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

                                    FORM 10-Q

[X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
         THE SECURITIES EXCHANGE ACT OF 1934

                     For the period ended September 30, 1997

                                                         OR

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

                             For the transition period from _____ to _______

                                           Commission File Number 0-23954

                      CORNERSTONE REALTY INCOME TRUST, INC.
             (Exact name of registrant as specified in its charter)

                   VIRGINIA                         54-1589139
         (State or other jurisdiction              (IRS Employer
       of incorporation or organization)         Identification No.)

             306 EAST MAIN STREET
              RICHMOND, VIRGINIA                       23219
   (Address of principal executive offices)          (Zip Code)

                                 (804) 643-1761
              (Registrant's telephone number, including area code)

                                 Not Applicable
                 (Former name, former address, and former fiscal
                       year, if changed since last report)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No

          At November 1, 1997, there were outstanding 35,510,327 shares of
common stock, no par value, of the registrant.








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                                       CORNERSTONE REALTY INCOME TRUST, INC.
                                                     FORM 10-Q
<S> <C>

                                      INDEX

                                                                                        Page Number
                                                                                      ---------------
PART I.           FINANCIAL INFORMATION

         Item 1.      Financial Statements (Unaudited)

                           Balance   Sheets  -                                                3
                           September 30, 1997
                           and December 31, 1996

                           Statements of Operations -                                         4
                           Three months ended September 30, 1997
                           and September 30, 1996
                           Nine months ended September 30, 1997
                           and September 30, 1996

                           Statements of Shareholders'Equity -                                5
                           Nine months ended September 30, 1997

                           Statements of Cash Flows -                                         6
                           Nine months ended September 30, 1997
                           and September 30, 1996

                           Notes to Financial Statements                                      7


         Item 2.      Management's Discussion and Analysis                                   11
                      of Financial Condition and Results of
                      Operations

PART II.      OTHER INFORMATION:

         Item 1.      Legal Proceedings (not applicable).

         Item 2.      Changes in Securities (not applicable).

         Item 3.      Defaults Upon Senior Securities
                      (not applicable).

         Item 4.      Submission of Matters to a Vote of
                      Security Holders (not applicable).

         Item 5.      Other Information (not applicable)

         Item 6.      Exhibits and Reports on Form 8-K                                       15


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BALANCE SHEETS (UNAUDITED)
CORNERSTONE REALTY INCOME TRUST, INC.

<S> <C>

                                                          September 30,                                December 31,
                                                               1997                                        1996
                                                        --------------------                       ----------------------


ASSETS

Investment in Rental Property
Land                                                            $71,036,623                                  $46,980,280
Building                                                        335,213,546                                  250,705,667
Property improvements                                            41,001,548                                   26,640,085
Furniture and fixtures                                            9,371,445                                    5,389,821
                                                        --------------------                       ----------------------

                                                                456,623,162                                  329,715,853
Less accumulated depreciation                                   (23,166,762)                                 (12,323,037)
                                                        --------------------                       ----------------------

                                                                433,456,400                                  317,392,816

Cash and cash equivalents                                         4,449,850                                    3,182,651
Prepaid expenses                                                    360,794                                      557,544
Other assets                                                      7,025,480                                    1,737,563
                                                        --------------------                       ----------------------

                                                                 11,836,124                                    5,477,758
                                                        --------------------                       ----------------------

                                                               $445,292,524                                 $322,870,574
                                                        ====================                       ======================


LIABILITIES and SHAREHOLDERS' EQUITY

Liabilities
Notes payable                                                  $123,290,147                                  $55,403,000
Accrued payable-related party                                        -                                         7,297,093
Accounts payable                                                    891,385                                    2,087,673
Accrued expenses                                                  3,190,719                                    1,366,853
Rents received in advance                                           237,034                                      491,928
Tenant security deposits                                          1,878,969                                    1,654,322
                                                        --------------------                       ----------------------
                                                                129,488,254                                   68,300,869

Shareholders' equity
Common stock, no par value, authorized 50,000,000
   shares; issued and outstanding 35,250,151 shares
   and 28,141,509 shares, respectively                          346,306,618                                  276,269,539
Deferred compensation                                               (38,503)                                     (55,000)
Distributions greater than net income                           (30,463,845)                                 (21,644,834)
                                                        --------------------                       ----------------------

                                                                315,804,270                                  254,569,705
                                                        --------------------                       ----------------------

                                                               $445,292,524                                 $322,870,574
                                                        ====================                       ======================










See accompanying notes to financial statements.

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CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS  OF OPERATIONS (UNAUDITED)

<S> <C>

                                                                           Three Months Ended
                                                                   September 30,        September 30,
                                                                        1997                 1996
                                                                ------------------------------------------


REVENUE:
          Rental income                                             $18,354,354           11,495,302
          Other income                                                  573,335               -

EXPENSES:
           Utilities                                                  1,625,542            1,129,869
           Repairs and maintenance                                    1,985,245            1,421,862
           Taxes and insurance                                        1,555,647              960,371
           Property management                                        1,547,383            1,217,194
           Advertising                                                  500,010              376,436
           General and administrative                                   404,663              315,135
           Amortization  and other depreciation                          24,751                7,641
           Depreciation of rental property                            3,834,463            2,451,036
           Other operating                                              130,227              144,429
           Management contract termination                              141,754                 -
                                                                ------------------------------------------


                                             Total expenses          11,749,685            8,023,973
                                                                ------------------------------------------

Income before interest  income (expense)                              7,178,004            3,471,329

   Interest  and investment income                                      106,107               46,438
   Interest expense                                                  (1,947,265)            (211,559)
                                                                ------------------------------------------

Net income                                                           $5,336,846           $3,306,208
                                                                ==========================================

Net income per share                                                      $0.15                $0.15
                                                                ==========================================

Weighted average number of shares outstanding                        34,480,183           22,542,727
                                                                ==========================================

Distributions declared per share                                 $         0.25           $    0.248
                                                                ==========================================



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<CAPTION>

CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENTS  OF OPERATIONS (UNAUDITED)

<S> <C>

                                                                    Nine Months Ended
                                                             September 30,       September 30,
                                                                 1997                 1996
                                                           ------------------------------------


REVENUE:
          Rental income                                     $50,231,191       $26,714,877
          Other income                                        1,476,041            -

EXPENSES:
           Utilities                                          4,473,112         2,587,552
           Repairs and maintenance                            5,219,198         3,119,215
           Taxes and insurance                                4,390,206         2,351,444
           Property management                                4,119,974         2,961,518
           Advertising                                        1,414,648           766,021
           General and administrative                         1,252,892           833,084
           Amortization  and other depreciation                  58,216            22,923
           Depreciation of rental property                   10,791,653         5,155,108
           Other operating                                    1,075,247           373,484
           Management contract termination                      413,752              -
                                                           ------------------------------------


                                             Total expenses  33,208,898        18,170,349
                                                           ------------------------------------

Income before interest  income (expense)                     18,498,334         8,544,528

   Interest  and investment income                              209,947           237,651
   Interest expense                                          (4,840,391)         (554,648)
                                                           ------------------------------------

Net income                                                  $13,867,890        $8,227,531
                                                           ====================================

Net income per share                                              $0.44             $0.46
                                                           ====================================

Weighted average number of shares outstanding                31,672,928        17,696,096
                                                           ====================================

Distributions declared per share                             $     0.75        $     0.74
                                                           ====================================



</TABLE>

See accompanying notes to financial statements.


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<CAPTION>


STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
CORNERSTONE REALTY INCOME TRUST, INC.


                                                                       Number                                     Deferred
                                                                     of Shares               Amount             Compensation
                                                                   --------------------------------------------------------------
<S> <C>

Balance at December 31, 1996                                         28,141,509           $276,269,539           ($55,000)

Net proceeds from the sale of shares                                  5,177,772             49,437,926               -
Net income                                                                -                     -                    -
Cash distributions declared to shareholders ($.75  per share)             -                     -                    -
Shares issued for purchase of  Apple Realty Group, Inc. contracts       150,000              1,650,000               -
Shares issued in connection with management termination contract        700,000              7,700,000               -
Amortization of deferred compensation                                     -                     -                  16,497
Shares issued through dividend reinvestment plan                      1,080,870             11,249,153               -
                                                                   --------------------------------------------------------------

Balance at September 30, 1997                                        35,250,151           $346,306,618              ($38,503)
                                                                   ==============================================================



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<CAPTION>


STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
CORNERSTONE REALTY INCOME TRUST, INC.
                                                                       Distributions
                                                                        (Greater)            Total
                                                                       Less than        Shareholders'
                                                                      Net Income            Equity
                                                                   -------------------------------------
<S> <C>


Balance at December 31, 1996                                         ($21,644,834)        $254,569,705

Net proceeds from the sale of shares                                       -                49,437,926
Net income                                                             13,867,890           13,867,890
Cash distributions declared to shareholders ($.75  per share)         (22,686,901)         (22,686,901)
Shares issued for purchase of  Apple Realty Group, Inc. contracts          -                 1,650,000
Shares issued in connection with management termination contract           -                 7,700,000
Amortization of deferred compensation                                      -                    16,497
Shares issued through dividend reinvestment plan                           -                11,249,153
                                                                   -------------------------------------

Balance at September 30, 1997                                         ($30,463,845)        $315,804,270
                                                                   =====================================



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See accompanying notes to financial statements.
<PAGE>



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<CAPTION>



CORNERSTONE REALTY INCOME TRUST, INC.
STATEMENT OF CASH FLOWS (UNAUDITED)

<S> <C>
                                                                                                    Nine  Months Ended
                                                                                                        September 30,
                                                                                            1997                     1996
                                                                               -----------------------------------------------------


Cash flow from operating activities:

   Net income                                                                           $13,867,890               $8,227,531
   Adjustments to reconcile net income to net cash
   provided by operating activities
     Depreciation and amortization                                                       10,849,869                5,178,031
     Amortization of deferred compensation                                                   16,497                   16,500
     Amortization of Apple Realty Group contract purchase                                   626,000
     Management contract termination                                                        402,907
     Changes in operating assets and liabilities:
       Prepaid expenses                                                                     196,750                 (460,067)
       Other assets                                                                        (160,061)                (718,133)
       Accounts payable                                                                  (1,196,288)                 122,654
       Accrued expenses                                                                   1,823,866                1,304,402
       Rent received in advance                                                            (254,894)                 102,236
       Tenant security deposits                                                             224,647                  737,891
                                                                               ---------------------            -----------------

                         Net cash provided by  operating activities                      26,397,183               14,511,045

Cash flow from investing activities:

   Acquisitions of rental property                                                     (108,564,222)            (152,147,269)
   Capital improvements                                                                 (18,343,087)             (13,772,619)
    Purchase of Apple Realty Group contract                                                (350,000)                  -
    Purchase of Apple Residential Income Trust, Inc.  common stock                       (3,760,000)                  -
                                                                               ---------------------            -----------------

                         Net cash used in investing activities                         (131,017,309)            (165,919,888)

Cash flow from financing activities:

   Proceeds from short-term borrowings                                                  209,187,294               122,112,144
   Repayments of short-term borrowings                                                 (141,300,147)             (103,812,144)
   Net proceeds from issuance of shares                                                  60,687,079               140,550,493
   Increase (decrease) in commissions payable to underwriters                                -                         (6,787)
   Cash distributions paid to shareholders                                              (22,686,901)              (10,314,239)
                                                                               ---------------------            -----------------

                         Net cash provided by financing activities                      105,887,325                148,529,467

                         Increase  in cash and cash equivalents                           1,267,199                (2,879,376)

Cash and cash equivalents, beginning of year                                              3,182,651                  7,073,147
                                                                               ---------------------            -----------------

                                             Cash and cash equivalents,
                                             end of period                               $4,449,850                 $4,193,771
                                                                               =====================            =================


</TABLE>













See accompanying notes to financial statements
<PAGE>





                           CORNERSTONE REALTY INCOME TRUST, INC
                    Notes to Financial Statements (Unaudited)
                               September 30, 1997

(1)  Basis of Presentation

         The accompanying unaudited financial statements have been prepared in
         accordance with the instructions for Form 10-Q and Article 10 of
         Regulation S-X. Accordingly, they do not include all of the information
         required by generally accepted accounting principles. In the opinion of
         management, all adjustments (consisting of normal recurring accruals)
         considered necessary for a fair presentation have been included.
         Operating results for the three and nine months ended September 30,
         1997 are not necessarily indicative of the results that may be expected
         for the year ended December 31, 1997. These financial statements should
         be read in conjunction with the Company's December 31, 1996 Form 10-K.

          During the first quarter of 1997, the Financial Accounting Standards
         Board issued a new statement on the calculation of earnings per share
         which is effective beginning in the 4th quarter of 1997 and early
         adoption is prohibited. Under the new statement, primary and fully
         dilutive earnings per share are replaced with basic and diluted
         earnings per share. The Company's basic earnings per share for the nine
         month period ended September 30, 1997, according to the new statement,
         would not change materially from the reported amounts.

         In June 1997, the FASB issued SFAS No. 131 "Disclosure about Segments
         of an Enterprise and Related Information." The Company will adopt SFAS
         No. 131 in 1998. SFAS No. 131 will not have any impact on the financial
         results or financial condition of the Company, but will result in
         certain changes in required disclosures of segment reporting.

         Certain previously reported amounts have been reclassified to conform
         with the current financial statement presentation.

(2)  Notes Payable

         In January 1997, the Company increased its unsecured line of credit to
         $85 million. In February 1997, the Company obtained a $100 million
         unsecured line of credit from a consortium of three banks to fund
         property acquisitions. The unsecured line of credit was used to repay
         the outstanding balance of approximately $75 million on the existing
         line of credit. The new line of credit bears interest at the one-month
         LIBOR plus 160 basis points. In addition, the Company is obligated to
         pay the lenders a quarterly commitment fee equal to .25% per annum of
         the unused portion of the line. The entire balance is due on March 31,
         1998. The Company also obtained a $5 million unsecured line of credit
         for general corporate purposes. This line of credit also bears interest
         at LIBOR plus 160 basis points and is due on March 31, 1998. The
         Company obtained a temporary $30 million unsecured line of credit to
         fund property acquisitions which bears the same terms as the $100
         million unsecured line of credit and expires on November 1, 1997. At
         September 30, 1997, borrowings under these agreements were $118
         million.



<PAGE>


         In October, 1997, the Company obtained a $175 million unsecured line of
         credit from a consortium of six banks to fund property acquisitions.
         The unsecured line of credit was used to repay the outstanding balance
         of approximately $118. The new line of credit bears interest at the
         LIBOR plus 120 basis points. In addition, the Company is obligated to
         pay lenders a quarterly commitment fee equal to .20% per annum of the
         unsecured portion of the line. The entire balance is due on October 30,
         2000. As of November 1, 1997, the outstanding balance on the new line
         of credit was $144 million.

         As of September 30, 1997, the interest rate on the $100 million
         unsecured line of credit was 7.2562% and the outstanding balance was
         approximately $80.8 million. The outstanding balance at September 30,
         1997 on the $5 million unsecured line of credit was approximately $1.3
         million.

(3)  Related Parties

         Prior to September  30,  1996,  the Company  operated as an  externally
         advised and externally-managed REIT. Cornerstone Advisors, Inc., served
         as the  advisor,  Cornerstone  Management  Group,  Inc.  served  as the
         property manager,  and property  acquisition  services were provided by
         Cornerstone  Realty  Group,  Inc.  Glade M. Knight,  Chairman and Chief
         Executive Officer of the Company,  held all of the stock of Cornerstone
         Advisors,  Inc.,  Cornerstone  Management  Group,  Inc. and Cornerstone
         Realty Group, Inc. (collectively, the External Companies). By agreement
         Mr.  Knight held part of the stock of the  External  Companies  for the
         account and interest of each of Stanley J. Olander,  Jr. (the Company's
         Chief  Financial  Officer)  and Debra A.  Jones  (the  Company's  Chief
         Operating Officer).

         As of October 1, 1996, the Company entered into a series of related
         party transactions with the External Companies, the effect of which was
         to convert the Company into a self-administered and self-managed REIT.
         The transactions were unanimously approved by the independent members
         of the Board of Directors.

         The Company during the nine months ended September 30,1996 paid
         Cornerstone Management Group $ 1,226,873, Cornerstone Realty Group,
         Inc., $1,957,624, And Cornerstone Advisors, Inc. $295,759. Due to the
         Company's conversion from "externally advised" and "externally managed"
         REIT, these expenses do not exist for the quarter ended September 30,
         1997. As a result of this conversion, officers are now employees of the
         Company and their salaries are included in property management and
         general and administrative expenses.

         In August 1996, Mr. Knight organized Apple Residential Income Trust,
         Inc. (Apple) for the purpose of acquiring apartment communities in
         Texas. On March 1, 1997, the company, with Apple's approval, entered
         into subcontract agreements with the entities that provide advisory and
         property management services whereby the Company will provide advisory
         and property management services to Apple in exchange for fees and
         expense reimbursement. The Company is entitled to a property management
         fee of 5% of the monthly gross revenues of the Apple properties and an
         advisory fee equal to .1% to 25% of total contributions received by
         Apple.



<PAGE>


         During March 1997, the Company acquired all the assets of Apple Realty
         Group, Inc. which provided the service of acquiring and disposing of
         real estate assets held by Apple . The sole asset of the company was
         the acquisition\disposition agreement with Apple. The Company paid
         $350,000 in cash and issued common shares valued at $1,650,000. The
         Company is entitled to a real estate commission equal to 2% of the
         gross purchase price of Apple's properties. The purchase price of the
         contract is being amortized over the remaining term of the contract as
         fees are collected.

         As of September 30, 1997, the Company had earned approximately
         $1,476,041 for all of the subcontracted and acquisition related
         services.

         Apple granted the Company a continuing right to own up to 9.8% of the
         common shares of Apple at the market price, net of selling commissions.
         In April, the Company committed to purchase shares of Apple for
         approximately $3.76 million which represented approximately 9.5% or
         417,778 of the total common shares of Apple outstanding as of March 1,
         1997. The Company may with the approval of the board of directors, if
         the board of directors determine it is in the best interests of the
         Company and its shareholders, purchase additional common shares of
         Apple as of the end of each calendar quarter in order to maintain its
         ownership of approximately 9.5% of the outstanding common shares of
         Apple. The Board will evaluate the feasibility of offering to purchase
         Apple from time to time.

(4) Subsequent Events

         In October, 1997, the Company distributed to its shareholders
         approximately $8,637,969 (25 cents per share) of which approximately
         $2,942,602 was reinvested in the purchase of additional shares of the
         Company.

         During October 1997, the Company purchased Sterling Place Apartments, a
         136-unit apartment community and Sterling Arbor Apartments, 180-unit
         apartment community . Both properties are located in Raleigh, North
         Carolina. Their purchase prices were $7.9 million and $9.8 million,
         respectively. In addition, the Company purchased Barrington Parc
         Apartments, a 188-unit apartment community located in Gwinnett County,
         Georgia (a suburb of Atlanta) for a purchase price of $7.85 million.
 .

(5)  Acquisitions (unaudited)



<PAGE>



         The following unaudited pro forma information for the nine months ended
         September 30, 1997 and 1996 assumes the property acquisitions made
         during 1996 and 1997 were made by the Company on January 1, 1996, and
         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 for properties acquired before the completion
         of the offering in July 1996. Properties acquired after the completion
         of the offering were assumed to be acquired using the Company's line of
         credit or from proceeds of an equity offering completed in April 1997.
         The pro forma information does not purport to represent what the
         Company's results of operations would actually have been if such
         transactions, in fact, had occurred on January 1, 1996 nor does it
         purport to represent the results of operations for future periods.



<PAGE>




                                           Nine Months            Nine Months
                                             Ended                    Ended
                                            9/30/97                  9/30/96

         Rental income                     $55,685,686            $47,231,712
         Net income                        $15,247,311            $11,098,486
         Net income per share                     $.44                   $.38


         The pro forma information reflects adjustments for the actual rental
         income and rental expenses of 20 of 21 1996 acquisitions and 7 of 10
         1997 acquisitions for the respective periods in 1997 and 1996 prior to
         acquisition by the Company. Net income has been adjusted as follows:
         (1) property management expenses equal to 5% of rental income plus
         $2.50 per apartment per unit per month have been adjusted based on the
         Company's contractual arrangements until such arrangements were
         terminated in October 1996; (2) advisory fee equal to .25% of
         accumulated capital contributions has been adjusted based on
         contractual arrangements until such time the arrangement was terminated
         in October 1996; (3) depreciation expense has been adjusted based on
         the Company's basis in depreciable assets for the period not owned by
         the Company using a 27.5 year useful life




<PAGE>



Item 2.            MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATIONS

Results of Operations

         INCOME AND OCCUPANCY The Company's property operations for the three
         and nine months ended September 30, 1997 reflect the operations from
         the 40 properties acquired before 1997 and from the 10 properties
         acquired in 1997 from their respective acquisition dates. The increase
         in rental income and operating expenses from third quarter 1996 to
         third quarter 1997 is primarily due to a full quarter of operation of
         the 1996 acquisitions as well as the incremental effect of the 1997
         acquisitions.

         Substantially all of the Company's income is from the rental operation
         of apartment communities. Rental income for the first nine months
         increased to $50,231,191 in 1997 from $26,714,877 in 1996. Rental
         income for the quarter ended September 30, increased from $11,495,302
         in 1996 to $18,354,354 in 1997. The increase is due to a combination of
         rental increases and property acquisitions with the latter having the
         most significant impact. Rental income is expected to increase further
         as a result of planned improvements, higher occupancies and increased
         rental rates. The Company's other source of income is the investment of
         its cash and cash reserves. Interest and investment income for the nine
         months ended September 30, 1997 and 1996 was $209,947 and $237,651,
         respectively and $106,107 and $46,438 for the three months ended
         September 30, 1997 and 1996, respectively. For the three months and
         nine months ended September 30, 1997, the Company received
         approximately $573,335 and $1,476,041, respectively, for all of the
         subcontracted and acquisition related services from Apple Residential
         Income Trust, Inc. (see Note 3).

         The economic occupancy levels for the Company's properties averaged 93%
         and 92% at the end of the nine months ended September 30, 1997 and
         1996, respectively and 94% and 93% for the three months ended September
         30, 1997 and 1996, respectively. Overall, average rental rates for the
         portfolio increased from $517 to $529 per month for the nine months
         ended September 30, 1997 and 1996, respectively. For the three months
         ended September 30, 1997 and 1996, the average rental rates increased
         from $533 to $564.

         COMPARABLE PROPERTY OPERATIONS
         On a comparative basis, the nineteen properties acquired prior to 1996
         provided rental and operating income of $7,003,573 and $4,225,595,
         respectively during the quarter ended September 30, 1997 and $6,596,781
         and $3,658,228 in 1996 for the same period. This represents an increase
         from the quarter ended September 30, 1996 to the quarter ended
         September 30, 1997 of 6% and 16%, respectively. For the nine months
         ended September 30, 1997, these properties provided rental and
         operating income of $20,439,105 and $12,408,649, respectively, and
         $18,940,090 and $10,583,064 in 1996 for the same period. This
         represents an increase from the nine months ended September 30, 1996 to
         the nine months ended September 30, 1997 of 8% and 9%, respectively.
         The conversion to "self-management" took place in October 1996.
         Therefore, the actual results for property operations contained nine
         months of management expense in 1996. In order to make a meaningful
         comparison of operating income for these properties between the three
         and nine months ended September 30, 1997 and 1996 property management
         expenses need to be eliminated from 1996. This adjustment allows for a
         comparison on a "self-administered" and "self-managed" basis. As
         adjusted, the properties provided operating income of $4,225,595 and
         $3,898,009 for the quarter ended September 30, 1997 and 1996,
         respectively, and $12,408,649 and $11,406,884 for the nine months ended
         September 30, 1997 and 1996, respectively. This represents an increase
         in operating income of 8.4 % and 8.8% for the quarter and nine months
         ended, respectively. The eliminated expenses included property
         management fees of $239,781 for the quarter September 30, 1996 and
         $932,820 for the nine months ended September 30, 1996.

         EXPENSES Total expenses for the first nine months increased to
         $33,208,898 in 1997 from $18,170,349 in 1996 and for the three months
         ended increased to $11,749,685 in 1997 from $8,023,973 in 1996. The
         increases are due largely to the acquisition of properties. The
         operating expense ratio (the ratio of rental expenses, excluding
         management contract termination, general and administrative,
         amortization and depreciation expense, to rental income) was 41% and
         46% for the nine months ended September 30, 1997 and 1996,
         respectively, and 40%and 46% for the quarter ended September 30, 1997
         and 1996, respectively. In addition, the Company incurred interest
         expense of $4,840,391 and $554,648 during the first nine months of 1997
         and 1996, respectively, and $1,947,265 and $211,559 during the three
         months ended September 30, 1997, respectively, which related to
         borrowings for property acquisitions and improvements. The increase in
         interest expense is primarily attributable to increases in average
         borrowings.

         Depreciation expense for the first nine months has increased to
         $10,791,653 in 1997 from $5,155,108 in 1996. The increase is due to the
         1997 acquisitions and a full nine months of depreciation for 1996
         acquisitions. For the quarter ended September 30, 1997 and 1996,
         depreciation expense has increased from $2,451,036 to $3,834,463 for
         the same reasons.



<PAGE>



         General and administrative expenses totaled 2% of the total rental
         income for the three months ended and nine months ended September 30,
         1997 and 3% for the same period in 1996. This percentage is expected to
         decrease as the Company's asset base and rental income grow. These
         expenses represent the administrative expenses of the Company as
         distinguished from the operations of the Company's properties.


Liquidity and Capital Resources

         GENERAL There was a significant change in the Company's liquidity
         during the nine months ended ended September 30, 1997 as the Company
         continued to acquire properties. Using the proceeds from its line of
         credit, the Company acquired 2,385 apartment units in eight residential
         rental communities during the nine months ended September 30, 1997.
         These acquisitions brought the total number of residential communities
         to 48 and the total apartment units owned at September 30, 1997 to
         11,418.


<PAGE>


<TABLE>
<CAPTION>


             The following is a summary of the properties acquired during 1997:

Property Name                                Date Acquired      Units      Purchase Price        Location
<S> <C>
The Arbors at Windsor Lake
    Apartments                              January 1997         228       $10,875,000           Columbia, SC
 Westchase Apartments                       January 1997         352       $11,000,000           Charleston, SC
 Paces Arbor Apartments                     March 1997           101       $ 5,588,219           Raleigh, NC
 Paces Forest Apartments                    March  1997          117       $ 6,473,481           Raleigh, NC
 Ashley Run Apartments                      April   1997         348       $18,000,000           Norcross, GA
 Carlyle Apartments                         April  1997          243       $11,580,000           Lawrence, GA
 Charleston Place Apartments                May 1997             214       $ 9,475,000           Charlotte, NC
 Italian Village Apartments                 August  1997         204       $ 7,425,000           Charlotte, NC
 Dunwoody Springs Apartments                July 1997            350       $15,200,000           Dunwoody, GA
 Clarion Crossing Apartments                September 1997       228       $10,600,000           Raleigh, NC

</TABLE>


         NOTES PAYABLE The Company continued to acquire property and finance
         improvements during the quarter using its unsecured lines of credit
         with the consortium of banks. The balance on the line of credit as of
         June 30, 1997 was $82.1 million. During the quarter ended September 30,
         1997 the Company borrowed an additional $44.6 million against the lines
         of credit in conjunction with property acquisitions and improvements
         and operating purposes and repaid $9 million of the balance. As of
         September 30, 1997, the outstanding debt balance included approximately
         $117.8 million on the lines of credit and the $5,500,000 unsecured note
         as discussed in Note 2 to the financial statements.

         CAPITAL REQUIREMENTS The Company has an ongoing commitment to fund its
         renovation program for recently acquired property. In addition, the
         Company is always assessing potential acquisitions and intends to
         acquire additional properties during 1997. However, no material
         commitments existed on November 1, 1997 for the purchase of additional
         properties. The source to fund the improvements and acquisitions is
         from a variety of sources including additional equity generated from
         the reinvestment of shareholder dividends, cash reserves and debt
         provided by its line of credit.

         The Company capitalized $18.3 million of improvements to its various
         properties during the year. It is anticipated that some $13 million
         additional capital improvements will be completed during the next year
         on the current portfolio.

         The Company has a continuing right to own up to 9.8% of the common
         shares of Apple at the market price, net of selling commissions. The
         Company purchased 417,778 shares of Apple for approximately $3.76
         million which represents 5% of the total common shares of Apple
         outstanding as of September 30, 1997.

         During May 1997, the Company issued 5,175,000 shares in a public market
         offering which represented net proceeds to the Company after
         underwriting discounts and commissions of $49,580,778. Concurrent with
         the offering, the Company became listed on the New York Stock Exchange.

         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 sufficient cash to provide for the payment of these
         operating expenses and distributions.

         Capital resources are expected to grow with the future sale of its
         shares and from cash flow from operations. In general, the Company's
         liquidity and capital resources are expected to be adequate to meet its
         cash requirements in 1997.

         INFLATION The Company does not believe that inflation had any
         significant impact on the operation of the Company during the nine
         months ended September 30, 1997. Future inflation, if any, would likely
         cause increased operating expenses, but the Company believes that
         increases in expenses would be offset by increases in rental income.
         Inflation may also cause capital appreciation of the Company's
         properties over time, as rental rates and replacement costs increase.




<PAGE>



 Part II, Item 6.  Exhibits and Reports on Form 8-K


   (a)   Exhibits - None


   (b)   Reports on Form 8-K

         The following table lists the reports on Form 8-K filed by the Company
   during the quarter ended September 30, 1997, the items reported and the
   financial statements included in such filings.

<TABLE>
<CAPTION>


         Type and Date
          of Reports                      Items Reported        Financial Statements Filed

<S> <C>

         Form 8-K dated May 14, 1997      2, 7(a), (d)          Historical Statement of Income and Direct
                                                                Operating Expenses of Charleston Place
                                                                Apartments for the twelve months ended
                                                                April 30, 1997.

         Form 8-K/A (date of              7(b), (c), (d)        Historical Statement of Income and Direct
         Original Report:                                       Operating Expenses of Dunwoody
         May  14, 1997)                                         Apartments for the twelve months ended
                                                                June 30, 1997.

         Form 8-K/A (date of              7(c)                  None
         Original Report:
         (March 27, 1997)

         Form 8-K dated                   2                     None
         August 28, 1997


</TABLE>


<PAGE>





                                   SIGNATURES



         Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                      Cornerstone Realty Income Trust, Inc.
                                  (Registrant)



DATE:  11/11/97                           BY:      /s/ Stanley J. Olander
                                                   ----------------------
                                                   Stanley J. Olander
                                                   Vice President and
                                                   Chief Financial Officer