CORNERSTONE REALTY INCOME TRUST INC, S-3D, 1999-04-09

CORNERSTONE REALTY INCOME TRUST INC
S-3D, 1999-04-09
REAL ESTATE INVESTMENT TRUSTS

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 9, 1999
FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

CORNERSTONE REALTY INCOME TRUST, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN GOVERNING INSTRUMENTS)

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<S> <C>
VIRGINIA 54-1589139
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)

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306 East Main Street, Richmond, Virginia 23219
(804) 643-1761
(Address, including zip code and telephone number, including area code,
of registrant's principal executive offices)

Glade M. Knight
306 East Main Street
Richmond, Virginia 23219
(804) 643-1761
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copy to:
Leslie A. Grandis
McGuire, Woods, Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement.

If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [X]

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE
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<CAPTION>
=======================================================================================================

TITLE OF EACH
CLASS OF AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER UNIT 1 OFFERING PRICE FEE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Shares, no par value .. 5,000,000 shares $ 10.0625 $50,312,500 $ 13,986.88
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1 Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended, as the
average of the high and low prices reported on the New York Stock Exchange on
April 6, 1999.
================================================================================

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PROSPECTUS

CORNERSTONE REALTY INCOME TRUST, INC.

DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN FOR COMMON SHARES

Cornerstone Realty Income Trust, Inc. ("we" or "Cornerstone") offers this
Dividend Reinvestment and Share Purchase Plan (the "Plan") to provide holders of
record of Cornerstone's Common Shares, sometimes called Shareholders, with a
convenient and economical way to acquire additional Shares without payment of
any brokerage commission or service charge. The Common Shares are sometimes
referred to as the "Shares."

The Plan provides that all or a part of the cash dividends on Shares
registered in the participants' names and held for them in the Plan are
automatically reinvested in full and fractional Shares. Shareholders who have
their Shares registered in "street name" or in the name of a broker, bank or
other nominee may also participate in the Plan to the extent that their broker,
bank or other nominee has procedures in place that will allow them to do so.
Participants may also purchase additional Shares by making voluntary cash
payments, which are invested quarterly

Cornerstone Common Shares are traded on the New York Stock Exchange under
the symbol "TCR". Currently, the purchase price for Shares under the Plan is the
higher of the following two amounts: (i) the average price of Shares, as
published in "The Wall Street Journal" report of New York Stock Exchange
Composite Transactions, for the period of ten trading days ending on the day
preceding the day of purchase (but not greater than 105% of clause (ii) below)
and (ii) the average price of Shares on the New York Stock Exchange on the day
preceding the day of purchase. See Questions 13 and 16 in this Prospectus for
additional information on how the purchase price of the Shares is determined
under the Plan. For the dividends payable with respect to April 1999 (but not
thereafter) Shares purchased through dividend reinvestment will be purchased at
95% of the foregoing purchase price, and Shares purchased with voluntary cash
payments will be purchased at 97% of the foregoing purchase price.

A Shareholder of record may participate in the Plan by completing an
Authorization Card and in the form attached to this prospectus. A Shareholder
whose Shares are held by a broker, bank or other nominee should consult with
such nominee if the Shareholder desires to participate in the Plan.

Shareholders who currently participate in Cornerstone's Plan need take no
further action to continue participation in the Plan, but should note, as
described in Question 2, that Shares are no longer being purchased at a
discount, as in the past, except with respect to the April 1999 dividends.
Shareholders who are not participants in Cornerstone's Plan and who do not want
to become participants need do nothing and will continue to receive their cash
dividends, if and when declared, as usual.

Neither the Securities and Exchange Commission nor any state securities
regulator has approved or disapproved these securities or has determined if this
prospectus is accurate or adequate. Any representation to the contrary is a
criminal offense.

The date of this Prospectus is April 9, 1999

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TABLE OF CONTENTS

PAGE

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AVAILABLE INFORMATION .............................. 1
CORNERSTONE ........................................ 1
THE PLAN ........................................... 1
Purpose ........................................... 2
Advantages and Possible Disadvantages ............. 2
Eligibility ....................................... 2
Administration .................................... 3
Participation ..................................... 3
Costs ............................................. 4
Purchases and Voluntary Cash Payments ............. 4
Reports ........................................... 7
Dividends ......................................... 7
Certificates for Shares ........................... 7
Sales of Shares ................................... 7
Withdrawal from the Plan .......................... 8
Other Information ................................. 8
USE OF PROCEEDS .................................... 10
DESCRIPTION OF COMMON SHARES ....................... 10
PLAN OF DISTRIBUTION ............................... 11
INDEMNIFICATION OF DIRECTORS AND OFFICERS .......... 12
EXPERTS ............................................ 12
LEGAL MATTERS ...................................... 13
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AVAILABLE INFORMATION

Cornerstone files annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information Cornerstone files at the SEC's public reference
room in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 10549.
Please call the SEC at 1-800-SEC-0330 for further information on the SEC's
public reference rooms. Cornerstone filings with the SEC are also available to
the public from commercial document retrieval services, on Cornerstone's website
at "http://www.cornerstonereit.com," and at the website maintained by the SEC at
"http://www.sec.gov."

The SEC allows Cornerstone to "incorporate by reference" the information it
files with the SEC, which means that Cornerstone can disclose important
information to you by referring you to those documents. The information
incorporated by reference is considered to be part of this prospectus, and later
information filed with the SEC will update and supersede this information.
Cornerstone incorporates by reference the documents listed below and any future
filings made with the SEC under Section 13(a), 13(c), 14, or 15(d) of the
Securities Exchange Act of 1934 until the offering is completed.

(a) Annual Report on Form 10-K for the year ended December 31, 1998.

(b) The description of the Common Shares set forth in Cornerstone's
Registration Statement on Form 8-A, dated April 8, 1997, filed pursuant to
Section 12(b) of the Exchange Act, including any reports updating such
description.

(c) Our Current Report on Form 8-K dated January 15, 1998 (including
Amendment No. 1 thereto on Form 8-K/A), our Current Report on Form 8-K dated
March 31, 1998, our Current Report on Form 8-K dated June 4, 1998 (including
Amendment No. 1 thereto on Form 8-K/A), our Current Report on Form 8-K dated
July 2, 1998 (including Amendment No. 1 thereto on Form 8-K/A), our Current
Report on Form 8-K dated August 12, 1998 (including Amendment No. 1 thereto
on Form 8-K/A), and our Current Report on Form 8-K dated October 16, 1998.

(d) Our Current Report on Form 8-K dated March 31, 1999.

(e) Our Current Report on Form 8-K dated April 9, 1999.

Cornerstone will provide without charge to each person to whom a copy of
this prospectus is delivered (including any beneficial owner of Shares) on the
written or oral request of any such person, a copy of any or all of the
documents incorporated herein by reference (other than exhibits to such
documents, unless such exhibits are specifically incorporated by reference in
such documents). Written requests for such copies should be directed to David S.
McKenney, Senior Vice President, 306 East Main Street, Richmond, Virginia 23219.
Telephone requests for copies may be directed to: 1-804-643-1761. You should
rely only on the information incorporated by reference or provided in this
prospectus or any prospectus supplement. Cornerstone has not authorized anyone
to provide you with different or additional information. Cornerstone is not
making an offer to sell any Shares in any state or country where the offer is
not permitted. You should not assume that the information in this prospectus or
any prospectus supplement is accurate as of any date other than the date on the
front of the document.

CORNERSTONE

We are a Virginia corporation which has elected to be treated for federal
income tax purposes as a real estate investment trust ("REIT") under the
Internal Revenue Code. We are an owner and operator of residential apartment
communities. Our address is 306 East Main Street, Richmond, Virginia 23219, and
our telephone number is 1-804-643-1761.

THE PLAN

The Dividend Reinvestment and Share Purchase Plan for record holders of our
Shares is set forth, defined and explained in the following questions and
answers. Because of this, this prospectus should be retained by you for future
reference.

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PURPOSE

1. WHAT IS THE PURPOSE OF THE PLAN?

The purpose of the Plan is to provide Shareholders of record ("Participant"
or "you") with a convenient and economical way of investing cash dividends in
additional Shares and making voluntary cash investments in Shares, in each case
without payment of any brokerage commission or service charge. Because such
additional Shares will be purchased directly by you from us, we will receive
additional funds to make real estate acquisitions, make improvements to our
properties, repay indebtedness, and use for working capital and other general
corporate purposes.

ADVANTAGES AND POSSIBLE DISADVANTAGES

2. WHAT ARE THE ADVANTAGES AND POSSIBLE DISADVANTAGES OF THE PLAN?

Advantages of the Plan may include:

AUTOMATIC REINVESTMENT. You may have cash dividends on all or a portion of
your Shares automatically reinvested in additional whole and fractional Shares.
Dividends on those additional Shares will be reinvested automatically in
additional Shares.

VOLUNTARY CASH INVESTMENT IN SHARES. You may purchase additional Shares by
making voluntary cash payments of not less than $50 nor more than $15,000 (per
Participant or beneficial owner on whose behalf a Participant is acting) in any
period between quarterly investment dates.

NO BROKERAGE FEES. There are no brokerage fees, commissions or service
charges on Shares purchased through the Plan, either with reinvested dividends
or with voluntary payments.

STATEMENTS. Regular statements of account will be mailed to Participants
after each investment to provide simplified record-keeping.

In evaluating the potential advantages of the Plan, prospective
Participants should also consider possible disadvantages of the Plan. A
Participant must make an investment decision to participate in the Plan and to
purchase Shares prior to the date the purchase price is determined. See Question
13. Unless we specifically provide otherwise, a Participant may not terminate
participation with respect to a given Investment Date after the dividend record
date with respect to the reinvestment of dividends or after the 72 hour period
preceding the Investment Date with respect to voluntary cash payments. See
Question 21. The market price of the Shares may fluctuate between the time you
make an investment decision to participate in the Plan and the time at which
Shares are purchased. In addition, no interest will be paid on voluntary cash
payments received by the Administrator pending reinvestment under the Plan.

You should also note that under Cornerstone's previous version of the Plan,
purchases of Shares were made at a discount. The discount was 5% of the
otherwise applicable price in the case of reinvested dividends and 3% of the
otherwise applicable price in the case of voluntary cash purchases. Under the
Plan as described in this Prospectus, Cornerstone has eliminated these discounts
after the payment of the April 1999 dividend. See Question 13.

Finally, you must be aware of the income tax consequences of participation
in the Plan (summarized under Question 27), including the rule that you will be
treated for federal income tax purposes as having received on each dividend
payment date a distribution equal to the fair market value of the Shares
purchased plus any cash actually distributed.

ELIGIBILITY

3. WHO IS ELIGIBLE TO PARTICIPATE IN THE PLAN?

All Shareholders of record who own Common Shares are eligible to
participate in the Plan. If your Shares are registered in a name other than your
own (e.g., in the name of a broker, bank or nominee) and you want to
participate, you must either make appropriate arrangements for your

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broker, bank or nominee to become a Participant or you must become a Shareholder
or record by having a part or all of your Shares transferred to your own name.
To have Shares of which you are the beneficial owner re-registered in your name,
you must make appropriate arrangements with your broker, bank or nominee.

Beneficial owners participating through a nominee should consult with the
nominee (e.g., the broker or bank) regarding how to participate and whether any
fees will be charged to participate. Cornerstone reserves the right to refuse to
permit a nominee to participate in the Plan if the terms of such participation
would in Cornerstone's judgment result in excessive burden or cost to
Cornerstone. Any nominee participating in the Plan on behalf of beneficial
owners must participate on behalf of such beneficial owners in compliance with
all relevant provisions of the Plan.

The Plan is intended for the benefit of Shareholders of Cornerstone. It is
not for individuals or investors who engage or seek to engage in transactions
which may cause aberrations in the price or trading volume of Shares.
Cornerstone reserves the right to modify, suspend or terminate participation in
the Plan by otherwise eligible persons in order to eliminate practices which are
not consistent with the purpose of the Plan. In order to make voluntary cash
investments, a Participant must remain a holder of record from the last day of
the month before the Investment Date through the Investment Date.

Cornerstone may also refuse participation in the Plan to Shareholders
residing in states where Shares offered pursuant to the Plan are neither
registered under applicable securities laws or exempt from registration.

ADMINISTRATION

4. WHO ADMINISTERS THE PLAN FOR THE PARTICIPANTS?

First Union National Bank of North Carolina ("Administrator"), which also
serves as Cornerstone's transfer agent, registrar and dividend disbursing agent,
acts as Administrator for the Plan and the Participants. Beneficial owners who
are not record owners will participate through their broker, bank or other
nominee, and such broker, bank or other nominee will deal with the
Administrator.

PARTICIPATION

5. HOW DOES A SHAREHOLDER PARTICIPATE IN THE PLAN?

All Shareholders currently participating in the Plan will continue until
they withdraw either as described in Question 21 or as otherwise permitted by
us. Otherwise, a Shareholder of record may join the Plan by completing an
Authorization Card in the form included in this Prospectus and returning it to
the Administrator. The address of the Administrator is:

First Union National Bank of North Carolina
Two First Union Center
Charlotte, North Carolina 28288-1154
Attention: Shareholder Services Group
Dividend Reinvestment Area
Telephone: 800-829-8432

A Shareholder who is not a Shareholder of record and who owns Shares
through a broker, bank or other nominee should contact the broker, bank or other
nominee regarding how to participate. For any such beneficial owner to
participate, the broker, bank or other nominee will have to become a
"Participant" on behalf of the beneficial owners it represents by submitting an
Authorization Card to the Administrator.

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6. WHEN MAY A SHAREHOLDER JOIN THE PLAN?

You may join the Plan at any time. If the Authorization Card is received by
the Administrator on or before the record date for the payment of the next
dividend, reinvestment will begin with that dividend. If the Authorization Card
is received in the period between any dividend record date and payment date,
unless we otherwise notify you, the next dividend will be paid in cash and the
Shareholder's initial dividend reinvestment will begin with the following
dividend.

Voluntary cash payments may be made when joining the Plan.

7. WHAT DOES THE AUTHORIZATION CARD PROVIDE?

The Authorization Card provides for the purchase of additional Shares
through these investment options:

1. Full Dividend Reinvestment directs the investment of all of your cash
dividends on all of the Shares then or subsequently registered in
your name, and also permits you to make voluntary cash payments for
the purchase of additional Shares under the Plan.

2. Partial Dividend Reinvestment directs the investment of the cash
dividends on that number of Shares registered in your name which are
designated in the appropriate space on the Authorization Card, and
also permits you to make voluntary cash payments for the purchase of
additional Shares under the Plan.

You may select either of the above investment options. To initially elect
to participate in the Plan, you must direct the Administrator to reinvest
dividends on at least one (1) Share held of record by the Shareholder. You may
not elect to make only voluntary cash payments under the Plan.

8. HOW MAY A PARTICIPANT CHANGE OPTIONS UNDER THE PLAN?

As a Participant, you may change investment options or modify the number of
Shares designated under the Partial Dividend Reinvestment option at any time by
completing a new Authorization Card and returning it to the Administrator at the
address as set forth on the Authorization Card. Beneficial owners of Shares who
are not Shareholders of record should consult with their broker, bank or other
nominee regarding procedures for changing options under the Plan.

COSTS

9. WHAT COSTS DO PARTICIPANTS PAY FOR THEIR PURCHASES OF SHARES UNDER THE PLAN?

None. There are no brokerage fees on purchases. All costs of administration
of the Plan are paid by us, except that Participants may incur certain costs in
connection with their withdrawal from the Plan if they direct the Administrator
to sell their Shares. In addition, beneficial owners of Shares participating
through a broker, bank or nominee should consult their broker, bank or other
nominee to determine if there is any charge for participating in that manner.

PURCHASES AND VOLUNTARY CASH PAYMENTS

10. WHAT IS THE SOURCE OF THE SHARES PURCHASED UNDER THE PLAN?

Shares purchased under the Plan come from our legally authorized but
unissued Shares. Shares will not be purchased in the open market.

11. WHEN WILL DIVIDENDS AND VOLUNTARY CASH PAYMENTS BE INVESTED IN SHARES?

The dates of investment of dividends ("Investment Dates") will be the
dividend payment dates. If the exchange or market on which the Shares are
principally traded is not open for trading on such date, the Investment Date
will be the next day that such exchange or market is open for trading.

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Dividend payment dates normally occur on or around the 20th day of January,
April, July and October of each year. In any month in which a cash dividend on
Shares is paid, voluntary cash payments will also be invested on the Investment
Date.

12. HOW MANY SHARES WILL BE PURCHASED WITH A PARTICIPANT'S DIVIDENDS AND
VOLUNTARY CASH PAYMENTS?

The number of full and fractional Shares purchased with a Participant's
dividends and voluntary cash payments will be determined by dividing the
aggregate amount of dividends and voluntary cash payments, if any, by the
applicable purchase price of Shares.

13. WHAT WILL BE THE PRICE FOR SHARES PURCHASED UNDER THE PLAN?

If the Shares are listed on the New York Stock Exchange (as they are as of
the date of this prospectus), the purchase price will be the higher of (i) the
average of the daily closing sales prices for Cornerstone's Common Shares (as
published in "The Wall Street Journal" report of New York Stock
Exchange--Composite Transactions) for the period of ten trading days preceding
the applicable Investment Date (but not greater than 105% of clause (ii) below)
(the "Pricing Period") and (ii) the average of the high and low sale prices of
Cornerstone's Shares on the New York Stock Exchange on the day preceding the
Investment Date.

If the Shares are listed on an exchange other than the New York Stock
Exchange, the purchase price will be the higher of (i) the average of the daily
closing sales prices of Shares on such exchange for the period of ten trading
days ending on the day preceding the applicable Investment Date (but not greater
than 105% of clause (ii) below) and (ii) the average of the high and low sale
prices of Shares on the exchange on the day preceding the Investment Date.

If the Shares are Traded other than on a securities exchange, the purchase
price will be the higher of (i) the average of the mean of the closing
representative bid and asked prices for the Shares as reported by the market
quotation reporting system of such market for the period of ten trading days
ending on the day preceding the Investment Date (but not greater than 105% of
clause (ii) below) and (ii) the average of the closing representative bid and
asked prices of the Shares as reported by the market quotation reporting system
of such market on the day preceding the Investment Date.

For the dividends payable with respect to April 1999 (but not thereafter)
Shares purchased through dividend reinvestment will be purchased at 95% of the
purchase price determined as described above, and Shares purchased with
voluntary cash payments will be purchased at 97% of the purchase price
determined as described above.

Investment of voluntary cash payments may be subject to the additional
requirement that the investment price must exceed the Threshold Price if a
Threshold Price has been established. The investment price may be higher for
voluntary cash investments if a Threshold Price has been established. See
Question 16.

The purchase price for Shares and the Threshold Price, if any, will be
calculated by us and provided in writing by us to the Administrator. Any
determination of such prices made by us is binding on the Administrator and you
in the absence of our bad faith.

14. HOW DOES A PARTICIPANT MAKE VOLUNTARY CASH PAYMENTS?

Shareholders enrolling in the Plan may make an initial voluntary cash
payment by mailing a check or money order with an executed Authorization Card to
the Administrator. After an Authorization Card has been received by the
Administrator, voluntary cash payments may be made by mailing a check or money
order together with a properly executed copy of the form for such purpose which
will accompany the account statement sent to Participants. All checks and money
orders must be payable to "First Union National Bank of North Carolina." Do not
send cash.

Voluntary cash payments must be received not later than five business days
before the Investment Date, and checks must clear prior to such Investment Date,
for a voluntary cash payment to be invested on the Investment Date. Voluntary
cash investments received fewer than five business days before an

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Investment Date will be held, without interest, until the next Investment Date.
Any voluntary cash payments not yet invested will be refunded on written request
received by the Administrator not later than 72 hours before the next Investment
Date.

As an alternative to mailing a check or money order with each voluntary
cash payment, a Participant may make arrangements with the Administrator for
automatic drafts or withdrawals from a Participant's checking, savings or other
account. If a Participant provides the Administrator written notice of any
change in such automatic draft or automatic withdrawal authorization at least
ten days before any record date, such change will be given effect as of the next
dividend payment date. If the notice is given to the Administrator after the
ten-day period, the change will not be given effect until the second succeeding
dividend payment date.

Shares purchased with voluntary cash payments will be held by the
Administrator and credited to your account under the Plan. Thereafter, dividends
on such Shares will automatically be fully reinvested in additional Shares
unless such Shares are withdrawn from the Plan by written notice to the
Administrator, which must be received before the applicable dividend record
date.

A Shareholder who is not a Shareholder of record and who owns Shares
through a broker, bank or other nominee should contact the broker, bank or other
nominee regarding how to make voluntary cash payments. The broker, bank or other
nominee will submit voluntary cash payments to the Administrator on behalf of
the beneficial owner.

15. ARE THERE ANY LIMITATIONS ON VOLUNTARY CASH PAYMENTS?

Yes. A Participant, or a beneficial owner on whose behalf a Participant is
acting, may make voluntary cash payments during the period between each
quarterly Investment Date of not less than $50 nor more than $15,000 (the
"Maximum Investment"). If a Participant, or a beneficial owner on whose behalf a
Participant is acting, holds more than one Plan account or Shares under the same
social security or tax identification number, voluntary cash payments from the
Participant or beneficial owner will generally be aggregated and subject to the
Maximum Investment. We will not consider or grant any request for waiver of the
Maximum Investment. A Participant, or a beneficial owner on whose behalf a
Participant is acting, may not use voluntary cash payments to purchase a number
of Shares exceeding that number of Shares owned by the Participant or beneficial
owner on the record date. However, we may, in our sole discretion, grant waivers
of this limitation upon voluntary cash payments.

16. WHAT ARE THE THRESHOLD PRICE PROVISIONS?

Prior to 5:00 p.m. on the last business day preceding each Pricing Period
(see Question 13 for a description of the Pricing Period), we reserve the right
to establish a minimum price for the investment of voluntary cash payments (the
"Threshold Price") on the Investment Date, subject to the following provisions:

The Threshold Price will be established in our sole discretion after a review
of current market conditions and other factors.

A Participant may determine whether a Threshold Price has been established
and its amount by telephoning the Administrator.

If the average of the high and low sales prices (or the mean of the closing
representative bid and asked prices) of the Shares on the New York Stock
Exchange or other exchange or market on a trading day during the Pricing
Period (a "Daily Investment Price") is less than the Threshold Price, such
Daily Investment Price will be EXCLUDED from the Pricing Period for the
purpose of calculating the purchase price for voluntary cash payments.

If the Threshold Price is greater than EACH Daily Investment Price during a
Pricing Period for a particular Investment Date voluntary cash payments will
not be reinvested and voluntary cash payments will be returned to the
Participants as promptly as practicable following the Investment Date,
without interest.

<PAGE>

If the Threshold Price is established, the investment price for voluntary
cash payments may be higher than the investment price for dividends
reinvested in additional Shares.

REPORTS

17. WHAT REPORTS WILL PARTICIPANTS RECEIVE?

Following each purchase of Shares for a Participant under the Plan, the
Administrator will mail to the Participant a statement of account showing the
amounts invested, the number of Shares purchased, and the purchase price for the
Shares. These statements should be retained for income tax purposes. During the
year Participants will receive copies of the same materials sent to all
Cornerstone Shareholders, including our quarterly and annual reports, proxy
statements and other information concerning annual Shareholder meetings. In
general, a Shareholder who is not a Shareholder of record and who owns Shares
through a broker, bank or nominee will receive statements and information
concerning the Plan only from the broker, bank or nominee, although we may also
elect to send various Shareholder communications to underlying beneficial
owners.

In addition to the foregoing, our Bylaws require that each Participant be
provided at least annually with a description of all material information
regarding distributions to Shareholders and the effect of reinvesting such
distributions, including the tax consequences thereof.

DIVIDENDS

18. WILL PARTICIPANTS BE PAID DIVIDENDS PAID ON SHARES HELD IN THEIR ACCOUNTS
UNDER THE PLAN?

Yes. Dividends will be paid on all full and fractional Shares held in a
Plan account. Dividends will automatically be reinvested in additional Shares
and added to Participants' accounts.

CERTIFICATES FOR SHARES

19. DO PARTICIPANTS RECEIVE CERTIFICATES FOR SHARES PURCHASED UNDER THE PLAN?

No. Although record owners of Shares may request stock certificates
evidencing their ownership, in the absence of such specific request, all Shares
of record owners and, in any event all Shares beneficially owned by other than
record owners, including full and fractional Shares issued under the Plan, will
be issued in uncertificated or "book entry" form. This feature permits ownership
of fractional Shares, protects against loss, theft or destruction of stock
certificates, and reduces the costs of the Plan.

Also, as noted above in Question 3, the Administrator will hold Shares in
the names of the registered holders. In the case of a Shareholder holding his or
her shares in the name of a broker, bank or nominee, this means that the
Administrator will hold the Shares in the name of such broker, bank or nominee
unless the Shareholder elects to become a Shareholder of record by having a part
or all of the Shares transferred to the Shareholder's own name.

SALES OF SHARES

20. HOW MAY PARTICIPANTS SELL SHARES THROUGH THE PLAN?

Participants may instruct the Administrator to sell some or all of their
Shares held in the Plan by notifying the Administrator in writing or by using
the form included with account statements. Beneficial owners holding their
Shares through a broker, bank or other nominee should consult the broker, bank
or other nominee regarding procedures for selling the Shares.

The Administrator will sell Shares through a registered broker dealer,
which may be First Union Brokerage Services, which is an affiliate of the
Administrator, as soon as practicable after receipt of a proper written request.
Shares to be sold may be combined with those of other Participants

<PAGE>

requesting sale of their Shares, and the proceeds to each Participant will be
based on the average price for all Shares sold during the day of sale.
Participants should understand that the price of the Shares may go down as well
as up between the date a request to sell is received and the date the sale is
executed. The Plan does not offer the ability for Participants to specify either
the dates or the prices at which Shares are to be sold through the
Administrator.

If a request to sell Shares is received on or after the record date, and
before the payment date, for a dividend, any cash dividend paid on such Shares
will be reinvested. The request to sell Shares will then be processed as soon as
practicable after the dividend is reinvested and the additional Shares are
credited to the Participant's account.

There is no charge for selling Shares through the Administrator except for
the Participant's pro rata share of brokerage commissions.

WITHDRAWAL FROM THE PLAN

21. WHEN AND HOW MAY A PARTICIPANT WITHDRAW FROM THE PLAN?

A Participant may withdraw from the Plan at any time by written request to
First Union National Bank of North Carolina, Two First Union Center, Charlotte,
North Carolina 28288-1154, Attention: Shareholder Services Group, Dividend
Reinvestment Area. Unless we provide otherwise, if the withdrawal request is
received on or after the record date for determining the Shareholders entitled
to receive the next dividend, that dividend will be reinvested in Shares for the
Participant's account on the dividend payment date, and the request for
withdrawal will be processed promptly thereafter. Any voluntary cash payments
sent to the Administrator prior to a withdrawal request will also be invested in
Shares on the next Investment Date unless the Participant requests in writing
the return of the payments at least 72 hours before the Investment Date.

Beneficial owners holding their Shares through a broker, bank or other
nominee should consult the broker, bank or other nominee regarding procedures
for withdrawal.

22. WHAT HAPPENS AFTER A PARTICIPANT WITHDRAWS FROM THE PLAN?

When a Participant withdraws from the Plan, unless the Participant requests
the Administrator to sell all its Shares in the Plan, the Participant will
receive all dividends in cash unless and until the Participant rejoins the Plan.

Upon withdrawal from the Plan, you may request the Administrator to sell
all of your Shares in the Plan account. In that case, the sale will be made as
promptly as possible after processing the withdrawal request, and the
Administrator will pay you the proceeds of the sale, less any applicable
brokerage commission or charge. If the withdrawal request is received on or
after the record date for determining the Shareholders entitled to receive the
next dividend, the processing of the withdrawal request, and hence the sale,
will be delayed until after the dividend payment date.

23. WHEN MAY A SHAREHOLDER REJOIN THE PLAN?

Generally, a Shareholder of record may again become a Participant at any
time.

OTHER INFORMATION

24. WHAT HAPPENS WHEN A PARTICIPANT SELLS OR TRANSFERS SOME OR ALL OF HIS OR HER
SHARES IN THE PLAN?

There is no effect on the Shares remaining in the Plan.

If you dispose of all or a portion of your Shares, the Administrator will
continue to reinvest dividends on Shares credited to your Plan account in
additional Shares unless and until a written request to withdraw such Shares
from your Plan account is received by the Administrator, and any voluntary cash
payments will continue to be invested under the Plan in additional Shares.

<PAGE>

If you dispose of all or a portion of your Shares and you have directed the
Administrator to reinvest dividends on some of your Shares (i.e., Partial
Dividend Reinvestment), you should provide new written instructions to the
Administrator on how to handle your account. If the Administrator does nor
receive new instructions, it may, in its discretion, pay cash dividends to you
on all of your remaining Shares.

25. WHAT HAPPENS IF WE ISSUE A STOCK DIVIDEND, DECLARE A STOCK SPLIT, OR HAVE A
RIGHTS OFFERING?

Any stock dividends or split Shares distributed by Cornerstone on Shares
held in the Plan will be credited to your Plan account.

26. HOW WILL A PARTICIPANT'S PLAN SHARES BE VOTED AT ANNUAL OR SPECIAL MEETINGS
OF SHAREHOLDERS?

You will receive a proxy to vote the number of Shares (including fractional
Shares) held in your Plan account. If no instructions are indicated on a
properly signed and returned proxy card, your Shares in the Plan account will be
voted in accordance with the recommendations of Cornerstone's management. If the
proxy card is not returned or is returned unsigned, your Shares will not be
voted. Shares held by you outside of the Plan may be voted by proxy or in person
at the meeting.

27. WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE PLAN?

Distributions by REITs are treated as dividends to the extent a REIT has
earnings and profits for federal income tax purposes. To the extent that the
amount distributed by a REIT exceeds the current and accumulated earnings and
profits of the REIT, the distribution will first be treated as a return of
capital to the Shareholder to the extent of basis, with any excess taxable as
gain realized from the sale of shares.

Amounts automatically reinvested in additional whole and fractional Shares
are taxable to the Participant or beneficial owner notwithstanding that such
amounts are reinvested in Shares. A Participant or beneficial owner will be
treated for federal income tax purposes as having received on each dividend
payment date a taxable distribution equal to the fair market value on such
dividend payment date of the Shares acquired plus any cash actually distributed.

The initial tax basis of whole or fractional Shares acquired through
dividend reinvestment or purchased will equal the purchase price of the Shares
acquired or purchased. A Participant or beneficial owner will generally
recognize capital gain or loss on the sale of the Shares equal to the difference
between the amount realized on the sale and the Participant's or beneficial
owner's tax basis. The holding period for Shares credited to a Participant's or
beneficial owner's Plan or nominee account pursuant to the dividend reinvestment
aspect of the Plan will begin on the day following the date on which the Shares
were purchased for the Participant's or beneficial owner's account. The holding
period for Shares purchased by voluntary cash payments will begin on the day
following the date of purchase.

In the case of Shareholders of record whose dividends are subject to United
States federal income tax withholding or backup withholding, the Administrator
will reinvest dividends less the amount of tax required to be withheld.

The sales of Shares through the Plan will be reported to the Internal
Revenue Service and to Participants on Form 1099B.

The foregoing discussion briefly summarizes the principal federal income
tax consequences, under current law, of participating in the Plan and is
provided for general information purposes. It does not address all potentially
relevant tax matters, including consequences peculiar to persons subject to
special provisions of tax law. No tax ruling has been issued or requested
regarding the Plan.

Participants in the Plan and participating beneficial owners are urged to
consult with their own tax advisors with respect to tax laws applicable to their
specific situations. In addition, the tax consequences of participation in the
Plan by retirement plans differ from those outlined for

<PAGE>

individuals. Since the laws and regulations regarding the federal income tax
consequences of retirement plan participation are complex and subject to change,
a retirement plan considering such participation should consult with its own
retirement plan trustees, custodians or tax advisors for specific information.

28. MAY THE PLAN BE CHANGED OR DISCONTINUED?

While we hope to continue the Plan indefinitely, we reserve the right to
suspend or terminate the Plan at any time. We also reserve the right to make
modifications to the Plan. Participants will be informed of any such suspension,
termination or modification.

Furthermore, we reserve the right, but do not have the obligation, to waive
or modify particular requirements and rules of the Plan if we deem the waiver or
modification appropriate.

29. WHAT IS THE RESPONSIBILITY OF THE ADMINISTRATOR AND CORNERSTONE UNDER THE
PLAN?

The Administrator receives the Participants' dividends and voluntary
payments, invests such amounts in additional Shares, maintains records of each
Participant's account, holds, or arranges for the holding, in a nominee name of
all Shares purchased for Participants, and advises Participants as to all
transactions in and the status of their accounts.

Neither we nor the Administrator nor its nominees shall have any liability
for any act done in good faith or for any good faith omission to act in
connection with the Plan, including any claim or liability arising out of
failure to terminate a Participant's account upon his death prior to receipt of
written notice of death, nor shall we or they have any duties, responsibilities
or liabilities except such as are set forth in the Plan.

30. WHO BEARS THE RISK OF MARKET PRICE FLUCTUATIONS IN CORNERSTONE'S SHARES?

Your investment in Shares held in a Plan account is no different than an
investment in directly held Shares in this regard. You bear the risk of loss and
the benefits of gain from market price changes for all of your Shares.

Neither we nor the Administrator can guarantee that Shares purchased under
the Plan will, at any particular time, be wroth more or less than their purchase
price.

USE OF PROCEEDS

We propose to use the proceeds from the sale of Shares under the Plan to
continue Cornerstone's real estate acquisitions, to make improvements to Company
properties, to repay indebtedness, and for working capital and other general
corporate purposes. Cornerstone has no basis for estimating precisely either the
number of Shares that may be sold under the Plan, or the prices at which the
Shares will be sold.

DESCRIPTION OF COMMON SHARES

Cornerstone has 100,000,000 Common Shares, no par value, authorized and
39,370,147 Shares were issued and outstanding as of March 31, 1999. Each Share
is fully paid and nonassessable upon payment therefor and issuance. Cornerstone
has 25,000,000 preferred shares authorized.

Dividend Rights. The holders of Shares are entitled to receive such
dividends as are declared by our Board of Directors.

Voting Rights. The Common Shares have the sole voting power to elect
directors. Each Share is entitled to one vote on all matters submitted to a vote
of Shareholders, including the election of directors. There is no cumulative
voting. Currently, the Board of Directors is divided into three classes, as
nearly equal in size as possible. The terms of one class of directors expire
each year.

<PAGE>

Liquidation Rights. Upon any dissolution, liquidation or winding up of
Cornerstone, the holders of Shares are entitled to receive pro rata all of
Cornerstone's assets and funds remaining after payment of, or provision for,
creditors and after provision for any preferred shares which are superior to the
Shares.

Preemptive Rights. Holders of Shares have no preemptive right to purchase
or subscribe for any shares of capital stock of Cornerstone.

Repurchase of Shares and Restrictions on Transfer. In order that we may
meet certain requirements under the Internal Revenue Code applicable to real
estate investment trusts ("REITS"), Cornerstone's Bylaws prohibit any person
from acquiring or holding, directly or indirectly, ownership of a number of
Shares in excess of 9.8% of all the outstanding Shares. Shares owned by a person
in excess of such amounts are referred to in the Bylaws as "Excess Shares." For
this purpose the term "Ownership" is defined in accordance with certain
ownership rules of the Internal Revenue Code. Accordingly, Shares owned or
deemed to be owned by a person who individually owns less than 9.8% of the
Shares outstanding nevertheless may be Excess Shares.

Holders of Excess Shares are not entitled to voting rights, dividends or
distributions with respect to the Excess Shares. If, after the purported
transfer or other event resulting in an exchange of Common Shares for Excess
Shares and before discovery by us of such exchange, dividends or distributions
are paid with respect to Common Shares that were exchanged for Excess Shares,
then such dividends or distributions are to be repaid to Cornerstone upon
demand.

The Bylaws also provide that in the event any person acquires Excess
Shares, such Excess Shares may be redeemed by us at the discretion of the Board
of Directors. Except as set forth below, the redemption price for redeemed
Excess Shares will be the lesser of (i) the price paid for the Excess Shares (or
if no notice of such purchase price is given, at a price to be determined by the
Board of Directors, in its sole discretion, but no lower than the lowest market
price for the Common Shares during the year prior to the date Cornerstone
exercises its purchase option) and (ii) the fair market value of such Excess
Shares, which shall be the fair market value of the Shares as determined in good
faith by the Board of Directors or, if the Shares are listed on a national
securities exchange, the closing price (average of closing bid and asked prices
if the Shares are quoted on the NASDAQ National Market System) on the last
business day prior to the redemption date. To redeem Excess Shares, the Board of
Directors must give a notice of redemption to the holder of the Excess Shares
not less than one week prior to the date fixed by the Board of Directors for
redemption. The holder may sell such Excess Shares before the date fixed for
redemption. If he does not, the redemption price for such Excess Shares shall be
paid on the redemption date fixed by the Board of Directors and included in such
notice.

Under the Bylaws, any acquisition of Shares of Cornerstone that would
result in the disqualification of us as a REIT under the Internal Revenue Code
is void to the fullest extent permitted by law, and the Board of Directors is
authorized to refuse to transfer Shares to a person if, as a result of the
acquisition, that person would own Excess Shares.

The ownership limitations described above may have the effect of precluding
changes in control of Cornerstone, or preventing a transaction in which some or
all Shareholders might receive a premium for sale of a large or control block of
Shares.

Transfer Agent and Registrar. The transfer agent and registrar for the
Common Shares is First Union National Bank of North Carolina, Charlotte, North
Carolina.
PLAN OF DISTRIBUTION

The Shares sold under the Plan are being distributed directly by us rather
than through an underwriter, broker or dealer. There will be no brokerage
commissions or other fees charged to Participants in connection with purchases
of Shares made directly from us under the Plan. Upon withdrawal by a Participant
from the Plan by the sale of Shares held under the Plan, the Participant will
receive the proceeds of such sale less any related brokerage commissions and any
applicable transfer taxes.

<PAGE>

The Shares may not be available under the Plan in all states. This
prospectus does not constitute an offer to sell, or a solicitation of an offer
to buy, any Shares or other securities in any state or any other jurisdiction to
any person to whom it is unlawful to make such offer in such jurisdiction.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Virginia law and our Articles of Incorporation provide that our directors
and officers shall have no liability to Cornerstone or its Shareholders in
certain actions by or in the right of Cornerstone unless such officer or
director has engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities laws. Generally, claimants
must look solely to Cornerstone's property for satisfaction of claims arising in
connection with the affairs of Cornerstone.

The Articles of Incorporation provide that Cornerstone shall indemnify any
present or former director or officer against any expense or liability in an
action brought against such person if the directors (excluding the indemnified
party) determine in good faith that the director or officer was acting in good
faith within what he reasonably believed to be the scope of his authority and
for a purpose which he reasonably believed to be in the best interests of
Cornerstone or its Shareholders, and that the liability was not the result of
misconduct, bad faith, negligence, reckless disregard of duties or violation of
the criminal law. Indemnification is not allowed for any liability imposed by
judgment, and associated costs, including attorneys' fees, arising from or out
of a violation of federal or state securities laws associated with the public
offering of the Common Shares unless (i) there has been a successful
adjudication on the merits of each count involving alleged securities law
violations as to the particular indemnitee, or (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular indemnitee, or (iii) a court of competent jurisdiction
approves a settlement of the claims against a particular indemnitee.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling
Cornerstone pursuant to the foregoing provisions, Cornerstone has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K for
the year ended December 31, 1998, as set forth in their report, which is
incorporated by reference in this prospectus and elsewhere in the registration
statement. Our financial statements and schedule are incorporated by reference
in reliance on Ernst & Young LLP's report, given on their authority as experts
in accounting and auditing.

The following Statements of Income and Direct Operating Expenses of
properties purchased by us, incorporated in this prospectus and registration
statement, have been incorporated in reliance on the reports of L.P. Martin &
Company, P.C., independent certified public accountants, also incorporated
herein, and upon the authority of that firm as experts in accounting and
auditing: (1) a report dated February 5, 1998 with respect to the statement of
income and direct operating expenses exclusive of items not comparable to the
proposed future operations of the property Sterling Point Apartments for the
twelve-month period ended December 31, 1997; (2) a report dated April 8, 1998
with respect to the statement of income and direct operating expenses exclusive
of items not comparable to the proposed future operations of the property
Hampton Pointe Apartments for the twelve-month period ended February 28, 1998,
(3) a report dated April 8, 1998 with respect to the statement of income and
direct operating expenses exclusive of items not comparable to the proposed
future operations of the property Edgewood Knoll Apartments for the twelve-month
period ended February 28, 1998, (4) a report dated June 25, 1998 with respect to
the statement of income and direct operating expenses exclusive of items not
comparable to the proposed future operations of the

<PAGE>

property The Timbers Apartments for the twelve-month period ended April 30,
1998, (5) a report dated August 6, 1998 with respect to the statement of income
and direct operating expenses exclusive of items not comparable to the proposed
future operations of the property The Gables Apartments for the twelve-month
period ended May 31, 1998, and (6) a report dated November 5, 1998 with respect
to the statement of income and direct operating expenses exclusive of items not
comparable to the proposed future operations of the property Cape Landing
Apartments for the twelve-month period ended September 30, 1998.

LEGAL MATTERS

Certain legal matters with respect to the legality of the Shares offered
will be passed upon by our legal counsel, McGuire, Woods, Battle & Boothe LLP,
Richmond, Virginia. McGuire, Woods, Battle & Boothe LLP also acts as counsel to
Glade M. Knight, Cornerstone's Chief Executive Officer, and certain of his
affiliates. Leslie A. Grandis, a partner in McGuire, Woods, Battle & Boothe LLP,
is a director of Cornerstone.

<PAGE>
CORNERSTONE REALTY INCOME TRUST, INC.
DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN
AUTHORIZATION CARD

TO: FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Administrator"):

I hereby appoint you as my Administrator, subject to the Terms and Conditions of
the Dividend Reinvestment and Share Purchase Plan of Cornerstone Realty Income
Trust, Inc. ("Cornerstone"), set forth in the accompanying Prospectus, and
authorize you, to the extent indicated, to apply all cash dividends payable to
me on Company Common Shares and all my voluntary cash investments to purchase
full Shares and fractional Shares of Cornerstone.

This appointment relates only to the Shares held by me of record in the account
listed below and all full Shares and fractional Shares acquired under the Plan.
I understand that I may terminate my participation at any time by notifying you
in writing. If the undersigned is a nominee participating in the Dividend
Reinvestment and Share Purchase Plan on behalf of underlying beneficial owners,
the undersigned agrees to participate on behalf of such beneficial owners in
compliance with all relevant provisions of the Plan.

I wish to participate in the Dividend Reinvestment and Share Purchase Plan on
the following basis (select one).

[ ] FULL DIVIDEND REINVESTMENT. I want to reinvest dividends on all Shares now
or hereafter registered in my name or held for me in the Plan by the
Administrator. I may also make voluntary cash payments.

[ ] PARTIAL DIVIDEND REINVESTMENT. I want to reinvest dividends on only
________ Shares registered in my name. I understand that dividends on all
Shares held for me in the Plan by the Administrator will be reinvested. I
may also make voluntary cash payments.

My initial voluntary cash investment in the following amount is enclosed:
$____________ (minimum $50, maximum $15,000, per quarter per Participant or
beneficial owner on whose behalf a Participant acts). Check or money order
should be made payable to "First Union National Bank of North Carolina."

Please Print or Type:

[_________________] SOCIAL SECURITY NUMBER OR TAXPAYER ID NUMBER

[________________________________] NAME(S) OF PARTICIPANT(S) (AS IT APPEARS ON
YOUR DIVIDEND CHECK).

- -------------------------------------- -------------------------------------
STREET ADDRESS SIGNATURE(S) OF PLAN PARTICIPANT(S)

- -------------------------------------- -------------------------------------
CITY STATE ZIP TITLE IF SIGNING IN A REPRESENTATIVE

COUNTRY ----------------------------- CAPACITY DATE -----------------------

( )___________ DAYTIME PHONE NUMBER

MAIL TO: FIRST UNION NATIONAL BANK OF NORTH CAROLINA, TWO FIRST UNION CENTER,
CHARLOTTE, NORTH CAROLINA 28288-1154, Attn: Shareholder Services
Group, Dividend Reinvestment Area

<PAGE>

III. INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following are estimates of the expenses to be incurred in connection
with the issuance and distribution of the securities to be registered:

<TABLE>

<S> <C>
SEC registration fee ................. $13,987
Printing and engraving fees .......... 30,000
Legal fees and expenses .............. 20,000
Accounting fees and expenses ......... 10,000
Miscellaneous ........................ 10,000
-------
TOTAL ................................ $83,987
</TABLE>

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The registrant has obtained, and pays the cost of, directors' and officers'
liability insurance coverage. Directors' and officers' insurance insures (i) the
directors and officers of the registrant from any claim arising out of an
alleged wrongful act by the directors and officers of the registrant in their
respective capacities as directors and officers of the registrant, and (ii) the
registrant to the extent that the registrant has indemnified the directors and
officers for such loss.

The Virginia Stock Corporation Act (the "Virginia Act") permits, and the
registrant's Articles of Incorporation require, indemnification of the
registrant's directors and officers in a variety of circumstances, which may
include liabilities under the Securities Act of 1933. Under Section 13.1-697 of
the Virginia Act, a Virginia corporation generally is authorized to indemnify
its directors in civil or criminal actions if they acted in good faith and
believed their conduct to be in the best interests of the corporation and, in
the case of criminal actions, had no reasonable cause to believe that the
conduct was unlawful. The registrant's Articles of Incorporation require
indemnification of officers and directors with respect to any action if the
directors (other than the indemnified party) determine in good faith that the
indemnified party's course of conduct was undertaken in good faith within what
the indemnified party reasonably believed to be the scope of his authority and
for a purpose he reasonably believed to be in the best interests of the
registrant or its Shareholders, except in the case of misconduct, bad faith,
negligence, reckless disregard of duties or violation of the criminal law. In
addition, the registrant may carry insurance on behalf of directors, officers,
employees or agents that may cover liabilities under the Securities Act of 1933.
The registrant's Articles of Incorporation, as permitted by the Virginia Act,
eliminate the damages that may be assessed against a director or officer of the
registrant in a Shareholder or derivative proceeding. This limit on liability
will not apply in the event of willful misconduct or a knowing violation of the
criminal law or of federal or state securities laws.

ITEM 16. EXHIBITS.

The following exhibits are filed herewith, except as stated.

3.1 Amended and Restated Articles of Incorporation of Cornerstone Realty
Income Trust, Inc., as amended. (Incorporated herein by reference to
Exhibit 3.1 included in Cornerstone's Report on Form 8-K dated May
12, 1998; File No. 1-12875).

3.2 Bylaws of Cornerstone Realty Income Trust, Inc. (Amended Through May
12, 1998) (Incorporated herein by reference to Exhibit 3.2 included
in Cornerstone's Report on Form 8-K dated May 12, 1998; File No.
1-12875).

5 Opinion of McGuire, Woods, Battle & Boothe LLP as to the legality of
the securities being registered.

23.1 Consent of McGuire, Woods, Battle & Boothe LLP (included in Exhibit 5).
</TABLE>

II-1

<PAGE>

23.2 Consent of Ernst & Young LLP.
23.3 Consent of L.P. Martin & Company, P.C.
24.1 Power of Attorney of Glade M. Knight.
24.2 Power of Attorney of Stanley J. Olander, Jr.
24.3 Power of Attorney of Martin Zuckerbrod.
24.4 Power of Attorney of Harry S. Taubenfeld.
24.5 Power of Attorney of Penelope W. Kyle.
24.6 Power of Attorney of Glenn W. Bunting, Jr.
</TABLE>

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;

Provided, however, that paragraphs (i) and (ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in this
registration statement.

(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.

(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant
to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated
by reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.

II-2

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Richmond, Commonwealth of Virginia, on April 9, 1999.

Cornerstone Realty Income Trust, Inc.

By: /s/ Stanley J. Olander, Jr.
--------------------------------------
Chief Financial Officer
Stanley J. Olander, Jr., Chief
Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
- ----------------------------------------- ----------------------------------- --------------
<S> <C> <C>
/s/ * Director and Chief Executive April 9, 1999
- --------------------------- Officer
Glade M. Knight

/s/ * Director, Chief Financial Officer April 9, 1999
- --------------------------- and Secretary
Stanley J. Olander, Jr.

/s/ * Director April 9, 1999
- ---------------------------
Martin Zuckerbrod

/s/ * Director April 9, 1999
- ---------------------------
Harry S. Taubenfeld

/s/ * Director April 9, 1999
- ---------------------------
Leslie A. Grandis

/s/ Leslie A. Grandis Director April 9, 1999
- ---------------------------
Leslie A. Grandis

/s/ * Director April 9, 1999
- ---------------------------
Glenn W. Bunting, Jr.

/s/ * Director April 9, 1999
- ---------------------------
Penelope W. Kyle

*By: /s/ Stanley J. Olander, Jr.
-----------------------
Stanley J. Olander, Jr.
Attorney-in-Fact for
the above-named persons

</TABLE>

II-3

EXHIBIT 5

Board of Directors
Cornerstone Realty Income Trust, Inc.
306 East Main Street
Richmond, Virginia 23219

Dear Sirs:

We have acted as counsel to Cornerstone Realty Income Trust, Inc.
("Cornerstone"), a Virginia corporation, in connection with the preparation of
the registration statement on Form S-3 to which this opinion is an exhibit (the
"Registration Statement"), which is being filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), for the
registration under the Act of 5,000,000 Common Shares of Cornerstone under
Cornerstone's Dividend Reinvestment and Share Purchase Plan. Terms not otherwise
defined herein shall have the meanings assigned to them in the Registration
Statement.

We have reviewed originals or copies of (i) the Amended and Restated
Articles of Incorporation (as amended), Bylaws and other corporate documents of
Cornerstone, (ii) certain resolutions of the Board of Directors of Cornerstone,
and (iii) the Registration Statement and the prospectus included therein (the
"Prospectus"). In addition, we have reviewed such other documents and have made
such legal and factual inquiries as we have deemed necessary or advisable for
purposes of rendering the opinions set forth below.

Based upon and subject to the foregoing, we are of the opinion that:

(1) Cornerstone is duly organized and validly existing under the laws of
the Commonwealth of Virginia; and

(2) The Common Shares registered under the Registration Statement have
been duly authorized and, when issued and paid for as described in the
Registration Statement, will be validly issued, fully paid and nonassessable.

We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Registration Statement and to the filing of this opinion as an
exhibit to the Registration Statement. In giving this consent, we do not admit
that we are in the category of persons whose consent is required by Section 7 of
the Act, or the rules and regulations promulgated thereunder by the Securities
and Exchange Commission.

Very truly yours,

/s/ McGuire, Woods, Battle & Boothe LLP
----------------------------------------
McGuire, Woods, Battle & Boothe LLP

April 9, 1999

EXHIBIT 23.2

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form (S-3 No. 333-00000) and related Prospectus of
Cornerstone Realty Income Trust, Inc. for the registration of 5,000,000 shares
of its common stock and to the incorporation by reference therein of our report
dated January 25, 1999, with respect to the consolidated financial statements
and schedule of Cornerstone Realty Income Trust, Inc. included in its Annual
Report (Form 10-K) for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.

/s/ Ernst & Young LLP
----------------------
Ernst & Young LLP

Richmond, VA
April 7, 1999

EXHIBIT 23.3

L.P. MARTIN & COMPANY, P.C.
4132 INNSLAKE DRIVE
GLEN ALLEN, VIRGINIA 23060
PHONE: 804-346-2626
FAX: 804-346-9311

CONSENT OF INDEPENDENT AUDITORS

The Board of Directors
Cornerstone Realty Income Trust, Inc.
Richmond, Virginia

We hereby consent to the incorporation by reference of the following
reports prepared by us in the Registration Statement on Form S-3 (File No.
333-00000) of Cornerstone Realty Income Trust, Inc. filed with the Securities
and Exchange Commission by Cornerstone Realty Income Trust, Inc., and in the
Prospectus (including supplements thereto) included therein and to the
references to us under "Experts" therein:

(1) Our report dated February 5, 1998 with respect to the statement of
income and direct operating expenses exclusive of items not comparable to the
proposed future operations of the property Sterling Point Apartments for the
twelve-month period ended December 31, 1997, (2) our report dated April 8,
1998 with respect to the statement of income and direct operating expenses
exclusive of items not comparable to the proposed future operations of the
property Hampton Pointe Apartments for the twelve-month period ended February
28, 1998, (3) our report dated April 8, 1998 with respect to the statement of
income and direct operating expenses exclusive of items not comparable to the
proposed future operations of the property Edgewood Knoll Apartments for the
twelve-month period ended February 28, 1998, (4) our report dated June 25,
1998 with respect to the statement of income and direct operating expenses
exclusive of items not comparable to the proposed future operations of the
property The Timbers Apartments for the twelve-month period ended April 30,
1998, (5) our report dated August 6, 1998 with respect to the statement of
income and direct operating expenses exclusive of items not comparable to the
proposed future operations of the property The Gables Apartments for the
twelve-month period ended May 31, 1998, and (6) our report dated November 5,
1998 with respect to the statement of income and direct operating expenses
exclusive of items not comparable to the proposed future operations of the
property Cape Landing Apartments for the twelve-month period ended September
30, 1998.

/s/ L.P. Martin & Co., P.C.
-----------------------------
L.P. Martin & Co., P.C.

Richmond, Virginia
April 9, 1999

EXHIBIT 24.1

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Glade M. Knight and Stanley
J. Olander, Jr., each acting singly, his attorney-in-fact, to execute on his
behalf, individually and in each capacity stated below, and to file, any
documents referred to below relating to the registration of up to 5,000,000
common shares of Cornerstone Realty Income Trust, Inc. ("Cornerstone") under
Cornerstone's Dividend Reinvestment and Share Purchase Plan, such documents
being: a Registration Statement to be filed with the Securities and Exchange
Commission; such statements with, or applications to, the regulatory authorities
of any state in the United States as may be necessary to permit such shares to
be offered and sold in such states; and any and all amendments to any of the
foregoing, with all exhibits and documents required to be filed in connection
therewith. The undersigned further grants unto said attorneys and each of them
full power and authority to perform each and every act necessary to be done in
order to accomplish the foregoing registrations as fully as he himself might do.

IN WITNESS WHEREOF, the undersigned has signed this power of attorney as of
this 7th day of April, 1999.

/s/ Glade M. Knight
-------------------------------------
Glade M. Knight,
Chief Executive Officer and
Director of Cornerstone

EXHIBIT 24.2

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has signed this power of attorney as of
this 7th day of April, 1999.

/s/ Stanley J. Olander
-----------------------------------------
Stanley J. Olander, Jr.,
Chief Financial Officer and Director of
Cornerstone

EXHIBIT 24.3

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Glade M. Knight and Stanley
J. Olander, Jr., each acting singly, his attorney-in-fact, to execute on his
behalf, individually and in each capacity stated below, and to file, any
documents referred to below relating to the registration of up 5,000,000 common
shares of Cornerstone Realty Income Trust, Inc. ("Cornerstone") under
Cornerstone's Dividend Reinvestment and Share Purchase Plan, such documents
being: a Registration Statement to be filed with the Securities and Exchange
Commission; such statements with, or applications to, the regulatory authorities
of any state in the United States as may be necessary to permit such shares to
be offered and sold in such states; and any and all amendments to any of the
foregoing, with all exhibits and documents required to be filed in connection
therewith. The undersigned further grants unto said attorneys and each of them
full power and authority to perform each and every act necessary to be done in
order to accomplish the foregoing registrations as fully as he himself might do.

IN WITNESS WHEREOF, the undersigned has signed this power of attorney as of
this 7th day of April, 1999.

/s/ Martin Zuckerbrod
-------------------------------------
Martin Zuckerbrod,
Director of Cornerstone

EXHIBIT 24.4

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Glade M. Knight and Stanley
J. Olander, Jr., each acting singly, his attorney-in-fact, to execute on his
behalf, individually and in each capacity stated below, and to file, any
documents referred to below relating to the registration of up 5,000,000 common
shares of Cornerstone Realty Income Trust, Inc. ("Cornerstone") under
Cornerstone's Dividend Reinvestment and Share Purchase Plan, such documents
being: a Registration Statement to be filed with the Securities and Exchange
Commission; such statements with, or applications to, the regulatory authorities
of any state in the United States as may be necessary to permit such shares to
be offered and sold in such states; and any and all amendments to any of the
foregoing, with all exhibits and documents required to be filed in connection
therewith. The undersigned further grants unto said attorneys and each of them
full power and authority to perform each and every act necessary to be done in
order to accomplish the foregoing registrations as fully as he himself might do.

IN WITNESS WHEREOF, the undersigned has signed this power of attorney as of
this 7th day of April, 1999.

/s/ Harry S. Taubenfeld
-------------------------------------
Harry S. Taubenfeld,
Director of Cornerstone

EXHIBIT 24.5

POWER OF ATTORNEY

The undersigned hereby constitutes and appoints Glade M. Knight and Stanley
J. Olander, Jr., each acting singly, her attorney-in-fact, to execute on her
behalf, individually and in each capacity stated below, and to file, any
documents referred to below relating to the registration of up to 5,000,000
common shares of Cornerstone Realty Income Trust, Inc. ("Cornerstone") under
Cornerstone's Dividend Reinvestment and Share Purchase Plan, such documents
being: a Registration Statement to be filed with the Securities and Exchange
Commission; such statements with, or applications to, the regulatory authorities
of any state in the United States as may be necessary to permit such shares to
be offered and sold in such states; and any and all amendments to any of the
foregoing, with all exhibits and documents required to be filed in connection
therewith. The undersigned further grants unto said attorneys and each of them
full power and authority to perform each and every act necessary to be done in
order to accomplish the foregoing registrations as fully as she herself might
do.

IN WITNESS WHEREOF, the undersigned has signed this power of attorney as of
this 7th day of April, 1999.

/s/ Penelope W. Kyle
-------------------------------------
Penelope W. Kyle,
Director of Cornerstone

EXHIBIT 24.6

POWER OF ATTORNEY

IN WITNESS WHEREOF, the undersigned has signed this power of attorney as of
this 7th day of April, 1999.

/s/ Glenn W. Bunting, Jr.
-------------------------------------
Glenn W. Bunting, Jr.,
Director of Cornerstone

<PAGE>

McGuire, Woods,
Battle & Boothe LLP
One James Center
901 East Cary Street
Richmond, Virginia 23219-4030
Telephone/TDD (804) 775-1000 Fax (804) 775-1061

Martin B. Richards Direct Dial: 804/775-1029

April 9, 1999

VIA EDGAR
- ----------
Securities and Exchange Commission
Division of Corporation Finance
450 Fifth Street, N.W.
Washington, D.C. 20549

Cornerstone Realty Income Trust, Inc. (File No. 1-12875)
Registration Statement on Form S-3 for Dividend Reinvestment Plan
----------------------------------------------------
Gentlemen:

We are hereby filing via EDGAR a Registration Statement on Form S-3 on
behalf of Cornerstone Realty Income Trust, Inc. for a Dividend Reinvestment
Plan. The required filing fee has been paid in accordance with the rules of the
Commission.

Pursuant to the rules governing filings on Form S-3, we understand that
this Registration Statement will become effective automatically upon filing. The
prospectus contained in the Registration Statement incorporates a Current Report
on Form 8-K dated March 31, 1999 pertaining to a merger agreement into which the
registrant has entered. The registrant will file required financial statements
and financial projections relative to this transaction in accordance with
applicable laws and rules.

Should you have any questions regarding these filings, please contact the
undersigned at (804) 775-1029.

Very truly yours,

/s/ Martin B. Richards
----------------------------------------
Martin B. Richards

MBR
Enclosures