accounting and
auditing.

S-24

<PAGE>

UPDATE ON EXPERIENCE OF PRIOR PROGRAMS

The following tables set forth updated information (through December 31,
1996) on Cornerstone Realty Income Trust, Inc., a real estate investment trust
which was organized by Affiliates of the Advisor of Apple Residential Income
Trust, Inc. Please refer to "Experience of Prior Programs" on pages 66 through
70 of the Prospectus for additional information, including the definition of
terms used herein.

TABLE I: EXPERIENCE IN RAISING AND INVESTING FUNDS

Table I presents a summary of the funds raised and the use of those funds by
Cornerstone, whose investment objectives are similar to those of the Company and
whose offering closed within three years ending December 31, 1996.

Dollar Amount Offered ........................... 300,000,000
Dollar Amount Raised ............................ 300,000,000
Less Offering Expenses:
Selling Commissions and Discounts .............. 7.50%
Organizational Expenses ........................ 5.50%
Other .......................................... 0.00%
Reserves ........................................ 3.00%
Percent Available for Investment ................ 84.00%
Acquisition Costs:
Prepaid items and fees to purchase property .... 82.00%
Cash downpayment ............................... 0.00%
Acquisition fees ............................... 2.00%
Other........................................... 0.00%
Total Acquisition Costs.......................... 84.00%
Percent Leverage (excluding unsecured debt) .... 0.00%
Date offering began ............................. May 1993
Length of offering (in months) .................. 42
Months to invest amount available for investment 42

S-25

<PAGE>

TABLE II: COMPENSATION TO SPONSOR AND ITS AFFILIATES

Table II summarizes the compensation paid to the Prior Program Sponsor and
its Affiliates (i) by programs organized by it and closed within three years
ended December 31, 1996, and (ii) by all other programs during the three years
ended December 31, 1996.

<TABLE>
<CAPTION>
OTHER
CORNERSTONE PROGRAM
--------------- -------------
<S> <C> <C>
Date offering commenced .............................. May 1993 Various
Dollar amount raised ................................. $300,000,000 $35,483,175
Amounts paid to Prior Program Sponsor form proceeds of
offering:
Acquisition fees
Real Estate commission ............................. $ 3,610,154 $ 0
Advisory fees ...................................... $ 0 $ 0
Other .............................................. $ 0 $ 0
Cash generated from operations before deducting
payments to Prior Program Sponsor ................... $ 32,791,864 $ 7,521,808
Aggregate compensation to Prior Program Sponsor
Management fees ..................................... $ 3,657,580 $ 786,540
Accounting fees ...................................... $ 0 $ 161,496
Reimbursements ....................................... $ 2,717,655 $ 0
Leasing fees ......................................... $ 0 $ 0
Other fees ........................................... $ 515,689 $ 0
There have been no fees from property sales or
refinancings

</TABLE>

S-26

<PAGE>

TABLE III: OPERATING RESULTS OF PRIOR PROGRAMS

Table III presents a summary of the annual operating results for Cornerstone,
the only offering closed in the five years ending December 31, 1996. Table III
is shown on both an income tax basis as well as in accordance with generally
accepted accounting principles, the only significant difference being the
methods of calculating depreciation.

<TABLE>
<CAPTION>
1996 1995 1994 1993
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Capital contributions by year ............... $176,885,206 $71,771,027 $23,496,784 $27,846,983
Gross revenue ............................... $ 40,352,955 $16,300,821 $ 8,177,576 $ 1,784,868
Operating expenses .......................... $ 18,792,291 $ 8,260,723 $ 4,690,941 $ 1,079,517
Interest income (expense) ................... $ (1,136,438) $ (21,565) $ 110,486 $ 46,633
Depreciation ................................ $ 8,068,063 $ 2,788,818 $ 1,210,818 $ 255,338
Net income (loss) GAAP basis ................ $ (4,169,849) $ 5,229,715 $ 2,386,303 $ 496,646
Taxable income .............................. $ 0 $ 0 $ 0 $ 0
Cash generated from operations .............. $ 20,162,776 $ 9,618,956 $ 3,718,086 $ 1,670,406

Less cash distributed to investors .......... $ 15,934,901 $ 6,316,185 $ 2,977,136 $ 359,427
Cash generated after cash distribution ..... $ 4,227,875 $ 3,302,771 $ 740,950 $ 1,310,979
Special items
Capital contributions, net ................. $144,798,035 $71,771,027 $23,496,784 $27,846,983
Fixed asset additions ...................... $194,519,406 $75,589,089 $28,557,568 $25,549,790
Line of credit ............................. $ 41,603,000 $ 3,300,000 $ 5,000,000
Cash generated .............................. $ (3,890,496) $ 2,784,709 $ 680,168 $ 3,608,172
End of period cash .......................... $ 3,182,651 $ 7,073,047 $ 4,288,338 $ 3,608,172
Tax and distribution data per $1000 invested
Federal income tax results
Cornerstone Realty Income Trust is a REIT
and thus is not taxed at the corporate
level
Cash distributions to investors
Source (on GAAP basis)
Investment income ......................... $ 78 $ 72 $ 64 $ 37
Return of capital ......................... $ 12 $ 15 $ 16 $ 0
Source (on Cash basis)
Sales ..................................... $ 0 $ 0 $ 0 $ 0
Refinancings .............................. $ 0 $ 0 $ 0 $ 0
Operations ................................ $ 90 $ 87 $ 80 $ 37
Other ..................................... $ 0 $ 0 $ 0 $ 0

</TABLE>

S-27

<PAGE>

INDEX TO FINANCIAL STATEMENTS OF THE COMPANY

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
COMPANY FINANCIAL STATEMENTS
Report of Independent Auditors.............................................. F-2
Balance Sheets at December 31, 1996 and August 7, 1996 (Date of Inception).. F-3
Notes to the Balance Sheets. ............................................... F-4

INTERIM FINANCIAL STATEMENTS (UNAUDITED):
Balance Sheets -- March 31, 1997 and December 31, 1996...................... F-7
Statement of Operations -- Three Months ended March 31, 1997 ............... F-8
Statement of Shareholders' Equity -- Three Months ended March 31, 1997 ..... F-8
Statement of Cash Flows -- Three Months ended March 31, 1997 ............... F-9
Notes to Financial Statements .............................................. F-10

PROPERTY FINANCIAL STATEMENTS
Brookfield Apartments:
Independent Auditors' Report............................................... F-13
Historical Statement of Income and Direct Operating Expenses............... F-14
Eagle Crest I & II Apartments:
Independent Auditors' Report............................................... F-15
Historical Statement of Income and Direct Operating Expenses............... F-16
Tahoe Apartments:
Independent Auditors' Report............................................... F-17
Historical Statement of Income and Direct Operating Expenses............... F-18
Mill Crossing Apartments:
Independent Auditors' Report .............................................. F-19
Historical Statement of Income and Direct Operating Expenses .............. F-20
Polo Run Apartments:
Independent Auditors' Report .............................................. F-21
Historical Statement of Income and Direct Operating Expenses .............. F-22
Wildwood Apartments:
Independent Auditors' Report .............................................. F-23
Historical Statement of Income and Direct Operating Expenses .............. F-24
Toscana Apartments:
Independent Auditors' Report .............................................. F-25
Historical Statement of Income and Direct Operating Expenses .............. F-26
Arbors on Forest Ridge Apartments:
Independent Auditors' Report .............................................. F-27
Historical Statement of Income and Direct Operating Expenses .............. F-28

PRO FORMA FINANCIAL STATEMENTS
Pro Forma Balance Sheet as of March 31, 1997 (Unaudited) ................... F-29
Pro Forma Statement of Operations for the Year ended December 31, 1996
(Unaudited) ............................................................... F-30
Pro Forma Statement of Operations for the Three Months ended March 31, 1997
(Unaudited) ............................................................... F-31

</TABLE>

F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Shareholders of
Apple Residential Income Trust, Inc.

We have audited the accompanying balance sheets of Apple Residential Income
Trust, Inc., as of December 31, 1996 and August 7, 1996 (date of inception). The
balance sheets are the responsibility of the Company's management. Our
responsibility is to express an opinion on these balance sheets based on our
audits.

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

In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Apple Residential Income Trust
Inc., at December 31, 1996 and August 7, 1996 (date of inception), in conformity
with generally accepted accounting principles.

Ernst & Young LLP

Richmond, Virginia
March 26, 1997

F-2

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
BALANCE SHEETS

<TABLE>
<CAPTION>
(DATE OF INCEPTION)
DECEMBER 31, 1996 AUGUST 7, 1996
----------------- -----------------
<S> <C> <C>
ASSETS
Cash ........................................ $ 100 $ 100
================= =================
LIABILITIES AND SHAREHOLDERS EQUITY
Shareholder's equity
Common stock, no par value
Authorized 50,000,000 shares; Issued and
outstanding 10 shares (Notes 2 and 5)...... 100 100

Class B Convertible Stock, no par value.
Authorized 200,000 shares; Issued and
outstanding 200,000 shares (Note 3)......... 20,000 --
Receivable from principal shareholder........ (20,000) --
----------------- -----------------
$ 100 $ 100
================= =================

</TABLE>

See accompanying notes to balance sheets.

F-3

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO THE BALANCE SHEETS
DECEMBER 31, 1996

NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

Apple Residential Income Trust, Inc. (the "Company") is a Virginia corporation
that intends to qualify as a real estate investment trust ("REIT") for federal
income tax purposes. The Company, which has no operating history, was formed to
invest primarily in existing residential apartment communities in Texas and
southwestern regions of the United States. Initial capitalization occurred on
August 7, 1996.

Apple Residential Advisors, Inc. (the "Advisor"), which owned 100% of the
outstanding common stock of Apple Residential Income Trust, Inc. as of December
31, 1996, is the advisor to the Company and will provide its day-to-day
management under a proposed agreement between the Company and the Advisor.

SIGNIFICANT ACCOUNTING POLICIES

INCOME TAXES

The Company intends to make an election to be treated, and expects to qualify,
as a REIT under the Internal Revenue Code of 1986, as amended. As a REIT, the
Company will be allowed a deduction for the amount of dividends paid to its
shareholders, thereby subjecting the distributed net income of the Company to
taxation only at the shareholder level. The Company's continued qualification as
a REIT will depend on its compliance with numerous requirements, including
requirements as to the nature of its income and distribution of dividends.

USE OF ESTIMATES

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

NOTE 2 -- OFFERING OF SHARES

The Company intends to raise capital through a "best-efforts" offering of shares
by David Lerner Associates, Inc. (the "Managing Dealer"), which will receive
selling commissions and a marketing expense allowance based on proceeds of the
shares sold.

A minimum offering of 1,666,667 shares ($15,000,000) must be sold no later than
November 19, 1997, or the offering will terminate and investors' subscription
payments, with interest, will be refunded to investors. Pending sale of such
minimum offering amount, investors' subscription payments will be placed in an
escrow account.

NOTE 3 -- CLASS B CONVERTIBLE SHARES

On November 14, 1996, the Company issued 200,000 shares of Class B Convertible
Shares to Mr. Glade Knight, President and Chairman of the Board of the Company,
for $.10 per share or $20,000 in aggregate.

There are no dividends payable on the Class B Convertible Shares. On liquidation
of the Company, the holder of the Class B Convertible Shares is entitled to a
liquidation payment of $.10 per Class B Convertible Share before any
distribution of liquidation proceeds to the holders of the Common Shares.
Holders of more than two-thirds of the Class B Convertible Shares must approve
any proposed amendment to the Articles of Incorporation that would adversely
affect the Class B Convertible Shares or create a new class of stock senior to
or on a parity with the Class B Convertible Shares. The Class B

F-4
<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO THE BALANCE SHEETS-(Continued)

NOTE 3 -- CLASS B CONVERTIBLE SHARES-(Continued)

Convertible Shares are convertible into Common Shares upon and for 180 days
following the occurrence of either of the following events: (1) substantially
all of the Company's assets, stock or business is sold or otherwise transferred,
whether through sale, exchange, merger, consolidation, lease, share exchange or
otherwise, or (2) the Advisory Agreement with the Advisor is terminated or not
renewed, and the Company ceases to use Apple Residential Management Group, Inc.
to provide substantially all of its property management services. Upon the
occurrence of either triggering event, each Class B Convertible Share is
convertible into a number of Common Shares based upon the gross proceeds raised
through the date of conversion in the "best efforts" offering according to the
following formula:

NUMBER OF COMMON SHARES
GROSS PROCEEDS RAISED FROM THROUGH CONVERSION OF
SALES ONE
OF COMMON SHARES THROUGH CLASS B CONVERTIBLE
DATE OF CONVERSION SHARE
-------------------------------- -------------------------
$ 50 million.................... 1.0
$100 million ................... 2.4
$150 million ................... 4.2
$200 million ................... 6.4
$250 million ................... 8.0

No additional consideration is due upon the conversion of the Class B
Convertible Shares. Upon the probable occurrence of a triggering event, the
Company will record expense in the statement of operations based on
convertibility of the Class B Convertible Shares.

NOTE 4 -- ORGANIZATIONAL AND OFFERING COSTS

As of December 31, 1996, affiliates of the Company have incurred on behalf of
the Company organizational and offering costs amounting to approximately
$522,000. Upon the sale of 1,666,667 Common Shares, the Company will reimburse
the affiliates for these organizational and offering costs.

NOTE 5 -- RELATED PARTIES

The Company has negotiated a Property Management Agreement with Apple
Residential Management Group, Inc. ("ARMG") to manage each property to be
acquired by the Company for a management fee equal to 5% of gross rental
collections, plus reimbursement of certain expenses.

The Company has entered into a Property Acquisition and Disposition Agreement
with Apple Realty Group, Inc. ("ARG") to acquire and dispose of real estate
assets for the Company. A fee of 2% of the purchase or sale price of the
property will be payable for this service.

The Company has entered into an Advisory Agreement with the Apple Residential
Advisors, Inc. ("AA") to provide management for the Company and its assets. An
annual fee equal to .1% - .25% of total contributions received by the Company
will be payable for this service.

Mr. Knight owns 100% of the common stock of ARMG, ARG and AA.

Upon the completion of a public offering of common shares being pursued by
Cornerstone Realty Income Trust, Inc., for which Mr. Knight also serves as Chief
Executive Officer and Chairman of the Board, Cornerstone will enter into a
contract with the Company and subcontracts with Apple Residential Management
Group, Inc. and Apple Residential Advisors, Inc. whereby Cornerstone will
provide advisory, property management and brokerage services to the Company in
exchange for fees and expense reimbursements as described above.

Cornerstone Realty Income Trust, Inc. has a continuing right to own up to 9.8%
of the common shares of Apple. In addition, Cornerstone has a right of first
refusal to purchase the properties and business of Apple.

F-5

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO THE BALANCE SHEETS-(Continued)

NOTE 6 -- STOCK INCENTIVE PLANS

The Company has adopted two stock incentive plans (the "Incentive Plan" and
"Directors' Plan") to provide incentives to attract and retain directors,
officers and key employees. The plans provide for the grant of options to
purchase a specified number of shares of common stock ("Options") or grants of
restricted shares of common stock ("Restricted Stock") to selected employees and
directors of the Company and certain affiliates. A Compensation Committee
("Committee") will be established to implement and administer the plans. The
Committee will be responsible for granting Options and shares of Restricted
Stock and for establishing the exercise price of Options and the terms and
conditions of Restricted Stock.

NOTE 7 - SUBSEQUENT EVENT

For the period January 1, 1997 through March 21, 1997, the Company closed the
sale to investors of 4,643,239 shares (1,666,667 at $9 per share and 2,976,572
at $10 per share) representing gross proceeds to the Company of $44,765,718 and
net proceeds after payment of selling commissions and other costs of
$40,289,146.

During January 1997, effective January 1, 1997, the Company acquired three
apartment communities. Brookfield Apartments, a 232- unit apartment community
located in Dallas, Texas, was purchased for $5,458,485. Eagle Crest Apartments,
a 484-unit apartment community located in Irving, Texas, was purchased for
$15,650,000. Tahoe Apartments, a 240-unit apartment community located in
Arlington, Texas, was purchased for $5,690,560. During February, 1997, the
Company acquired Mill Crossing Apartments, a 184-unit apartment community
located in Arlington, Texas for $4,544,121.

On March 1, 1997 the Company entered into an agreement with a commercial bank to
obtain an unsecured revolving line of credit of $10 million. The line of credit
expires on March 31, 1998. This agreement allows the Company to finance a
portion of the purchase price of property acquisitions. Borrowings under the
agreement are evidenced by an unsecured promissory note and bear interest at
one-month LIBOR plus 200 basis points. As of March 26, 1997, there have been no
borrowings under the agreement.

F-6

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
BALANCE SHEETS (UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
------------- --------------
<S> <C> <C>
ASSETS
Investment in rental property
Land.............................................................. $ 8,686,051 --
Building.......................................................... 40,821,725 --
Property improvements............................................. 130,343 --
Furniture and fixtures............................................ 80,257 --
------------- --------------
49,718,376 $ 0
Less accumulated depreciation..................................... (137,689) --
------------- --------------
49,580,687 0
------------- --------------
Cash and cash equivalents......................................... 1,383,740 100
Prepaid expenses.................................................. 132,486 --
Other assets...................................................... 738,614 --
------------- --------------
2,254,840 100
------------- --------------
Total Assets..................................................... $51,835,527 $ 100
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Notes payable..................................................... $10,000,000 --
Accounts payable.................................................. 508,843 --
Accrued expenses.................................................. 643,364 --
Rents received in advance......................................... 19,241 --
Tenant security deposits.......................................... 214,087 --
------------- --------------
11,385,535 $ 0
Shareholders' equity
Common stock, no par value, authorized 50,000,000 shares; issued
and outstanding 4,643,249 shares and 10 shares................... 39,893,737 100
Class B convertible stock, no par value. Authorized 200,000
shares; issued and outstanding 200,000 shares ................... 20,000 20,000
Receivable from principal shareholder............................. (20,000) (20,000)
Net income........................................................ 556,255 --
------------- --------------
40,449,992 100
------------- --------------
Total Liabilities and Shareholders' Equity....................... $51,835,527 $ 100
============= ==============

</TABLE>

See accompanying notes to financial statements.

F-7

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
STATEMENT OF OPERATIONS (UNAUDITED)

THREE MONTHS
ENDED
MARCH 31, 1997
----------------
REVENUE:
Rental income............................... $1,155,766
EXPENSES:
Utilities................................... 98,538
Repairs and maintenance..................... 59,600
Taxes and insurance......................... 106,098
Property management fee..................... 60,663
Advertising................................. 33,475
Other operating expenses.................... 92,970
General and administrative.................. 77,502
Depreciation of real estate................. 137,689
Amortization................................ 8,476
Other....................................... 9,434
----------------
Total expenses............................. 684,445
----------------
Income before interest income................ 471,321
Interest income............................. 84,934
----------------
Net income................................... $ 556,255
================
Net income per share......................... $ 0.16
================
Weighted average number of shares
outstanding................................. $3,403,759
================

APPLE RESIDENTIAL INCOME TRUST, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)

<TABLE>
<CAPTION>
COMMON STOCK CONVERTIBLE CLASS B STOCK
------------------------- ----------------------------
NET OF
RECEIVABLE TOTAL
NUMBER OF NUMBER OF FROM PRINCIPAL NET SHAREHOLDERS'
SHARES AMOUNT SHARES SHAREHOLDER INCOME EQUITY
----------- ------------- ----------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 ....... 10 $ 100 200,000 $ 0 $ 0 $ 100
Net proceeds from the sale of
shares.............................. 4,643,239 39,893,637 -- -- -- 39,893,637
Net income.......................... -- -- -- -- 556,255 556,255
----------- ------------- ----------- ---------------- ---------- ---------------
Balance at March 31, 1997........... 4,643,249 $39,893,737 200,000 $ 0 $ 556,255 $40,449,992
=========== ============= =========== ================ ========== ===============

</TABLE>

See accompanying notes to financial statements.

F-8

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)

THREE MONTHS
ENDED
MARCH 31, 1997
----------------
Cash flow from operating activities:
Net income................................................ $ 556,255
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization............................ 146,165
Changes in operating assets and liabilities:
Prepaid expenses........................................ (132,486)
Other assets............................................ (747,090)
Accounts payable........................................ 508,843
Accrued expenses........................................ 643,364
Rent received in advance................................ 19,241
Tenant security deposits................................ 214,087
----------------
Net cash provided by operating activities.............. 1,208,379
Cash flow from investing activities:
Acquisitions of rental property........................... (49,507,776)
Capital improvements...................................... (210,600)
----------------
Net cash used in investing activities.................. (49,718,376)
Cash flow from financing activities:
Proceeds from short-term borrowings....................... 10,000,000
Net proceeds from issuance of shares...................... 39,893,637
----------------
Net cash provided by financing activities.............. 49,893,637
Increase in cash and cash equivalents.................. 1,383,640
Cash and cash equivalents, beginning of year............... 100
----------------
Cash and cash equivalents, end of period................... $ 1,383,740
================

See accompanying notes to financial statements.

F-9

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997

NOTE 1 -- GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with the instructions for Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information required by generally
accepted accounting principles. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. These financial statements should
be read in conjunction with the Company's December 31, 1996 Annual Report on
Form 10-K.

The Company was formed in August, 1996. Operations commenced in January, 1997.

During the first quarter of 1997, the Financial Accounting Standards Board
issued a new statement on the calculation of earnings per share which is
effective beginning in the 4th quarter of 1997 and early adoption is prohibited.
Under the new statement, primary and fully dilutive earnings per share are
replaced with basic and diluted earnings per share. The Company's basic earnings
per share for the three month period ended March 31, 1997 according to the new
statements would not change from the reported amounts.

CASH AND CASH EQUIVALENTS:

Cash equivalents include highly liquid investments with original maturities of
three months or less. The fair market value of cash and cash equivalents
approximates their carrying value.

INVESTMENT IN RENTAL PROPERTY

The Company records impairment losses on rental property used in the operations
if indicators of impairment are present and the undiscounted cash flows
estimated to be generated by the respective properties are less than their
carrying amount. Impairment losses are measured as the difference between the
asset's fair value and its carrying value.

The investment in rental property is recorded at the historical cost less
depreciation and includes real estate brokerage commissions paid to Apple Realty
Group, a related party, for purchases prior to March 1, 1997, and Cornerstone
Realty Income Trust, Inc. after March 1, 1997.

INCOME RECOGNITION

Rental, interest and other income are recorded on an accrual basis. The
Company's properties are leased under operating leases that, typically, have
terms that do not exceed one year.

ADVERTISING COSTS

Costs incurred for the production and distribution of advertising are expensed
as incurred.

INCOME PER SHARE

Net income per share is computed based upon the weighted average number of
shares outstanding during the year. Potentially dilutive securities are not
included since their inclusion would not materially dilute net income per share.

F-10

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)-(Continued)

NOTE 2 -- NOTES PAYABLE

On March 1, 1997, the Company entered into an agreement with a commercial bank
to obtain an unsecured revolving line of credit of $10 million. The line of
credit expires on March 31, 1998. Borrowings under the agreement are evidenced
by an unsecured promissory note and bear interest at one-month LIBOR plus 200
basis points. As of March 31, 1997 the interest rate on the unsecured line of
credit was 7.6875%.

The Company borrowed $10,000,000 on March 31, 1997 in conjunction with property
acquisitions against the line of credit. In April 1997, the Company repaid
$8,500,000 with proceeds from the additional sale of shares.

NOTE 3 -- COMMON STOCK

The Company received gross proceeds of $44,765,718 ($39,893,637 net of selling
commissions and other offering expenses) from the sale of 4,643,239 shares for
the three months ended March 31, 1997. As of March 31, 1997, David Lerner
Associates, Inc. has earned a total of $4,476,572 in connection with the
offering of the Company's shares. The Company provides an Additional Share
Option to the shareholders to reinvest distributions in the purchase of
additional shares of the Company. As of March 31, 1997, no funds had been
reinvested.

No distributions were made during the quarter ended March 31, 1997.

NOTE 4 -- RELATED PARTIES

Prior to February 28, 1997, the Company had contracted with Apple Residential
Management Group, Inc. (the "Management Company") to manage the acquired
properties, Apple Residential Advisors, Inc. (the "Advisor") to advise and
provide the Company with day to day management, and Apple Realty Group, Inc. to
acquire and dispose of real estate assets held by the Company. The Company paid
the Management Company a management fee equal to 5% of rental income plus
reimbursement of certain expenses in the amount of $61,135. The Company paid the
Advisor a fee equal to .1% to .25% of total contributions received by the
Company in the amount of $13,585. The Company paid Apple Realty Group, Inc. a
fee of 2% of the purchase price of the acquired properties in the amount of
$624,863.

Effective March 1, 1997, with the approval of the Company, Cornerstone Realty
Income Trust Inc. ("Cornerstone"), for which Mr. Knight also serves as Chief
Executive Officer and Chairman of the Board, entered into subcontract agreements
with the Management Company and the Advisor whereby Cornerstone will provide
advisory and property management services to the Company in exchange for fees
and expense reimbursement per the same terms described above.

Effective March 1, 1997, with the consent of the Company, Cornerstone acquired
all the assets of Apple Realty Group, Inc. The sole material asset of the
company was the acquisition/disposition agreement with the Company. Cornerstone
paid $350,000 in cash and issued 150,000 common shares in exchange for the
assignment of the rights to the acquisition/disposition agreement. Cornerstone
will be entitled to a real estate commission equal to 2% of the gross purchase
price of the Company's properties. As of March 31, 1997, Cornerstone had earned
approximately $102,242 (net of expenses) for all of the subcontracted and
acquired services.

During the quarter, the Company granted Cornerstone a continuing right to own up
to 9.8% of the common shares of the Company at the market price, net of selling
commissions. Cornerstone committed to purchase shares of the Company for
approximately $3.8 million which represented approximately 9.5% of the total
common shares of the Company outstanding as of March 1, 1997. In April 1997,
Cornerstone purchased 417,777 common shares of the Company. Cornerstone intends
to make quarterly evaluations to purchase additional common shares of the
Company as of the end of each calendar

F-11

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)-(Continued)

NOTE 4 -- RELATED PARTIES-(Continued)

quarter in order to maintain its ownership of approximately 9.5% of the
outstanding common shares of the Company, and may make such purchases if the
Cornerstone board of directors deems such action to be in the best interests of
Cornerstone and its shareholders.

NOTE 5 -- SUBSEQUENT EVENTS

In April 1997, the Company distributed to its shareholders approximately
$680,821 (20 cents per share) of which approximately $445,114 was reinvested in
the purchase of additional shares through the Additional Share Option. In April
1997, the Company closed the sale to investors of 542,066 shares at $10 per
share, representing net proceeds to the Company of $4,878,599.

In April, 1997, the Company purchased The Arbors at Forest Ridge a 210-unit
apartment community located in Bedford, Texas for $7,748,907.

NOTE 6 -- ACQUISITIONS

The following unaudited pro forma information for the three months ended March
31, 1997 is presented as if (a) the Company had owned the properties listed
below on January 1, 1997, (b) the Company had qualified as a REIT, distributed
at least 95% of its taxable income and, therefore incurred no federal income tax
expense during the period, and (c) the Company had used proceeds from its best
efforts offering to acquire the properties. The Company had no operations prior
to December 31, 1996. The pro forma information does not purport to represent
what the Company's results of operations would actually have been if such
transactions, in fact, had occurred on January 1, 1997, nor does it purport to
represent the results of operations for future periods.

THREE MONTHS
ENDED
3/31/97
-------------
Rental Income ........................... $1,231,461
Net Income .............................. $ 566,772
Net Income Per Share..................... $ .16

The pro forma information reflects adjustments for the actual rental income and
rental expenses of Brookfield, Eagle Crest, Tahoe and Mill Crossing Apartments
for periods in 1997 prior to their acquisitions by the Company. Net income has
been adjusted as follows: (1) property management and advisory expenses have
been adjusted based on the Company's contractual arrangements of 5% of revenues
from rental income plus reimbursement of certain monthly expenses estimated to
be $2.50 per unit; (2) advisory expenses have been adjusted based on the
Company's contractual arrangement of .25% of annual gross proceeds of common
stock raised; and (3) depreciation has been adjusted based on the Company's
allocation of purchase price to buildings over an estimated useful life of 27.5
years.

F-12

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia

We have audited the accompanying statement of income and direct operating
expenses exclusive of items not comparable to the proposed future operations of
the property Brookfield Apartments located in Dallas, Texas for the twelve month
period ended December 31, 1996. This statement is the responsibility of the
management of Brookfield Apartments. Our responsibility is to express an opinion
on this statement based on our audit.

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

The accompanying statement was prepared for the purpose of complying with the
rules and regulations of the Securities and Exchange Commission (for inclusion
in a filing by Apple Residential Income Trust, Inc.) and excludes material
expenses, described in Note 1 to the statement, that would not be comparable to
those resulting from the proposed future operations of the property.

In our opinion, the statement referred to above presents fairly, in all material
respects, the income and direct operating expenses of Brookfield Apartments (as
defined above) for the twelve month period ended December 31, 1996, in
conformity with generally accepted accounting principles.

L.P. Martin & Co., P.C.

Richmond, Virginia
March 19, 1997

F-13

<PAGE>

BROOKFIELD APARTMENTS

STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

TWELVE MONTHS ENDED DECEMBER 31, 1996

INCOME
Rental and Other Income....................... $1,198,543
-------------
DIRECT OPERATING EXPENSES
Administrative and Other...................... 122,269
Insurance .................................... 18,936
Repairs and Maintenance....................... 174,233
Taxes, Property............................... 133,700
Utilities..................................... 92,664
-------------
Total Direct Operating Expenses.............. 541,802
-------------
Operating income exclusive of items not
comparable to the proposed future operations
of the property............................. $ 656,741
=============

NOTE TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Brookfield Apartments is a 232 unit residential garden style apartment complex
located on 6.936 acres in Dallas, Texas. Living space totals 165,544 square
feet.

During the financial statement period, the assets comprising the property were
owned by Paragon Group, L.P., an entity non-affiliated with Apple Residential
Income Trust, Inc. Apple Residential Income Trust, Inc. purchased the property
in January, 1997.

In accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission, the statement of income and direct operating expenses excludes
interest and non rent related income and expenses not considered comparable to
those resulting from the proposed future operations of the property. Excluded
expenses are mortgage interest, property depreciation, amortization and
management fees.

F-14

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia

We have audited the accompanying statement of income and direct operating
expenses exclusive of items not comparable to the proposed future operations of
the property Eagle Crest Apartments located in Irving, Texas for the twelve
month period ended December 31, 1996. This statement is the responsibility of
the management of Eagle Crest Apartments. Our responsibility is to express an
opinion on this statement based on our audit.

In our opinion, the statement referred to above presents fairly, in all material
respects, the income and direct operating expenses of Eagle Crest Apartments (as
defined above) for the twelve month period ended December 31, 1996, in
conformity with generally accepted accounting principles.

L.P. Martin & Co., P.C.

Richmond, Virginia
March 27, 1997

F-15

<PAGE>

EAGLE CREST APARTMENTS

STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

TWELVE MONTHS ENDED DECEMBER 31, 1996

INCOME
Rental and Other Income...................... $3,196,618
------------

DIRECT OPERATING EXPENSES
Administrative and Other..................... 212,613
Insurance.................................... 93,379
Repairs and Maintenance...................... 379,120
Taxes, Property.............................. 345,167
Utilities.................................... 305,101
------------
Total Direct Operating Expenses............. 1,335,380
Operating income exclusive of items not
comparable to the proposed future
operations of the property................. $1,861,238
============

NOTE TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Eagle Crest Apartments is a residential garden style apartment complex
consisting of two phases totaling 484 units located on 17.88 acres in Irving,
Texas. Living space totals 429,300 square feet.

During the financial statement period, the assets comprising the property were
owned by entities not affiliated with Apple Residential Income Trust, Inc. Apple
Residential Income Trust, Inc. purchased the property on January 30, 1997.

F-16

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia

We have audited the accompanying statement of income and direct operating
expenses exclusive of items not comparable to the proposed future operations of
the property Tahoe Apartments located in Arlington, Texas for the twelve month
period ended December 31, 1996. This statement is the responsibility of the
management of Tahoe Apartments. Our responsibility is to express an opinion on
this statement based on our audit.

In our opinion, the statement referred to above presents fairly, in all material
respects, the income and direct operating expenses of Tahoe Apartments (as
defined above) for the twelve month period ended December 31, 1996, in
conformity with generally accepted accounting principles.

L. P. Martin & Co., P.C.

Richmond, Virginia
April 11, 1997

F-17

<PAGE>

TAHOE APARTMENTS

STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

TWELVE MONTHS ENDED DECEMBER 31, 1996

INCOME
Rental and Other Income....................... $1,200,270
------------

DIRECT OPERATING EXPENSES
Administrative and Other...................... 118,781
Insurance..................................... 30,606
Repairs and Maintenance....................... 351,750
Taxes, Property............................... 114,578
Utilities..................................... 149,166
------------
Total Direct Operating Expenses.............. 764,881
------------
Operating income exclusive of items not
comparable to the proposed future operations
of the property............................. $ 435,389
============

NOTE TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Tahoe Apartments is a 240 unit residential garden style apartment complex
located on 17.88 acres in Arlington, Texas. Living space totals 160,928 square
feet.

During the financial statement period, the assets comprising the property were
owned by two separate entities, neither of which was affiliated with Apple
Residential Income Trust, Inc. Apple Residential Income Trust, Inc. purchased
the property on January 31, 1997.

F-18

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia

We have audited the accompanying statement of income and direct operating
expenses exclusive of items not comparable to the proposed future operations of
the property Mill Crossing Apartments located in Arlington, Texas for the twelve
month period ended January 31, 1997. This statement is the responsibility of the
management of Mill Crossing Apartments. Our responsibility is to express an
opinion on this statement based on our audit.

In our opinion, the statement referred to above presents fairly, in all material
respects, the income and direct operating expenses of Mill Crossing Apartments
(as defined above) for the twelve month period ended January 31, 1997, in
conformity with generally accepted accounting principles.

L. P. Martin & Co., P.C.

Richmond, Virginia
April 29, 1997

F-19

<PAGE>

MILL CROSSING APARTMENTS

STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

TWELVE MONTH PERIOD ENDED JANUARY 31, 1997

INCOME
Rental and Other Income....................... $908,336
-----------
DIRECT OPERATING EXPENSES
Administrative and Other...................... 102,522
Insurance..................................... 23,714
Repairs and Maintenance....................... 216,500
Taxes, Property............................... 91,663
Utilities..................................... 148,270
-----------
Total Direct Operating Expenses ............. 582,669
-----------
Operating income exclusive of items not
comparable to the proposed future operations
of the property............................. $325,667
===========

NOTE TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Mill Crossing Apartments is a 184 unit garden style apartment complex located on
8 acres in Arlington, Texas. Living space totals 127,168 square feet.

F-20

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia

We have audited the accompanying statement of income and direct operating
expenses exclusive of items not comparable to the proposed future operations of
the property Polo Run Apartments located in Arlington, Texas for the twelve
month period ended February 28, 1997. This statement is the responsibility of
the management of Polo Run Apartments. Our responsibility is to express an
opinion on this statement based on our audit.

In our opinion, the statement referred to above presents fairly, in all material
respects, the income and direct operating expenses of Polo Run Apartments (as
defined above) for the twelve month period ended February 28, 1997, in
conformity with generally accepted accounting principles.

L. P. Martin & Co., P.C.

Richmond, Virginia
May 21, 1997

F-21

<PAGE>

POLO RUN APARTMENTS

STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

TWELVE MONTHS ENDED FEBRUARY 28, 1997

INCOME
Rental and Other Income....................... $1,304,547
------------
DIRECT OPERATING EXPENSES
Administrative and Other...................... 101,400
Insurance..................................... 28,521
Repairs and Maintenance ...................... 257,602
Taxes, Property............................... 133,509
Utilities .................................... 128,924
------------
Total Direct Operating Expenses ............. 649,956
------------
Operating income exclusive of items not
comparable to the proposed future operations
of the property............................. $ 654,591
============

NOTE TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Polo Run Apartments is a 224 unit residential garden style apartment complex
located on 9.15 acres in Arlington, Texas.

During the financial statement period, the assets comprising the property were
owned by A V Polo Run Associates, Ltd. Apple Residential Income Trust, Inc.
subsequently purchased the property.

F-22

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia

We have audited the accompanying statement of income and direct operating
expenses exclusive of items not comparable to the proposed future operations of
the property Wildwood Apartments located in Euless, Texas for the twelve month
period ended February 28, 1997. This statement is the responsibility of the
management of Wildwood Apartments. Our responsibility is to express an opinion
on this statement based on our audit.

In our opinion, the statement referred to above presents fairly, in all material
respects, the income and direct operating expenses of Wildwood Apartments (as
defined above) for the twelve month period ended February 28, 1997, in
conformity with generally accepted accounting principles.

L. P. Martin & Co., P.C.

Richmond, Virginia
June 4, 1997

F-23

<PAGE>

WILDWOOD APARTMENTS

STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

TWELVE MONTH PERIOD ENDED FEBRUARY 28, 1997

INCOME
Rental and Other Income....................... $809,555
----------
DIRECT OPERATING EXPENSES
Administrative and Other...................... 110,035
Insurance..................................... 15,246
Repairs and Maintenance....................... 123,470
Taxes, Property............................... 85,616
Utilities .................................... 78,937
----------
Total Direct Operating Expenses ............. 413,304
----------
Operating income exclusive of items not
comparable to the proposed future operations
of the property............................. $396,251
==========

NOTE TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Wildwood Apartments is a 120 unit garden style apartment complex located on
10.01 acres in Euless, Texas.

The assets comprising the property were owned by Western Rim Investors 1991-4,
L.P., an entity unaffiliated with Apple Residential Income Trust, Inc., during
the financial statement period. Apple Residential Income Trust, Inc.
subsequently purchased the property.

In accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission, the statement of income and direct operating expenses excludes
interest and non rent related income and expenses not considered comparable to
those resulting from the proposed future operations of the property. Excluded
expenses are property depreciation, amortization, professional fees and
management fees.

F-24

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia

We have audited the accompanying statement of income and direct operating
expenses exclusive of items not comparable to the proposed future operations of
the property Toscana Apartments located in Dallas, Texas for the twelve month
period ended February 28, 1997. This statement is the responsibility of the
management of Toscana Apartments. Our responsibility is to express an opinion on
this statement based on our audit.

In our opinion, the statement referred to above presents fairly, in all material
respects, the income and direct operating expenses of Toscana Apartments (as
defined above) for the twelve month period ended February 28, 1997, in
conformity with generally accepted accounting principles.

L. P. Martin & Co., P.C.

Richmond, Virginia
June 4, 1997

F-25

<PAGE>

TOSCANA APARTMENTS

STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

TWELVE MONTH PERIOD ENDED FEBRUARY 28, 1997

INCOME
Rental and Other Income....................... $1,083,249
------------
DIRECT OPERATING EXPENSES
Administrative and Other...................... 128,884
Insurance..................................... 18,985
Repairs and Maintenance....................... 117,117
Taxes, Property............................... 123,710
Utilities .................................... 84,886
------------
Total Direct Operating Expenses ............. 473,582
------------
Operating income exclusive of items not
comparable to the proposed future operations
of the property............................. $ 609,667
============

NOTE TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

Toscana Apartments is a 192 unit garden style apartment complex located on 3.975
acres in Dallas, Texas.

The assets comprising the property were owned by Western Rim Investors 1993-2,
L.P., an entity unaffiliated with Apple Residential Income Trust, Inc., during
the financial statement period. Apple Residential Income Trust, Inc.
subsequently purchased the property.

In accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission, the statement of income and direct operating expenses excludes
interest and non rent related income and expenses not considered comparable to
those resulting from the proposed future operations of the property. Excluded
expenses are property depreciation, amortization, professional fees and
management fees.

F-26

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Apple Residential Income Trust, Inc.
Richmond, Virginia

We have audited the accompanying statement of income and direct operating
expenses exclusive of items not comparable to the proposed future operations of
the property The Arbors on Forest Ridge Apartments located in Bedford, Texas for
the twelve month period ended February 28, 1997. This statement is the
responsibility of the management of The Arbors on Forest Ridge Apartments. Our
responsibility is to express an opinion on this statement based on our audit.

In our opinion, the statement referred to above presents fairly, in all material
respects, the income and direct operating expenses of The Arbors on Forest Ridge
Apartments (as defined above) for the twelve month period ended February 28,
1997, in conformity with generally accepted accounting principles.

L. P. Martin & Co., P.C.

Richmond, Virginia
June 4, 1997

F-27

<PAGE>

ARBORS ON FOREST RIDGE APARTMENTS

STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES EXCLUSIVE OF
ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

INCOME
Rental and Other Income....................... $1,381,014

DIRECT OPERATING EXPENSES
Administrative and Other...................... 111,636
Insurance..................................... 34,263
Repairs and Maintenance....................... 109,577
Taxes, Property............................... 147,923
Utilities .................................... 85,182
------------
Total Direct Operating Expenses ............. 488,581
------------
Operating income exclusive of items not
comparable to the proposed future operations
of the property............................. $ 892,433
============

NOTE TO THE STATEMENT OF INCOME AND DIRECT OPERATING EXPENSES
EXCLUSIVE OF ITEMS NOT COMPARABLE TO THE PROPOSED FUTURE
OPERATIONS OF THE PROPERTY

NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION

The Arbors on Forest Ridge Apartments is a 210 unit garden style apartment
complex located on 8.913 acres in Bedford, Texas.

The assets comprising the property were owned by Western Rim Investors 1992-5,
L.P., an entity unaffiliated with Apple Residential Income Trust, Inc., during
the financial statement period. Apple Residential Income Trust, Inc.
subsequently purchased the property.

In accordance with Rule 3-14 of Regulation S-X of the Securities and Exchange
Commission, the statement of income and direct operating expenses excludes
interest and non rent related income and expenses not considered comparable to
those resulting from the proposed future operations of the property. Excluded
expenses are property depreciation, amortization, professional fees and
management fees.

F-28

<PAGE>

PRO FORMA BALANCE SHEET AS OF MARCH 31, 1997 (UNAUDITED)

The accompanying Unaudited Pro Forma Balance Sheet as of March 31, 1997 is
presented as if the Company had owned all of its properties (other than Pace's
Cove) on March 31, 1997. In the opinion of management, all adjustments necessary
to reflect the effects of the offering have been made.

The Unaudited Pro Forma Balance Sheet is presented for comparative purposes
only, and is not necessarily indicative of what the actual financial position of
the Company would have been at March 31, 1997, nor does it purport to represent
the future financial position of the Company. This Unaudited Pro Forma Balance
Sheet should be read in conjunction with, and is qualified in its entirety by,
the respective historical financial statements and notes thereto of the Company.
The Pro Forma column assumes the Company used the proceeds from its offerings to
acquire certain properties.

<TABLE>
<CAPTION>
HISTORICAL THE ARBORS
BALANCE PRO FORMA TOTAL
SHEET ADJUSTMENTS PRO FORMA
-------------- ------------- --------------
<S> <C> <C> <C>
ASSETS
Investment in rental property
Land.................................... $ 8,686,051 $ 711,350 $ 9,397,401
Building................................ 40,821,725 7,192,535 48,014,260
Property improvements................... 130,343 -- 130,343
Furniture and fixtures.................. 80,257 -- 80,257
-------------- ------------- --------------
49,718,376 7,903,885 57,622,261
Less accumulated depreciation........... (137,689) -- (137,689)
-------------- ------------- --------------
49,580,687 7,903,885 57,484,572
Cash and cash equivalents............... 1,383,740 -- 1,383,740
Prepaid expenses........................ 132,486 -- 132,486
Other assets ........................... 738,614 -- 738,614
-------------- ------------- --------------
Total Assets............................. $51,835,527 $7,903,885 $59,739,412
============== ============= ==============
LIABILITIES
Notes payable .......................... $10,000,000 -- $10,000,000
Accounts payable ....................... 508,843 -- 508,843
Accrued expenses........................ 643,364 -- 643,364
Rents received in advance .............. 19,241 -- 19,241
Tenant security deposits ............... 214,087 -- 214,087
-------------- ------------- --------------
11,385,535 -- 11,385,535
SHAREHOLDERS' EQUITY
Common stock, no par value.............. $39,893,737 $7,903,885 $47,797,622
Class B Convertible Stock, no par value. 20,000 -- 20,000
Receivable from principal shareholder... (20,000) -- (20,000)
Net income.............................. 556,255 -- 556,255
-------------- ------------- --------------
40,449,992 7,903,885 48,353,877
Total Liabilities and Shareholders'
Equity.................................. $51,835,527 $7,903,885 $59,739,412
============== ============= ==============

</TABLE>

NOTES TO PRO FORMA BALANCE SHEET

Pro Forma adjustments represents the purchase price of the related property,
including the 2% acquisition fee allocated between land and building.
Adjustments to common stock reflect the net proceeds from sales of common stock
from the Company's continuous offering.

F-29

<PAGE>
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)

The accompanying Unaudited Pro Forma Statement of Operations for the year ended
December 31, 1996 is presented as if (a) the Company had acquired the properties
shown below on January 1, 1996; (b) the Company had qualified as a REIT,
distributed at least 95% of its taxable income and, therefore, incurred no
federal income tax liability for the period presented; and (c) the Company had
used proceeds from its best efforts offering to acquire the properties. The
Company had no operations during the period ending December 31, 1996.
Accordingly, the Company had no revenue or operating profits or loss.

The Unaudited Pro Forma Statement of Operations is presented for comparative
purposes only and is not necessarily indicative of what the actual results of
the Company would have been for the year ended December 31, 1996 if the
acquisitions and offering had occurred at the beginning of the period presented,
nor does it purport to be indicative of the results of operations in future
periods. The Unaudited Pro Forma Statement of Operations should be read in
conjunction with, and is qualified in its entirety by, the respective historical
financial statements and notes thereto of the Company.

<TABLE>
<CAPTION>
HISTORICAL EAGLE MILL
STATEMENT BROOKFIELD CREST TAHOE CROSSING POLO RUN WILDWOOD
OF PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
OPERATIONS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
------------ ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dates of Acquisitions............. -- 1/31/97 1/31/97 1/31/97 2/28/97 3/31/97 3/31/97
Rental income..................... -- $1,198,543 $3,196,618 $1,200,270 $908,336 $1,304,547 $809,555
Expenses
Utilities........................ -- 92,664 305,101 149,166 148,270 128,924 78,937
Repairs and maintenance.......... -- 174,233 379,120 351,750 216,500 257,602 123,470
Taxes and insurance.............. -- 152,636 438,546 145,184 115,377 162,030 100,862
Property management fee.......... -- -- -- -- -- -- --
Advertising...................... -- 30,567 53,153 29,695 25,631 25,350 27,509
Other operating expenses......... -- -- -- -- -- -- --
General and administrative ...... -- -- -- -- -- -- --
-- -- -- -- -- -- --
Depreciation of real estate...... -- -- -- -- -- -- --
Amortization..................... -- -- -- -- -- -- --
Other............................ -- 91,702 159,460 89,086 76,891 76,050 82,526
------------ ----------- ----------- ----------- ------------- ----------- -----------
-- 541,802 1,335,380 764,881 582,669 649,956 413,304
Interest before interest income .. -- 656,741 1,861,238 435,389 325,667 654,591 396,251
Interest income.................. -- -- -- -- -- -- --
------------ ----------- ----------- ----------- ------------- ----------- -----------
Net income........................ -- 656,741 1,861,238 435,389 325,667 654,591 396,251
============ =========== =========== =========== ============= =========== ===========
Net income per share.............. --
============
Weighted average number of shares
outstanding...................... --
============
</TABLE>

<PAGE>

<TABLE>

TOSCANA THE ARBORS 1997
PRO FORMA PRO FORMA PRO FORMA TOTAL
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Dates of Acquisitions............. 3/31/97 4/25/97 -- --
Rental income..................... $1,083,249 $1,381,014 -- $11,082,132
Expenses
Utilities........................ 84,886 85,182 -- 1,073,130
Repairs and maintenance.......... 117,117 109,577 -- 1,729,369
Taxes and insurance.............. 142,695 182,188 -- 1,439,516
Property management fee.......... -- -- 610,687 (A) 610,687
Advertising...................... 32,221 27,909 -- 252,035
Other operating expenses......... -- -- -- --
General and administrative ...... -- -- 142,045 (B) 452,045
-- -- 310,000 (D) --
Depreciation of real estate...... -- -- 1,684,363 (C) 1,684,363
Amortization..................... -- -- -- --
Other............................ 96,663 83,727 -- 756,105
----------- ----------- ------------- -----------
473,582 488,581 2,747,094 7,997,249
Interest before interest income .. 609,667 892,433 (2,747,094) 3,084,883
Interest income.................. -- -- -- --
----------- ----------- ------------- -----------
Net income........................ 609,667 892,433 (2,747,094) 3,084,883
=========== =========== ============= ===========
Net income per share.............. $ 0.46
===========
Weighted average number of shares
outstanding...................... $ 6,705,112
===========
</TABLE>

The pro forma information reflects adjustments for the actual rental income and
rental expenses for the properties for the period in 1997 prior to their
acquisition by the Company. Net income has been adjusted as follows: (A)
property management and advisory expenses have been adjusted based on the
Company's contractual arrangements of 5% of revenues from rental income plus
reimbursement of certain expenses estimated to be $2.50 per unit; (B) advisory
expenses have been adjusted based on the Company's contractual arrangement of
.25% of gross proceeds from sales of common stock; (C) depreciation has been
adjusted based on the Company's allocation of purchase price to buildings over
an estimated useful life of 27.5 years; and (D) an increase in general and
administrative expenses related to operations as a public REIT, consisting of
directors and officers insurance, investor relations, corporate accounting,
legal fees and director expenses.

F-30

<PAGE>

PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)

The accompanying Unaudited Pro Forma Statement of Operations for the three
months ended March 31, 1997 is presented as if (a) the Company had acquired the
properties shown below on January 1, 1997; (b) the Company had qualified as a
REIT, distributed at least 95% of its taxable income and, therefore, incurred no
federal income tax liability for the period presented; and (c) the Company had
used proceeds from its best efforts offering to acquire the properties.

The Unaudited Pro Forma Statement of Operations is presented for comparative
purposes only and is not necessarily indicative of what the actual results of
the Company would have been for the three months ended March 31, 1997 if the
acquisitions and offering had occurred at the beginning of the period presented,
nor does it purport to be indicative of the results of operations in future
periods. The Unaudited Pro Forma Statement of Operations should be read in
conjunction with, and is qualified in its entirety by, the respective historical
financial statements and notes thereto of the Company.

<TABLE>
<CAPTION>
HISTORICAL EAGLE MILL
STATEMENT BROOKFIELD CREST TAHOE CROSSING POLO RUN WILDWOOD
OF PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
OPERATIONS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
------------ ----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dates of Acquisitions............. -- 1/31/97 1/31/97 1/31/97 2/28/97 3/31/97 3/31/97
Rental income..................... $1,155,766 $ 99,879 $266,385 $100,023 $151,389 $326,137 $202,389
Expenses
Utilities........................ 98,538 7,722 25,425 12,431 24,712 32,231 19,734
Repairs and maintenance.......... 59,600 14,519 31,593 29,313 36,083 64,401 30,868
Taxes and insurance.............. 106,098 12,720 36,546 12,099 19,230 40,508 25,216
Property management fee.......... 60,663 -- -- -- -- -- --
Advertising...................... 33,475 2,547 4,429 2,475 4,272 6,338 6,877
Other operating expenses......... 92,970 -- -- -- -- -- --
General and administrative....... 77,502 -- -- -- -- -- --
Depreciation of real estate...... 137,689 -- -- -- -- -- --
Amortization..................... 8,476 -- -- -- -- -- --
Other............................ 9,434 7,642 13,288 7,424 12,815 19,013 20,632
------------ ----------- ----------- ----------- ------------- ----------- -----------
684,445 45,150 111,281 63,742 97,112 162,491 103,327
Income before interest income .... 471,321 54,729 155,104 36,281 54,277 163,646 99,062

Interest income.................. 84,934 -- -- -- -- -- --
------------ ----------- ----------- ----------- ------------- ----------- -----------
Net income........................ 556,255 54,729 155,104 36,281 54,277 163,646 99,062
============ =========== =========== =========== ============= =========== ===========
Net income per share.............. 0.16
------------
Weighted average number of shares
outstanding...................... 3,403,759
============

</TABLE>

<PAGE>

TOSCANA THE ARBORS 1997
PRO FORMA PRO FORMA PRO FORMA TOTAL
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Dates of Acquisitions............. 3/31/97 4/25/97 -- --
Rental income..................... $270,812 $345,254 -- $2,918,034
Expenses
Utilities........................ 21,222 21,296 -- 263,311
Repairs and maintenance.......... 29,279 27,394 -- 323,050
Taxes and insurance.............. 35,674 45,547 -- 333,638
Property management fee.......... -- -- 97,016 (A) 157,679
Advertising...................... 8,055 6,977 -- 75,445
Other operating expenses......... -- -- -- 92,970
General and administrative....... -- -- 23,184 (B) 100,686
Depreciation of real estate...... -- -- 280,938 (C) 418,627
Amortization..................... -- -- -- 8,476
Other............................ 24,166 20,932 -- 135,346
----------- ----------- ----------- ----------
118,396 122,146 401,138 1,909,228
Income before interest income .... 152,416 223,108 (401,138) 1,008,806

Interest income.................. -- -- -- 84,934
----------- ----------- ----------- ----------
Net income........................ 152,416 223,108 (401,138) 1,093,740
=========== =========== =========== ==========
Net income per share.............. $ 0.13
----------
Weighted average number of shares
outstanding...................... 7,917,475
==========

</TABLE>

F-31