APPLE RESIDENTIAL INCOME TRUST INC, 424B3, 1998-05-06

APPLE RESIDENTIAL INCOME TRUST INC
424B3, 1998-05-06
REAL ESTATE INVESTMENT TRUSTS

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FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-10635

STICKER SUPPLEMENT TO SUPPLEMENT NO. 9 DATED APRIL 30, 1998;
SUPPLEMENT NO. 9 DATED APRIL 30, 1998 IS TO BE USED IN
CONJUNCTION WITH PROSPECTUS DATED NOVEMBER 19, 1996

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

Supplement No. 9 dated April 30, 1998 (incorporating Supplements No. 1, No. 2,
No. 3, No. 4, No. 5, No. 6, No. 7 and No. 8):

(1) Reports on the acquisition by the Company of fifteen 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, and
on certain other relationships with Cornerstone Realty Income Trust,
Inc.
(3) Reports on the transfer of all of the Company's properties to a
limited partnership subsidiary indirectly wholly-owned by the Company
(the "Reorganization") and the adoption of certain amendments to the
Company's Bylaws related to the Reorganization.
(4) Provides 1997 financial statements and certain other updated
information concerning the Company and its properties.
(5) Reports on the possible future acquisition by the Company of up to six
additional properties.

As of March 31, 1998 the Company had closed the sale of 2,084,444 Shares at
$9 per Share, and 14,624,373 Shares at $10 per Share, representing aggregate
gross proceeds to the Company of $165,003,732, and proceeds net of selling
commissions and marketing expense allowance of $148,879,359. 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 March 31, 1998, approximately $36 million was not invested or
committed to investment, although such amounts would be fully invested if the
Company acquired the properties described under "Possible Additional Property
Acquisitions" in the Supplement.

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 completed property
acquisitions described in the Supplement, Apply Realty Group, Inc., an Affiliate
of the Advisor, or Cornerstone Realty Income Trust, Inc., as
successor-in-interest to Apple Realty Group, Inc., received property acquisition
fees totaling $2,230,948.

<PAGE>

FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-10635

SUPPLEMENT NO. 9 DATED APRIL 30, 1998 IS TO BE USED IN
CONJUNCTION WITH PROSPECTUS DATED NOVEMBER 19, 1996

SUPPLEMENT NO. 9 DATED APRIL 30, 1998
TO PROSPECTUS DATED NOVEMBER 19, 1996
(INCORPORATING SUPPLEMENTS NO. 1, NO. 2, NO. 3, NO. 4, NO. 5, NO. 6, NO. 7 AND
NO. 8)

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. 9 INCORPORATES AND THEREBY REPLACES SUPPLEMENT
NO. 1 DATED FEBRUARY 10, 1997, SUPPLEMENT NO. 2 DATED APRIL 28, 1997, SUPPLEMENT
NO. 3 DATED JUNE 24, 1997, SUPPLEMENT NO. 4 DATED JULY 30, 1997, SUPPLEMENT NO.
5 DATED OCTOBER 31, 1997, SUPPLEMENT NO. 6 DATED DECEMBER 11, 1997, SUPPLEMENT
NO. 7 DATED FEBRUARY 2, 1998 AND SUPPLEMENT NO. 8 DATED FEBRUARY 13, 1998.

TABLE OF CONTENTS TO SUPPLEMENT NO. 9

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Status of the Offering .................................................................. S-2
Developments Involving Cornerstone Realty Income Trust, Inc ............................. S-2
Developments Affecting Directors; Committee Members. .................................... S-4
Compensation of Executive Officers and Directors ........................................ S-4
Unsecured Line of Credit ................................................................ S-5
Property Acquisitions ................................................................... S-5
Possible Additional Property Acquisitions ............................................... S-33
Security Ownership of Certain Beneficial Owners and Management .......................... S-35
Selected Financial Data ................................................................. S-37
Management's Discussion and Analysis of Financial Condition and Results of Operations ... S-37
Transfer of Assets to Subsidiary Partnership ............................................ S-40
Federal Income Tax Developments ......................................................... S-42
Experts ................................................................................. S-43
Update on Experience of Prior Programs .................................................. S-44
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 and the information in this Supplement. Although the Company
believes that the assumptions underlying the forward-looking statements
contained in the Prospectus and the Supplement 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 Supplement will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included in the Prospectus or the Supplement, 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 March 31, 1998, the Company (as the context requires, the term
"Company" used herein shall be deemed to include Apple Residential Income Trust,
Inc. and its subsidiaries, Apple General Inc., Apple Limited, Inc., and Apple
REIT Limited Partnership. See "Transfer of Assets to Subsidiary Partnership")
had closed the sale to investors of 2,084,444 Shares at $9 per Share, and
14,624,373 Shares at $10 per Share, representing aggregate gross proceeds to the
Company of $165,003,732, and proceeds net of selling commissions and marketing
expense allowance of $148,879,359. These totals include 417,778 Shares purchased
by Cornerstone Realty Income Trust, Inc., as described below under "Developments
Involving Cornerstone Realty Income Trust, Inc. -- Authorization For Additional
Share Issuance."

There is currently no established public market in which the Company's
Shares are traded. The Company's transfer agent and registrar is First Union
National Bank.

On March 31, 1998, there were 6,471 shareholders of record of the Company's
Shares, and there were 16,708,817 Shares outstanding.

Distributions of $3,249,098 were made to the shareholders during 1997.
Distributions were $.20 per Share for the second, third and fourth quarters in
1997.

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 public 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 417,778 Shares of the Company for approximately $3.76 million.
Cornerstone owns approximately 2.5% of the Shares of the Company outstanding on
March 31, 1998.

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, from time
to time, stated its intention 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.

S-2

<PAGE>

Early in 1997, Cornerstone stated its intention to evaluate the possible
acquisition of the Company by the end of 1997. The Company has been informed (by
Cornerstone) that Cornerstone, with the assistance of certain professional
advisors, evaluated the desirability to Cornerstone and its shareholders of
acquiring the Company in 1997, and determined that it was not in the best
interest of Cornerstone and its shareholders to seek to acquire the Company at
that time. However, the Company has been informed (by Cornerstone) that
Cornerstone expects to reevaluate the desirability of seeking to acquire the
Company from time to time in the future.

PROVIDING OF CERTAIN SERVICES BY CORNERSTONE. As described in the
Prospectus under "The Advisor and Affiliates," the Company 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, 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, effective March 1, 1997, 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, effective March 1, 1997, acquired all the assets of
ARG (consisting principally of ARG's contract with the Company), whose sole
owner at that time was Glade M. Knight, for consideration totalling $2 million
(consisting of $350,000 in cash and $1,650,000 in Cornerstone common shares
(150,000 Cornerstone common shares valued at $11 per Cornerstone common share)),
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 now renders 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. As an
entity rendering services to the Company in exchange for certain fees and
expense reimbursements, Cornerstone has an interest in keeping such agreements
in effect. If Cornerstone were to acquire the Company or its properties (as
discussed above under "Developments Involving Cornerstone Realty Income Trust,
Inc. -- Possible Acquisition of the Company by Cornerstone"), these agreements
and the fees received by Cornerstone under the agreements would cease.
Accordingly, Cornerstone could be subject to conflicting considerations in
deciding whether or not to seek to acquire Apple or its properties at any
particular point in time. See the discussion under "Security Ownership of
Certain Beneficial Owners and Management" herein for an explanation of why the
ownership of Class B Convertible Shares in the Company by Mr. Knight and others
could also provide an incentive to delay a proposed acquisition by Cornerstone
of the Company.

Prior to March 1, 1997, Mr. Knight was the sole owner of ARMG and ARA. For
the period prior to March 1, 1997, the Company paid to ARMG a management fee
plus reimbursement of certain expenses in the amount of $52,375 and to ARA an
advisory fee in the amount of $14,894. For the period March 1, 1997 through
December 31, 1997, the Company paid to Cornerstone $822,934 in management and
advisory fees and $214,961 in certain reimbursable items. For the period prior
to March 1, 1997, the Company paid to ARG fees in the amount of $624,382. For
the period from March 1, 1997 through December 31, 1997, the Company paid to
Cornerstone approximately $1,116,566 under the property acquisition and
disposition agreement with the Company.

CORNERSTONE OPERATIONS. Through December 31, 1997, Cornerstone had sold
approximately $354 million in common shares to approximately 14,000 investors,
and had acquired 51 apartment communities in Virginia, North Carolina, South
Carolina and Georgia. The aggregate cost of the 51 properties (including capital
improvements thereto) was approximately $488 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 December 31, 1997, approximately $146 million remained unpaid on such line of
credit. See also "Update on Experience of Prior Programs" herein. Cornerstone's
common shares were first listed and began trading on the New York Stock Exchange
on April 18, 1997.

S-3

<PAGE>

DEVELOPMENTS AFFECTING DIRECTORS; COMMITTEE MEMBERS

The Company's four Directors currently are Glade M. Knight, Penelope W.
Kyle, Bruce H. Matson and Lisa B. Kern. Ms. Kyle is also a member of the Board
of Directors of Cornerstone. Information with respect to Messrs. Knight and
Matson and Ms. Kyle can be found in the Prospectus under the heading
"Management." Information on Ms. Kern is set forth below.

LISA B. KERN. Ms. Kern, age 37, 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.

Effective February 4, 1998, Ted W. Smith ceased to serve as a Director of
the Company. Mr. Smith also ceased to serve as an officer of ARMG.

The current members of the Company's Executive Committee are Glade M.
Knight (age 53), Penelope W. Kyle (age 50), and Bruce H. Matson (age 40). The
current members of the Audit Committee are Penelope W. Kyle and Lisa B. Kern.
The current members of the Compensation Committee are Bruce H. Matson and
Penelope W. Kyle. The Board expects to appoint a third member to the Audit
Committee shortly. 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."

The 1998 Annual Meeting of Shareholders of the Company will be held at the
Company's executive offices at 306 East Main Street, Richmond, Virginia 23219,
on Tuesday, May 12, 1998, beginning at 10:00 a.m. The sole item on the agenda
for consideration is the re-election of the four current Directors to an
additional term of one year each. The holders of Shares of record at the close
of business on March 20, 1998 are entitled to vote at the meeting. If a quorum
is present, the four candidates receiving the greatest number of affirmative
votes of Shares will be elected directors of the Company. At the close of
business on the record date, the Company had 16,708,817 Shares outstanding and
entitled to vote.

During 1997, the Board of Directors held five meetings and the Executive
Committee held no meetings. The Audit Committee met three times during the year
and the Compensation Committee met one time. Each Director attended at least 75%
of the aggregate of the number of meetings of the Board and of the Committee to
which he or she was assigned.

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

The Company did not pay a salary to its sole executive officer (Glade M.
Knight) for the year ending December 31, 1997. The Company operates as an
"externally-advised" and "externally-managed" REIT.

During 1997, independent Directors (Mss. Kern and Kyle and Mr. Matson)
received annual directors' fees of $5,000 plus $500 for each meeting of the
Board and $100 for each committee meeting attended; however, independent
Directors did not receive any compensation for attending a committee meeting if
it occurred on the same day as a meeting of the entire Board of Directors.
Non-independent Directors received no compensation from the Company for their
service as Directors. All Directors were reimbursed by the Company for their
travel and other out-of-pocket expenses incurred in attending meetings of the
Directors or a committee and in conducting the business of the Company.

In addition, in 1997, each independent Director received an option to
purchase 6,850 Shares, exercisable at $10 per Share. Independent Directors will
receive additional Share options in 1998 and future years under the Company's
Non-Employee Directors Stock Option Plan.

In 1997, no Share options or restricted Shares were issued to the Company's
officers or employees. The Compensation Committee expects that it may issue
Share options and/or restricted Shares to selected Company officers and
employees in 1998 and in future years. The Compensation Committee

S-4

<PAGE>

intends to propose and recommend grants that reward officers and employees for
actions that benefit the Company and its shareholders and that align the
interests of the officers and employees with those of the Company and its
shareholders.

In December 1997 the Compensation Committee approved and adopted a plan
pursuant to which certain employees of the Company would be eligible for grants
of options to purchase up to 87,000 Shares (in the aggregate for all such
employees) based upon such employees and/or the Company meeting or exceeding
performance goals for 1998 as specified by the Chairman. If such performance
goals are met, such options are expected to be issued to eligible persons (who
are still employees) in the early part of 1999.

UNSECURED LINE OF CREDIT

As contemplated by the discussion in the Prospectus under the heading
"Business and Properties - Properties Owned by the Company," in 1997 the Board
of Directors authorized, and the Company obtained, an unsecured line of credit,
which was designed to facilitate the timely acquisition of properties deemed
attractive by management. The unsecured line of credit the ("Unsecured Line of
Credit") was from First Union National Bank of Virginia. The Unsecured Line of
Credit was used to facilitate several property acquisitions in 1997, as
described under "Property Acquisitions" herein, and all amounts borrowed under
the Unsecured Line of Credit were subsequently repaid using proceeds from the
sale of Shares.

As of the date of this Supplement, the documents evidencing the Unsecured
Line of Credit have not been amended to extend the maturity date beyond March
31, 1998 or to reflect the reorganization transactions described below in this
Supplement under "Transfer of Assets to Subsidiary Partnership." Unless and
until such documents are so amended, with the consent of the lender, the
Unsecured Line of Credit will not be available for further use by the Company.

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.

PROPERTY ACQUISITIONS

As of the date of this Supplement, the Company owns the following
properties (the "Properties"):

NUMBER OF DATE OF
NAME LOCATION UNITS ACQUISITION
---- -------- ----- -----------
<S> <C> <C> <C>
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
Remington Hills Irving, TX 362 8-6-97
Copper Crossing Fort Worth, TX 200 11-24-97
Main Park Duncanville, TX 192 2-4-98
Timberglen Dallas, TX 304 2-13-98
Copper Ridge Fort Worth, TX 200 3-31-98
</TABLE>

In connection with each of its Property acquisitions, the Company obtains a
Phase I Environment Report and such additional environmental reports and surveys
as are necessitated by such preliminary report. Based on such reports, the
Company is not aware of any environmental situations requiring remediation at
its Properties, which have not been or are not currently being remediated as
necessary.

S-5

<PAGE>

Additional information on the 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.

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 currently has budgeted
approximately $289,000 (and as of March 31, 1998 had expended approximately
$239,000) for repairs and improvements, including clubhouse renovation,
painting, wood replacement, parking lot repair, interior upgrades (including new
appliances) and pool improvements.

S-6

<PAGE>

The Property offers seven different unit types. The unit mix and rents
being charged new tenants as of March 1998 are as follows:

<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
39 One bedroom, one bath 578 $450
9 One bedroom, one bath (view) 578 465
36 One bedroom, one bath w/sunroom 658 495
12 One bedroom, one bath w/sunroom (view) 658 500
24 One bedroom, one bath w/WD connections 669 510
48 One bedroom, one bath w/WD connections,
FP, bookshelves 661 525
64 Two bedrooms, two baths w/WD connections,
FP, bookshelves 913 650
</TABLE>

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 1993, $530 in
1994, $545 in 1995, $565 in 1996, and $650 in 1997. The average effective annual
rental per square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was
$7.11, $7.24, $7.45, $7.72 and $8.12, 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,
miniblinds, 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 wood-burning 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 averaged
approximately 95% at March 31, 1998.

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. Based in part on information provided by the seller,
physical occupancy in 1997 averaged 99%. On March 31, 1998, the Property was 98%
occupied. The residents are a mix of blue-collar and white-collar workers,
students and retired persons.

S-7

<PAGE>

The following table sets forth the 1997 real estate tax information on the
Property:

<TABLE>
<CAPTION>
ASSESSED
JURISDICTION VALUE RATE TAX
------------ ----- ---- ---
<S> <C> <C> <C>
County of Dallas ......... $5,605,190 $ 0.44307 $ 24,834.92
City of Dallas ........... 5,605,190 2.11213 118,388.90
-------------
Total ................... $ 143,223.82

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $4,531,091) will generally 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 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 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.

S-8

<PAGE>

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 currently has budgeted
approximately $968,000 (and as of March 31, 1998 had expended approximately
$962,000) for repairs and improvements, including clubhouse renovations,
structural repair of shrink/swell soil conditions, painting, wood replacement,
interior upgrades (including new appliances), parking lot resurfacing,
landscaping and pool improvements.

The Property offers a wide range of units types. The unit mix and rents
being charged new tenants as of March 1998 are as follows:

<TABLE>
<CAPTION>
APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
116 One bedroom, one bath 698 $555
120 One bedroom, one bath 796 580
4 One bedroom, one bath, sunroom, bar 798 615
48 One bedroom, one bath 896 640
24 Two bedrooms, one bath 912 640
63 Two bedrooms, two baths 1023 705
80 Two bedrooms, two baths 1089 730
1 Two bedrooms, two baths, sunroom 1123 755
4 Two bedrooms, two baths, sunroom, bar 1189 790
21 Two bedrooms, two baths 1124 790
3 Two bedrooms, two baths, sunroom 1224 850

</TABLE>

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 1993, $445 in
1994, $469 in 1995, $485 in 1996, and $550 in 1997. The average effective annual
rental per square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was
$7.17, $7.17, $7.56, $7.81 and $8.00, 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.

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.

S-9

<PAGE>

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 averaged
approximately 96% at March 31, 1998.

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. Based in part on information provided by the seller,
physical occupancy in 1997 averaged 94%. On March 31, 1998, the Property was 96%
occupied. The tenants are a mix of white-collar and blue-collar workers.

The following tables set forth the 1997 real estate tax information on the
Property:

PHASE I

ASSESSED
JURISDICTION VALUE RATE TAX
------------ ----- ---- ---
<S> <C> <C> <C>
County of Dallas ............... $8,959,260 $ 0.44307 $ 39,195.79
City of Irving ................. 8,959,260 0.49300 44,169.15
Irving School District ......... 8,959,260 1.64840 147,684.44
-------------
Total ......................... $ 231,549.38
</TABLE>

PHASE II

ASSESSED
JURISDICTION VALUE RATE TAX
------------ ----- ---- ---
<S> <C> <C> <C>
County of Dallas ............... $5,763,450 $ 0.44307 $ 25,536.12
City of Irving ................. 5,763,450 0.49300 28,413.81
Irving School District ......... 5,763,450 1.64840 95,004.71
-------------
Total ......................... $ 148,954.64
-------------
Grand Total ................... $ 380,504.02
</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $13,168,390) will generally 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 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.

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.

S-10

<PAGE>

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 currently has budgeted
approximately $1,205,000 (and as of March 31, 1998 had expended approximately
$1,155,242) for repairs and improvements including clubhouse renovation,
retaining wall repairs, landscaping, exterior painting and exterior siding
replacement, interior upgrades (including new appliances), parking lot
resurfacing and landscaping.

The Property offers five different unit types. The unit mix and rents being
charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
64 One bedroom, one bath 480 $415
64 One bedroom, one bath 575 445
48 One bedroom, one bath 634 480
32 Two bedrooms, two baths 941 640
32 Two bedrooms, two baths 1,027 695

</TABLE>

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 $345 in 1993, $365 in 1994, $394 in
1995, $404 in 1996, and $430 in 1997. The average effective annual rental per
square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was $6.91,
$7.31, $7.89, $8.09 and $8.44, 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 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.

S-11

<PAGE>

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 wood-burning 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 averaged
approximately 88%.

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. Based in part on information provided by the seller,
physical occupancy in 1997 averaged 91%. On March 31, 1998, the Property was 93%
occupied. The tenants are a mix of white-collar and blue-collar workers.

The following table sets forth the 1997 real estate tax information on the
Property:

ASSESSED
JURISDICTION VALUE RATE TAX
------------ ----- ---- ---
<S> <C> <C> <C>
County of Tarrant ......... $5,451,821 $ 1.995196 $ 108,774.52
City of Arlington ......... 5,451,821 0.63800 34,782.62
-------------
Total .................... $ 143,557.14

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $4,812,374) will generally 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.

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.

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.

S-12

<PAGE>

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 currently has budgeted
approximately $497,000 (and as of March 31, 1998 had expended approximately
$447,322) for repairs and improvements, including painting, clubhouse
renovations, parking lot repair, interior upgrades (including new appliances),
landscaping and pool improvements.

The Property offers several different unit types. The unit mix and rents
being charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
24 Efficiency 452 $413
48 One bedroom/one bath 553 425
24 One bedroom/one bath downstairs 652 485
24 One bedroom/one bath upstairs 652 490
24 Two bedrooms/two baths downstairs 860 630
24 Two bedrooms/two baths upstairs 860 650
8 Two bedrooms/two baths 1,075 750
8 Two bedrooms/two baths/view 1,075 760

</TABLE>

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 $360 in 1993, $380 in 1994, $385 in
1995, $395 in 1996 and $425 in 1997. The average effective annual rental per
square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was $6.95,
$7.33, $7.43 $7.62 and $8.34, 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
wood-burning 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 averaged
approximately 92% at March 31, 1998.

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. Based in part on information provided by the seller,
physical occupancy in 1997 averaged 93%. On March 31, 1998, the Property was 96%
occupied. The tenants are a mix of white-collar and blue-collar workers.

S-13

<PAGE>

The following table sets forth the 1997 real estate tax information on the
Property:

ASSESSED
JURISDICTION VALUE TAX RATE TAX
------------ ----- -------- ---
<S> <C> <C> <C>
County of Tarrant ......... $4,200,000 $ 1.995196 $ 83,798.24
City of Arlington ......... 4,200,000 0.63800 26,796.00
------------
Total .................... $ 110,594.24
</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $3,921,032) will generally 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.

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 currently has
budgeted approximately $400,000 (and as of March 31, 1998 had expended
approximately $326,000) for repairs and improvements, including painting, siding
repairs, pool renovations, clubhouse renovations and interior upgrades
(including new appliances).

S-14

<PAGE>

The Property offers four units types. The unit mix and rents being charged
new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
56 One bedroom, one bathroom w/fireplace 656 $495
16 One bedroom, one bathroom w/fireplace and dining
room 720 535
88 Two bedrooms, two bathrooms w/fireplace and dining
room 913 620
64 Two bedrooms, two bathrooms w/fireplace, dining
room and vanity 981 650

</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 $495 in 1993, $510 in 1994, $530 in
1995, $560 in 1996, and $620 in 1997. The average effective annual rental per
square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was $6.55,
$6.75, $7.01, $7.41 and $7.64, 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 averaged
approximately 90% at March 31, 1998.

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. Based in part on information provided by the seller,
physical occupancy in 1997 averaged 94%. On March 31, 1998, the Property was 96%
occupied. The residents are a mix of white-collar and blue-collar workers,
students and retired persons.

The following table sets forth the 1997 real estate tax information on the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Tarrant ......... $5,173,615 $ 1.995196 $ 103,223.77
City of Arlington ......... 5,173,615 0.63800 33,007.66
-------------
Total .................... $ 136,231.43

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $6,264,984) will generally 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.

S-15

<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 paid 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 currently has
budgeted approximately $281,000 (and as of March 31, 1998 had expended
approximately $231,437) 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
being charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
17 One bedroom, one bathroom 525 $499
7 One bedroom, one bathroom (upgraded) 525 499
12 One bedroom, one bathroom 650 544
12 One bedroom, one bathroom (upgraded) 650 564
13 One bedroom, one bathroom 750 569
19 One bedroom, one bathroom (upgraded) 750 589
16 Two bedrooms, two bathrooms 900 780
24 Two bedrooms, two bathrooms 1,000 810

</TABLE>

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

S-16

<PAGE>

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 1993, $355 in 1994, $395 in
1995, $420 in 1996, and $469 in 1997. The average effective annual rental per
square foot at the Property for 1993, 1994, 1995, 1996 and 1997 was $6.96,
$7.27, $8.09, $8.60 and $9.32, 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
averaged approximately 93% at March 31, 1998.

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. Based in part on information provided by the seller,
physical occupancy in 1997 averaged 94%. On March 31, 1998, the Property was 85%
occupied. The residents are a mix of white-collar and blue-collar workers,
students and retired persons.

The following table sets forth the 1997 real estate tax information on the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Tarrant ................. $3,680,000 $ 1.08135 $ 39,793.68
Grapevine School District ......... 3,680,000 1.53779 56,590.67
------------
Total ............................ $ 96,384.35

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $3,314,933) will generally 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-17

<PAGE>

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 currently has budgeted
approximately $306,000 (and as of March 31, 1998 had expended approximately
$255,687) for repairs and improvements, including painting, clubhouse
renovations, parking area repair and interior upgrades.

The Property offers six different units types. The unit mix and rents being
charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
64 Efficiency 500 $450
52 One bedroom, one bathroom 600 530
12 One bedroom, one bathroom 650 540
8 One bedroom, one bathroom 650 550
42 One bedroom, one bathroom 700 560
14 One bedroom, one bathroom (upgraded) 700 585

</TABLE>

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 1993, $425 in 1994, $470 in 1995,
$490 in 1996, and $540 in 1997. The average effective annual rental per square
foot at the Property for 1993, 1994, 1995, 1996 and 1997 was $7.68, $8.26,
$9.13, $9.52 and $9.82, 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-18

<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. Based in part on information provided by the seller,
physical occupancy in 1997 averaged 96%. On March 31, 1998, the Property was 92%
occupied. The residents are primarily white-collar workers.

The following table sets forth the 1997 real estate tax information on the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Denton ................. $4,775,529 $ 0.25590 $ 12,220.58
City of Dallas ................... 5,972,590 0.65160 38,917.40
Carrollton-Farmers School District 5,972,590 1.49619 89,361.20
------------
Total ........................... 140,499.18

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $5,273,108) will generally 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.

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 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 and 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.

S-19

<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 currently has budgeted
$300,000 (and as of March 31, 1998 had expended approximately $256,000) for
repairs and improvements, including painting, siding repairs, pool renovations,
clubhouse renovations, interior upgrades and landscaping.

The Property offers a variety of unit types. The unit mix and rents being
charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
8 Contemporary One Bedroom/One Bath Basic 581 $520
10 Contemporary One Bedroom/One Bath w/Fireplace 581 565
2 Contemporary One Bedroom/One Bath large 604 525
8 Contemporary One Bedroom/One Bath large 615 560
w/Fireplace
9 Luxury One Bedroom/One Bath Down 684 575
9 Luxury One Bedroom/One Bath Up 684 585
14 Luxury One Bedroom/One Bath Down w/Fireplace 684 615
14 Luxury One Bedroom/One Bath Up w/Fireplace 684 625
8 Luxury One Bedroom/One Bath w/View 684 635
12 Luxury One Bedroom/One Bath w/View w/Fireplace 684 640
8 Conventional One Bedroom/One Bath Lofted Study 716 615
11 Conventional One Bedroom/One Bath Lofted Study 716 635
w/Fireplace
9 Conventional One Bedroom/One Bath Lofted Study 750 625
Large w/Fireplace
12 Executive One Bedroom/One Bath Down 775 610
12 Executive One Bedroom/One Bath Up 775 650
12 Executive One Bedroom/One Bath Down w/Fireplace 775 650
12 Executive One Bedroom/One Bath Up w/Fireplace 775 650
10 Executive One Bedroom/One Bath Study Down 871 670
10 Executive One Bedroom/One Bath Study Up 893 700
4 Executive One Bedroom/One Bath Study Down 871 730
w/Fireplace
4 Executive One Bedroom/One Bath Study Up 893 735
w/Fireplace
6 Executive One Bedroom/One Bath Study 871 735
Down w/View
6 Executive One Bedroom/One Bath Study Up w/View 893 745

</TABLE>

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

S-20

<PAGE>

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 $460 in 1993, $500
in 1994, $545 in 1995, $560 in 1996, and $600 in 1997. The average effective
annual rental per square foot at the Property for 1993, 1994, 1995, 1996 and
1997 was $6.65, $7.52, $7.88, $8.10 and $9.85, respectively.

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 private balcony 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 averaged
approximately 92% at March 31, 1998.

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. Based in part on information provided by the seller,
physical occupancy in 1997 averaged 96%. On March 31, 1998, the Property was 96%
occupied. The residents are a mix of white-collar and blue-collar workers and
retired persons.

The following table sets forth the 1997 real estate tax information on the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Tarrant ......... $6,200,000 $ 2.531853 $ 156,978.88
</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $7,359,867) will generally 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.

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 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-21

<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 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 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 initially budgeted
approximately $179,000 (and as of March 31, 1998 had expended approximately
$129,000) for certain repairs and improvements, including clubhouse renovations
and interior upgrades.

The Property offers a variety of unit types. The unit mix and rents being
charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
42 One bedroom/one bath 504 $445
42 One bedroom/one bath upstairs 504 455
40 One bedroom/one bath 572 465
40 One bedroom/one bath upstairs 572 475
42 One bedroom/one bath w/fireplace 690 540
42 One bedroom/one bath w/fireplace upstairs 690 550
20 One bedroom/one bath/den w/fireplace 757 640
30 Two bedrooms/two baths w/fireplace 925 670
30 Two bedrooms/two baths w/fireplace 1,026 695

</TABLE>

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
1993, $370 in 1994, $390 in 1995, $420 in 1996, and $440 in 1997. The average
effective annual rental per square foot at the Property for 1993, 1994, 1995,
and 1996 was $7.14, $7.14, $8.01, $8.44, $9.09 and $9.80, respectively.

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.

S-22

<PAGE>

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 averaged
approximately 93% at March 31, 1998.

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. Based in part on information provided by seller, physical
occupancy in 1997 averaged 94%. As of March 31, 1998, the Property was 94%
occupied. The residents are a mix of white-collar and blue-collar workers.

The following table sets forth the 1997 real estate tax information on the
Property.

JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>

City of Dallas ........... $9,448,220 $ 0.443070 $ 41,862.23
County of Dallas ......... 9,448,220 2.11213 199,558.69
------------
Total ................... $ 241,420.92

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $7,624,404) will generally 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 paid 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.

REMINGTON HILLS AT LAS COLINAS
IRVING, TEXAS

On August 6, 1997, the Company purchased the Chaparosa and Riverhill
Apartments ("Chaparosa" and "Riverhill," respectively, and, collectively, the
"Property") located at 1201 Meadow Creek Drive and 1101 Meadow Creek Drive,
respectively, in Irving, Texas. Chaparosa and Riverhill are adjacent to each
other and the Company now operates them as a combined community under the new
name "Remington Hills at Las Colinas." The Property comprises 362 apartment
units. The purchase price for the Property was $13,100,000 (allocated $5,825,000
to Chaparosa and $7,275,000 to Riverhill), and the sellers were unaffiliated
with the Company, the Advisor and their Affiliates. The Company borrowed the
entire purchase price under the Unsecured Line of Credit and 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 in the city of Irving, Texas, which is
part of "The Metroplex." For information on The Metroplex, see "Brookfield
Apartments" herein. For information on Irving, see "Eagle Crest I & II
Apartments" herein.

S-23

<PAGE>

The Property is located in the area of Las Colinas. The immediate area
surrounding the Property consists of other multi-family and single-family
housing, and commercial and retail development. The Property is an approximately
15-minute drive from downtown Dallas.

DESCRIPTION OF THE PROPERTY. The Property consists of 362 garden- and
townhouse-style apartment units in 38 two- and three-story buildings on
approximately 16.8 acres of land. Chaparosa was built in 1984 and Riverhill was
built in 1985.

The portion of the Property formerly known as Chaparosa offers five
different unit types. The unit mix and rents being charged new tenants as of
March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
42 One bedroom/one bath 713 $680
32 One bedroom/one bath 830 715
42 Two bedrooms/two baths 1,077 885
34 Two bedrooms/two baths 1,148 920
20 Two bedrooms/two baths TH 1,222 995

</TABLE>

The portion of the Property formerly known as Riverhill offers six
different unit types. The unit mix and rents being charged new tenants as of
March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
32 One bedroom/one bath 665 $650
36 One bedroom/one bath 773 735
16 One bedroom/1.5 baths TH w/den 928 860
24 Two bedrooms/two baths 974 840
48 Two bedrooms/two baths 1,062 880
36 Two bedrooms/2.5 baths TH 1,176 940

</TABLE>

The apartments collectively provide a total of approximately 346,000 square
feet of net rentable area.

The Company believes that Chaparosa and Riverhill were generally well
maintained and are in good condition. However, the Company currently has
budgeted approximately $2,000,000 (and as of March 31, 1998 had expended
approximately $746,000) for repairs and improvements to the Property, including
foundation repairs, painting, wood replacement, clubhouse renovation and
appliance and carpet replacement.

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 (1,222 square feet) at Chaparosa rented for $615
in 1993, $715 in 1994, $725 in 1995, $750 in 1996, and $905 in 1997. A
one-bedroom, one-bath apartment (665 square feet) at Riverhill rented for $465
in 1993, $485 in 1994, $505 in 1995, $525 in 1996, and $650 in 1997. The average
effective annual rental per square foot at Chaparosa for 1993, 1994, 1995, 1996
and 1997 was $6.53, $7.59, $7.70, $7.96 and $9.10, respectively. The average
effective annual rental per square foot at Riverhill for 1993, 1994, 1995, 1996
and 1997 was $7.29, $7.61, $7.92, $8.24 and $8.72, respectively.

Buildings are wood-frame construction with crawl spaces. Roofs are pitched
and covered with red tiles. Exteriors are stucco and brick veneer.

The portion of the Property formerly known as Chaparosa features an outdoor
swimming pool and hot tub, a lighted tennis court, a central laundry facility,
and a clubhouse with a rental office and lounge.

S-24

<PAGE>

The portion of the Property formerly known as Riverhill features an outdoor
swimming pool and enclosed whirlpool spa, a lighted tennis court, and a
clubhouse with a kitchen, lounge, game room and rental office. The Property has
access to Canal Park and ample paved parking for tenants.

All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and baths, as well as cable television hook-ups and
individually controlled heating and air-conditioning units. Each apartment unit
has washer/dryer connections, a wood-burning fireplace and outside storage. Each
kitchen is equipped with a refrigerator/freezer with icemaker, electric range
and oven, microwave, dishwasher and garbage disposal. The owner of the property
pays for cold water, sewer service, cable television, alarm service and trash
removal. The tenants pay for their electricity service, which includes heat, hot
water, air-conditioning, cooking and lights.

There are at least five apartment properties that compete with the
Property. All offer similar amenities and generally have rents that are higher
when compared to those of the Property. Based on a recent telephone survey, the
Advisor estimates that occupancy in nearby competing properties averaged
approximately 95% at March 31, 1998.

According to information provided by the seller, physical occupancy at
Chaparosa averaged approximately 94% in 1992, 94% in 1993, 95% in 1994, 97% in
1995 and 97% in 1996. According to information provided by the seller, physical
occupancy at Riverhill averaged approximately 94% in 1992, 96% in 1993, 95% in
1994, 96% in 1995 and 96% in 1996. Based in part on information provided by the
seller, physical occupancy in 1997 averaged 95% at both Chaparosa and Riverhill.

As of March 31, 1998, occupancy at the Property was 96%. Tenants at the
Property are principally white-collar workers.

The following tables set forth the 1997 real estate tax information on the
Property:

CHAPAROSA

JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Dallas ............... $6,053,350 $ 0.44307 $ 26,820.58
City of Irving ................. 6,053,350 0.49300 29,843.02
Carrollton Farmers Branch School
District ...................... 6,053,350 1.49619 90,569.62
------------
Total ......................... $ 147,233.22
</TABLE>

RIVERHILL

JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Dallas ............... $7,206,540 $ 0.44307 $ 31,930.02
City of Irving ................. 7,206,540 0.49300 35,528.24
Carrollton Farmers Branch School
District ...................... 7,206,540 1.49619 107,823.53
------------
Total ......................... $ 175,281.79
------------
Grand Total ................... $ 322,515.01

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $10,428,572) will generally 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-25

<PAGE>

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 Cornerstone Realty Income Trust, Inc., a property
acquisition fee equal to 2% of the purchase price of the Property, or $116,500
for Chaparosa and $145,500 for Riverhill. 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.

COPPER CROSSING
FORT WORTH, TEXAS

On November 24, 1997, the Company purchased the Copper Crossing Apartments
located at 5644 Riverwalk Drive in Fort Worth, Texas (The "Property").

The Property comprises 200 apartment units. The purchase price for the
Property was $4,750,000. The seller was Copper Crossing Investors, Ltd., a Texas
limited partnership which is not affiliated with the Company, Apple Residential
Advisors, Inc. or their Affiliates. The entire purchase price was paid 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 Bryant-Irvin Highway in Fort
Worth, Texas, in Tarrant County, which is part of the greater Dallas/Fort Worth
Consolidated Metropolitan Statistical Area, or as it is called locally, "The
Metroplex." For information on The Metroplex, see "Brookfield Apartments"
herein.

The immediate area surrounding the Property consists of other multi-family
housing, single-family housing, commercial and retail development. The Property
is located near restaurants, businesses, schools, and churches, and is readily
accessible from Interstate 20, Highway 183 and Interstate 820, which are the
major highways in the area.

The Property is close to Hulen Mall, a major regional mall. This regional
mall has spurred significant construction and corresponding retail growth in the
Hulen Mall/Benbrook area. The Property is an approximately 30-minute drive from
the Dallas/Fort Worth International Airport, an approximately 15-minutes drive
from the Fort Worth central business district and an approximately 30-minute
drive from the Dallas central business district.

DESCRIPTION OF THE PROPERTY. The Property consists of 200 garden-style
apartment units in 13 two-story buildings on approximately 6.9 acres of land.
The Property was constructed in 1981.

The Property offers four different unit types. The unit mix and rents
currently being charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>

56 One bedroom/one bathroom 563 $425
40 One bedroom/one bathroom 663 435
32 One bedroom/one bathroom 745 500
72 Two bedrooms/two bathrooms 915 590

</TABLE>

The apartments provide a total of approximately 148,000 square feet of net
rental area.

The Company believes that the Property has generally been well maintained
and is in good condition. According to the seller, in the past two years the
seller spent over $400,000 in capital improvements to the exterior of the
Property, including new roofs, exterior rehabilitation, and repair and
replacement of awnings.

S-26

<PAGE>

The Company currently has budgeted approximately $100,000 (and as of March
31, 1998 had expended approximately $74,401) for additional capital improvements
to the Property. These improvements will include clubhouse renovations and
upgrading the landscaping at the Property. In addition, at the time that the
Company acquired the Property there were 12 apartment units which had been
damaged by fire. These damaged apartment units are currently being repaired and
are all expected to be available for occupancy by May 1998. All costs of the
repair are being funded with the proceeds of Property casualty insurance.

Leases at the Property are generally for terms of one year or less. Average
rental rates for the past five years have both increased and decreased. As an
example, a one-bedroom, one-bathroom apartment unit (563 square feet) rented for
$300 in 1993, $299 in 1994, $315 in 1995, $345 in 1996, and $425 in 1997. The
average effective annual rental per square foot at the Property for 1993, 1994,
1995, 1996 and 1997 was $5.74, $5.72, $6.03, $6.60 and $7.08, respectively.

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

The Property has an outdoor swimming pool with a large deck, a fitness
center, a laundry facility, a sand volleyball court and picnic areas. There is
also a clubhouse which includes an entertainment area and a leasing office.
There is ample paved parking for the tenants.

All 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 and an individually controlled heating and air conditioning unit. Each
kitchen is equipped with a refrigerator/freezer, electric range and oven,
dishwasher and garbage disposal. Each apartment unit has a wood-burning
fireplace, a screened porch or balcony, ceiling fans, mini blinds and vertical
blinds. The largest one-bedroom units and the two-bedroom units include
full-sized washer/dryer connections. The owner of the Property pays for cold
water, gas usage for hot water, sewer service and trash removal. Tenants pay for
their own electricity service, which includes cooking, lighting, heating and air
conditioning.

There are at least five apartment properties that 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 the nearby competing properties averaged
approximately 95% at March 31, 1998.

According to information provided by the Seller, physical occupancy at the
Property averaged approximately 85% in 1992, 87% in 1993, 96% in 1994, 95% in
1995, 94% in 1996, and 95% during 1997. As of March 31, 1998, the Property was
80% occupied, counting as vacant the 12 units recently damaged by fire. Of the
188 units available for rental, 160, or 85% of 188, were rented as of March 31,
1998. The tenants are a mix of white-collar workers, blue-collar workers,
students and retired persons.

The following table sets forth the 1997 real estate tax information of the
Property:

ASSESSED
JURISDICTION VALUE RATE TAX
------------ ----- ---- ---
<S> <C> <C> <C>
County of Tarrant ......... $3,300,000 $ 2.01160 $ 66,382.67
City of Benbrook .......... 3,300,000 0.78500 25,905.00
------------
Total .................... $ 92,287.67

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $3,993,650) will generally 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-27

<PAGE>

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 Cornerstone Realty Income Trust, Inc., a property
acquisition fee equal to 2% of the purchase price of the Property, or $95,000.
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.

MAIN PARK APARTMENTS
DUNCANVILLE, TEXAS

On February 4, 1998, the Company purchased the Main Park Apartments located
at 1303 South Main Street in Duncanville (southwest of Dallas), Texas (The
"Property").

The Property comprises 192 apartment units. The purchase price for the
Property was $8,000,000. The seller was MGW Apartments Partnership, a Texas
limited partnership which is not affiliated with the Company, Apple Residential
Advisors, Inc. or their Affiliates. The entire purchase price was paid 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 on South Main Street in Duncanville,
southwest of Dallas, within the greater Dallas/Fort Worth Consolidated
Metropolitan Statistical Area, or as it is called locally, "The Metroplex." For
information on The Metroplex, see under "Brookfield Apartments."

The immediate area surrounding the Property consists of other multi-family,
single-family, commercial and retail development. The Property is located near
restaurants, businesses, schools, and churches, and is readily accessible from
Interstate 20 and Highway 67. The Property is an approximately 20-minute drive
from downtown Dallas.

DESCRIPTION OF THE PROPERTY. The Property consists of 192 garden-style
apartment units in 24 two-story buildings on approximately 10.4 acres of land.
The Property was constructed in 1984.

The Property offers eight different unit types. The unit mix and rents
being charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
-------- ---- -------------- ------
<S> <C> <C> <C>
49 One bedroom/one bathroom 757 $579
11 One bedroom/one bathroom (view) 757 609
22 One bedroom/one bathroom w/den 901 689
8 One bedroom/one bathroom w/den (view) 901 709
39 Two bedrooms/two bathrooms 1,056 749
15 Two bedrooms/two bathrooms (view) 1,056 769
38 Two bedrooms/two bathrooms 1,058 769
10 Two bedrooms/two bathrooms (view) 1,058 789

</TABLE>

The apartments provide a total of approximately 180,000 square feet of net
rentable area.

The Company believes that the Property has generally been well maintained
and is in good condition. The Company has budgeted approximately $144,000 (and
as of March 31, 1998 had expended approximately $11,332) for additional capital
improvements to the Property. These improvements will include clubhouse
renovations, exterior painting and interior upgrades.

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-bathroom apartment unit (1,058 square feet) rented for $608 in
1993, $618 in 1994, $655 in 1995, $683 in 1996 and $702 in 1997. The average
effective annual rental per square foot at the Property for 1993, 1994, 1995,
1996 and 1997 was $7.08, $7.20, $7.63, $7.96, and $8.18, respectively.

S-28

<PAGE>

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 shingled on plywood.

The Property has two outdoor swimming pools, a jacuzzi, two laundry
facilities and a wooded creek view. There is also a clubhouse which includes a
kitchen, entertainment area and leasing office. There is ample paved parking for
the tenants.

All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen, bath, entry and utility areas. Each apartment unit
has a cable television hook-up and an individually controlled heating and air
conditioning unit. Each kitchen is equipped with a refrigerator/freezer,
electric range and oven, dishwasher and garbage disposal. Each apartment unit
has a fireplace, washer/dryer connections, miniblinds, exterior storage and a
private balcony or patio. All upstairs units have vaulted ceilings. The owner of
the Property pays for cold water, gas usage for hot water, sewer service and
trash removal. Tenants pay for their own electricity service, which includes
cooking, lighting, heating and air conditioning.

There are at least four apartment properties that 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 the nearby competing properties averaged
approximately 94% at March 31, 1998.

According to information provided by the seller, physical occupancy at the
Property averaged approximately 94% in 1993, 95% in 1994, 96% in 1995, 96% in
1996, and 96% in 1997. As of March 31, 1998, the Property was 96% occupied. The
tenants are a mix of white-collar workers, blue-collar workers, students and
retired persons.

The following table sets forth the 1997 real estate tax information of the
Property:

ASSESSED
JURISDICTION VALUE RATE TAX
------------ ----- ---- ---
<S> <C> <C> <C>
County of Dallas ......... $6,850,180 $ 2.80107 $ 191,878.34

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $7,642,926) will generally 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.

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 Cornerstone Realty Income Trust, Inc., a property
acquisition fee equal to 2% of the purchase price of the Property, or $160,000.
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.

TIMBERGLEN APARTMENTS
DALLAS, TEXAS

On February 13, 1998, the Company purchased the Timberglen Apartments
located at 3773 Timberglen Road in Dallas, Texas (The "Property"). The Property
comprises 304 apartment units.

The purchase price for the Property was $12,000,000. The seller was
Timberglen Apartments, Ltd., a Texas limited partnership which is not affiliated
with the Company, Apple Residential Advisors, Inc. or their Affiliates. The
entire purchase price was paid using proceeds from the sale of Shares. Title to
the Property was conveyed to the Company by limited warranty deed.

S-29

<PAGE>

LOCATION. The Property is located in the north area of Dallas, within the
greater Dallas/Fort Worth Consolidated Metropolitan Statistical Area, or as it
is called locally, "The Metroplex." For information on The Metroplex, see under
"Brookfield Apartments."

The immediate area surrounding the Property consists of other multi-family,
commercial and retail development. The Property is located near restaurants,
businesses, schools, and churches, and is readily accessible from Interstate 35,
the North Dallas Tollway, Central Expressway and LBJ Freeway. The Property is an
approximately 15-minute drive from downtown Dallas.

DESCRIPTION OF THE PROPERTY. The Property consists of 304 garden and
townhouse style apartment units in 28 two-story and three-story buildings on
approximately 10.5 acres of land. The Property was constructed in 1984.

The Property offers five different unit types. The unit mix and rents being
charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR MONTHLY
QUANTITY TYPE SQUARE FOOTAGE RENTAL
-------- ---- -------------- ------
<S> <C> <C> <C>
120 One bedroom/one bathroom 512 $495
80 One bedroom/one bathroom 743 585
32 One bedroom/one bathroom w/den 841 685
48 Two bedrooms/two bathrooms 983 730
24 Two bedrooms/two bathrooms/studio TH 1,100 850

</TABLE>

The apartments provide a total of approximately 221,000 square feet of net
rentable area.

The Company believes that the Property has generally been well maintained
and is in good condition. The Company has budgeted approximately $228,000 (and
as of March 31, 1998 had expended approximately $61,440) for additional capital
improvements to the Property. These improvements will include clubhouse
renovations, landscaping and interior upgrades.

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-bathroom apartment unit (743 square feet) rented for $410 in
1993, $420 in 1994, $440 in 1995, $485 in 1996 and $510 in 1997. The average
effective annual rental per square foot at the Property for 1993, 1994, 1995,
1996 and 1997 was $6.97, $7.14, $7.48, $8.25, and $8.67, respectively.

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

The Property has a two-tiered outdoor swimming pool, two laundry facilities
and an access gate to the Property. The is also a clubhouse which includes a
kitchen, entertainment area and a leasing office. There is ample payed parking
for the tenants.

All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and baths. Each apartment until has a cable
television hook-up 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. Each apartment unit (other
than the smallest one-bedroom unit) has a fireplace and washer/dryer
connections. Sixteen units substitute a dryer bar for the fireplace. Each
apartment unit (other than the largest two-bedroom unit) has a large patio with
exterior storage. All of the upper level units have vaulted ceilings. The owner
of the Property pays for cold water, gas usage for hot water, sewer service and
trash removal. Tenants pay for their own electricity service, which includes
cooking, lighting, heating and air conditioning.

There are at least 10 apartment properties that 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 the nearby competing properties averaged approximately 95% at
March 31, 1998.

S-30

<PAGE>

According to information provided by the seller, physical occupancy at the
Property averaged approximately 94% in 1993, 95% in 1994, 97% in 1995, 97% in
1996, and 97% in 1997. As of March 31, 1998, the Property was 97% occupied. The
tenants are a mix of white-collar workers, blue-collar workers, students and
retired persons.

The following table sets forth the 1997 real estate tax information of the
Property:

ASSESSED
JURISDICTION VALUE RATE TAX
------------ ----- ---- ---
<S> <C> <C> <C>
City of Dallas ........................ $9,423,870 $ 0.65160 $ 61,405.94
County of Denton ...................... 9,500,000 0.25590 24,310.50
Carrollton-Farmers Branch ISD ......... 9,423,870 1.49610 140,990.52
------------
Total ................................ $ 226,706.96

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $9,824,675) will generally 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.

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 Cornerstone Realty Income Trust, Inc., a property
acquisition fee equal to 2% of the purchase price of the Property, or $240,000.
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.

COPPER RIDGE APARTMENTS
FORT WORTH, TEXAS

On March 31, 1998, the Company purchased the Copper Ridge Apartments
located at 5643 Bellaire Drive South in Fort Worth, Texas (the "Property"). The
Property comprises 200 apartment units. The purchase price for the Property was
$4,525,000. The seller was Copper Limited Partnership, a Missouri limited
partnership which was not affiliated with the Company, Apple Residential
Advisors, Inc. or their Affiliates. The entire purchase price as paid using
proceeds from the sale of Shares. Title to the Property was conveyed to the
Company by limited warranty deed.

The Property is adjacent to the Copper Crossing Apartments, which were
purchased by the Company in November 1997. These two properties will be operated
by the Company as a single property under the name "Copper Crossing Apartments."

DESCRIPTION OF THE PROPERTY. The Property consists of 200 garden-style
apartment units in 15 two-story buildings on approximately seven acres of land.
The Property was constructed in 1980.

S-31

<PAGE>

The Property offers six different unit types. The unit mix and rents being
charged new tenants as of March 1998 are as follows:

APPROXIMATE
INTERIOR
SQUARE MONTHLY
QUANTITY TYPE FOOTAGE RENTAL
-------- ---- ------- ------
<S> <C> <C> <C>
64 One bedroom, one bathroom 651 $410-455
48 One bedroom, one bathroom 732 435-460
16 One bedroom, one bathroom with den 878 490-560
32 Two bedrooms, two bathrooms 918 540-560
24 Two bedrooms, two bathrooms 945 555-600
16 Two bedrooms, two bathrooms with den 1,110 650-675

</TABLE>

The apartments provide a total of approximately 160,000 square feet of net
rentable area.

The Company believes that the Property has generally been well maintained
and is in good condition. However, the Company has budgeted approximately
$200,000 for repairs and capital improvements to the Property. These repairs and
improvements will include clubhouse renovations, exterior painting and wood
replacement.

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-bathroom apartment unit (918 square feet) rented for $420 in
1993, $430 in 1994, $440 in 1995, $450 in 1996, and $450 in 1997. The average
effective annual rental per square foot at the Property for 1993, 1994, 1995,
1996, 1997, was $5.73, $5.87, $6.01, $6.14, and $6.14, respectively.

The buildings are wood-frame construction with a combination of brick
veneer and hardboard ship-lap siding on reinforced concrete slab foundations.
Roofs are sloped fiberglass shingled on plywood.

The Property has an outdoor swimming pool, laundry facility and barbecue
areas. There is also a clubhouse with a leasing office. There is ample paved
parking for the tenants.

All apartment units have wall-to-wall carpeting in the living areas and
vinyl floors in the kitchen and bathrooms. Each apartment unit has a cable
television hook-up and an individually controlled heating and air conditioning
unit. Each kitchen is equipped with a refrigerator/freezer, electric range and
oven, dishwasher and garbage disposal. Each apartment unit has a woodburning
fireplace, a screened patio or balcony, ceiling fans, miniblinds and a
pass-through bar, and some of the apartment units have washer/ dryer
connections. The owner of the Property pays for cold water, gas usage for hot
water, sewer service and trash removal. Tenants pay for their own electricity
service, which includes cooking, lighting, heating and air conditioning.

There are at least five other apartment properties that 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 the nearby competing properties averaged
approximately 94% at March 31, 1998.

According to information provided by the seller, physical occupancy at the
Property averaged approximately 92% in 1996 and 91% in 1997. Information for
earlier periods is not available. As of March 31, 1998, the Property was 90%
occupied. The tenants are a mix of white-collar workers, blue-collar workers,
students and retired persons.

S-32

<PAGE>

The following table sets forth the 1997 real estate tax information of the
Property:

JURISDICTION ASSESSED VALUE RATE TAX
------------ -------------- ---- ---
<S> <C> <C> <C>
County of Tarrant ......... $3,537,000 $ 2.01160 $ 71,150.15
City of Benbrook .......... 3,537,000 0.78500 27,765.45
------------
Total .................... $ 98,915.60

</TABLE>

The basis of the depreciable residential real property portion of the
Property (currently estimated at about $3,796,661) 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.

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 $90,500.
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.

POSSIBLE ADDITIONAL PROPERTY ACQUISITIONS

At the date of this Supplement, the Company is considering the acquisition
of the following additional apartment properties:

NAME LOCATION NUMBER OF UNITS
---- -------- ---------------
<S> <C> <C>
Bitter Creek Grand Prairie, TX 472
Emerald Oaks Grapevine, TX 250
Hayden's Crossing Grand Prairie, TX 170
Newport Austin, TX 200
Pace's Point Lewisville, TX 300
Pepper Square North Dallas, TX 144

</TABLE>

An Affiliate of the Company has entered into purchase contracts with the
sellers, all of which are unaffiliated with the Company, the Advisor and their
Affiliates. At or before closing, if it occurs, the Affiliate will assign its
rights under the purchase contracts to the Company.

Each of the properties is encumbered by mortgage indebtedness and all of
the indebtedness, with the exception of that encumbering the Bitter Creek
Apartments, is not prepayable. The Company proposes to assume the existing
mortgage indebtedness, other than the indebtedness on the Bitter Creek
Apartments, when it acquires the properties. However, the consent of the lenders
is required for the acquisitions (other than Bitter Creek) and the assumption of
the related indebtedness. The Company is now seeking to obtain the consent of
the lenders to the acquisitions and the assumption of the related indebtedness
and expects to receive such consent, if at all, within the next 60 days. There
is also certain due diligence related to each of the properties that remains to
be completed. The Company's Board of Directors has approved the acquisitions
with the related assumption of indebtedness, subject to receipt of the lenders'
consents and completion of due diligence. There can be no assurance that the
lenders will consent to the various acquisitions and the assumption of the
related indebtedness or that all due diligence conditions will be removed and,
therefore, there is no assurance that the Company will purchase any or all of
the properties indicated. However, the Company currently anticipates purchasing
those properties as to which it obtains the required lender consent and
completes its due diligence, and it is expected that the purchases, if they
occur, will occur following satisfactory completion of due

S-33

<PAGE>

diligence as such consents are obtained, which may mean that the properties
would be acquired on different dates. Because of the circumstances described
herein, there can be no assurance that any of the properties described in this
section will be acquired by the Company, but some or all of such properties may
be acquired by the Company. It is anticipated that lender consent to some or all
of the proposed acquisitions will include the requirement that the Company hold
the property in a subsidiary which owns no material assets other than that
property. If so required, the Company would expect to hold each such property in
a separate partnership indirectly wholly-owned by the Company.

All but the Newport Apartments are located in The Metroplex. For
information on The Metroplex, see "Brookfield Apartments" herein. The Newport
Apartments are located in Austin, Texas.

Hayden's Crossing Apartments and Bitter Creek Apartments are located in
Grand Prairie, within Tarrant County, southwest of the City of Dallas. The
properties are located adjacent to each other and, if both are acquired, they
will be combined and operated by the Company as a single apartment complex.
Emerald Oaks Apartments are located in Grapevine, within Tarrant County,
northwest of the City of Dallas and near the Dallas/Fort Worth International
Airport. Pace's Point Apartments are located in Lewisville, within Denton
County, northwest of the City of Dallas. Pepper Square Apartments are located in
North Dallas, within Dallas County, north of the City of Dallas.

The purchase price for the Emerald Oaks Apartments is $10,925,000, which
would be paid approximately $4,181,000 in cash using proceeds from the sale of
Shares and approximately $6,744,000 by assuming debt.

The purchase price for the Hayden's Crossing Apartments is $4,700,000,
which would be paid approximately $1,600,000 in cash using proceeds from the
sale of Shares and approximately $3,100,000 by assuming debt.

The purchase price for the Newport Apartments is $6,325,000, which would be
paid approximately $3,255,000 in cash using proceeds from the sale of Shares and
approximately $3,070,000 by assuming debt.

The purchase price for the Pace's Point Apartments is $11,400,000, which
would be paid approximately $3,647,000 in cash using proceeds from the sale of
Shares and approximately $7,753,000 by assuming debt.

The purchase price for the Pepper Square Apartments is $5,200,000, which
would be paid approximately $1,538,000 in cash using proceeds from the sale of
Shares and approximately $3,662,000 by assuming debt.

If any property is acquired, Cornerstone Realty Income Trust, Inc. will
earn a property acquisition fee equal to 2% of the purchase price of the
property. At closing, Cornerstone Realty Income Trust, Inc. would be paid a
portion of the property acquisition fee corresponding to the portion of the
purchase price of the property to be paid in cash by the Company. The total
property acquisition fee and the approximate portion thereof expected to be paid
at closing for each of the above-described properties are as follows:

ANTICIPATED
PROPERTY TOTAL ACQUISITION FEE PAYMENT AT CLOSING
-------- --------------------- ------------------
<S> <C> <C>
Emerald Oaks .............. $218,500 $83,620
Hayden's Crossing ......... 94,000 32,000
Newport ................... 126,500 65,100
Paces Point ............... 228,000 72,940
Pepper Square ............. 104,000 30,760
</TABLE>

The balance of the property acquisition fee would be paid if, when and as
the indebtedness assumed at closing is repaid by the Company. If a property is
acquired, Cornerstone Realty Income Trust, Inc. will serve as property manager
and for its services would be paid by the Company a monthly management fee equal
to 5% of the gross revenues of the property plus the reimbursement of certain
expenses.

S-34

<PAGE>

The following paragraphs set forth additional information on the Bitter
Creek Apartments (the acquisition of which is subject to the contingency of
additional due diligence but is not subject to a lender consent contingency),
based in part on information provided by the prospective seller. As of the date
of this Supplement certain issues have been raised by due diligence undertaken
by the Company relative to the Bitter Creek Apartments and there is no assurance
that such issues can be satisfactorily resolved. Thus, as indicated above, there
is no assurance that the Bitter Creek Apartments will be acquired by the
Company.

The purchase price for the property is $13,500,000, which would be expected
to be paid entirely in cash using proceeds from the sale of Shares.

The property was constructed in 1982 and consists of 472 apartment units in
36 buildings on approximately 20.7 acres of land.

The name of the prospective seller is Bitter Creek L.P., a Texas limited
partnership. It is expected that title to the property will be conveyed to the
Company by limited warranty deed. The Advisor and the Company believe that the
property, if acquired by the Company, will be adequately covered by property and
liability insurance.

If this property is acquired, Cornerstone Realty Income Trust, Inc. will
earn a property acquisition fee equal to 2% of the purchase price of the
property or $270,000. At closing, Cornerstone Realty Income Trust, Inc. would be
paid a portion of the property acquisition fee corresponding to the portion of
the purchase price of the property to be paid in cash by the Company. Currently,
the Company would expect to pay the entire purchase price in cash at closing. If
the property is acquired, Cornerstone Realty Income Trust, Inc. will serve as
property manager and for its services would be paid by the Company a monthly
management fee equal to 5% of the gross revenues of the property plus the
reimbursement of certain expenses.

* * *

The following table summarizes the mortgage debt that would be assumed in
connection with the Company's purchase of the properties described above, if
such purchases occur. The information is as of or for the period ending December
31, 1997. As indicated above, the debts on the various properties (with the
exception of the debt related to Bitter Creek) cannot be assumed without the
consent of the lenders and are not prepayable. If the Bitter Creek Apartments
are acquired, the Company would expect to repay the indebtedness on that
property (which has a balance of approximately $7,900,000) at the time of
closing the acquisition.

1997
OUTSTANDING TOTAL ANNUAL
PROPERTY BALANCE INTEREST RATE INTEREST EXPENSE MATURITY DEBT SERVICE
-------- ------- ------------- ---------------- -------- ------------
<S> <C> <C> <C> <C> <C>
Emerald Oaks .............. $ 6,744,000 6.75% $ 459,607 04/01/07 $ 552,000
Hayden's Crossing ......... $ 3,100,000 6.47% $ 201,906 02/28/04 $ 247,000
Newport ................... $ 3,070,000 6.88% $ 206,223 12/01/05 $ 249,000
Pace's Point .............. $ 7,753,000 8.56% $ 665,557 07/01/03 $ 727,000
Pepper Square ............. $ 3,662,000 8.60% $ 315,092 06/27/06 $ 344,000
TOTALS/AVERAGE ............ $24,329,000 7.60% $1,848,385 $2,119,000
=========== ==== ========== ==========
</TABLE>

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

As described above under "Developments Involving Cornerstone Realty Income
Trust - Authorization for Additional Share Issuance," on March 31, 1998,
Cornerstone owned approximately 2.5% of the Company's outstanding Shares.
Cornerstone's address is 306 East Main Street, Richmond, Virginia 23219. As of
March 31, 1998, no person was the beneficial owner of more than five percent of
any class of the registrant's voting securities.

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<PAGE>

Beneficial ownership of Shares held by Directors and executive officers of
the Company as of March 31, 1998 is indicated in the table below. Each person
named in the table and included in the Director/officer group has sole voting
and investment powers as to such Shares, or shares such powers with his or her
spouse and minor children, if any.

NUMBER OF SHARES
NAME BENEFICIALLY OWNED(1) PERCENT OF CLASS
---- --------------------- ----------------
<S> <C> <C>
Lisa B. Kern . ...................................... 6,850.00 *
Glade M. Knight ..................................... 6,117.05 *
Penelope W. Kyle .................................... 7,350.00 *
Bruce H. Matson ..................................... 6,850.00 *
All Directors and executive officers as a group ..... 27,167.05 *
</TABLE>

- ----------
* Less than one percent of outstanding Shares.

(1) Includes Shares that may be acquired upon the exercise of stock options, as
follows: Mss. Kern and Kyle and Mr. Matson -- 6,850 Shares each at $10 per
Share.

In addition, at December 31, 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 executive officers of Cornerstone.

As discussed in such section of the Prospectus, the number of Shares of the
Company into which the Class B Convertible Shares are convertible increases as
the Company sells additional Shares in its ongoing public offering. Thus, the
holders of the Class B Convertible Shares could derive a benefit if the
Company's public offering continues and the exchange ratio of Shares per Class B
Convertible Share correspondingly increases. Accordingly, the holders of the
Class B Convertible Shares could benefit if any acquisition of the Company by
Cornerstone were delayed. However, many other factors could make an acquisition
of the Company by Cornerstone undesirable or impracticable, including such
factors as Cornerstone perceiving that an acquisition of the Company or its
properties is not in Cornerstone's best interest or the inability to obtain
necessary director or shareholder approval on behalf of either company. In
addition, while Glade M. Knight is an executive officer of both the Company and
Cornerstone, and Mr. Olander and Ms. Jones are executive officers of
Cornerstone, they do not necessarily control the decisions of either company
concerning any possible acquisition of the Company by Cornerstone. As noted
above, 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, but 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, or
would be consummated on terms deemed favorable by a particular investor in the
Company.

S-36

<PAGE>

SELECTED FINANCIAL DATA

The following table sets forth selected financial data for the Company and
should be read in conjunction with the consolidated financial statements and
related notes of the Company included elsewhere in this Supplement.

AS OF DECEMBER 31,
---------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING RESULTS
Rental Income ........................................ $ 12,005,968 --
Net Income ........................................... 3,499,194 --
Distributions Declared and Paid ...................... 3,249,098 --

PER SHARE
Net Income ........................................... $ .54 --
Distributions ........................................ $ .60 --
Distributions Representing Return of Capital ......... 0% --
Weighted Average Shares Outstanding .................. 6,493,114

BALANCE SHEET DATA
Investment in Rental Property ........................ $ 89,634,348 --
Total Assets ......................................... $ 112,485,520 $100
Shareholders' Equity ................................. $ 109,340,555 $100
Shares Outstanding ................................... 12,371,829 10

OTHER DATA Cash Flows from:
Operating Activities ............................... $ 7,075,025 --
Investing Activities ............................... $ (88,753,814)
Financing Activities ............................... $ 105,841,261 --
Number of Communities Owned at Year-End .............. 11 --

FUNDS FROM OPERATIONS CALCULATION
Net Income ......................................... $ 3,499,194 --
Depreciation of Real Estate ....................... $ 1,898,003 --
------------- ----
Funds from Operations(a) ............................. $ 5,397,197 --
------------- ----
</TABLE>

The Company was formed in 1996 and did not commence operations until January,
1997.

(a) "Funds from operations" is defined as income before gains (losses) on
investments and extraordinary items (computed in accordance with generally
accepted accounting principles) plus real estate depreciation and after
adjustment for significant nonrecurring items, if any. This definition
conforms to the recommendations set forth in a White Paper adopted by the
National Association of Real Estate Investment Trusts (NAREIT). The Company
considers funds from operations in evaluating property acquisitions and its
operating performance, and believes that funds from operations should be
considered along with, but not as an alternative to, net income and cash
flows as a measure of the Company's operating performance and liquidity.
Funds from operations, which may not be comparable to other similarly titled
measures of other REITs, does not represent cash generated from operating
activities in accordance with generally accepted accounting principles and
is not necessarily indicative of cash available to fund cash needs.

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

The following discussion is based on the consolidated financial statements
of the Company as of December 31, 1997. This information should be read in
conjunction with the selected financial data and the Company's financial
statements and notes thereto and the pro forma financial statements and notes
thereto included elsewhere in this Supplement. The Company is operated and has
elected to be treated as a real estate investment trust (REIT) for federal
income tax purposes.

RESULTS OF OPERATIONS

INCOME AND OCCUPANCY

As operations of the Company commenced in January 1997, a comparison of the
years ended December 31, 1996 and December 31, 1997 is not possible. The results
of the Company's property operations for the year ended December 31, 1997
include the results of operations from the 11 proper-

S-37

<PAGE>

ties acquired in 1997 from their respective acquisition dates. Substantially all
of the Company's revenue is from the rental operation of its apartment
communities. Rental income was $12,005,968 in 1997. Overall average economic
occupancy was 93% in 1997. The average rental rate for the portfolio was $555 at
December 31, 1997.

EXPENSES

Total expenses were $8,271,066 in 1997. The operating expense ratio (the
ratio of expenses, excluding depreciation, amortization, and general and
administrative expenses, to rental income) was 50% in 1997. The Company
contracts its property management to a third party (see Note 6 to the
consolidated financial statements). General and administrative expenses totaled
3% of revenues in 1997. These expenses represent the administrative expenses of
the Company as distinguished from the operations of the Company's properties.
The percentage of general and administrative expenses is expected to decrease as
the Company's operations grow. Depreciation of real estate was $1,898,003.

INTEREST AND INVESTMENT

The Company earned interest income of $222,676 in 1997 from the investment
of its cash and cash reserves. The weighted-average interest rate earned on
short-term investments was 4%. The Company incurred $458,384 of interest expense
in 1997, associated with short-term borrowings under its line of credit to fund
acquisitions. The weighted-average interest rate on the line of credit during
1997 was 7.8%.

LIQUIDITY AND CAPITAL RESOURCES

EQUITY

There was a significant change in the Company's liquidity during the year
ended December 31, 1997 as the Company commenced operations and thereafter
continued to grow. During 1997, the Company sold 12,371,819 shares of its common
stock to its investors (including 417,778 shares purchased by Cornerstone Realty
Income Trust, Inc. ("Cornerstone") and 197,496 common shares sold through the
Company's additional share option), bringing the total number of shares
outstanding to 12,371,829. The total gross proceeds from the shares sold were
$121,633,733, which netted $109,090,359 to the Company after the payment of
brokerage fees and other offering-related costs.

Using proceeds from the sale of common shares and supplemented by
short-term borrowings when necessary, the Company acquired 2,776 apartment units
in 12 residential rental communities during 1997. Riverhill Apartments and
Chaparosa Apartments are adjoining properties and are operated as one apartment
community (subsequently renamed Remington Hills).

During 1997, the company made the following 12 acquisitions:

INITIAL NUMBER DATE
DESCRIPTION LOCATION ACQUISITION COST OF UNITS ACQUIRED
- ----------- -------- ---------------- -------- --------
<S> <C> <C> <C> <C>
Brookfield Dallas, TX $ 5,458,485 232 January 1997
Eagle Crest Irving, TX 15,650,000 484 January 1997
Tahoe Arlington, TX 5,690,560 240 January 1997
Mill Crossing Arlington, TX 4,544,121 184 February 1997
Wildwood Euless, TX 3,963,519 120 March 1997
Toscana Dallas, TX 5,854,531 192 March 1997
Polo Run Arlington, TX 6,858,974 224 March 1997
The Arbors on Forest Ridge Bedford, TX 7,748,907 210 April 1997
Pace's Cove Dallas, TX 9,277,355 328 June 1997
Chaparosa Irving, TX 5,825,000 170 August 1997
River Hill Irving, TX 7,275,000 192 August 1997
Copper Crossing Fort Worth, TX 4,750,000 200 November 1997
</TABLE>

S-38

<PAGE>

NOTES PAYABLE

The Company seeks to hold all of its properties on an unsecured basis. The
Company obtained a $20 million unsecured line of credit with a commercial bank.
The line expires on March 31, 1998. The line bears interest at LIBOR plus 200
basis points. The line of credit is used to fund acquisitions on a short-term
basis and is sought to be repaid, generally within 60 days, with proceeds from
the offering. The Company plans to continue to use its $20 million unsecured
line of credit to facilitate the timely acquisition of properties, if proceeds
from the Company's "best efforts" offering are unavailable at the time of a
proposed acquisition. It is anticipated that any borrowings will be curtailed
through the sale of additional shares, although there can be no assurance that
such sales will be sufficient to repay such borrowings. If the future sale
proceeds were insufficient, the Company could seek to extend the maturity date
or pay the balance of the loan due from its rental operations or cash reserves.

At year-end, there were no outstanding balances on the acquisition line of
credit.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents totaled $24,162,572 at December 31, 1997. During
the year, the Company distributed $3,249,098 to its shareholders, of which
$1,974,949 was reinvested in additional shares under the terms of the Company's
Additional Share Option. The reinvested funds netted the company $1,777,454
after payment of brokerage fees. During the year, the Company distributed
$168,364 to Cornerstone on shares that had been purchased by Cornerstone.

CAPITAL REQUIREMENTS

The Company has an ongoing capital commitment to fund its renovation
program for acquired properties. In addition, the Company expects to acquire new
properties during the year. The Company anticipates that it will continue to
operate as it did in 1997 and fund these cash needs from a variety of sources
including equity, cash reserves, and debt provided by its line of credit.

The Company continues to renovate its properties. In connection with these
renovations, the Company capitalized improvements of $3.6 million in 1997.
Approximately $5 million of additional capital improvements are budgeted for
1998 on the existing property portfolio which are expected to be funded through
cash reserves and dividend reinvestment.

The Company has short-term cash flow needs in order to conduct the
operation of its properties. The rental income generated from the properties
supplies ample cash to provide for the payment of these operating expenses and
the payment of distributions to shareholders. The Company is operated as, and
annually elects to be taxed as, a real estate investment trust under the
Internal Revenue Code. As a result, the Company has no provision for taxes, and
thus there is no effect on the Company's liquidity.

Capital resources are expected to grow with the future sale of its shares
and from cash flow from operations. Approximately 61% of all 1997 distributions
were reinvested in additional common shares. In general, the Company's liquidity
and capital resources are believed to be more than adequate to meet its cash
requirements during 1998.

The Company is expecting to continue with significant growth during 1998.
The company plans to have monthly equity closings in 1998, until the offering is
fully funded, or until such time as the Company may opt to discontinue it. It is
anticipated that the equity funds will be invested in additional apartment
communities. Since year-end 1997, the Company purchased two additional apartment
properties, using share sale proceeds, and is evaluating other potential
acquisitions.

In addition to shares sold in the public offering, as of December 31, 1997,
Cornerstone owned 417,778 common shares of the Company at a cost of $3,760,000
which represents approximately 3% of the Company's common shares outstanding at
December 31, 1997. These shares are purchased outside of the above-referenced
public offering. In 1997, the Company granted Cornerstone a continuing right to
own up to 9.8% of the common shares of Apple at the market price, net of selling
commissions.

S-39

<PAGE>

The Company also has granted Cornerstone a "first right of refusal" to
purchase the properties or business of Apple. Cornerstone has stated in its
public filings its intent to make periodic evaluations on the feasibility of
purchasing the Company.

IMPACT OF YEAR 2000

Some computer programs were written using two digits rather than four to
define the applicable year. As a result, those computer programs have
time-sensitive software that recognize a date using "00" as the year 1900 rather
than the year 2000. This could cause a system miscalculation causing disruptions
of operations. The Company has completed an assessment of its programs and has
begun to modify or replace portions of its software, so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter. The total Year 2000 project cost will be expensed as incurred and is
not expected to have a material effect on the results of operations. This
project is estimated to be completed by December 31, 1998, which is prior to any
impact on the Company's systems.

IMPACT OF INFLATION

The Company does not believe that inflation had any significant impact on
the operation of the Company in 1997. Future inflation, if any, would likely
cause increased operating expenses, but the company believes that increases in
expenses would be more than offset by increases in rental revenues. Continued
inflation may also cause capital appreciation of the Company's properties over
time, as rental rates and replacement costs increase.

TRANSFER OF ASSETS TO SUBSIDIARY PARTNERSHIP

Originally, the Company's Properties were acquired and owned directly by
the Company without the interposition or use of any subsidiary companies.
Company management determined that the direct ownership of its Properties could
inhibit in certain respects the Company's flexibility in planning certain
transactions or acquisitions. For example, the direct-ownership structure makes
it difficult, if not impossible, for potential sellers of properties to exchange
their properties for equity interests in the Company in a manner that could
defer tax liabilities for the sellers. Company management felt that this lack of
flexibility could hinder the Company's acquisition of desirable properties from
sellers seeking such tax deferral. Furthermore, Company management believed that
the direct-ownership structure tended to maximize the Company's exposure to
certain franchise taxes.

Based upon the foregoing, Company management proposed to the Board of
Directors, and the Board of Directors adopted and submitted for approval by the
Shareholders, a proposal the effect of which would be to transfer the apartment
properties of the Company to a newly-organized limited partnership indirectly
wholly-owned by the Company.

The Board of Directors approved and submitted to the Shareholders (with its
recommendation for adoption) the following resolutions (collectively, the
"Reorganization Proposal");

RESOLVED, that the Company transfer any and all of the Company's
multifamily rental apartment communities (including all assets associated
therewith) to a partnership to be created by the Company, the partners of
which will be the Company or entities wholly-owned, directly or indirectly,
by the Company; and

RESOLVED, that the following be added as a new Article XIII to the
Company's Bylaws:

ARTICLE XIII
CONDUCT OF BUSINESS THROUGH SUBSIDIARIES

13.1 Subsidiaries. To the extent permitted by the Articles of
Incorporation, these Bylaws (excluding Section 9.1(i) hereof, which shall not
be construed to prohibit anything contemplated by this Article XIII) and
applicable law (including any required consent of the Directors and
Shareholders under applicable law), the Company may conduct its business
through subsidiary companies owned or controlled by the Company (or its
subsidiaries). Any such subsidiary company is referred to as a

S-40

<PAGE>

"Subsidiary Company" and collectively such subsidiary companies are referred
to as the "Subsidiary Companies." It is specifically acknowledged that the
conduct of the Company's business through a Subsidiary Company or Subsidiary
Companies may be effected and undertaken by the transfer by the Company of
properties to, the acquisition of properties by, and the ownership and
operation of properties in, a partnership all of whose interests are
initially owned by the Company and/or a Subsidiary Company or Subsidiary
Companies. However, the transfer described in the preceding sentence shall
not constitute an event permitting conversion of the Company's Class B
Convertible Shares.

13.2 Interpretation and Application of Bylaws. If and to the extent (i)
the Company conducts its business through Subsidiary Companies, or (ii) there
are properties which, in the absence of Subsidiary Companies, would be owned
and operated by the Company but such properties are instead owned and
operated by Subsidiary Companies, restrictions on the power of the Company to
engage in certain transactions and restrictions on the authority of Directors
and officers of the Company in these Bylaws, and in particular the
restrictions contained in Articles VIII, IX and X of these Bylaws, shall be
interpreted and applied to Subsidiary Companies in the same manner as they
apply by their terms to the Company to the extent necessary to ensure that
the Bylaw provision is given the effect intended notwithstanding that the
Company's business is conducted through Subsidiary Companies instead of by
the Company directly. The Company shall exercise any rights and powers it has
as an owner or partner (directly or indirectly) of a Subsidiary Company
consistently with this provision.

13.3 Certain Shareholder Consents. If a transaction involving the
proposed sale or other transfer, whether by sale, exchange, merger,
consolidation, lease, share exchange or otherwise, by a Subsidiary Company
would require pursuant to applicable law the consent or approval of
Shareholders if the Company owned directly, and were proposing the sale or
other transfer of, the relevant assets, the Company shall not approve,
undertake or effectuate any such proposed sale or other transfer through such
Subsidiary Company without first obtaining the consent or approval of the
Shareholders of the Company.

Pursuant to notice duly given, to all Shareholders of record on October 31,
1997, in a Proxy Statement dated November 26, 1997, a Special Meeting of
Shareholders of the Company was held at 3:00 p.m. on Wednesday, December 17,
1997, at the offices of McGuire, Woods, Battle & Boothe, L.L.P., Richmond,
Virginia. At the Special Meeting, Shareholders were asked to consider and vote
on the Reorganization Proposal. There being insufficient votes to approve the
Reorganization Proposal at that time, the meeting was adjourned and then
reconvened after adjournment on December 19, 1997 at 2:00 p.m. A vote was then
taken on the Reorganization Proposal. As of the record date, there were
10,108,598 Common Shares outstanding and entitled to vote. A total of 6,845,381
Common Shares were present in person or by proxy. A total of 6,823,288 Common
Shares voted in favor of the Reorganization Proposal. A total of 11,785 Common
Shares voted against the Reorganization Proposal and a total of 10,308 Common
Shares abstained. The Reorganization Proposal was adopted, as 67.5%, or more
than two-thirds, of the Common Shares outstanding and entitled to vote approved
the Reorganization Proposal.

REORGANIZATION

In light of the foregoing and as further described herein, the Company
transferred the Properties to a Virginia limited partnership, the partners of
which are two newly created, wholly-owned subsidiaries of the Company.

The Company formed the two wholly-owned subsidiaries, Apple Limited, Inc.
and Apple General, Inc., as Virginia corporations. The Company then transferred
an undivided 99 percent interest in the Properties to Apple Limited, Inc. and an
undivided 1 percent interest in the Properties to Apple General, Inc. Apple
Limited, Inc. and Apple General, Inc. together formed the limited partnership,
Apple REIT Limited Partnership (the "Partnership"), as a Virginia limited
partnership. Apple Limited, Inc. contributed its 99% interest in the Properties
to the Partnership in exchange for a 99% limited partnership interest in the
Partnership. Apple General, Inc. contributed its 1% interest in the Properties
to the Partnership in exchange for a 1% general partnership interest in the
Partnership. The Properties were transferred to the Partnership on December 29,
1997. The Partnership now holds the Properties and conducts the business
activities of the Company associated with the Properties.

S-41

<PAGE>

The following diagrams set forth the original structure of the Company's
ownership of the Properties and the structure that is in effect following
implementation of the Reorganization:

Prior Company Structure Company Structure Following Reorganization
----------------------- ------------------------------------------

[DIAGRAM]

EFFECT OF THE REORGANIZATION AND BYLAW AMENDMENTS

Shareholders effectively continue to hold the same ownership interest in
the Properties following the Reorganization, through the Company's 100%
ownership of Apple Limited, Inc. (which owns a 99% interest in the Partnership),
and 100% ownership of Apple General, Inc. (which owns a 1% interest in the
Partnership). Apple General, Inc., as general partner of the Partnership, will
manage the affairs of the Partnership. The Company, as sole shareholder of Apple
General, Inc., will be entitled to exercise the rights of a 100%-shareholder
with respect to Apple General, Inc., including the election and removal of
directors of that company. At the present time, Glade M. Knight, Chairman of the
Board and Chief Executive Officer of the Company, is the sole director and
President of Apple General, Inc. No substantive change in the rights of the
Shareholders is intended to occur as a result of the Reorganization. To give
effect to this intent, there are now in effect amendments to the Company's
Bylaws (set forth above) designed to retain existing Bylaw restrictions on the
Company and its directors and officers, and to retain certain existing
Shareholder rights, notwithstanding the technical changes in legal ownership
effected by the Reorganization. The transfers described in the Reorganization
are expected to be tax-free transfers at both the state and federal level.

FEDERAL INCOME TAX DEVELOPMENTS

For a discussion of material federal income tax consequences applicable to
distributions to Shareholders and the Company's election to be taxed as a REIT,
see "Federal Income Tax Consequences" in the Prospectus.

Prospective investors should be aware that the Taxpayer Relief Act of 1997
(the "1997 Act") made numerous changes to the Code, including reducing the
maximum tax rate imposed on net capital gains from the sale of assets held for
more than 18 months by individuals, trusts and estates. The 1997 Act also makes
certain changes to the requirements to qualify as a REIT and to the taxation of
REITs and their shareholders.

The 1997 Act includes several provisions that are intended to simplify the
taxation of REITs. These provisions are effective for taxable years beginning
after the date of enactment of the 1997 Act which, as to the Company, is its
taxable year commencing January 1, 1998. First, in determining whether a REIT

S-42

<PAGE>

satisfies certain income tests, a REIT's rental income from a property will not
cease to qualify as "rents from real property" merely because the REIT performs
services for a tenant other than permitted customary services if the amount that
the REIT is deemed to have received as a result of performing impermissible
services does not exceed one percent of all amounts received directly or
indirectly by the REIT with respect to that property. For this purpose, the
amount that a REIT will be deemed to have received for performing impermissible
services is at least 150% of the direct cost to the REIT of providing those
services. Second, certain non-cash income, including income from cancellation of
indebtedness and original issue discount, will be excluded from income in
determining the amount of dividends that a REIT is required to distribute.
However, the REIT will still be subject to tax on this income to the extent it
is not offset by the dividends-paid deduction. Third, a REIT may elect to retain
and pay income tax on any net long-term capital gains and require its
shareholders to include such undistributed net capital gains in their income. If
a REIT makes such an election, the REIT's shareholders would receive a tax
credit attributable to their shares of capital gains tax paid by a REIT on the
undistributed net capital gains that was included in the shareholders' income,
and such shareholders would receive an increase in the basis of their share in
the amount of undistributed net capital gain included in their income reduced by
the amount of the credit. Fourth, the 1997 Act repeals the requirement that a
REIT receive less than 30% of its gross income from the sale or disposition of
stock or securities held for less than one year, gain from prohibited
transactions, and gain from certain sales of real property held less than four
years. Finally, the 1997 Act contains a number of technical provisions that
reduce the risk that a REIT will inadvertently cease to qualify as a REIT.

EXPERTS

The consolidated financial statements of Apple Residential Income Trust,
Inc. at December 31, 1997 and 1996, and for the year in the period ended
December 31, 1997, appearing in this Prospectus and Post-Effective Amendment No.
6 to the Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report 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-43

<PAGE>

UPDATE ON EXPERIENCE OF PRIOR PROGRAMS

The following tables set forth updated information (through December 31,
1997) on Cornerstone Realty Income Trust, Inc. ("Cornerstone"), 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, 1997.

<TABLE>
<S> <C>
Dollar Amount Offered .................................... $368,536,368
Dollar Amount Raised ..................................... $368,536,368
Less Offering Expenses:
Selling Commissions and Discounts ...................... 7.19%
Organizational Expenses ................................ 3.42%
Other .................................................. 0.00%
Reserves ................................................. 3.00%
Percent Available for Investment ......................... 86.39%
Acquisition Costs:
Prepaid items and fees to purchase property ............ 85.12%
Cash down payment ...................................... 0.00%
Acquisition fees ....................................... 1.27%
Other .................................................. 0.00%
Total Acquisition Costs .................................. 86.39%
Percent Leverage (excluding unsecured debt) .............. 0.00%
Date offering began ...................................... May 1993
Length of offering (in months) ........................... 54
Months to invest amount available for investment ......... 54

</TABLE>

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<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, 1997, and (ii) by all other programs during the three years
ended December 31, 1997.

OTHER
CORNERSTONE PROGRAM
----------- -------
<S> <C> <C>
Date offering commenced ................................... May 1993 Various
Dollar amount raised ...................................... $368,536,368 $ 35,483,175
Amounts paid to Prior Program Sponsor from proceeds of of-
fering:
Acquisition fees
Real Estate commission ................................. $ 4,075,337 $ 0
Advisory fees .......................................... $ 515,689 $ 0
Other .................................................. $ 0 $ 0
Cash generated from operations before deducting payments to
Prior Program Sponsor .................................... $ 67,583,917 $ 9,069,403
Aggregate compensation to Prior Program Sponsor
Management and accounting fees ........................... $ 3,088,348 $ 1,137,934
Reimbursements ........................................... $ 2,717,655 $ 0
Leasing fees ............................................. $ 0 $ 0
Other fees ............................................... $ 0 $ 0
There have been no fees from property sales or refinancings
</TABLE>

S-45

<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,
1997. 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.

1997 1996 1995 1994
---- ---- ----
<S> <C> <C> <C> <C>
Capital contributions by year .................. $ 63,485,868 $ 176,885,206 $71,771,027 $23,496,784
Gross revenue .................................. $ 71,970,624 $ 40,352,955 $16,300,821 $ 8,177,576
Operating expenses ............................. $ 29,948,366 $ 18,696,781 $ 8,180,016 $ 4,690,941
Interest income (expense) ...................... $ (7,230,205) $ (1,140,667) $ (68,061) $ 110,486
Depreciation ................................... $ 15,163,593 $ 8,068,063 $ 2,788,818 $ 1,210,818
Net income (loss) GAAP basis ................... $ 19,225,553 $ (4,169,849) $ 5,229,715 $ 2,386,303
Taxable income ................................. $ 0 $ 0 $ 0 $ 0
Cash generated from operations ................. $ 30,863,533 $ 20,162,776 $ 9,618,956 $ 3,718,086

Less cash distributed to investors ............. $ 31,324,870 $ 15,934,901 $ 6,316,185 $ 2,977,136
Cash generated after cash distribution ......... $ (461,337) $ 4,227,875 $ 3,302,771 $ 740,950
Special items
Capital contributions, net .................... $ 63,485,868 $ 144,798,035 $71,771,027 $23,496,784
Fixed asset additions ......................... $ 157,859,343 $ 194,519,406 $75,589,089 $28,557,568
Line of credit ................................ $ 96,166,141 $ 41,603,000 $ 3,300,000 $ 5,000,000
Cash generated ................................. $ 1,331,335 $ (3,890,496) $ 2,784,709 $ 680,166
End of period cash ............................. $ 4,513,986 $ 3,182,651 $ 7,073,147 $ 4,288,438
Tax and distribution data per $1,000 in-
vested ........................................
Federal income tax results
Cornerstone Realty Income Trust is a
REIT and thus is not taxed at the cor-
porate level
Cash distributions to investors
Source (on GAAP basis)
Investment income ........................... $ 77 $ 85 $ 80 $ 70
Return of capital ........................... $ 23 $ 14 $ 16 $ 19
Source (on Cash basis)
Sales ....................................... $ 0 $ 0 $ 0 $ 0
Refinancings ................................ $ 0 $ 0 $ 0 $ 0
Operations .................................. $ 100 $ 99 $ 96 $ 89
Other ....................................... $ 0 $ 0 $ 0 $ 0

</TABLE>

S-46

<PAGE>

INDEX TO FINANCIAL STATEMENTS OF THE COMPANY

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
COMPANY FINANCIAL STATEMENTS

Report of Independent Auditors .......................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and December 31, 1996 ............... F-3
Consolidated Statement of Operations for the Year Ended December 31, 1997 ............... F-4
Consolidated Statement of Shareholders' Equity for the Year Ended December 31, 1997 ..... F-4
Consolidated Statement of Cash Flows for the Year Ended December 31, 1997 ............... F-5
Notes to Consolidated Financial Statements .............................................. F-6

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
Pace's Cove Apartments:
Independent Auditors' Report .......................................................... F-29
Historical Statement of Income and Direct Operating Expenses .......................... F-30
Remington Hills at Las Colinas (formerly, Chaparosa and Riverhill Apartments):
Independent Auditors' Report (Chaparosa Apartments) ................................... F-31
Historical Statement of Income and Direct Operating Expenses (Chaparosa Apartments).... F-32
Independent Auditors' Report (Riverhill Apartments) ................................... F-33
Historical Statement of Income and Direct Operating Expenses (Riverhill Apartments) ... F-34
Copper Crossing Apartments:
Independent Auditors' Report .......................................................... F-35
Historical Statement of Income and Direct Operating Expenses .......................... F-36
Main Park Apartments:
Independent Auditors' Report .......................................................... F-37
Historical Statement of Income and Direct Operating Expenses .......................... F-38
Timberglen Apartments:
Independent Auditors' Report .......................................................... F-39
Historical Statement of Income and Direct Operating Expenses .......................... F-40
Copper Ridge Apartments:
Independent Auditors' Report .......................................................... F-41
Historical Statement of Income and Direct Operating Expenses .......................... F-42

PRO FORMA FINANCIAL STATEMENTS
Pro Forma Consolidated Balance Sheet as of December 31, 1997 (Unaudited) ................ F-43
Pro Forma Consolidated Statement of Operations for the Year Ended December 31, 1997
(Unaudited) ........................................................................... F-44

</TABLE>

F-1

<PAGE>

REPORT OF INDEPENDENT AUDITORS

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

We have audited the accompanying consolidated balance sheets of Apple
Residential Income Trust, Inc. (the "company") as of December 31, 1997 and 1996,
and the related consolidated statements of operations, shareholders' equity, and
cash flows for the year ended December 31, 1997. These financial statements are
the responsibility of the company's management. Our responsibility is to express
an opinion on these financial statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Apple Residential Income Trust, Inc. at December 31, 1997 and 1996, and the
consolidated results of its operations and its cash flows for the year ended
December 31, 1997, in conformity with generally accepted accounting principles.

Ernst & Young LLP

Richmond, Virginia
February 13, 1998

F-2

<PAGE>

CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
Assets
Investment in rental property ..........................................
Land .................................................................. $ 15,396,823
Building and improvements ............................................. 73,113,886 --
Furniture and fixtures ................................................ 1,123,639 --
------------ ---------
89,634,348 --
Less accumulated depreciation .......................................... (1,898,003) --
------------ ---------
87,736,345
Cash and cash equivalents .............................................. 24,162,572 $ 100
Prepaid expenses ....................................................... 142,581 --
Other assets ........................................................... 444,022 --
------------ ---------
24,749,175 100
------------ ---------
Total Assets ........................................................... $112,485,520 $ 100
============ =========
Liabilities and Shareholders' Equity
Accounts payable ....................................................... $ 536,324 --
Accrued expenses ....................................................... 2,143,888 --
Rents received in advance .............................................. 70,051 --
Tenant security deposits ............................................... 394,702 --
------------ ---------
Total Liabilities ...................................................... 3,144,965 --
Shareholders' Equity
Common stock, no par value, authorized 50,000,000 shares; issued
and outstanding 12,371,829 shares and 10 shares, respectively ......... 109,090,459 $ 100
Class B convertible stock, no par value, authorized 200,000 shares;
issued and outstanding 200,000 shares ................................. 20,000 20,000
Receivable from officer-shareholder .................................... (20,000) (20,000)
Net income greater than distributions .................................. 250,096 --
------------ ---------
109,340,555 100
------------ ---------
Total Liabilities and Shareholders' Equity ............................. $112,485,520 $ 100
============ =========
</TABLE>

See accompanying notes.

F-3

<PAGE>

CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Revenue
Rental income ...................................... $12,005,968
Expenses
Property and maintenance ........................... 3,571,484
Taxes and insurance ................................ 1,765,741
Property management ................................ 656,267
General and administrative ......................... 351,081
Amortization ....................................... 28,490
Depreciation of rental property .................... 1,898,003
-----------
Total expenses ...................................... 8,271,066

Income before interest income (expense) ............. 3,734,902
Interest income .................................... 222,676
Interest expense ................................... (458,384)
-----------
Net income .......................................... $ 3,499,194
===========
Basic and diluted earnings per common share ......... $ 0.54
===========

</TABLE>

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK CONVERTIBLE CLASS B STOCK
---------------------- --------------------------
NUMBER NUMBER
OF SHARES AMOUNT OF SHARES AMOUNT
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 ...... 10 $ 100 200,000 $20,000
Net proceeds from the sale of
shares ........................... 11,756,545 103,552,905 -- --
Net income ........................ -- -- -- --
Cash distributions declared to
shareholders ($.60 per share) .... -- -- -- --
Shares issued to Cornerstone Re-
alty Income Trust, Inc. .......... 417,778 3,760,000 -- --
Shares issued through Additional
Share Option ..................... 197,496 1,777,454 -- --
---------- ------------ ------- -------
Balance December 31, 1997 ......... 12,371,829 $109,090,459 200,000 $20,000
========== ============ ======= =======

<CAPTION>
RECEIVABLE
FROM NET INCOME TOTAL
PRINCIPAL GREATER THAN SHAREHOLDERS'
SHAREHOLDER DISTRIBUTIONS EQUITY
----------- ------------- ------
<S> <C> <C> <C>
Balance at December 31, 1996 ...... $ (20,000) $ 0 $ 100
Net proceeds from the sale of
shares ........................... -- -- 103,552,905
Net income ........................ -- 3,499,194 3,499,194
Cash distributions declared to
shareholders ($.60 per share) .... -- (3,249,098) (3,249,098)
Shares issued to Cornerstone Re-
alty Income Trust, Inc. .......... -- -- 3,760,000
Shares issued through Additional
Share Option ..................... -- 1,777,454
--------- ------------- ------------
Balance December 31, 1997 ......... $ (20,000) $ 250,096 $109,340,555
========= ============= ============
</TABLE>

See accompanying notes.

F-4

<PAGE>

CONSOLIDATED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
From operating activities:
Net income ........................................................ $ 3,499,194
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization ..................................... 1,926,493
Amortization of deferred loan costs ............................... 60,490
Changes in operating assets and liabilities:
Prepaid expenses .................................................. (142,581)
Other assets ...................................................... (533,002)
Accounts payable .................................................. 536,324
Accrued expenses .................................................. 1,631,776
Rent received in advance .......................................... 70,051
Tenant security deposits .......................................... 26,280
-------------
Net cash provided by operating activities ........................ 7,075,025

From investing activities:
Acquisitions of rental property, net of liabilities assumed ....... (85,147,726)
Capital improvements .............................................. (3,606,088)
-------------
Net cash used in investing activities ............................ (88,753,814)

From financing activities:
Proceeds from short-term borrowings ............................... 39,640,000
Repayments of short-term borrowings ............................... (39,640,000)
Net proceeds from issuance of shares .............................. 109,090,359
Cash distributions paid to shareholders ........................... (3,249,098)
-------------
Net cash provided by financing activities ........................ 105,841,261
Increase in cash and cash equivalents ............................ 24,162,472
Cash and cash equivalents, beginning of year ........................ 100
-------------
Cash and cash equivalents, end of year .............................. $ 24,162,572
=============

</TABLE>

See accompanying notes.

F-5

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

BUSINESS

Apple Residential Income Trust, Inc., together with its subsidiaries Apple
Limited, Inc., Apple General, Inc., and Apple REIT Limited Partnership, (the
"company"), is an externally advised real estate investment trust formed on
August 7, 1996 as a Virginia corporation. The company is an owner of residential
apartment communities in Texas. All of the company's apartment communities are
located in the Dallas/ Fort Worth, Texas metropolitan area. All operations
commenced in January, 1997; therefore, no statements of operations or cash flows
are presented for periods prior to January 1997. The accompanying consolidated
financial statements include the accounts of the company and its subsidiaries.
All significant inter-company accounts and transactions have been eliminated in
consolidation.

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
approximate their carrying value.

INVESTMENT IN REAL ESTATE

The investment in rental property is recorded at the depreciated cost and
includes real estate brokerage commissions paid to Apple Realty Group, Inc. and
Cornerstone Realty Income Trust, Inc. ("Cornerstone") (See Note 6 to the
consolidated financial statements).

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.

Repairs and maintenance costs are expensed as incurred, while significant
improvements, renovations and replacements are capitalized. Depreciation is
computed on a straight-line basis over the estimated useful lives of the related
assets which are 27.5 years for buildings and major improvements and a range
from five to ten years for furniture and fixtures.

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.

DEFERRED FINANCING COSTS

Deferred financing costs are generally amortized over a period not to
exceed the term of the related debt. Amortization of deferred financing costs is
classified as interest expense in the consolidated statements of operations.

USE OF ESTIMATES

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

STOCK INCENTIVE PLANS

The company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options. As discussed in
Note 5, the alternative fair value accounting provided for under FASB

F-6

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

NOTE 1 -- GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES -(CONTINUED)

Statement No. 123, "Accounting for Stock-Based Compensation," ("FASB 123")
requires use of option valuation models that were developed for use in valuing
employee stock options. Under APB 25, because the exercise price of the
company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

ADVERTISING COSTS

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

INCOME PER SHARE

In 1997, the Financial Accounting Standards Board issued Statement No. 128,
"Earnings per Share." Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share are very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods that have
been presented conform to the requirements of Statement 128.

FEDERAL INCOME TAX

The company is operated as, and annually elects to be taxed as, a real
estate investment trust under the Internal Revenue Code of 1986, as amended (the
"Code"). Generally, a real estate investment trust, which complies with the
provisions of the Code and distributes at least 95% of its taxable income to its
shareholders, does not pay federal income taxes on its distributed income.
Accordingly, no provision has been made for federal income taxes.

For income tax purposes, distributions paid to shareholders consist of
ordinary income and return of capital or a combination thereof. Distributions
per share were $.60 for the year ended December 31, 1997. In 1997, the total
distribution was taxable as ordinary income.

NOTE 2 -- INVESTMENT IN RENTAL PROPERTY

The following is a summary of rental property owned at December 31, 1997:

<TABLE>
<CAPTION>
INITIAL TOTAL ACCUMULATED DATE
DESCRIPTION ACQUISITION COST INVESTMENT* DEPRECIATION ACQUIRED
----------- ---------------- ----------- ------------ --------
<S> <C> <C> <C> <C>
Brookfield ......................... $ 5,458,485 $ 5,946,299 $ 166,694 January 1997
Eagle Crest ........................ 15,650,000 17,299,740 483,740 January 1997
Tahoe .............................. 5,690,560 6,641,227 199,049 January 1997
Mill Crossing ...................... 4,544,121 5,046,908 136,519 February 1997
Polo Run ........................... 6,858,974 7,545,163 191,302 March 1997
Wildwood ........................... 3,963,519 4,389,742 98,645 March 1997
Toscana ............................ 5,854,531 6,222,223 147,776 March 1997
The Arbors on Forest Ridge ......... 7,748,907 8,315,672 187,034 April 1997
Pace's Cove ........................ 9,277,355 9,536,559 141,850 June 1997
Remington at Las Colinas ........... 13,100,000 13,815,064 133,271 August 1997
Copper Crossing .................... 4,750,000 4,875,751 12,123 November 1997
----------- ----------- ----------
$82,896,452 $89,634,348 $1,898,003
</TABLE>

- ----------
* Includes real estate commissions, closing costs, and improvements
capitalized since the date of acquisition.

F-7

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- NOTES PAYABLE

During 1997, the company entered into an agreement with a commercial bank
to obtain an unsecured, revolving line of credit not to exceed $20 million to
facilitate the timely acquisition of properties. The unsecured 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. The company also obtained a $1 million unsecured line of credit for
general corporate purposes. The terms of such borrowings are the same as under
the unsecured line of credit for acquisitions. No interest was capitalized in
1997. The company paid interest of $458,384 in 1997. At December 31, 1997, there
were no outstanding borrowings under the lines of credit. The weighted-average
interest rate incurred under the lines of credit was 7.8% in 1997.

NOTE 4 -- SHAREHOLDERS' EQUITY

The company is raising equity 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. The company received gross proceeds of $121,633,733 from the
sale of 2,084,445 shares at $9 per share and 10,287,384 shares at $10 per share,
including shares sold through the reinvestment of distributions for the year
ended December 31, 1997. The underwriter received selling commissions and a
marketing expense allowance equal to 7.5% and 2.5%, respectively, of the gross
proceeds of shares sold. During 1997, the underwriter earned $11,787,399. The
net proceeds of the offering, after deducting selling commissions and other
offering expenses, were $109,090,359. These totals include 417,778 shares
purchased by Cornerstone for $3.76 million. Cornerstone owned approximately
3.38% of the company's outstanding shares on December 31, 1997 (See Note 6 to
the consolidated financial statements).

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 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:

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

F-8

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

NOTE 4 -- SHAREHOLDERS' EQUITY -(CONTINUED)

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 conversion
of the Class B Convertible Shares.

The company provides a plan which allows shareholders to reinvest
distributions in the purchase of additional shares of the company ("Additional
Share Option Plan"). Of the total proceeds raised from common shares during the
year ended December 31, 1997, $1,974,949 (net $1,777,454) was provided through
the reinvestment of distributions.

NOTE 5 -- STOCK INCENTIVE PLANS

Based on the outstanding shares, under the 1997 Incentive Option Plan, a
maximum of 1,121,875 options could be granted, at the discretion of the Board of
Directors, to certain officers and key employees of the company. Also under the
Directors Plan, a maximum of 468,000 options could be granted to the directors
of the company.

In 1997, the company granted 20,550 options to purchase shares under the
Directors Plan and no options under the Incentive Plan. Both of the plans
generally provide, among other things, that options be granted at exercise
prices not lower than the market value of the shares on the date of grant. Under
the Incentive Plan, at the earliest, options become exercisable at the date of
grant. The optionee has up to 10 years from the date on which the options first
become exercisable during which to exercise the options. Activity in the
company's share option plans during the year ended December 31, 1997 is
summarized in the following table:

<TABLE>
<CAPTION>
1997
----
WEIGHTED-AVERAGE OPTIONS
------------------------
EXERCISE PRICE
--------------
<S> <C> <C>
Outstanding, beginning of year
Granted .............................. 20,550 $ 10.00
Exercised ............................ -- --
Forfeited ............................ -- --
------ --------
Outstanding, end of year ............. 20,550 $ 10.00
Exercisable at end of year ........... 20,550 $ 10.00
====== ========
Weighted-average fair value of options
granted during the year ............. -- $ .83
</TABLE>

Pro forma information regarding net income and earnings per share is
required by FASB 123 under the fair value method described in that statement.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions, for 1997: risk-free interest rates of 6.7%; a dividend yield of
7.0%; volatility factor of the expected market price of the company's common
stock of .161; and a weighted-average expected life of the option of 10 years.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility.

Because the company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.

F-9

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(CONTINUED)

NOTE 5 -- STOCK INCENTIVE PLANS -(CONTINUED)

For purposes of FASB 123 pro forma disclosures, the estimated fair value of
the options is amortized to expense over the options' vesting period. As the
options are immediately exercisable, the full impact of the pro forma is
disclosed below:

1997
----
<S> <C>
Pro forma FASB 123 net income .................. $3,482,138
As reported net income ......................... 3,499,194
Pro forma FASB 123 earnings per share .......... .54
As reported net income per share ............... .54

</TABLE>

NOTE 6 -- RELATED-PARTY TRANSACTIONS

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 Management Company, Advisor, and Apple Realty
Group, Inc. were initially owned by Glade M. Knight. Mr. Knight also serves as
chairman of the board and chief executive officer of the company and
Cornerstone. Before the transaction described below, during 1997, the company
paid the Management Company a management fee equal to 5% of rental income plus
reimbursement of certain expenses in the amount of $52,375. The company paid the
Advisor a fee equal to .1% to .25% of total contributions received by the
company in the amount of $14,894. The company paid Apple Realty Group, Inc. a
fee of 2% of the purchase price of the acquired properties in the amount of
$624,382.

During 1997, with the approval of the company, Cornerstone 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 on the same terms
described above. As of December 31, 1997, the company had paid Cornerstone
$822,934 in management and advisory fees and $214,961 for certain reimbursable
items.

During 1997, with the consent of the company, Cornerstone acquired all the
assets of Apple Realty Group, Inc. The sole material asset of Apple Realty
Group, Inc. 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 is entitled, under the terms of the acquisition/disposition
agreement, to a real estate commission equal to 2% of the gross purchase price
of the company's properties plus reimbursement of certain expenses. As of
December 31, 1997, Cornerstone had earned approximately $1,116,566 under the
agreement.

During the first quarter of 1997, the company granted Cornerstone a
continuing right to acquire up to 9.8% of the common shares of the company at
market price, net of selling commissions. In April 1997, Cornerstone purchased
417,778 shares of the company for approximately $3.76 million. Cornerstone owns
approximately 3.38% of the total common shares of the company outstanding on
December 31, 1997.

The company also has granted Cornerstone a "first right of refusal" to
purchase the properties or business of Apple. Cornerstone has stated in its
public filings its intent to make periodic evaluations of the feasibility of
purchasing the company.

F-10

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- QUARTERLY FINANCIAL DATA (UNAUDITED)

The first three quarters of 1997 earnings per share amounts have been
restated to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share". The following is a summary of quarterly results of
operations for the year ended December 31, 1997:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue .................................. $1,155,766 $2,826,712 $3,789,266 $4,234,224
Income before interest income (ex-
pense) .................................. 471,321 971,198 1,070,504 1,221,879
Net income ............................... 556,255 831,469 856,729 1,254,741
Basic and diluted earnings per share ..... .16 .15 .12 .12
Distributions per share .................. -- .20 .20 .20
---------- ---------- ---------- ----------
</TABLE>

NOTE 8 -- EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted
earnings per share:

<TABLE>
<CAPTION>
1997
----
<S> <C>
Numerator:
Net income numerator for basic and di-
luted earnings ............................. $3,499,194
Denominator:
Denominator for basic earnings per share-
weighted-average shares .................... 6,493,114
Effect of dilutive securities: stock options --
----------
Denominator for diluted earnings per
share-adjusted weighted-average shares
and assumed conversions .................... 6,493,114
----------
Basic and diluted earnings per share ......... .54
----------

</TABLE>

NOTE 9 -- SUBSEQUENT EVENT

In January 1998, the company declared and paid a cash distributions to
shareholders of $1,953,243, of which $1,246,809 was reinvested through the
Additional Share Option. The company also closed the sale to investors of
2,905,289 shares at $10 per share, representing net proceeds after payment of
brokerage fees to the company of $26,147,598. In February 1998, the company
purchased Main Park Apartments, a 192-unit apartment community, and Timberglen
Apartments, a 304-unit apartment community. Both properties are located in
Dallas, Texas. Their purchase prices were $8 million and $12 million,
respectively.

F-11

<PAGE>

APPLE RESIDENTIAL INCOME TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 10 -- PRO FORMA INFORMATION (UNAUDITED)

The following unaudited pro forma information for the year ended December
31, 1997 is presented as if (a) The company had qualified as a REIT, distributed
all of its taxable income and, therefore, incurred no federal income tax expense
during the period; and (b) The company had used proceeds from its best efforts
offering to acquire the properties. The pro forma information does not purport
to represent what the company's results of operations would 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.

UNAUDITED PRO FORMA TOTALS 1997
-------------------------- ----
<S> <C>
Revenue ........................... $17,398,526
Net income ........................ 5,047,475
Basic earnings per share .......... .53
-----------

</TABLE>

The pro forma information reflects adjustments for the actual rental income
and rental expenses of all the 1997 acquisitions for the respective period in
1997 prior to acquisition 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; and (2) Depreciation has been
adjusted based on the company's basis in the properties.

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

<TABLE>

<S> <C>

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 compara-
ble to the proposed future operations of the
property ..................................... $ 656,741
==========

</TABLE>

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

<TABLE>
<S> <C>
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 compara-
ble to the proposed future operations of the
property ..................................... $1,861,238
==========

</TABLE>

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

<TABLE>
<S> <C>
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 compara-
ble to the proposed future operations of the
property ..................................... $ 435,389
==========

</TABLE>

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

<TABLE>

<S> <C>

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 compara-
ble to the proposed future operations of the
property ..................................... $ 325,667
=========

</TABLE>

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

<TABLE>

<S> <C>

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 compara-
ble to the proposed future operations of the
property ..................................... $ 654,591
==========

</TABLE>

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
<TABLE>

<S> <C>

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 compara-
ble to the proposed future operations of the
property ..................................... $ 396,251
=========

</TABLE>

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

<TABLE>
<S> <C>
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 compara-
ble to the proposed future operations of the
property ....................................... $ 609,667
==========

</TABLE>

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

<TABLE>

<S> <C>

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 compara-
ble to the proposed future operations of the
property ....................................... $ 892,433
==========

</TABLE>

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>

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 Pace's Cove Apartments located in Dallas, Texas for the twelve
month period ended May 31, 1997. This statement is the responsibility of the
management of Pace's Cove 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 2 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 Pace's Cove
Apartments (as defined above) for the twelve month period ended May 31, 1997, in
conformity with generally accepted accounting principles.

Richmond, Virginia L.P. Martin & Co., P.C.
July 22, 1997

F-29

<PAGE>

PACE'S COVE 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 MAY 31, 1997

<TABLE>
<S> <C>
INCOME
Rental and Other Income .................. $1,832,695

DIRECT OPERATING EXPENSES
Administrative and Other ................. 237,030
Insurance ................................ 42,627
Repairs and Maintenance .................. 273,102
Taxes, Property .......................... 213,985
Utilities ................................ 118,907
----------
TOTAL DIRECT OPERATING EXPENSES .................. 885,651
----------
Operating income exclusive of items not comparable
to the proposed future operations of the property. $ 947,044
==========

</TABLE>

NOTES 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

Pace's Cove Apartments is a 328 unit garden style apartment complex located on
12.97 acres in Dallas, Texas. The assets comprising the property were owned by
Intercapital Portfolio 944 I Limited Partnership, an entity unaffiliated with
Apple Residential Income Trust, Inc. during the financial statement period.
Apple Residential Income Trust, Inc. subsequently purchased the property.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE AND EXPENSE RECOGNITION

The accompanying statement of rental operations has been prepared using the
accrual method of accounting. 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, legal and professional fees and management fees.

ESTIMATES

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

REPAIRS AND MAINTENANCE

Repairs and maintenance costs are expensed as incurred, while significant
improvements, renovations and replacements are capitalized.

ADVERTISING

Advertising costs are expensed in the period incurred.

F-30

<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 of items not comparable to the proposed future
operations of the property Chaparosa Apartments located in Irving, Texas for the
twelve month period ended June 30, 1997. This statement is the responsibility of
the management of Chaparosa 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 2 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 Chaparosa
Apartments (as defined above) for the twelve month period ended June 30, 1997,
in conformity with generally accepted accounting principles.

Richmond, Virginia L.P. Martin & Co., P.C.
September 24, 1997

F-31

<PAGE>

CHAPAROSA APARTMENTS

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

TWELVE MONTHS ENDED JUNE 30, 1997

<TABLE>

<S> <C>

INCOME
Rental and Other Income ............................. $1,374,365
----------
DIRECT OPERATING EXPENSES
Administrative and Other ............................ 187,182
Insurance ........................................... 18,284
Repairs and Maintenance ............................. 226,512
Taxes, Property ..................................... 148,416
Utilities ........................................... 78,209
TOTAL DIRECT OPERATING EXPENSES 658,603
----------
Operating income exclusive of items not comparable to
the proposed future operations of the property .............. $ 715,762
==========
</TABLE>

NOTES 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

Chaparosa Apartments is a 170 unit garden and townhouse style apartment complex
located on 7.48 acres in Irving, Texas. The assets comprising the property were
owned by Hutton/Con Am Realty Pension Investors, an entity unaffiliated with
Apple Residential Income Trust, Inc., during the financial statement period.
Apple Residential Income Trust, Inc. purchased the property in August, 1997.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Expense Recognition -- The accompanying statement of rental
operations has been prepared using the accrual method of accounting. 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 and management fees.

Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.

Repairs and Maintenance -- Repairs and maintenance costs are expensed as
incurred, while significant improvements, renovations and replacements are
capitalized.

Advertising -- Advertising costs are expensed in the period incurred.

F-32

<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 Riverhill Apartments located in Irving, Texas for the twelve month
period ended June 30, 1997, This statement is the responsibility of the
management of Riverhill 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 2 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 Riverhill
Apartments (as defined above) for the twelve month period ended June 30, 1997,
in conformity with generally accepted accounting principles.

Richmond, Virginia L.P. Martin & Co., P.C.
September 24, 1997

F-33

<PAGE>

RIVERHILL APARTMENTS

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

TWELVE MONTHS ENDED JUNE 30, 1997

<TABLE>

<S> <C>

INCOME
Rental and Other Income ............................. $1,529,649
----------
DIRECT OPERATING EXPENSES
Administrative and Other ............................ 210,774
Insurance ........................................... 20,274
Repairs and Maintenance ............................. 254,466
Taxes, Property ..................................... 192,345
Utilities ........................................... 115,741
TOTAL DIRECT OPERATING EXPENSES 793,600
Operating income exclusive of items not comparable to
the proposed future operations of the property ..... $ 736,049
==========

</TABLE>

NOTES 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

Riverhill Apartments is a 192 unit garden and townhouse style apartment complex
located on 9.33 acres in Irving, Texas. The assets comprising the property were
owned by Riverhill Apartments Limited Partnership, an entity unaffiliated with
Apple Residential Income Trust, Inc., during the financial statement period.
Apple Residential Income Trust, Inc. purchased the property in August, 1997.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue and Expense Recognition -- The accompanying statement of rental
operations has been prepared using the accrual method of accounting. 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 and management fees.

Estimates -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting period, Actual results could differ from those estimates.

Repairs and Maintenance -- Repairs and maintenance costs are expensed as
incurred, while significant improvements, renovations and replacements are
capitalized.

Advertising -- Advertising costs are expensed in the period incurred.

F-34

<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 Copper Crossing Apartments located in Fort Worth, Texas for the
twelve month period ended October 31, 1997. This statement is the responsibility
of the management of Copper Crossing Apartments. Our responsibility is to
express an opinion on this statement based on our audit.

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 2 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 Copper Crossing Apartments
(as defined above) for the twelve month period ended October 31, 1997, in
conformity with generally accepted accounting principles.

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

Richmond, Virginia
December 16, 1997

F-35

<PAGE>

COPPER 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 OCTOBER 31, 1997

<TABLE>

<S> <C>

INCOME
Rental and Other Income ................................ $ 987,109
---------
DIRECT OPERATING EXPENSES
Administrative and Other ............................... 138,305
Insurance .............................................. 32,363
Repairs and Maintenance ................................ 210,279
Taxes, Property ........................................ 92,700
Utilities .............................................. 109,793
---------
Total Direct Operating Expenses ........................ 583,440
---------
Operating income exclusive of items not comparable to
the proposed future operations of the property ......... $ 403,669
=========

</TABLE>

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

TWELVE MONTH PERIOD ENDED OCTOBER 31, 1997

NOTE 1 -- ORGANIZATION

Copper Crossing Apartments is a 200 unit garden style apartment complex located
on 6.91 acres in Fort Worth, Texas. The assets comprising the property were
owned by Cooper Crossing Investors, Ltd., an entity unaffiliated with Apple
Residential Income Trust, Inc., during the financial statement period. Apple
Residential Income Trust, Inc. subsequently purchased the property.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

REVENUE AND EXPENSE RECOGNITION

The accompanying statement of rental operations has been prepared using the
accrual method of accounting. In accordance with Rule 3-14 of Regulations 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, management fees and entity expenses.

ESTIMATES

REPAIRS AND MAINTENANCE

Repairs and maintenance costs are expensed as incurred, while significant
improvements, renovations and replacements are capitalized.

ADVERTISING

Advertising costs are expensed in the period incurred.

F-36

<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 Main Park Apartments located in Duncanville, Texas for the twelve
month period ended December 31, 1997. This statement is the responsibility of
the management of Main Park Apartments. Our responsibility is to express an
opinion on this statement based on our audit.

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 2 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 Main Park Apartments (as
defined above) for the twelve month period ended December 31, 1997, in
conformity with generally accepted accounting principles.

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

Richmond, Virginia
March 25, 1998

F-37

<PAGE>

MAIN PARK 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 DECEMBER 31, 1997

<TABLE>
<S> <C>
INCOME
Rental and Other Income ................................ $1,469,496

DIRECT OPERATING EXPENSES
Administrative and Other ............................... 86,833
Insurance .............................................. 32,072
Repairs and Maintenance ................................ 242,402
Taxes, Property ........................................ 193,492
Utilities .............................................. 206,855
----------
Total Direct Operating Expenses ........................ 761,654
----------
Operating income exclusive of items not comparable to
the proposed future operations of the property ......... $ 707,842
==========

</TABLE>

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

TWELVE MONTH PERIOD ENDED DECEMBER 31, 1997

NOTE 1 -- ORGANIZATION

Main Park Apartments is a 192 unit garden style apartment complex located on
10.44 acres in Duncanville, Texas. The assets comprising the property were owned
by an entity unaffiliated with Apple Residential Income Trust, Inc. during the
financial statement period. Apple Residential Income Trust, Inc. purchased the
property in February, 1998.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

REVENUE AND EXPENSE RECOGNITION

ESTIMATES

The preparation of financial statements in conformity with generally accepted
accounting principles requires management of make estimates and assumptions that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

REPAIRS AND MAINTENANCE

Repairs and maintenance costs are expensed as incurred, while significant
improvements, renovations and replacements are capitalized.

ADVERTISING

Advertising costs are expensed in the period incurred.

F-38

<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 Timberglen Apartments located in Dallas, Texas for the twelve month
period ended December 31, 1997. This statement is the responsibility of the
management of Timberglen Apartments. Our responsibility is to express an opinion
on this statement based on our audit.

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 2 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 Timberglen Apartments (as
defined above) for the twelve month period ended December 31, 1997, in
conformity with generally accepted accounting principles.

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

Richmond, Virginia
April 6, 1998

F-39

<PAGE>

TIMBERGLEN 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 DECEMBER 31, 1997

<TABLE>

<S> <C>

INCOME
Rental and Other Income .............................. $1,954,938
----------
DIRECT OPERATING EXPENSES
Administrative and Other ............................. 164,562
Insurance ............................................ 31,252
Repairs and Maintenance .............................. 178,931
Taxes, Property ...................................... 226,907
Utilities ............................................ 134,278
----------
Total Direct Operating Expenses ...................... 735,930
----------
Operating income exclusive of items not comparable
to the proposed future operations of the property..... $1,219,008
==========

</TABLE>

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

TWELVE MONTH PERIOD ENDED DECEMBER 31, 1997

NOTE 1 -- ORGANIZATION

Timberglen Apartments is a 304 unit garden style apartment complex located on
10.47 acres in Dallas, Texas. The assets comprising the property were owned by
Timberglen Apartments, Ltd., an entity unaffiliated with Apple Residential
Income Trust, Inc., during the financial statement period. Apple Residential
Income Trust, Inc. purchased the property in February, 1998.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

REVENUE AND EXPENSE RECOGNITION

ESTIMATES

REPAIRS AND MAINTENANCE

Repairs and maintenance costs are expensed as incurred, while significant
improvements, renovations and replacements are capitalized.

ADVERTISING

Advertising costs are expensed in the period incurred.

F-40

<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 Copper Ridge Apartments located in Fort Worth, Texas for the twelve
month period ended February 28, 1998. This statement is the responsibility of
the management of Copper Ridge 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 2 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 Copper Ridge
Apartments (as defined above) for the twelve month period ended February 28,
1998, in conformity with generally accepted accounting principles.

Richmond, Virginia L. P. Martin & Co., P.C.
April 14, 1998

F-41

<PAGE>

COPPER RIDGE 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, 1998

<TABLE>
<S> <C>
INCOME
Rental and Other Income ........................ $914,447
--------
DIRECT OPERATING EXPENSES
Administrative and Other ....................... 147,011
Insurance ...................................... 19,847
Repairs and Maintenance ........................ 282,042
Taxes, Property ................................ 99,861
Utilities ...................................... 160,565
--------
Total Direct Operating Expenses .............. 709,326
--------
Operating income exclusive of items not
comparable to the proposed future operations
of the property ............................. $205,121
========

</TABLE>

NOTES TO THE 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, 1998

NOTE 1 -- ORGANIZATION

Copper Ridge Apartments is a 200 unit garden style apartment complex
located on approximately 7.0 acres in Fort Worth, Texas. The assets comprising
the property were owned by Copper Limited Partnership, an entity unaffiliated
with Apple Residential Income Trust, Inc., during the financial statement
period. Apple Residential Income Trust, Inc. purchased the property March 31,
1998.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

Repairs and Maintenance -- Repairs and maintenance costs are expensed as
incurred, while significant improvements, renovations and replacements are
capitalized.

Advertising -- Advertising costs are expensed in the period incurred.

NOTE 3 -- RELATED PARTY TRANSACTIONS

Repairs and maintenance includes $25,963 paid to an affiliate for various
work performed at the property by the affiliate's employee staff.

F-42

<PAGE>

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

The Unaudited Pro Forma Consolidated Balance Sheet gives effect to the 3
property acquisitions during 1998 as having occurred on December 31, 1997.

The Unaudited Pro Forma Consolidated 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 December 31, 1997, nor does
it purport to represent the future financial position of the Company. This
Unaudited Pro Forma Consolidated Balance Sheet should be read in conjunction
with, and is qualified in its entirety by, the respective historical financial
statements.

<TABLE>
<CAPTION>
HISTORICAL MAIN PARK
BALANCE PRO FORMA
SHEET ADJUSTMENTS
----------------- ---------------
<S> <C> <C>
Date of acquisition ............................ -- 2/4/98

ASSETS
Investment in rental property
Land ........................................... $ 15,396,823 $ 571,200
Building and improvements ...................... 73,113,886 7,588,800
Furniture and fixtures ......................... 1,123,639 --
------------- -------------
89,634,348 8,160,000

Less accumulated depreciation .................. (1,898,003) --
------------- -------------
87,736,345 8,160,000

Cash and cash equivalents ...................... 24,162,572 (8,160,000)
Prepaid expenses ............................... 142,581 --
Other assets ................................... 444,022 --
------------- -------------
24,749,175 (8,160,000)
------------- -------------
Total Assets ................................... $ 112,485,520 $ --
============= =============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities
Accounts payable ............................... $ 536,324 --
Accrued expenses ............................... 2,143,888 --
Rents received in advance ...................... 70,051 --
Tenant security deposits ....................... 394,702 --
------------- -------------
3,144,965 --
Shareholders' equity
Common stock ................................... 109,090,459 --
Class B convertible stock ...................... 20,000 --
Receivable from officer--shareholder ........... (20,000) --
Distributions greater than net income .......... 250,096 --
------------- -------------
109,340,555 --
------------- -------------
Total Liabilities and Shareholders' Equity. $ 112,485,520 $ --
------------- -------------

<CAPTION>
COPPER
TIMBERGLEN RIDGE
PRO FORMA PRO FORMA TOTAL
ADJUSTMENTS ADJUSTMENTS PRO FORMA
---------------- ------------- -----------------
<S> <C> <C> <C>
Date of acquisition ............................ 2/13/98 3/31/98 --

ASSETS
Investment in rental property
Land ........................................... $ 2,448,000 $ 784,635 $ 19,200,658
Building and improvements ...................... 9,792,000 3,830,865 94,325,551
Furniture and fixtures ......................... -- -- 1,123,639
-------------- ----------- -------------
12,240,000 4,615,500 114,649,848
Less accumulated depreciation .................. -- -- (1,898,003)
-------------- ----------- -------------
12,240,000 4,615,500 112,751,845
Cash and cash equivalents ...................... (12,240,000) -- 3,762,572
Prepaid expenses ............................... -- -- 142,581
Other assets ................................... -- -- 444,022
-------------- ----------- -------------
(12,240,000) -- 4,349,175
-------------- ----------- -------------
Total Assets ................................... $ -- $ 4,615,500 $ 117,101,020
============== =========== =============
</TABLE>

<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS'
EQUITY
Liabilities
Accounts payable ............................... -- -- $ 536,324
Accrued expenses ............................... -- -- 2,143,888
Rents received in advance ...................... -- -- 70,051
Tenant security deposits ....................... -- -- 394,702
-------------- ----------- -------------
-- -- 3,144,965
Shareholders' equity
Common stock ................................... -- $ 4,615,500 113,705,959
Class B convertible stock ...................... -- -- 20,000
Receivable from officer--shareholder ........... -- -- (20,000)
Distributions greater than net income .......... -- -- 250,096
-------------- ----------- -------------
-- 4,615,500 113,956,055
-------------- ----------- -------------
Total Liabilities and Shareholders' Equity. $ -- $ 4,615,500 $ 117,101,020
-------------- ----------- -------------
</TABLE>

NOTES TO PRO FORMA BALANCE SHEET

Pro Forma adjustments represent the purchase price of the related property,
including the 2% acquisition fee to Cornerstone Realty Income Trust, Inc.
allocated between land and building. Adjustments to cash and common stock
reflect the use of net proceeds from sales of common stock from the Company's
continuous offering.

F-43

<PAGE>

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1997 (UNAUDITED)

The Unaudited Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1997 is presented as if the 12 property acquisitions during
1997 and the 3 property acquisitions during 1998 had occurred on January 1,
1997. The Unaudited Pro Forma Consolidated Statement of Operations assumes the
Company qualifying as a REIT, distributing at least 95% of its taxable income,
and, therefore, incurred no federal income tax liability for the period
presented. In the opinion of management, all adjustments necessary to reflect
the effects of these transactions have been made.

The Unaudited Pro Forma Consolidated 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,
1997 if the acquisitions 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 Consolidated 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.

HISTORICAL 1997 PRO FORMA
STATEMENT OF ACQUISITIONS PRO FORMA BEFORE 1998
OPERATIONS ADJUSTMENTS ADJUSTMENTS ACQUISITIONS
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Date of acquisition ........................ -- -- -- --
Rental income .............................. $12,005,968 $ 5,392,558 -- $17,398,526
Rental expenses:
Property and maintenance .................. 3,571,484 1,982,189 -- 5,553,673
Taxes and insurance ....................... 1,765,741 706,939 -- 2,472,680
Property management ....................... 656,267 -- $ 295,813 (A) 952,080
General and administrative ................ 351,081 -- 67,262 (B) 418,343
Amortization .............................. 28,490 -- -- 28,490
Depreciation of rental property ........... 1,898,003 -- 792,074 (C) 2,690,077
----------- ----------- ----------- -----------
Total expenses ............................. 8,271,066 2,689,128 1,155,149 12,115,343
Income before interest income (expense) 3,734,902 2,703,430 (1,155,149) 5,283,183
Interest income ............................ 222,676 -- -- 222,676
Interest expense ........................... (458,384) -- -- (458,384)
----------- ----------- ----------- -----------
Net income ................................. $ 3,499,194 $ 2,703,430 ($ 1,155,149) $ 5,047,475
Basic and diluted earnings per common
share ..................................... $ 0.54 $ 0.53
=========== ===========
Wgt. avg. number of common shares out-
standing .................................. 6,493,114 3,106,405 (D) 9,599,519
=========== =========== ===========

<CAPTION>
COPPER
MAIN PARK TIMBERGLEN RIDGE
PRO FORMA PRO FORMA PRO FORMA PRO FORMA TOTAL
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Date of acquisition ........................ 2/4/98 2/13/98 3/31/98 -- --
Rental income .............................. $ 1,469,496 $ 1,954,938 914,447 -- $21,737,407
Rental expenses:
Property and maintenance .................. 536,090 477,771 589,618 -- 7,157,152
Taxes and insurance ....................... 225,564 258,159 119,708 -- 3,076,111
Property management ....................... -- -- -- $ 237,824 (A) 1,189,904
General and administrative ................ -- -- -- 62,539 (B) 480,882
Amortization .............................. -- -- -- -- 28,490
Depreciation of rental property ........... -- -- -- 771,333 (C) 3,461,410
----------- ----------- ------- ----------- -----------
Total expenses ............................. 761,654 735,930 709,326 1,071,696 15,393,949
Income before interest income (expense) 707,842 1,219,008 205,121 (1,071,696) 6,343,458
Interest income ............................ -- -- -- -- 222,676
Interest expense ........................... -- -- -- -- (458,384)
----------- ----------- ------- ----------- -----------
Net income ................................. $ 707,842 $ 1,219,008 $205,121 ($ 1,071,696) $ 6,107,750
Basic and diluted earnings per common
share ..................................... $ 0.49
===========
Wgt. avg. number of common shares out-
standing .................................. 2,875,345(D) 2,474,864
=========== =========
</TABLE>

- ----------
(A) Represents the property management fees of 5% of rental income and
processing costs equal to $2.50 per apartment per month charged by the
external management company for the period not owned by the Company.

(B) Represents the advisory fee of .25% of accumulated capital contributions
under the "best efforts" offering for the period of time not owned by the
Company.

(C) Represents the depreciation expense of the properties acquired based on the
purchase price, excluding amounts allocated to land, for the period of time
not owned by the Company. The weighted average life of the property
depreciated was 27.5 years.

(D) Represents additional common shares assuming the properties were acquired on
January 1, 1997 with the net proceeds from the "best efforts" offering of $9
per share (net $7.83 per share) for the first $15 million and $10 per share
(net $8.70 per share) above $15 million.

F-44

<PAGE>

PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1997 (UNAUDITED)

The following schedule provides detail of 1997 acquisitions by property
included in the Pro Forma Consolidated Statement of Operations for the year
ended December 31, 1997.

BROOKFIELD EAGLE CREST TAHOE MILL CROSSING POLO RUN WILDWOOD
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Date of Acquisitions .............. 1/31/97 1/31/97 1/31/97 2/28/97 03/31/97 03/31/97
Rental income ..................... $ 99,879 $266,385 $100,023 $151,389 $ 326,137 $ 202,389
Expenses ..........................
Property and maintenance ......... 32,430 74,735 51,643 77,882 121,983 78,111
Taxes and insurance .............. 12,720 36,546 12,099 19,230 40,508 25,216
Property management .............. -- -- -- -- -- --
General and administrative........ -- -- -- -- -- --
Depreciation of real estate....... -- -- -- -- -- --
Amortization ..................... -- -- -- -- -- --
-------- -------- -------- -------- --------- ---------
45,150 111,281 63,742 97,112 162,491 103,327
Income before interest income. 54,729 155,104 36,281 54,277 163,646 99,062
Interest income .................. -- -- -- -- -- --
Interest expense ................. -- -- -- -- -- --
-------- -------- -------- -------- --------- ---------
Net income ........................ $ 54,729 $155,104 $ 36,281 $ 54,277 $ 163,646 $ 99,062
======== ======== ======== ======== ========= =========

<CAPTION>
COPPER
TOSCANA THE ARBORS PACES COVE CHAPAROSA RIVERHILL CROSSING
PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS ADJUSTMENTS
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Date of Acquisitions .............. 03/31/97 4/25/97 6/30/97 8/6/97 8/6/97 11/25/97
Rental income ..................... $ 270,812 $460,338 $916,348 $ 801,713 $ 892,295 $ 904,850
Expenses ..........................
Property and maintenance ......... 82,722 102,132 314,521 286,943 338,906 420,181
Taxes and insurance .............. 35,674 60,729 128,306 97,242 124,028 114,641
Property management .............. -- -- -- -- -- --
General and administrative........ -- -- -- -- -- --
Depreciation of real estate....... -- -- -- -- -- --
Amortization ..................... -- -- -- -- -- --
--------- -------- -------- --------- --------- ---------
118,396 162,861 442,827 384,185 462,934 534,822
Income before interest income. 152,416 297,477 473,521 417,528 429,361 370,028
Interest income .................. -- -- -- -- -- --
Interest expense ................. -- -- -- -- -- --
--------- -------- -------- --------- --------- ---------
Net income ........................ $ 152,416 $297,477 $473,521 $ 417,528 $ 429,361 $ 370,028
========= ======== ======== ========= ========= =========

TOTAL
PRO FORMA
---------
<S> <C>
Date of Acquisitions ..............
Rental income ..................... $5,392,558
Expenses ..........................
Property and maintenance ......... 1,982,189
Taxes and insurance .............. 706,939
Property management .............. 0
General and administrative........ 0
Depreciation of real estate....... 0
Amortization ..................... 0
----------
2,689,128
Income before interest income. 2,703,430
Interest income .................. 0
Interest expense ................. 0
----------
Net income ........................ $2,703,430
==========
</TABLE>

F-45