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**U.S. SECURITIES AND EXCHANGECOMMISSIONWASHINGTON, D.C.  20549**

**FORM 10-Q**

**(MarkOne)**

| ý                                                                              | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|-------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------|
|                                                                                |                                                                                          |
| **For  The Quarterly Period Ended June 30, 2001**                                   |
|                                                                                |
| o                                                                                   | **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   333-63656**                                   |
|                                                                                |
|                                                                                |
| **CORNERSTONE REALTY FUND, LLC**                                                    |
|                                                                                     |
| (Exact Name Of  Registrant As Specified In Its Charter)                             |
|                                                                                |
|                                                                                |
| **California**                                                                      | **33-0827161**                                                                                |
|                                                                                     |                                                                                               |
| (State or other  jurisdiction of incorporation or organization)                     | (IRS Employer  Identification No.)                                                            |
|                                                                                |                                                                                          |
| **4590  MACARTHUR BLVD., SUITE 610, NEWPORT BEACH, CALIFORNIA 92660**               |
|                                                                                     |
| (Address Of Principal  Executive Offices)                                           |
|                                                                                |                                                                                          |
| **949-852-1007**                                                                    |
|                                                                                     |
| (Issuer's Telephone  Number)                                                        |
|                                                                                |                                                                                          |
| **Not  Applicable**                                                                 |
|                                                                                     |
| (Former Name, Former  Address And Former Fiscal Year, If Changed Since Last Report) |
|                                                                                     |                                                                                               |  |

             Checkwhether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act of 1934 during the past 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.

YES   ý          NO  o

             Asof August 13, 2001, the fund had no units of membership interest issued andoutstanding.

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**PART I - FINANCIAL INFORMATION**

|                                                                                                                                           |   |
|------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| **Item  1.                   Financial  Statements** |   |
|                                                                                                                                           |   |
| **Cornerstone  Realty Fund, LLC**                                                                                                              |   |
|                                                                                                                                           |   |
| Condensed  Balance Sheets at June 30, 2001 and December 31, 2000                                                                               |   |
|                                                                                                                                           |   |
| Condensed  Statements of Operations for the Three Months and Six Months   ended June 30, 2001 and June 30, 2000                      |   |
|                                                                                                                                           |   |
| Condensed  Statements of  Members’ Deficit for the  Six Months ended   June 30, 2001 and  at December 31, 2000             |   |
|                                                                                                                                           |   |
| Condensed Statements of  Cash Flows for the Six Months   ended  June 30, 2001 and June 30, 2000                                      |   |
|                                                                                                                                           |   |
| Notes to Condensed Financial  Statements                                                                                                       |   |
|                                                                                                                                           |   |
| **Cornerstone  Industrial Properties, LLC**                                                                                                    |   |
|                                                                                                                                           |   |
| Condensed Consolidated  Balance Sheets at June 30, 2001 and December 31, 2000                                                                  |   |
|                                                                                                                                           |   |
| Notes to Condensed  Consolidated Balance Sheets                                                                                                |   |

** **

**CONDENSED BALANCE SHEETS**

**ASSETS**

 
|                                                                                  | **June  30,   2001** |   | **December  31, 2000** |   |
|---------------------------------------------------------------------------------------|----------------------|--------|-----------------------------|--------|
|                                                                                  | ****                 |   |
|                                                                                  | **(Unaudited)**      |   |                        |   |
| Cash                                                                                  | $                    | – |                        | $      | 4,500 |   |
| Office equipment, less  accumulated depreciation of $1,605 in 2001 and $1,321 in 2000 | 1,249                |   | 1,533                       |   |
|                                                                                  |                      |   |
| Total assets                                                                          | $                    | 1,249  |                        | $      | 6,033 |   |
|                                                                                  |                      |   |

**LIABILITIES AND MEMBERS’DEFICIT**
| Current liabilities                                                           |                                 |    |     |    |
|-------------------------------------------------------------------------------|--------------------------------------|---------|----------|---------|
|                                                                          | Accounts payable                     | $       | 148,065  |    | $ | 114,798 |   |
|                                                                          | Advances payable to  managing member | 897,707 |     | 722,041 |   |
|                                                                          |                                 |         |     |
|                                                                          | 1,045,772                            |    | 836,839  |    |
| Members’ deficit  (100,000 units authorized, none issued or outstanding) | (1,044,523                           | )       | (830,806 | )       |
|                                                                          |                                      |    |
| Total liabilities and  members’ deficit                                  | $                                    | 1,249   |     | $       | 6,033 |   |
|                                                                          |                                      |    |

 

Theaccompanying notes are an integral part of these financial statements.

 

**CONDENSED STATEMENTS OFOPERATIONS (Unaudited)**

|     | **Three  Months Ended   June 30,**                       |   | **Six  Months Ended   June 30,** |   |
|----------|----------------------------------------------------------|--------|----------------------------------|--------|
|     | **2001**                                                 |   | **2000**                         |   | **2001** |   | **2000** |   |
|     | ****                                                     |   |
| Expenses |                                                     |   |                             |   |   |   |   |   |
|     | General and  administrative expenses                     | $      | 12,747                           |   | $ | 17,029 |   | $ | 14,582 |   | $ | 45,977 |   |
|     | Consulting fees to  related party                        | – |                             | 29,242 |   | – |   | 60,148 |   |
|     | Interest expense on  advances payable to managing member | 16,744 |                             | 7,649  |   | 34,050 |   | 18,803 |   |
|     |                                                     |        |                             |
|     | Net loss                                                 | $      | (29,491                          | )      | $ | (53,920 | ) | $ | (48,632 | ) | $ | (124,928 | ) |
|     |                                                     |        |                             |        |   |  |   |  |   |

 

Theaccompanying notes are an integral part of these financial statements.

 

**CONDENSED STATEMENTS OFMEMBERS’ DEFICIT**

|                                    | **Six  Months   Ended   June 30,  2001** |       | **Year  Ended December 31,  2000** |   |
|-----------------------------------------|------------------------------------------|------------|------------------------------------|--------|
|                                    | ****                                     | ** ** |
|                                    | **(Unaudited)**                          |       |                               |   |
|                                    |                                     |       |
| Deficit at beginning  of period         | $                                        | (830,806   | )                                  | $      | (405,120 | ) |
| Capital contributions                   | –                                   |       | 56,947                             |   |
| Deferred offering  costs                | (165,085                                 | )          | (315,268                           | )      |
| Net loss                                | (48,632                                  | )          | (167,365                           | )      |
|                                    |                                     |       |
| Members’ deficit at  end of period | $                                        | (1,044,523 | )                                  | $      | (830,806 | ) |
|                                    |                                          |       |
|                                         |                                          |            |                                    |        |  |  |  |  |

 

Theaccompanying notes are an integral part of these financial statements.

 

**CONDENSEDSTATEMENTS OF CASH FLOWS (Unaudited)**

|                                                                         | **Six  Months Ended   June 30,**             |    |
|------------------------------------------------------------------------------|----------------------------------------------|---------|
|                                                                         | **2001**                                     |    | **2000** |   |
|                                                                         | ****                                         |    |
| OPERATING ACTIVITIES                                                         |                                         |    |   |   |
| Net loss                                                                     | $                                            | (48,632 | ) | $ | (124,928 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |                                         |    |   |   |
|                                                                         | Depreciation                                 | 284     |   | 284 |   |
|                                                                         | Changes in operating  assets and liabilities |    |   |   |   |
|                                                                         | Accounts payable                             | 33,267  |   | 34,653 |   |
|                                                                         |                                              |    |
| Net cash used in  operating activities                                       | (15,081                                      | )       | (89,991 | ) |
|                                                                         |                                              |    |
|                                                                         |                                         |    |   |   |
| FINANCING ACTIVITIES                                                         |                                         |    |   |   |
| Deferred offering  costs                                                     | (165,085                                     | )       | (172,266 | ) |
| Advances from managing  member                                               | 175,666                                      |    | 177,389 |   |
| Capital contributions                                                        | –                                       |    | 84,868 |   |
|                                                                         |                                              |    |
| Net cash provided by  financing activities                                   | 10,581                                       |    | 89,991 |   |
|                                                                         |                                              |    |
|                                                                         |                                         |    |   |   |
| Net change in cash                                                           | (4,500                                       | )       | – |   |
|                                                                         |                                         |    |   |   |
| Cash at beginning of  period                                                 | 4,500                                        |    | – |   |
|                                                                         |                                              |    |
|                                                                         |                                         |    |   |   |
| Cash at end of period                                                        | $                                            | –  |   | $ | – |   |
|                                                                         |                                              |    |
|                                                                              |                                              |         |  |  |  |  |  |  |

 

Theaccompanying notes are an integral part of these financial statements.

** **

**NOTES****TO CONDENSED FINANCIALSTATEMENTS (Unaudited)**

**1. Organization and Business**

             CornerstoneRealty Fund, LLC, a California Limited Liability Company (the “Fund”) (formerlyCornerstone Multi-Tenant Industrial Business Parks Fund, LLC and CornerstoneIndustrial Properties Income and Growth Fund I, LLC), was formed onOctober 28, 1998. The members of the Fund are Cornerstone IndustrialProperties, LLC, a California Limited Liability Company (“CIP”), as themanaging member, and Terry G. Roussel, an individual. The purpose of the Fund isto acquire, operate and sell multi-tenant industrial properties. The Fundintends to issue and sell in a public offering equity interests (“units”) inthe Fund and to admit the new unitholders as members of the Fund.

             TheFund is currently dependent on the managing member providing capitalcontributions and advances in order for it to meet its obligations as they comedue. The managing member intends to continue providing such capitalcontributions and advances until the initial closing of the Fund’s publicoffering, at which time management believes the Fund will have sufficient cashto meet its obligations as they come due.

             Eachmember’s liability is limited pursuant to the provisions of the Beverly-KilleaLimited Liability Company Act. The term of the Fund shall continue untilDecember 31, 2010, unless terminated sooner pursuant to the operatingagreement.

**2. Summary of Significant Accounting Policies**

*Interim Financial Information*

             Theaccompanying unaudited condensed financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesfor interim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all of theinformation and footnotes required by accounting principles generally acceptedin the United States for complete financial statement presentation. In theopinion of management, all adjustments, consisting of normal recurringaccruals, considered necessary for a fair presentation, have been included.Operating results for the six month period ended June 30, 2001 are notnecessarily indicative of the results that may be expected for the year endingDecember 31, 2001.

             Forfurther information, refer to the audited financial statements and footnotesthereto included in Cornerstone Realty Fund’s Annual Report on Form 10-K forthe year ended December 31, 2000.

*Use of Estimates*

             Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities asof the date of the financial statements and the reported amount of revenue andexpenses during the reporting period. Actual results could differ materiallyfrom the estimates in the near term.

 

*Office Equipment*

             Officeequipment is stated at cost. Depreciation is computed on a straight-line basisover the estimated useful lives of the related assets. The estimated usefullife of the office equipment is five years.

*Deferred Offering Costs*

             Specific incremental costs incurred in connection withthe offering of membership units in the Fund are deferred and charged againstthe gross proceeds of the related offering.

*Income Tax Matters*

             Itis the intent of the Fund and its members that the Fund be treated as apartnership for income tax purposes. As a limited liability company, the Fundis subject to certain minimal taxes and fees; however, income taxes on theincome or losses realized by the Fund are generally the obligation of themembers.

*Reclassifications*

             Certainreclassifications have been made to the 2000 account balances to conform to the2001 presentation.

**3. Related Party Transactions**

             Inorder to fund its initial operating costs, the Fund has received unsecuredadvances amounting to $897,707 from CIP through June 30, 2001. These advancesbear simple interest at the prevailing prime commercial lending rate plus twopercentage points. Interest expense totaling $16,744 and $7,649 during thethree months ended June 30, 2001 and 2000, respectively, and $34,050 and$18,803 during the six months ended June 30, 2001 and 2000, respectively, wasincurred on these advances. The accrued interest incurred through June 30, 2001has been added to the advances payable balance. These advances and accruedinterest are expected to be repaid with proceeds from the offering of units.

             Duringthe six months ended June 30, 2001 and 2000, the managing member provided theFund with office space at no charge.

             Duringthe three months ended June 30, 2000 and the six months ended June 30, 2000,$29,242 and $60,148, respectively, was paid to employees of CIP’s managingmember for services related to the offering of units.

             Themanaging member and/or its affiliates are entitled to receive various fees,compensation and reimbursements as specified in the Fund’s operating agreement.

**CORNERSTONE INDUSTRIAL PROPERTIES, LLC****(a California Limited Liability Company)**

**CONDENSED CONSOLIDATED BALANCE****SHEETS**

**ASSETS**
|                                                                                  | **June  30,   2001**              |      | **December  31,   2000** |    |
|---------------------------------------------------------------------------------------|-----------------------------------|-----------|--------------------------|---------|
|                                                                                  | ****                              |      |
|                                                                                  | **(Unaudited)**                   |      |                     |    |
|                                                                                  |                              |      |                     |    |
| Current assets                                                                        |                              |      |                     |    |
|                                                                                  | Cash                              | $         | 8,609                    |    | $ | 40,186 |   |
|                                                                                  | Marketable equity  securities     | 802,959   |                     | 953,475 |   |
|                                                                                  | Advances receivable  from members | 44,223    |                     | 3,098   |   |
|                                                                                  |                              |           |                     |
| Total current assets                                                                  | 855,791                           |      | 996,759                  |    |
|                                                                                  |                              |      |                     |    |
| Office equipment, less  accumulated depreciation of $8,010 in 2001 and $4,524 in 2000 | 27,608                            |      | 31,094                   |    |
| Security deposits                                                                     | 7,848                             |      | 7,848                    |    |
| Deferred offering  costs                                                              | 855,370                           |      | 690,285                  |    |
|                                                                                  |                                   |      |
| Total assets                                                                          | $                                 | 1,746,617 |                     | $       | 1,725,986 |   |
|                                                                                  |                                   |      |

**LIABILITIES AND MEMBERS’CAPITAL**
| Current liabilities                          |                                              |      |      |      |
|----------------------------------------------|---------------------------------------------------|-----------|-----------|-----------|
|                                         | Accounts payable                                  | $         | 234,425   |      | $ | 175,492 |   |
|                                         | Advances payable to  member                       | 25,354    |      | 45,413    |   |
|                                         | Capital lease  obligation – office equipment | 11,855    |      | 14,617    |   |
|                                         |                                                   |      |
|                                         | 271,634                                           |      | 235,522   |      |
|                                         |                                              |      |      |      |
| Members’ capital                        | 1,603,514                                         |      | 1,612,797 |      |
|                                         | Member’s capital  contribution note          | (128,531  | )         | (122,333  | ) |
|                                         |                                              |           |      |
|                                         | Members’ capital, net                        | 1,474,983 |      | 1,490,464 |   |
|                                         |                                                   |      |
| Total liabilities and  members’ capital | $                                                 | 1,746,617 |      | $         | 1,725,986 |   |
|                                         |                                                   |      |

 

Theaccompanying notes are an integral part of these balance sheets.

** **

**NOTES TO CONDENSED CONSOLIDATED****BALANCE SHEETS (Unaudited)**

 

**1. Organization and Business**

             CornerstoneIndustrial Properties, LLC, a California Limited Liability Company (the“Company”), was formed on February 5, 1999. The managing member isCornerstone Ventures, Inc., a California Corporation (“Ventures” or “Manager”).The purpose of the Company is to sponsor, organize and serve as the managingmember of Cornerstone Realty Fund, LLC, a California Limited Liability Company(“Fund I”), and Cornerstone Realty Fund II, LLC, a California LimitedLiability Company (“Fund II”) (collectively, the “Funds”). The purpose of theFunds is to acquire, operate and sell multi-tenant industrial properties.

             Eachmember’s liability is limited pursuant to the provisions of the Beverly-KilleaLimited Liability Company Act. The term of the Company shall continue untilDecember 31, 2033, unless terminated sooner pursuant to the operatingagreement.

**2. Summary of SignificantAccounting Policies**

*Interim Financial Information*

             Theaccompanying unaudited condensed consolidated balance sheets have been preparedin accordance with accounting principles generally accepted in the UnitedStates for interim financial information and footnotes and the instructions ofForm 10-Q and Article 10 of Regulation S-X. Accordingly, they do not discloseall of the information required by accounting principles generally accepted inthe United States for complete financial statements. In the opinion ofmanagement, all adjustments, consisting of normal recurring accruals,considered necessary for a fair presentation, have been included.

             Forfurther information, refer to the audited balance sheet and footnotes theretoincluded in Cornerstone Realty Fund’s Annual Report on Form 10-K for the yearended December 31, 2000.

*Consolidation*

             Theconsolidated balance sheets include the accounts of the Company and the Funds.All significant intercompany transactions have been eliminated inconsolidation. The Company consolidates the Funds because it has control overall activities of the Funds and has provided 100% of the Funds’ requiredadvances and capital contributions.

*Use of Estimates*

             Thepreparation of the consolidated balance sheets in conformity with accountingprinciples generally accepted in the United States requires management to makeestimates and assumptions that affect the amounts reported in the balancesheets and accompanying notes. Actual results could differ materially fromthose estimates in the near term.

 

*Fair Value of Financial Instruments*

             TheCompany believes all of the financial instruments’ recorded values approximatecurrent values.

*Marketable Equity Securities and Members’ Capital*

             Marketableequity securities consist of common stock investments. Marketable equitysecurities are stated at market value as determined by the most recently tradedprice of each security at the balance sheet dates. All marketable securitiesare defined as trading securities or available-for-sale securities under theprovisions of Statement of Financial Accounting Standards (“SFAS”) No. 115, *Accounting for Certain Investments in Debt and EquitySecurities.*

             Managementdetermines the appropriate classification of its investments in marketablesecurities at the time of purchase and reevaluates such determination at eachbalance sheet date. Securities that are bought and held principally for thepurpose of selling them in the near term are classified as trading securitiesand unrealized holding gains and losses are included in earnings. Equitysecurities not classified as trading securities are classified asavailable-for-sale. Available-for-sale securities are carried at fair value,with the unrealized gains and losses reported as a separate component ofmembers’ capital. The cost of investments sold is determined on the specificidentification or the first-in, first-out method. As of June 30, 2001 andDecember 31, 2000, all marketable equity securities are classified asavailable-for-sale securities and are carried on the balance sheets at theiraggregate fair values of $802,959 and $953,475, respectively.  The cost of and unrealized loss on thesesecurities are $1,038,234 and $235,275, respectively, at June 30, 2001,and $1,048,946 and $95,471, respectively, at December 31, 2000. As of July 31,2001, the fair market value of these securities amounted to approximately$785,000.

             Themarketable equity securities were contributed to the Company by certain membersas their capital contributions. The purpose of the contributions was to maintainthe Company’s net worth as specified in the operating agreement, as amended.The operating agreement requires that the securities be held in segregatedaccounts of the Company (“Special Accounts”) apart from other assets and thatthe Special Accounts are not to be used by the Company for any purpose otherthan to maintain the Company’s net worth as specified in the operatingagreement. If any of the assets in the Special Accounts are used to pay Companyexpenses or fund any of the Company’s investees, the funds withdrawn are toearn interest at the prevailing prime commercial lending rate plus twopercentage points. Any amounts withdrawn from the Special Accounts, plusinterest thereon, are to be repaid into the Special Accounts prior to any otherpayments or distributions to the members. The funds in the Special Accounts areto be invested at the direction of the contributing members or their designees.At June 30, 2001, due to the decline in the fair market value of thesecurities, the aggregate fair market value of the securities in the SpecialAccounts was less than the $1,000,000 aggregate initial capital contribution ofthe members contributed into the Special Accounts. In the event that theaggregate fair market value of the assets held in any Special Account is lessthan the initial capital contribution of the contributing member, then theManager may require such member to make an additional capital contribution tothe extent of the difference. In the event such member defaults in making an additionalcapital contribution, the Company may obtain the shortfall from a third partyand may dilute the defaulting member’s equity ownership percentage as specifiedin the operating agreement.

 

 

 

             Anymember that contributed into a Special Account may request a distribution ofall of the balance in the account upon 120 days notice. The Company isobligated to distribute the balance if it is able to secure an equal amount ofreplacement capital from an existing or new member, otherwise, the Company isnot obligated to distribute such balances to the requesting member.

*Deferred Offering Costs*

             Specificincremental costs incurred in connection with the offering of membership unitsin the Funds are deferred and charged against the gross proceeds of the relatedofferings. Deferred costs related to aborted offerings are expensed in theperiod the offering is aborted.

*Income Tax Matters*

             Itis the intent of the Company and its members that the Company be treated as apartnership for income tax purposes. As a limited liability company, theCompany is subject to certain minimal taxes and fees; however, income taxes onincome or losses realized by the Company are generally the obligation of themembers.

**3. Related Party Transactions**

             Advancesreceivable from members include $40,956 advanced to Ventures. Such advances donot bear interest and are due upon demand.

             Theadvances payable to member bears simple interest at the prevailing primecommercial lending rate plus two percentage points.

                The member’s capitalcontribution note represents a $100,000 revolving note receivable fromVentures. The note bears interest at the prevailing prime commercial lendingrate plus two percentage points. The note matures on December 2, 2001 and issecured by Ventures’ interest in a California general partnership and ispersonally guaranteed by the sole shareholder of Ventures. Accrued interestreceivable of $28,531 and $22,333 has been added to the note receivable balanceat June 30, 2001 and December 31, 2000, respectively.

 

** **

**Item 2. Management'sDiscussion and Analysis of Financial Condition and Results of Operations**

**Liquidity**

             Thefund is in the organizational stage. The fund’s organizational activities have been financed to date through advances from CornerstoneIndustrial Properties, LLC, the fund’s managing member.  The fund will continue to incurorganizational and offering expenses until it has completed the sale of theunits in the fund’s public offering. The fund is currently dependent on its ability to obtain capitalcontributions and advances in order for it to meet its obligations as theybecome due.  The managing memberbelieves that it has sufficient liquid assets available to finance all capitalcontributions that will be required to pay for the fund’s obligations as theycome due prior to the closing of the minimum offering (see the managingmember’s balance sheet included elsewhere in this quarterly report on Form10-Q).  In the event that the managingmember does not have sufficient liquid assets, the terms of its operatingagreement indicate that its members may be asked to make additionalcontributions;  however, its members arenot committed by any contract to make such additional contributions or provideany other financial assistance.  In theevent its members choose not to make such additional contributions, itsmanaging member would be entitled to look to a third party to fund anyshortfall and may reduce the percentage interest of its non-contributingmembers.

             Providedthe fund is able to sell the minimum offering of 6,000 units, the fund will usethe gross offering proceeds received from the sale of units to pay offering andother organizational expenses and to reimburse the managing member for amountsadvanced for organizational and other expenses.  Any such expenses incurred by the managing member on behalf ofthe fund, that are not reimbursed by the fund, will be reflected as a capitalcontribution to the fund by the managing member with an offsetting expenserecognized in the fund’s statement of operations.

**Capital Resources**

             Thefund intends to use the net proceeds from the sale of its units to acquiremulti-tenant industrial properties and for capital improvement, operating andother reserves.  The fund has notidentified any properties which it may purchase and has not made any materialcommitment for capital expenditures.

**Results of Operations**

             Thefund is in the organizational stage and the fund has generated norevenues.  The fund’s expenses,including interest on advances, aggregated $48,632 and $124,928 for the sixmonths ended June 30, 2001 and 2000, respectively.   Organizational and other start-up expenses and associated lossesare expected to continue until the organization of the fund is completed.

**Forward Looking Statements**

             ThePrivate Securities Litigation Reform Act provides a "safe harbor" forcertain forward-looking statements. Certain matters discussed in this filingcould be characterized as forward-looking statements such as statementsrelating to plans for future expansion, as well as other capital spending,financing sources and effects of regulation and competition. Suchforward-looking statements involve important risks and uncertainties that couldcause actual results to differ materially from those expressed in such forward-lookingstatements.

**Item 3.**              **Quantitative and QualitativeDisclosures About Market Risk**

             Asof June 30, 2001, the fund had $897,707 in unsecured advances payable to itsmanaging member.  These advances have nospecified maturity date and bear interest at the prevailing prime commerciallending rate plus two percentage points and, accordingly, are subject tointerest rate fluctuations.

**PART II - OTHER INFORMATION**

| **Item  1.** | **Legal  Proceedings****.**                                   |                     |
|--------------|---------------------------------------------------------------|--------------------------|
|         |                                                          |                     |
|         | Inapplicable.                                                 |                     |
|         |                                                          |                     |
| **Item  2.** | **Changes  in Securities and Use of Proceeds****.**           |                     |
|         |                                                          |                     |
|         | Inapplicable.                                                 |                     |
|         |                                                          |                     |
| **Item  3.** | **Defaults  Upon Senior Securities****.**                     |                     |
|         |                                                          |                     |
|         | Inapplicable.                                                 |                     |
|         |                                                          |                     |
| **Item  4.** | **Submission  of Matters to a Vote of Security Holders****.** |                     |
|         |                                                          |                     |
|         | Inapplicable.                                                 |                     |
|         |                                                          |                     |
| **Item  5.** | **Other  Information****.**                                   |                     |
|         |                                                          |                     |
|         | Inapplicable.                                                 |                     |
|         |                                                          |                     |
| **Item 6.**  | **Exhibits  and Reports on Form 8–K****.**               |                     |
|         |                                                          |                     |
|         | **(a)**                                                       | **Exhibits**             |   |
|         |                                                          |                     |   |
|         | None.                                                         |                     |
|         |                                                          |                     |
|         | **(b)**                                                       | **Reports  on Form 8-K** |   |
|         |                                                          |                     |
|         | None.                                                         |                     |

             

             

**SIGNATURES**

             Inaccordance with the requirements of the Exchange Act, the Registrant causedthis report to be signed on its behalf by the undersigned, thereunto dulyauthorized.

August 13, 2001                         CORNERSTONE REALTY FUND, LLC

                                                     By:   CORNERSTONE INDUSTRIAL PARTNERS, LLC                                                               Its Managing Member

                                                                   By:   CORNERSTONE VENTURES, INC.                                                                             Its Manager

                                                           By: /s/ TERRY G. ROUSSEL                                                                                              TerryG. Roussel, President                                                                                (PrincipalExecutive Officer,                                                                                PrincipalFinancial Officer and                                                                                PrincipalAccounting Officer)