<TABLE>
<CAPTION>

                                                                                                                          EXHIBIT 13

                            SELECTED FINANCIAL DATA

As of December 31,                                           1999            1998             1997             1996            1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>             <C>              <C>              <C>             <C>
Operating Results (c)
Rental income                                       $ 121,086,920   $  88,752,254    $  70,115,678    $ 40,261,674    $  16,266,610
Net income (loss) before minority interest
   of unitholders in operating partnership             30,121,765      23,225,335       19,225,553      (4,169,849)       5,229,715
Net income (loss)                                      30,037,102      23,210,642       19,225,553      (4,169,849)       5,229,715
Distributions to preferred shareholders                12,323,538              --               --              --               --
Net income available to common shareholders            17,713,564      23,210,642       19,225,553      (4,169,849)       5,229,715
Distributions to common shareholders                   42,050,415      38,317,602       31,324,870      15,934,901        6,316,185
------------------------------------------------------------------------------------------------------------------------------------
Per Share
Net income (loss)                                   $        0.45   $        0.62    $        0.59    $      (0.21)   $        0.64
Distributions per preferred share                   $        0.97              --               --              --               --
Distributions per common share                      $        1.07   $        1.03    $        1.00    $       0.99    $        0.96
Common share distributions
   representing return of capital                              11%              20%             23%             14%              17%
Weighted average common shares
   outstanding and diluted                             39,182,802       37,630,546      32,617,823      20,210,432        8,176,803
------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Data
Investment in rental property                       $ 919,128,738   $  587,438,358   $ 487,575,196   $ 329,715,853    $ 129,696,447
Total assets                                        $ 869,264,876   $  552,347,608   $ 474,186,450   $ 322,870,574    $ 133,181,032
Notes payable-unsecured                             $ 157,500,000   $  201,892,999   $ 151,569,147   $  55,403,000    $   8,300,000
Notes payable-secured                               $ 105,045,682               --              --              --               --
Shareholders' equity                                $ 574,365,242   $  339,171,496   $ 315,328,252   $ 254,569,705    $ 122,154,420
Common shares outstanding                              38,712,037       39,113,916      35,510,327      28,141,509       12,754,331
------------------------------------------------------------------------------------------------------------------------------------
Other Data
Cash flow from:
   Operating activities                             $  62,310,895   $   45,027,654   $  34,973,533   $  20,162,776    $   9,618,956
   Investing activities                             $ (30,445,531)  $  (97,863,162)  $(161,969,343)  $(194,519,406)   $ (75,589,089)
   Financing activities                             $ (18,187,392)  $   50,911,886   $ 128,327,145   $ 170,466,134    $  68,754,842
Number of communities owned at year-end                        87               58              51              40               19
------------------------------------------------------------------------------------------------------------------------------------
Funds from Operations Calculation
Net income (loss) before minority interest          $  30,121,765   $   23,225,335   $  19,225,553   $  (4,169,849)   $   5,229,715
    of unitholders in operating partnership
    Depreciation of real estate                        29,310,325       20,741,130      15,163,593       8,068,063        2,788,818
Amortization of organizational cost                        55,657               --              --              --               --
Management contract termination (a)                            --               --         402,907      16,526,012               --
------------------------------------------------------------------------------------------------------------------------------------
  Funds from operations (b)                         $  59,487,747   $   43,966,465   $  34,792,053   $  20,424,226    $   8,018,533
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(a)  Included  in  the  1997  and  1996  operating   results  are  $402,907  and
$16,526,012,  respectively, of management contract termination expense resulting
from the company's conversion to "self-administered" and "self-managed" status.

(b) "Funds  from  operations"  is defined as income  before  gains  (losses)  on
investments,  minority  interest of  unitholders  in operating  partnership  and
extraordinary  items (computed in accordance with generally accepted  accounting
principles)  plus real estate  depreciation and after adjustment for significant
nonrecurring  items, if any. This definition conforms to the recommendations set
forth in a White  Paper  adopted  by the  National  Association  of Real  Estate
Investment  Trusts (NAREIT).  Funds from operations for years prior to 1996 have
been adjusted to conform to the NAREIT  definition.  The company considers funds
from  operations  in  evaluating   property   acquisitions   and  its  operating
performance,  and believes that funds from operations should be considered along
with,  but not as an  alternative  to, net income and cash flows as a measure of
the company's operating performance and liquidity. Funds from operations,  which
may not be comparable to other similarly  titled  measures of other REITs,  does
not represent  cash  generated  from  operating  activities  in accordance  with
generally accepted  accounting  principles and is not necessarily  indicative of
cash available to fund cash needs.

(c) On July 23, 1999,  the company merged with Apple  Residential  Income Trust,
Inc. See Note 2 to the consolidated financial statements.

<PAGE>


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

Overview
The company  operates in 19 markets  overall.  At December 31, 1999, the company
did not own more than 30% of its apartment  communities  in any one market.  The
following table summarizes the company's major apartment market information.
<TABLE>
<CAPTION>
                            Number of                                                                                  Average
                           Apartment                         Number of     % of Total Cost    1999 Annual Average   December 1999
Market                     Communities      Total Cost    Apartment Homes   of Apartments     Economic Occupancy     Rental Rate
-----------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>        <C>                <C>                <C>                  <C>                <C>
Dallas\Fort Worth, TX          26         $273,938,856       6,604              30  %                93  %              $ 608
Raleigh\Durham, NC             12          122,220,891       2,328              13                   92                   693
Charlotte, NC                  10          117,845,652       2,483              13                   93                   632
Atlanta, GA                     5           71,054,161       1,317               8                   93                   740
Richmond, VA                    4           52,707,954       1,053               6                   93                   649
Virginia Beach, VA              5           40,409,865       1,069               5                   93                   676
Greenville, SC                  3           22,085,253         813               2                   92                   470
Augusta, GA                     2           20,475,174         621               2                   81                   469
Winston-Salem, NC               2           18,144,063         386               2                   89                   618
Wilmington, NC                  3           20,393,965         592               2                   88                   572
Columbia, SC                    2           17,720,677         419               2                   91                   622
Austin, TX                      2           20,329,380         429               2                   97                   675
San Antonio, TX                 1            7,014,246         230               1                   92                   502
Other                          10          114,788,601       2,621              12                   94                   613
-----------------------------------------------------------------------------------------------------------------------------------
Total                          87         $919,128,738      20,965             100  %                92  %              $ 625
-----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

     The  following  discussion  is based  on the  financial  statements  of the
company as of December 31, 1999, 1998, and 1997. This information should be read
in conjunction with the selected  financial data and the company's  consolidated
financial  statements  included  elsewhere in this annual report. The company is
operated and has elected to be treated as a real estate  investment trust (REIT)
for federal income tax purposes.

     This annual report contains  forward-looking  statements within the meaning
of Section 27A of the Securities Act of 1993, as amended, and Section 21E of the
Securities  Exchange Act of 1934, as amended.  Such  forward-looking  statements
include, without limitation,  statements con-cerning anticipated improvements in
financial  operations  from  completed  and planned  property  renovations,  and
expected  benefits from the company's  acquisition of Apple  Residential  Income
Trust,  Inc.  ("Apple").  Such  statements  involve  known  and  unknown  risks,
uncertainties,   and  other  factors   which  may  cause  the  actual   results,
performance,  or achievements of the company to be materially different from the
results of  operations  or plans  expressed  or implied by such  forward-looking
statements.  Such factors  include,  among other things,  unanticipated  adverse
business  developments  affecting the company,  the possibility  that the merger
with Apple will not have the effects  anticipated  by the  company,  and adverse
changes in the real estate  markets,  general and local  economies,  or business
conditions.  Although the company  believes that the assumptions  underlying the
forward-looking   statements  contained  herein  are  reasonable,   any  of  the
assumptions  could be inaccurate,  and therefore  there can be no assurance that
such  statements  included in this annual  report will prove to be accurate.


<PAGE>

In  light  of the  significant  uncertainties  inherent  in the  forward-looking
statements  included  herein,  the inclusion of such  information  should not be
regarded as a representation by the company or any other person that the results
or conditions  described in such  statements or the  objectives and plans of the
company will be achieved.

RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO DECEMBER 31, 1998

INCOME AND OCCUPANCY The results of the company's  property  operations  for the
year  ended  December  31,  1999  include  the  results  of  operations  from 87
properties  acquired  to  date,   including   properties  acquired  through  the
acquisition of Apple on July 23, 1999. The increased rental income and operating
expenses for the year ended December 31, 1999,  over the year ended December 31,
1998,  are  primarily  due to a full  year of  operation  in  1999  of the  1998
acquisitions as well as the effect of the properties  acquired through the Apple
merger.

    The principal source of the company's revenue is the rental operation of its
apartment communities.  Rental income increased 36% in 1999 to $121,086,920,  up
$32,334,666  over 1998 due to the  factors  described  above.  Rental  income is
expected to continue to increase from the impact of planned improvements,  which
are being made in an effort to improve the properties'  marketability,  economic
occupancies, and rental rates.

    Overall average economic occupancy was 92% in 1999 and in 1998. Rental rates
for the portfolio increased 3% to $625 on December 31,1999 from $608 on December
31, 1998.  This increase is due to a combination of increased  rental rates from
new leases and property renovation as well as the acquisition of properties from
Apple.

EXPENSES  Total  property  expenses  increased 37% to  $79,966,146  in 1999 from
$58,236,673  in 1998,  due largely to the increase in the number of  apartments.
The  operating  expense  ratio  (the  ratio  of  operating  expenses,  excluding
depreciation,  amortization,  general and administrative, and other expenses, to
rental income) increased to 39% in 1999 from 38% in 1998.

    General and  administrative  expenses  totaled  1.3% and 1.9% of revenues in
1999  and  1998,  respectively.  These  expenses  represent  the  administrative
expenses of the company as  distinguished  from the  operations of the company's
properties.  The  decrease  in this  percentage  is  partially  attributable  to
economies of scale associated with the Apple merger.

    Depreciation   of  real  estate   increased  to  $29,310,325  in  1999  from
$20,741,130 in 1998, and is directly attributable to a full year of depreciation
of properties  acquired in 1998 and the addition of the Apple properties for the
period beginning July 23, 1999.

INTEREST  INCOME AND EXPENSE The company earned  interest  income of $197,405 in
1999 and $71,474 in 1998 from the investment of its cash and cash reserves.  The
company  incurred  $12,515,874 and  $11,957,052 of interest  expense in 1999 and
1998, respectively, associated with borrowings under its lines of credit. During
1999, the company  incurred  interest  expense of $1,354,421 on $73.5 million of
secured debt and $896,348  associated  with the mortgage  notes assumed with the
Apple merger.  The company incurred $272,950 and $358,050 of interest expense in
1999 and 1998, respectively,  associated with a $5.5 million unsecured note. The
company  amortized as interest expense  deferred  financing costs of $306,005 in
1999 and $272,795 in 1998. The overall  weighted  average  interest rate for all
borrowings was 6.5% and 6.9% during 1999 and 1998, respectively.

INCOME AND EXPENSE FROM RELATIONSHIP  WITH APPLE RESIDENTIAL  INCOME TRUST Prior
to the merger, the company or affiliates provided property management, advisory,
and real estate  brokerage  services for Apple. The fees received by the company
from service  contracts with Apple  terminated upon  consummation of the merger.

     Property  management  fees  charged  to Apple  were 5% of  gross  revenues.
Advisory  fees  charged  to Apple  were .1% to .25% of total  capital  raised by
Apple.  Real estate  commissions were generally 2% of the purchase price of each
property Apple acquired.  The company received $1,893,120 in 1999 and $2,220,594
in 1998 for advisory  and property  management  services.  The company  received
$561,484 in 1999 and  $2,665,100 in 1998 in real estate  brokerage  commissions.
The company  amortized  into expense  $241,438 in 1999 and $1,054,470 in 1998 of
the $2  million  purchase  price the


<PAGE>

company paid for the acquisition of the brokerage  services contract with Apple.
Income from the company's  investment in Apple was $194,580 in 1999 and $340,483
in 1998.  (See Note 7 to the  consolidated  financial  statements.)

     During  May,  1999,  Apple  paid the  company  $1.5  million  to modify the
company's  right of first  refusal to purchase  Apple and the service  contracts
between Apple and Cornerstone to allow for termination of such agreements in the
event of a change in control of the company. The company recorded the payment as
other income.

SAME-PROPERTY  RESULTS The company's  "same-property"  portfolio  consists of 61
properties,  including 10 Apple properties,  acquired prior to 1998,  containing
14,498 apartment units owned by the company or Apple since January 1, 1998. On a
comparative  basis,  the 61 properties  provided rental and operating  income of
$91.8  million and $59.1  million,  respectively,  in 1999 and $87.5 million and
$55.6 million in 1998.  This  represents an increase from 1998 to 1999 of 5% and
6%, respectively.

RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO DECEMBER 31, 1997

INCOME AND  OCCUPANCY The company  increased  rental income and expenses in 1998
and 1997 due to a full year of operations from the pre-1998 acquisitions and the
seven  properties  acquired  in 1998 from their  respective  acquisition  dates.
Rental income increased 27% in 1998 to $88,752,254 from $70,115,678 in 1997.

    The  properties had an average  economic  occupancy of 92% in 1998 and 1997.
Overall,  rental  rates for the  portfolio  increased 4% to $608 on December 31,
1998 from $582 on December 31, 1997.  This increase is due to a  combination  of
increased  rental  rates  from  new  leases  and  property  renovation  and  the
acquisition of properties with higher average rental rates.

EXPENSES Total property expenses,  excluding  management  contract  termination,
increased 29% to  $58,236,673  in 1998 from  $45,111,959 in 1997, due largely to
the increase in the number of apartments. The operating expense ratio (the ratio
of  operating  expenses,  excluding  depreciation,   amortization,  general  and
administrative,  and other expenses,  to rental income) decreased to 38% in 1998
from 39% in 1997 and is  attributable to economies of scale achieved in property
management and certain property operation functions.

    General and  administrative  expenses  totaled  1.9% of revenues in 1998 and
1997, respectively.  These expenses represent the administrative expenses of the
company as  distinguished  from the operations of the company's  properties.  In
1998, the company continued to expand its internal administrative infrastructure
to keep pace with its growth.

    Depreciation   of  real  estate   increased  to  $20,741,130  in  1998  from
$15,163,593  in  1997,  and  is  directly  attributable  to the  acquisition  of
apartment  communities  in 1998 and a full year of  depreciation  of  properties
acquired in 1997.

INTEREST  INCOME AND EXPENSE The company  earned  interest  income of $71,474 in
1998 and $77,972 in 1997 from the investment of its cash and cash reserves.  The
company  incurred  $11,957,052  and  $7,017,967 of interest  expense in 1998 and
1997,  respectively,  associated with borrowings  under its line of credit.  The
company  incurred  $358,050 and  $330,550 of interest  expense in 1998 and 1997,
respectively,  associated  with a  $5.5  million  unsecured  note.  The  company
amortized as interest expense  deferred  financing costs of $272,795 in 1998 and
$212,802 in 1997. This is a result of the increased use of its line of credit to
fund acquisitions.  The weighted average interest rate on the line of credit was
6.9% and 7.2% during 1998 and 1997, respectively.

INCOME AND EXPENSE FROM  RELATIONSHIP  WITH APPLE  RESIDENTIAL  INCOME TRUST The
company received from Apple $2,220,594 in 1998 and $822,934 in 1997 for advisory
and property management services.  The company received from Apple $2,665,100 in
1998 and $1,031,066 in 1997 in real estate brokerage  commissions under separate
contract.  The company amortized into expense $1,054,470 in 1998 and $546,000 in
1997 of the $2 million  purchase  price the company paid for the  acquisition of
the brokerage services contract with Apple. Income from the company's investment
in  Apple  was  $340,483  in 1998  and  $253,172  in  1997.  (See  Note 7 to the
consolidated financial statements.)

SAME-PROPERTY RESULTS On a comparative basis, the 38 properties owned during all
of 1998 and 1997 provided rental and operating income of $58.9 million and $37.4
million,

<PAGE>

respectively,  in 1998 and  $56.5  million  and  $35.5  million  in  1997.  This
represents  an increase  from 1997 to 1998 of 4% and 6%,  respectively.  Certain
current reported expenses,  which approximated  $228,000,  have been excluded to
make for a more meaningful comparison to 1997.

LIQUIDITY AND CAPITAL RESOURCES

    The company's  primary sources of liquidity are rental income generated from
the properties,  proceeds from lines of credit,  reinvestment of  distributions,
and proceeds from secured debt.

    The  company  believes  rental  income  generated  from the  properties  and
borrowings  on its line of credit will be  sufficient  to meet  normal  property
operating expenses, payment of distributions,  capital improvements, and payment
of mortgage debt. At December 31, 1999, the company had  $16,268,336 in cash and
cash  equivalents  and $35 million in  availability  under its unsecured line of
credit.

    In September 1999, the Board of Directors authorized the repurchase of up to
$50 million of the  company's  common  shares.  For the year ended  December 31,
1999, the company repurchased 789,100 common shares at an average price of $9.90
per share.

MERGER WITH APPLE  RESIDENTIAL  INCOME TRUST, INC. On July 23, 1999, the company
completed the  acquisition  of Apple,  which  included 29 apartment  communities
containing   7,503  apartment   homes.   The  merger  qualified  as  a  tax-free
reorganization  and was accounted for under the purchase  method of  accounting.
The  acquisition  was  structured  as a  merger  of  Apple  into a  wholly-owned
subsidiary of the company.  The aggregate  purchase price was approximately $311
million.  Under  the  terms of the  merger  agreement,  each  Apple  shareholder
received 0.4 shares of the company's $25 Series A  Convertible  Preferred  Stock
for each  share of Apple  common  stock.  A total of  12,666,019  shares  of the
company's  Series A Convertible  Preferred  Stock were issued as a result of the
merger. The Series A Convertible  Preferred Stock has a first-year dividend rate
of $2.125 per share,  which will increase to $2.25 in the second year and $2.375
in the third year and thereafter.  The company is imputing dividends  calculated
as the present value difference between the preferred stock distribution and the
stated  distribution  rate.  Each share of Series A Convertible  Preferred Stock
carries a $25 per share  liquidation  preference and is convertible  into 1.5823
shares of the  company's  common  stock,  which  reflects a conversion  price of
$15.80  for  the  company's  common  stock.  After  five  years,  the  Series  A
Convertible Preferred Stock will be redeemable at $25 per share plus any accrued
dividends, at the option of the company, in whole or in part, for cash or stock,
subject to certain conditions.  In addition,  the company assumed  approximately
$32 million of Apple's debt with an  effective  interest  rate of  approximately
6.475%.  (See  Note 2 to  the  consolidated  financial  statements  for  further
information.)

    The Apple merger brought the total number of residential  rental communities
to 87 and total apartment homes owned to 20,965 at December 31, 1999.

NOTES PAYABLE

    On September 29, 1999, the company placed $73.5 million of secured debt. The
loan is secured by 10 properties.  The loan is  interest-only  and bears a fixed
interest  rate of 7.29% per annum with a maturity  date of September  2006.  The
proceeds  were used to pay down  short-term  debt and to curtail  the  company's
existing line of credit, described below.

    In connection  with the Apple  merger,  the company has assumed six mortgage
notes with a principal amount of $30.8 million. These mortgages were recorded at
a fair value of $32 million at the date of assumption.  The  difference  between
the fair value and  principal is being  amortized as an  adjustment  to interest
expense over the term of the respective notes. Mortgage notes payable are due in
monthly  installments,  including principal and interest.  At December 31, 1999,
the balance of mortgage notes payable was $31.5 million.

    During  1999,  the  company's  $175  million  unsecured  line of credit (the
"Unsecured  Line") with a consortium of six banks was increased to $185 million,
and the maturity  date was extended to July 9, 2002.  The  Unsecured  Line bears
interest at one month  LIBOR plus 120 basis  points.  Proceeds  from the secured
debt, described above, were used to repay $35 million of the company's Unsecured
Line and $30.5 million of other unsecured debt. At December 31, 1999, borrowings
under the  Unsecured  Line  were  $150  million  and the  company  had an unused
borrowing capacity of $35 million.

<PAGE>

    During 1999, the company  increased the $5 million  unsecured line of credit
for general corporate purposes (the "General Purpose Line") to $7.5 million. The
General  Purpose  Line bears  interest at LIBOR plus 120 basis  points,  and the
maturity date was extended to October 31, 2000. At December 31, 1999, borrowings
under the General Purpose Line were $7.5 million.

    During 1999, the company's June 25, 1996 unsecured note was refinanced  with
a $5.5 million unsecured loan from a commercial bank. The new unsecured note was
paid in full in September  1999 with  proceeds  from the secured debt  described
above.

 CAPITAL REQUIREMENTS The company has an ongoing capital expenditure  commitment
to fund its renovation  program for recently  acquired  properties.  The company
anticipates  that it will  continue  to operate as it did in 1999 and fund these
cash needs from a variety of sources  including  equity,  excess  cash flow from
operations  over  distributions,  and debt  provided by its line of credit.  The
company may seek to obtain  additional  debt  financing to meet its  objectives.
Given the company's current debt level, the company is confident that it will be
able to obtain  debt  financing  from a variety of  sources,  both  secured  and
unsecured.

    The company  continues to renovate its properties.  In connection with these
renovations, the company capitalized improvements of $30 million in 1999.

    Capital  resources  are  expected to grow with the future sale of its shares
and from cash flow from operations.  Approximately  22% of all 1999 common stock
dividend  distributions,  or $9,168,728,  were  reinvested in additional  common
shares. In general,  the company's  liquidity and capital resources are believed
to be more than adequate to meet its cash requirements during 2000.

    The  company  is  operated  as, and  annually  elects to be taxed as, a real
estate  investment  trust under the  Internal  Revenue  Code.  As a result,  the
company has no provision for taxes, and thus there is no effect on the company's
liquidity from taxes.

DISTRIBUTIONS TO PREFERRED  SHAREHOLDERS The company issued Series A Convertible
Preferred Stock in July 1999, in connection  with the Apple merger.  The company
is imputing  dividends  calculated as the present value  difference  between the
perpetual  preferred stock  distribution and the stated  distribution  rate. The
imputed   dividend  is  reflected  as  additional   non-cash   preferred   stock
distributions.

IMPACT OF YEAR 2000 The company completed the year 2000 project as planned.  The
company has not experienced any year 2000 problems company-wide or from external
sources and does not  anticipate  any. The total cost incurred to meet year 2000
compliance was not significant.

MARKET RISK DISCLOSURE

    In connection with the acquisition of Apple, the company assumed $32 million
of mortgage  loans.  The company marked this debt to market using interest rates
available on similar loans at the time of assumption,  resulting in an effective
interest rate of approximately 6.475%. In addition, in 1999, the company secured
10 properties  with $73.5 million of secured debt with a fixed  interest rate of
7.29%.

    The company is subject to changes in the fair market value of its fixed-rate
secured debt amounting to $105 million at December 31, 1999. If market  interest
rates for fixed-rate debt were 100 basis points higher at December 31, 1999, the
fair value of  fixed-rate  debt would have  decreased  from $105 million to $100
million.  If market  interest  rates for  fixed-rate  debt were 100 basis points
lower at  December  31,  1999,  the fair  value of  fixed-rate  debt  would have
increased from $105 million to $110.5 million.

    The company  has market risk  exposure  to  short-term  interest  rates from
variable  rate  borrowings  under its line of credit.  The line of credit  bears
interest  at one month  LIBOR plus 120 basis  points.  The  company  may utilize
variable rate debt up to specified limits to total market capitalization.

    The company has analyzed its interest rate risk exposure. If market interest
rates for these types of credit facilities average 100 basis points more in 2000
than they did in 1999 and the company's Unsecured Line balance remains

<PAGE>

unchanged from December 31, 1999, the company's interest expense would increase,
and net income would  decrease by $1.5 million.  These amounts are determined by
considering the impact of hypothetical interest rates on the company's borrowing
cost. These analyses do not consider the effects of the reduced overall economic
activity  that could exist in such an  environment.  Further,  in the event of a
change of such  magnitude,  management  would  likely  take  actions  to further
mitigate  its exposure to the change.  However,  due to the  uncertainty  of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in the company's financial structure.

IMPACT OF INFLATION

    The company does not believe that  inflation had any  significant  impact on
the operation of the company in 1999.  Future  inflation,  if any,  would likely
cause increased operating  expenses,  but the company believes that increases in
expenses  would be more than offset by increases in rental  revenues.  Continued
inflation may also cause capital  appreciation of the company's  properties over
time, as rental rates and replacement costs increase.


<PAGE>

INDEPENDENT AUDITORS' REPORT

THE BOARD OF DIRECTORS AND SHAREHOLDERS
CORNERSTONE REALTY INCOME TRUST, INC.

    We have audited the accompanying  consolidated balance sheets of Cornerstone
Realty Income Trust,  Inc. (the "company") as of December 31, 1999 and 1998, and
the related  consolidated  statements of operations,  shareholders'  equity, and
cash flows for each of the three years in the period  ended  December  31, 1999.
These financial  statements are the responsibility of the company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

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

    In our opinion,  the  consolidated  financial  statements  referred to above
present fairly, in all material respects, the consolidated financial position of
Cornerstone  Realty  Income Trust,  Inc. at December 31, 1999 and 1998,  and the
consolidated  results of its operations and its cash flows for each of the three
years in the period ended  December  31, 1999,  in  conformity  with  accounting
principles generally accepted in the United States.

                                                           /s/ Ernst & Young LLP

Richmond, Virginia
January 27, 2000,
except for Note 10, as to which
the date is February 21, 2000

<PAGE>

                          CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
December 31,                                                                           1999                 1998
-------------------------------------------------------------------------------------------------------------------
<S>                                                                          <C>                  <C>
Assets
Investment in rental property
Land                                                                         $  136,326,140       $   87,100,659
Buildings and property improvements                                             760,712,650          487,972,647
Furniture and fixtures                                                           22,089,948           12,365,052
-------------------------------------------------------------------------------------------------------------------
                                                                                919,128,738          587,438,358
Less accumulated depreciation                                                   (77,538,085)         (48,227,760)
-------------------------------------------------------------------------------------------------------------------

                                                                                841,590,653          539,210,598

Cash and cash equivalents                                                        16,268,336            2,590,364
Prepaid expenses                                                                  2,803,488            1,372,498
Other assets                                                                      8,602,399            9,174,148
-------------------------------------------------------------------------------------------------------------------
Total assets                                                                 $  869,264,876       $  552,347,608
===================================================================================================================

Liabilities and Shareholders' Equity

Liabilities
Notes payable--unsecured                                                      $ 157,500,000       $  201,892,999
Notes payable--secured                                                          105,045,682                   --
Distributions payable                                                             6,779,012                   --
Accounts payable                                                                 11,670,338            4,301,682
Accrued expenses                                                                 11,387,531            2,730,418
Rents received in advance                                                           613,214              506,649
Tenant security deposits                                                          1,903,857            1,729,671
-------------------------------------------------------------------------------------------------------------------
Total liabilities                                                               294,899,634          211,161,419
===================================================================================================================

Minority interest of unitholders in operating partnership                                --            2,014,693

Shareholders' Equity
Preferred stock, no par value, authorized 25,000,000 shares;
   12,650,047 shares, $25 liquidation preference, Series A
   Convertible Preferred Stock issued and outstanding                           263,656,281                   --
Common stock, no par value, authorized 100,000,000
   shares; issued and outstanding 38,712,037 shares
   and 39,113,916 shares, respectively                                          383,969,899          388,131,512
Deferred compensation                                                               (72,976)            (108,905)
Distributions greater than net income                                           (73,187,962)         (48,851,111)
-------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                      574,365,242          339,171,496
===================================================================================================================
Total liabilities and shareholders' equity                                   $  869,264,876       $  552,347,608
===================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>
                     CONSOLIDATED STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
Years Ended December 31,                                          1999                 1998                 1997
-----------------------------------------------------------------------------------------------------------------
<S>                                                     <C>                  <C>                 <C>
Revenue
   Rental income                                         $  121,086,920       $  88,752,254       $   70,115,678
   Other income                                               3,954,604           4,885,694            1,854,946

Expenses
   Property  and maintenance                                 33,030,333          24,641,642           19,494,692
   Taxes and insurance                                       11,524,945           6,986,245            6,075,991
   Property management                                        2,385,110           2,169,552            1,769,272
   General and administrative                                 1,659,715           1,681,810            1,351,667
   Amortization expense and other depreciation                   78,627              47,703               56,075
   Depreciation of rental property                           29,310,325          20,741,130           15,163,593
   Other                                                      1,977,091           1,968,591            1,200,669
   Management contract termination                                   --                  --              402,907
-----------------------------------------------------------------------------------------------------------------
Total expenses                                               79,966,146          58,236,673           45,514,866

Income before interest and dividend income (expense)         45,075,378          35,401,275           26,455,758
   Interest and dividend income                                 391,985             411,957              331,114
   Interest expense                                         (15,345,598)        (12,587,897)          (7,561,319)
-----------------------------------------------------------------------------------------------------------------
Income before minority interest in
   operating partnership                                     30,121,765          23,225,335           19,225,553

Minority interest of unitholders
   in operating partnership                                     (84,663)            (14,693)                  --
-----------------------------------------------------------------------------------------------------------------

Net income                                                   30,037,102          23,210,642           19,225,553

Distributions to preferred shareholders                     (12,323,538)                 --                   --
-----------------------------------------------------------------------------------------------------------------

Net income available to common shareholders             $    17,713,564      $   23,210,642      $    19,225,553
=================================================================================================================

Net income per share-basic and diluted                  $          0.45      $         0.62      $          0.59
=================================================================================================================
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                              Common Stock             Preferred Stock               Distributions
                                      --------------------------   ---------------------                (Greater)     Total
                                        Number                       Number              Deferred     Less Than    Shareholders'
                                       of Shares      Amount       of Shares     Amount Compensation  Net Income     Equity
--------------------------------------------------------------------------------------------------------------------------------
<S>                                  <C>          <C>                  <C>          <C>  <C>        <C>           <C>
Balance at  December 31, 1996        28,141,509   $ 276,269,539        --           --   $ (55,000) $(21,644,834) $254,569,705
Net proceeds from the
   sale of shares                     5,175,000      49,287,000        --           --          --            --    49,287,000

Net income                                   --              --        --           --          --    19,225,553    19,225,553

Cash distributions declared to
   shareholders ($1.00 per share)            --              --        --           --          --   (31,324,870)  (31,324,870)

Restricted stock grant                    2,772          29,972        --           --     (29,972)           --            --

Shares issued for
  purchase of Apple
  Realty Group, Inc. contract           150,000       1,650,000        --           --          --            --     1,650,000

Shares issued in connection
   with management contract
   termination                          700,000       7,700,000        --           --          --            --     7,700,000

Amortization of deferred
   compensation                              --              --        --           --      21,996            --        21,996

Shares issued through
   reinvestment of distributions      1,341,046      14,198,868        --           --          --            --    14,198,868

-------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997         35,510,327     349,135,379        --           --     (62,976)  (33,744,151)  315,328,252
Net proceeds from the
   sale of shares                     2,612,582      28,032,107        --           --          --            --    28,032,107

Net income                                   --              --        --           --          --    23,210,642    23,210,642

Cash distributions
   declared to shareholders
   ($1.03  per share)                        --              --        --           --          --   (38,317,602)  (38,317,602)

Restricted stock grant                    7,350          90,497        --           --     (90,497)           --            --

Amortization of deferred
  compensation                               --              --        --           --      44,568            --        44,568

Shares issued through dividend
   reinvestment plan                    983,657      10,873,529        --           --          --            --    10,873,529

-------------------------------------------------------------------------------------------------------------------------------
Balance at December  31, 1998        39,113,916     388,131,512        --           --    (108,905)  (48,851,111)  339,171,496
Net income                                   --              --        --           --          --    30,037,102    30,037,102

Issuance of Series A
   Convertible Preferred Stock               --              -- 2,666,019 $262,946,547          --            --   262,946,547

Cash distributions declared
   to common shareholders
   ($1.07  per share)                        --              --        --           --          --   (42,050,415)  (42,050,415)

Distributions for Series A
   Convertible Preferred Stock               --              --        --           --          --   (11,214,459)  (11,214,459)

Imputed Distributions on Series A
   Convertible Preferred Stock               --              --        --    1,109,079          --    (1,109,079)           --

Exercise of stock options                   539           5,390        --           --          --            --         5,390

Purchase of common stock
   held by Apple Residential
   Income Trust, Inc. (Apple)          (758,000)     (7,769,500)       --           --          --            --    (7,769,500)

Purchase of common stock               (789,100)     (7,815,844)       --           --          --            --    (7,815,844)

Conversion of minority
   interests of unitholders
   in operating partnership              185,887      1,850,268        --           --          --            --     1,850,268

Preferred stock converted
   to common stock                        25,264        399,345    (15,972)    (399,345)        --            --            --
Amortization of deferred
   compensation                               --             --        --           --      35,929            --        35,929

Shares issued through dividend
   reinvestment plan                     933,531      9,168,728        --           --          --            --     9,168,728
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999          38,712,037   $383,969,899 12,650,047 $263,656,281   $(72,976) $(73,187,962) $574,365,242
=================================================================================================================


</TABLE>


See accompanying notes to consolidated financial statements.


<PAGE>


                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Year Ended December 31,                                                   1999                   1998                    1997
------------------------------------------------------------------------------------------------------------------------------
<S>                                                              <C>                   <C>                     <C>
Cash Flow from Operating Activities
Net income                                                       $  30,037,102         $   23,210,642          $   19,225,553
Adjustments to reconcile net income to net cash
   provided by operating activities
    Depreciation and amortization                                   29,383,210             20,788,833              15,219,668
    Minority interest of unitholders in operating partnership           84,663                 14,693                      --
    Amortization of deferred compensation                               35,929                 44,568                  21,996
    Amortization of deferred financing costs                           306,005                272,795                 212,802
    Management contract  termination                                        --                     --                 402,907
    Amortization of Apple Realty Group, Inc. contract                  241,438              1,054,470                 546,000
Changes in operating assets and liabilities:
    Operating assets                                                (3,170,981)            (2,337,716)             (2,343,668)
    Operating liabilities                                            5,393,529              1,979,369               1,688,275

------------------------------------------------------------------------------------------------------------------------------
      Net cash provided by operating activities                     62,310,895             45,027,654              34,973,533
Cash Flow from Investing Activities:
   Net cash used in the purchase of Apple Residential
      Income Trust, Inc.                                              (868,173)                    --                      --
   Acquisitions of rental property, net of debt assumed                     --            (71,883,993)           (134,900,712)
   Proceeds from sale of land                                          764,668
   Capital improvements                                            (30,342,026)           (25,979,169)            (22,958,631)
   Investment in Apple Residential Income Trust, Inc.                       --                     --              (3,760,000)
   Apple Realty Group, Inc. contract purchase                               --                     --                (350,000)

------------------------------------------------------------------------------------------------------------------------------
      Net cash used in investing activities                        (30,445,531)           (97,863,162)           (161,969,343)
Cash Flow from Financing Activities:
Payment of deferred financing costs                                 (1,616,309)
Proceeds from short-term borrowings                                 69,710,001            118,289,852             442,927,152
Repayments of short-term borrowings                               (114,103,000)           (67,966,000)           (346,761,005)
Proceeds from secured notes payable                                 73,500,000                     --                      --
Repayment of mortgage notes                                           (301,407)                    --                      --
Shares issued through dividend reinvestment
   plan and exercise of stock options                                9,174,118             38,905,636              63,485,868
Purchase of common stock                                            (7,815,844)                    --                      --
Conversion of operating partnership units                                   --                     --                      --
Cash distributions to operating partnership unitholders               (198,899)                    --                      --
Cash distributions paid to preferred shareholders                   (4,485,637)                    --                      --
Cash distributions paid to common shareholders                     (42,050,415)           (38,317,602)            (31,324,870)

------------------------------------------------------------------------------------------------------------------------------
      Net cash (used in) provided by financing activities          (18,187,392)            50,911,886             128,327,145
      Increase (decrease) in cash and cash equivalents              13,677,972             (1,923,622)              1,331,335
               Cash and cash equivalents, beginning of year          2,590,364              4,513,986               3,182,651
------------------------------------------------------------------------------------------------------------------------------
               Cash and cash equivalents, end of year            $  16,268,336         $    2,590,364          $    4,513,986
==============================================================================================================================
Supplemental Information:
Non-cash transactions:
Apple acquisition
   Real estate assets acquired                                   $ 302,113,022                     --                      --
   Issuance of preferred stock                                     262,946,547                     --                      --
   Assumption of mortgage notes                                     31,847,092                     --                      --
   Company common stock held by Apple                                7,769,500                     --                      --
   Operating assets acquired                                           632,831                     --                      --
   Operating liabilities acquired                                   10,912,991                     --                      --
   Other                                                             3,940,548                     --                      --
Accretion of preferred dividends                                     1,109,079                     --                      --
Conversion of minority interest and operating partnership            1,850,268                     --                      --
Cash paid for interest                                              16,113,511          $  11,636,307          $    7,221,104
</TABLE>
See accompanying notes to consolidated financial statements.

<PAGE>


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1
GENERAL INFORMATION AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

BUSINESS  Cornerstone Realty Income Trust, Inc. (together with its subsidiaries,
the "company"),  a Virginia  corporation,  is an  owner-operator  of residential
apartment  communities  in the  southern  regions  of  the  United  States.  The
accompanying  consolidated  financial  statements  include  the  accounts of the
company along with its subsidiaries.  All significant  intercompany accounts and
transactions have been eliminated in  consolidation.  The company's common stock
trades on the New York Stock Exchange under the ticker symbol TCR.

    Certain previously reported amounts have been reclassified to conform to the
current year presentation.

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

INVESTMENT IN RENTAL  PROPERTY The investment in rental  property is recorded at
cost, net of  depreciation,  and includes real estate  brokerage  commissions to
related parties for purchases prior to October 1, 1996.

    The  company  records  impairment  losses  on  rental  property  used in the
operations if indicators of impairment are present,  and the  undiscounted  cash
flows estimated to be generated by the respective properties are less than their
carrying amount.  Impairment  losses are measured as the difference  between the
asset's fair value less cost to sell,  and its  carrying  value.  No  impairment
losses have been recorded to date.

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

INCOME RECOGNITION Rental income,  interest, and other income are recorded on an
accrual basis. The company's  properties are leased under lease agreements that,
typically, have terms that do not exceed one year.

     STOCK INCENTIVE PLANS The company elected to follow  Accounting  Principles
Board Opinion No. 25,  "Accounting  for Stock Issued to Employees"  (APB 25) and
related  Interpretations  in  accounting  for its  employee  stock  options.  As
discussed in Note 6, the alternative  fair value  accounting  provided for under
FASB Statement No. 123, "Accounting for Stock-Based  Compensation," ("FASB 123")
requires  use of option  valuation  models  that were not  developed  for use in
valuing employee stock options.  Under APB 25, because the exercise price of the
company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.

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

EARNINGS  PER COMMON  SHARE  Basic and  diluted  earnings  per common  share are
calculated in accordance with FASB Statement No. 128 "Earnings Per Share." Basic
earnings per common share is computed based upon the weighted  average number of
shares  outstanding  during the year.  Diluted  earnings per share is calculated
after  giving  effect to all  potential  common  shares that were  dilutive  and
outstanding  for the  year.  The  Series A  Convertible  Preferred  Stock is not
included in dilutive  earnings  per share  calculations  since the impact is not
dilutive.  Operating  Partnership  units  are not  included  as the  units  were
converted  to common  stock  prior to December  31,  1999 and were not  dilutive
during the period in which they were outstanding.

FEDERAL INCOME TAXES The company is operated as, and annually elects to be taxed
as, a real estate  investment  trust under the Internal Revenue Code of 1986, as
amended (the "Code").  Generally,  a real estate investment trust which complies
with the  provisions  of the Code and  distributes  at least 95% of its  taxable
income to its shareholders  does not

<PAGE>

pay federal income taxes on its distributed income.  Accord-ingly,  no provision
has been made for federal income taxes.

    For federal income tax purposes,  distributions paid to common  shareholders
consist of  ordinary  income and  return of  capital or a  combination  thereof.
Distributions  per common share were $1.07,  $1.03, and $1.00 in the years ended
December 31, 1999,  1998, and 1997,  respectively.  In 1999, of the total common
distribution,  89% was taxable as  ordinary  income,  and 11% was a  non-taxable
return of capital. In 1998, of the total common distribution, 80% was taxable as
ordinary income, and 20% was a non-taxable  return of capital.  In 1997, 77% was
taxable as ordinary  income,  and 23% was a non-taxable  return of capital.  All
amounts  distributed to preferred  shareholders  are ordinary income for federal
income tax purposes.

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

COMPREHENSIVE  INCOME On January 1, 1998,  the company  adopted  Statement  130,
"Reporting  Comprehensive Income." The company does not currently have any items
of comprehensive income requiring separate reporting and disclosure.

NOTE 2
ACQUISITION OF APPLE RESIDENTIAL INCOME TRUST, INC.

    On July 23, 1999, the company completed the acquisition of Apple Residential
Income Trust, Inc. ("Apple"),  which owned 29 apartment  communities  containing
7,503 apartment homes. The merger qualified as a tax-free reorganization and was
accounted  for under the purchase  method of  accounting.  The  acquisition  was
structured as a merger of Apple into a  wholly-owned  subsidiary of the company.
The aggregate purchase price was approximately $311 million.  Under the terms of
the merger agreement,  each Apple shareholder  received 0.4 of the company's $25
Series A Convertible  Preferred  Stock for each share of Apple common  stock.  A
total of 12,666,019 shares of the company's Series A Convertible Preferred Stock
were issued as a result of the merger. The Series A Convertible  Preferred Stock
has a first-year per-share dividend rate of $2.125, which will increase to $2.25
in the second  year and $2.375 in the third year and  thereafter.  Each share of
Series  A  Convertible  Preferred  Stock  carries  a $25 per  share  liquidation
preference and is convertible  into 1.5823 shares of the company's common stock,
which  reflects a conversion  price of $15.80 for the  company's  common  stock.
After five years, the Series A Convertible Preferred Stock will be redeemable at
$25 per share plus any accrued dividends, at the option of the company, in whole
or in part, for cash or stock, subject to certain conditions.  In addition,  the
company  assumed  approximately  $32 million of Apple's  debt with an  effective
interest rate of approximately  6.475%.  No goodwill was recorded as a result of
this transaction.

    The following  unaudited pro forma  information for the years ended December
31, 1999 and 1998 assumes the acquisition of Apple was completed on January 1 of
the  respective  periods.  In addition to the merger,  the  unaudited  pro forma
information  gives  effect to seven  property  acquisitions  made by the company
during 1998,  and 16 and three property  acquisitions  made by Apple in 1998 and
1999, respectively,  as if these property acquisitions were made on January 1 of
the respective periods. The pro forma information is not necessarily  indicative
of what the company's  consolidated results of operations would have been if the
acquisitions  previously  described had occurred at the beginning of each period
presented.  Additionally,  the pro  forma  information  does not  purport  to be
indicative of the company's results of operations for future periods.

Unaudited Pro Forma Totals                  1999            1998
--------------------------------------------------------------------------------
Rental income                       $148,372,645    $140,413,804
Net income available to
   common shareholders                 3,133,617       8,624,264
Net income per common
   share--basic and diluted                 $.08            $.23

    The pro forma  information  presented  above  reflects  adjustments  for the
actual rental income and rental  expenses of the 23 properties  acquired  during
1998 and the three properties  acquired in 1999 (including the Apple properties)
for the  respective  periods in 1998 prior to  acquisition.  Net income has been
adjusted as follows:  (1) revenues and expenses  related to the acquisition have
been  eliminated;

<PAGE>

(2)  depreciation  expense has been adjusted based on the company's basis in the
properties;  (3)  interest  expense has been  adjusted  based on the market rate
available  to the  company  for  acquisitions  made with  debt or cash;  and (4)
outstanding  number of common  shares has been  adjusted for  acquisitions  made
through the sale of common stock.

NOTE 3
INVESTMENT IN RENTAL PROPERTY
    At December 31, 1999, the company did not own more than 30% of its apartment
communities  in any one market.  The  following is a summary of rental  property
owned at December 31, 1999:

<TABLE>
<CAPTION>
                                              Initial             Carrying           Accumulated                      Date
    Description                           Acquisition Cost         Value*           Depreciation    Encumbrances      Acquired
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                  <C>                 <C>                      <C>             <C>
NORTH CAROLINA
Raleigh/Durham, North Carolina
    The Hollows                          $     4,200,000      $     6,344,761     $     1,371,280           --        June 1993
    The Trestles                              10,350,000           11,674,666           1,951,490           --        December 1994
    The Landing                                8,345,000           10,273,739           1,314,898           --        May 1996
    Highland Hills                            12,100,000           14,777,352           1,867,985           --        September 1996
    Parkside at Woodlake                      14,663,886           15,363,983           1,616,808           --        September 1996
    Deerfield                                 10,675,000           11,434,772           1,323,856           --        November 1996
    Paces Arbor                                5,588,219            6,061,500             542,022           --        March 1997
    Paces Forest                               6,473,481            7,061,353             635,445           --        March 1997
    Clarion Crossing                          10,600,000           11,199,362             709,617           --        September 1997
    St. Regis                                  9,800,000           10,313,631             670,792           **        October 1997
    Remington Place                            7,900,000            8,742,446             588,592           **        October 1997
    The Timbers                                8,100,000            8,973,326             451,536           --        June 1998
Charlotte, North Carolina
    Hanover Landing                            5,725,000            7,688,461           1,124,516           --        August 1995
    Sailboat Bay                               9,100,000           13,760,358           2,893,325           --        November 1995
    Bridgetown Bay                             5,025,000            5,978,562             801,470           --        April 1996
    Meadow Creek                              11,100,000           12,846,737           1,676,493           --        May 1996
    Beacon Hill                               13,579,203           14,977,670           1,670,404           --        May 1996
    Summerwalk                                 5,660,000            7,811,259             933,110           --        May 1996
    Paces Glen                                 7,425,000            8,283,569             807,822           --        July 1996
    Heatherwood                               17,630,457           25,678,852           2,376,773           --           ***
    Charleston Place                           9,475,000           10,479,833             936,387           **        May 1997
    Stone Point                                9,700,000           10,340,351             718,777           **        January 1998
Winston-Salem, North Carolina
    Mill Creek                                 8,550,000            9,756,845           1,367,852           --        September 1995
    Glen Eagles                                7,300,000            8,387,218           1,277,793           --        October 1995
Wilmington, North Carolina
    Wimbledon Chase                            3,300,000            5,792,212           1,312,650           --        February 1994
    Chase Mooring                              3,594,000            7,033,468           1,221,272           --        August 1994
    Osprey Landing                             4,375,000            7,568,285           1,252,918           --        November 1995
Other North Carolina
    Wind Lake                                  8,760,000           11,513,608           1,797,291           --        April 1995
    The Meadows                                6,200,000            7,499,248           1,193,546           --        January 1996
    Signature Place                            5,462,948            7,490,089           1,056,405           --        August 1996
    Pinnacle Ridge                             5,731,150            6,421,295             337,877           --        April 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                              Initial             Carrying           Accumulated                      Date
    Description                           Acquisition Cost         Value*           Depreciation    Encumbrances      Acquired
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                  <C>                 <C>                      <C>        <C>
GEORGIA
Atlanta, Georgia
    Ashley Run                           $    18,000,000      $    19,972,413     $     1,744,247           **        April 1997
    Carlyle Club                              11,580,000           13,251,328           1,098,000           --        April 1997
    Dunwoody Springs                          15,200,000           19,090,735           1,538,123           --        July 1997
    Stone Brooke                               7,850,000            8,872,988             653,005           **        October 1997
    Spring Lake                                9,000,000            9,866,697             487,958           **        August 1998
Other Georgia
    West Eagle Greens                          4,020,000            6,426,900           1,006,501           --        March 1996
    Savannah West                              9,843,620           14,048,274           1,753,913           --        July 1996

VIRGINIA
Richmond, Virginia
    Ashley Park                               12,205,000           13,271,520           1,799,541           --        March 1996
    Trolley Square                            10,242,575           13,717,622           1,627,402           --        ****
    Hampton Glen                              11,599,931           13,008,010           1,556,617           --        September 1996
    The Gables                                11,500,000           12,710,802             615,267           --        July 1998
Virginia Beach, Virginia
    Mayflower Seaside                          7,634,144           10,786,692           1,776,525           --        October 1993
    Harbour Club                               5,250,000            6,543,804           1,185,861           --        May 1994
    Bay Watch Pointe                           3,372,525            5,156,962             850,371           --        July 1995
    Tradewinds                                10,200,000           11,781,289           1,671,376           --        November 1995
    Arbor Trace                                5,000,000            6,141,118             815,867           --        March 1996
Other Virginia
    County Green                               3,800,000            5,496,059           1,287,273           --        December 1993
    Trophy Chase                              12,628,991           16,648,166           1,173,456           --        *****
    Greenbrier                                11,099,525           12,606,881           1,537,701           --        October 1996

SOUTH CAROLINA
Greenville, South Carolina
    Polo Club                                  4,300,000            7,866,907           2,229,426           --        June 1993
    Breckinridge                               5,600,000            7,208,834           1,070,571           --        June 1995
    Magnolia Run                               5,500,000            7,009,512           1,249,880           --        June 1995
Columbia, South Carolina
    Stone Ridge                                3,325,000            6,019,560           1,523,199           --        December 1993
    The Arbors at Windsor Lake                10,875,000           11,701,117           1,255,948           **        January 1997
Other South Carolina
    Westchase                                 11,000,000           13,212,319           1,356,921           **        January 1997
    Hampton Pointe                            12,225,000           14,667,288             937,704           **        March 1998
    Cape Landing                              17,100,000           19,233,648             800,319           --        October 1998

TEXAS
Dallas, Texas
    Brookfield                                 8,014,533            8,161,716             186,973           --        July 1999
    Toscana                                    7,334,023            7,365,639             126,957           --        July 1999
    Paces Cove                                11,712,879           11,971,802             195,934           --        July 1999
    Timberglen                                13,220,605           13,584,884             226,307           --        July 1999
    Summer Tree                                7,724,156            8,229,667             121,790           --        July 1999
    Devonshire                                 7,564,892            7,891,678             135,312   $3,966,620        July 1999
    The Courts on Pear Ridge                  11,843,691           11,946,254             165,473           --        July 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                              Initial             Carrying           Accumulated                      Date
    Description                           Acquisition Cost         Value*           Depreciation    Encumbrances      Acquired
------------------------------------------------------------------------------------------------------------------------------------
<S>                                      <C>                  <C>                 <C>               <C>               <C>
Irving, Texas
    Eagle Crest                          $    21,566,317      $    21,656,922     $       357,622            --       July 1999
    Remington Hills                           20,921,219           21,404,019             370,565            --       July 1999
    Estrada Oaks                              10,786,882           11,012,434             164,335            --       July 1999
Arlington, Texas
    Aspen Hills                                7,223,722            7,358,975             155,255            --       July 1999
    Mill Crossing                              5,269,792            5,338,858             107,921            --       July 1999
    Polo Run                                   7,556,647            8,352,311             154,386            --       July 1999
    Cottonwood                                 6,271,756            6,768,671             118,929            --       July 1999
    Burney Oaks                                9,965,236           10,224,472             172,359            --       July 1999
Fort Worth, Texas
    Copper Crossing                           11,776,983           12,005,817             225,802            --       July 1999
Bedford, Texas
    The Arbors on Forest Ridge                 9,573,954            9,617,764             170,899            --       July 1999
    Park Village                               8,224,541            8,582,259             157,853            --       July 1999
Euless, Texas
    Wildwood                                   4,471,294            4,524,238              84,312            --       July 1999
Duncanville, Texas
    Main Park                                  9,082,967            9,201,464             161,804            --       July 1999
Lewisville, Texas
    Pace's Point                              12,980,245           13,167,942             207,288  $  8,076,155       July 1999
Grand Prairie, Texas
    Silverbrook I                             15,709,893           16,505,257             279,259            --       July 1999
    Silverbrook II                             5,808,250            6,022,167              98,797     2,996,150       July 1999
Grapevine, Texas
    Grayson Square II                         12,210,121           12,437,775             208,621     6,622,849       July 1999
    Grayson Square I                           9,948,959           10,238,037             168,123     6,884,762       July 1999
Austin, Texas
    The Meridian                               7,539,224            7,742,932             134,852     2,999,146       July 1999
    Canyon Hills                              12,512,502           12,586,448             185,272            --       July 1999
Richardson, Texas
    Cutter's Point                             9,859,840           10,367,834             172,370            --       July 1999
San Antonio, Texas
    Sierra Ridge                               6,624,666            7,014,246             118,741            --       July 1999
------------------------------------------------------------------------------------------------------------------------------------
                                         $   799,739,444      $   919,128,738     $    77,538,085  $105,045,682
                                         ======================================================================
</TABLE>

*Includes real estate commissions,  closing costs, and improvements  capitalized
since the date of  acquisition  for properties  acquired to date,  excluding the
Apple properties.  The Apple properties  include the allocated purchase price at
the time of the merger and improvements capitalized since the merger.

** $73.5  million of secured  debt which is secured by 10  properties  which are
individually noted.

*** Heatherwood Apartments is comprised of Heatherwood and Italian Village/Villa
Marina Apartments acquired in September 1996 and August 1997, respectively, at a
cost of  $10,205,457  and  $7,425,000.  They are  adjoining  properties  and are
operated as one apartment community.

**** Trolley  Square  Apartments is comprised of Trolley Square East and Trolley
Square West Apartments acquired in June 1996 and December 1996, respectively, at
a cost of  $6,000,000  and  $4,242,575.  They are  adjacent  properties  and are
operated as one apartment community.

*****Trophy  Chase is comprised of Trophy Chase and Hunter's  Creek  acquired in
April 1996 and July 1999, respectively,  at a cost of $3,710,000 and $8,918,991.
They are adjacent properties and are operated as one apartment community.


<PAGE>
The following is a reconciliation of the carrying amount of real estate owned:

                               1999            1998            1997
--------------------------------------------------------------------------------
Balance at January 1      $587,438,358    $487,575,196     $329,715,853
Real estate purchased      302,113,022      73,883,993      134,900,712
Sale of land                  (764,668)           --            --
Improvements, furniture,
and fixtures                30,342,026      25,979,169       22,958,631
--------------------------------------------------------------------------------
Balance at December 31    $919,128,738    $587,438,358     $487,575,196

    The following is a reconciliation of accumulated depreciation:
                               1999            1998            1997
--------------------------------------------------------------------------------
Balance at January 1       $48,227,760     $27,486,630      $12,323,037
Depreciation expense        29,310,325      20,741,130       15,163,593
--------------------------------------------------------------------------------
Balance at December 31     $77,538,085     $48,227,760      $27,486,630

NOTE 4
NOTES PAYABLE

SECURED On September 29, 1999, the company placed $73.5 million of secured debt.
The loan is secured by 10 properties.  The loan is interest only,  paid monthly,
and bears  interest at a fixed  interest rate of 7.29% per annum with a maturity
date of September  2006. The proceeds were used to pay down  short-term debt and
to curtail the company's existing line of credit as described below.

    In connection with the Apple merger,  the company assumed six mortgage notes
with a principal  amount of $30.8  million.  These  mortgages were recorded at a
fair value of $32 million at the date of assumption.  The difference between the
fair value and the  principal is being  amortized as an  adjustment  to interest
expense over the term of the respective  notes.  Prepayment  penalties apply for
early  retirements.  Scheduled  maturities are at various dates through December
2005.  At December  31,  1999,  the balance of the  mortgage  notes  payable was
$31,545,682.  Mortgage notes payable are due in monthly installments,  including
principal and interest.

    The aggregate  maturities of principal,  including  monthly  installments of
principal previously described, for secured debt subsequent to December 31, 1999
are as follows:
              Year            Amount
--------------------------------------------------------
              2000       $   622,432
              2001           691,727
              2002           727,228
              2003         7,953,828
              2004         3,252,688
        Thereafter        91,797,779
--------------------------------------------------------
                        $105,045,682
--------------------------------------------------------
    The fair market value of secured debt at December 31, 1999 was $103 million.

UNSECURED  During 1999,  the  company's  $175 million  unsecured  line of credit
("Unsecured  Line") with a consortium of six banks was increased to $185 million
and the maturity  date was extended to July 9, 2002.  The  Unsecured  Line bears
interest at one month LIBOR plus 120 basis points,  reduced from one month LIBOR
plus 135 basis points at December 31, 1998 and 1997.  Proceeds  from the secured
debt described  above were used to repay $35 million of the company's  Unsecured
Line and $30.5  million of other  unsecured  debt.  At December  31,  1999,  the
company had an unused  borrowing  capacity of $35  million  under the  Unsecured
Line.  In  addition,  the  company  is  obligated  to pay  lenders  a  quarterly
commitment  fee equal to .20% per annum of the unused  portion  of the line.  At
December 31, 1999 and 1998,  total unsecured  borrowings  under these agreements
were $150 million and $196 million, respectively.

    The line of credit agreement  contains certain covenants which,  among other
things, require maintenance of certain financial ratios and include restrictions
on the company's ability to make  distributions to its shareholders over certain
amounts.  At  December  31,  1999,  the  company  was in  compliance  with these
covenants.

    During 1999, the company  increased the $5 million  unsecured line of credit
for general  corporate  purposes  ("General Purpose Line") to $7.5 million . The
General  Corporate  Purpose Line bears  interest at LIBOR plus 120 basis points.
The maturity  date was  extended to October 31,  2000.  At December 31, 1999 and
1998,  borrowings  under  this  arrangement  were  $7.5  million  and  $343,000,
respectively.
<PAGE>

    During 1999, the company's June 25, 1996 unsecured note was refinanced  with
a $5.5 million unsecured loan from a commercial bank. The new unsecured note was
paid in full in September  1999 with  proceeds  from the secured debt  described
above.

    No   interest   was   capitalized   in  1999,   1998,   or  1997.   Overall,
weighted-average interest rates incurred were 6.5% in 1999 and 6.9% in 1998.

NOTE 5
SHAREHOLDERS' EQUITY

PREFERRED  STOCK On July 23, 1999,  in  connection  with the Apple  merger,  the
company issued 12,666,019 shares of Series A Convertible Preferred Stock, with a
liquidation  preference  of $25 per share.  The Series A  Convertible  Preferred
Stock is  convertible  into 1.5823  shares of the  company's  common stock which
reflect a conversion price of $15.80 for the company's common stock.  After five
years,  the Series A Convertible  Preferred Stock is redeemable at $25 per share
plus any accrued dividends,  at the option of the company,  in whole or in part,
for cash or stock,  subject  to certain  conditions.  The  company  is  imputing
dividends  calculated  as the present  value  difference  between the  perpetual
preferred  stock  distribution  and the stated  distribution  rate.  The imputed
dividend is reflected as additional non-cash preferred stock distributions.

COMMON  STOCK In 1997,  the company  adopted a Dividend  Reinvestment  and Share
Purchase Plan ("Plan"),  which allows any recordholder to reinvest distributions
without  payment  of any  brokerage  commissions  or other  fees.  Of the  total
proceeds  raised from common  shares  during the years ended  December 31, 1999,
1998, and 1997, $9,168,728,  $10,873,529,  and $14,198,868,  respectively,  were
provided through the reinvestment of distributions.

    In 1998,  the company  organized  Cornerstone  REIT Limited  Partnership  to
acquire  Cape Landing  Apartments.  In  connection  with this  acquisition,  the
company issued 185,887  partnership  units.  On December 29, 1999, the operating
partnership  units were  converted to common  stock,  at a ratio of one share of
common stock for every operating partnership unit.

    During 1998,  the company  raised $30 million by issuing 2.6 million  common
shares through its participation in a Unit Investment  Trust,  which resulted in
$28  million  net  proceeds  to  the  company,  after  underwriting   discounts,
commissions,  and other direct costs.  The company used the proceeds to pay down
its line of credit, for the acquisition of additional apartment communities, and
for working capital.

    In April 1997,  the company  completed its  firm-commitment  initial  public
offering  of  5,175,000  shares of its common  stock at $10.50  per  share.  Net
proceeds,  after  deducting  underwriting  discounts and  commissions and direct
offering costs, aggregated  approximately $49 million and were used to repay $44
million of a previous line of credit.

NOTE 6
BENEFITS PLANS

STOCK INCENTIVE PLAN Based on the outstanding  shares,  under the 1992 Incentive
Plan,  as amended,  a maximum of  1,258,596  options  could be  granted,  at the
discretion of the Board of Directors,  to certain  officers and key employees of
the company.  Under the Directors Plan, as amended, a maximum of 542,190 options
could be granted to the directors of the company.  In 1999, the company  granted
39,625 options to purchase shares under the Directors Plan and 13,000 options to
purchase shares under the Incentive Plan.

    Both of the plans  provide,  among other things,  that options be granted at
exercise  prices not lower  than the  market  value of the shares on the date of
grant.  Under the Incentive  Plan,  options  become  exercisable  at the date of
grant.  Generally  the  optionee  has up to 10 years  from the date on which the
options first become exercisable during which to exercise the options.  Activity
in the  company's  share option plans during the three years ended  December 31,
1999 is summarized in the following table:


<PAGE>
<TABLE>
<CAPTION>
                                                      1999                             1998                         1997
                                                      Weighted-Average                 Weighted-Average             Weighted-Average
                                      Options         Exercise Price     Options       Exercise Price     Options   Exercise Price
------------------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>              <C>              <C>           <C>               <C>           <C>
Outstanding, beginning of year           904,096         $11.73           405,491       $11.07            371,256       $10.99
Granted                                  401,396          10.29           498,605        11.96             34,235        11.38
Exercised                                  (539)          10.00                --           --                 --           --
Forfeited                                     --             --                --           --                 --           --
------------------------------------------------------------------------------------------------------------------------------------
Outstanding, end of year               1,304,953         $11.15           904,096       $11.73            405,491       $11.07
Exercisable at end of year             1,304,953         $11.15           904,096       $11.73            364,591       $11.07
------------------------------------------------------------------------------------------------------------------------------------
Weighted-average fair value of
    options granted during the year                      $  .30                         $  .32                          $ 1.00
</TABLE>

    Options granted during 1999 included options granted to Mr. Glade M. Knight,
Chairman and Chief Executive Officer of the company, separate from the incentive
plan. Mr. Knight was granted  options ("Award  Options") to purchase  348,771 of
the  company's  common  shares at an exercise  price of $10.125.  These  options
represent a "rollover"  of certain  options  previously  held by Mr. Knight with
respect to Apple common shares.

    If a triggering  event occurs,  the exercise  price will be $1.00 per common
share for the  following  180 days. A triggering  event means the  occurrence of
certain  events,  defined  in the  option  agreement,  reflecting  a  change  or
prospective change in control of the company.

    If a triggering event occurs,  and Mr. Knight either elects not to, or fails
to,  exercise any  exercisable  Award Options,  then the company must pay to Mr.
Knight the  difference  between the  exercise  price and the value of the common
shares that would be obtained upon  exercise.  If the exercise or the receipt of
payment in lieu of such exercise  subjects the holder to an  additional  penalty
tax under the  Internal  Revenue  Code,  the  company  will pay to the holder an
additional amount to offset the penalty tax.

    Pro  forma  information  regarding  net  income  and  earnings  per share is
required by FASB 123, which also requires that the  information be determined as
if the company has accounted for its employee stock options  granted  subsequent
to December  31, 1994 under the fair value method  described in that  statement.
The fair value for these  options  was  estimated  at the date of grant  using a
Black-Scholes   option   pricing  model  with  the  following   weighted-average
assumptions for 1999, 1998, and 1997:

                                 1999            1998            1997
--------------------------------------------------------------------------------
Risk-free interest               5.6 %           5.5 %           6.7 %
Dividend yields                  9.0 %           9.0 %           7.0 %
Volatility factors                .160            .160            .161
Weighted-average
  expected life (years)             10              10              10

    The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded  options  which have no  vesting  restrictions  and are
fully  transferable.  In addition,  option valuation models require the input of
highly  subjective  assumptions  including the expected stock price  volatility.
Because the company's employee stock options have characteristics  significantly
different from those of traded  options,  and because  changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models do not  necessarily  provide a  reliable  single
measure of the fair value of its employee stock options.

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


<PAGE>

<TABLE>
<CAPTION>


                           1999              1998            1997
--------------------------------------------------------------------------------
<S>              <C>               <C>             <C>
Net income available
to common shareholders

Pro forma          $ 17,581,422     $  23,040,840    $ 19,148,373

As reported        $ 17,713,564     $  23,210,642    $ 19,225,553

Earnings per
common share--diluted

Pro forma          $        .45     $         .61    $        .59

As reported        $        .45     $         .62    $        .59
</TABLE>


<PAGE>

401(K)  SAVINGS  PLAN  Eligible  employees  of  the  company  participate  in  a
contributory  employee  savings  plan.  Under the plan,  the company may match a
percentage of contributions made by eligible employees, such percentage to apply
to a maximum of 1% of their annual salary. Expenses under this plan for 1999 and
1998 were $65,117 and $42,288, respectively.

NOTE 7
RELATED-PARTY TRANSACTIONS

Mr. Knight,  Chairman and Chief Executive Officer of the company, also served as
the  Chairman  and Chief  Executive  Officer of Apple.  Prior to the merger with
Apple, the company provided services to Apple. The services the company rendered
to Apple  terminated  upon the  consummation  of the merger.  (See Note 2 to the
consolidated financial statements.)

    Prior to the merger,  the  company or its  affiliates  provided  real estate
brokerage  services to Apple. In March 1997, the company  purchased the right to
provide  brokerage  services to Apple by  purchasing  the assets of Apple Realty
Group, Inc., for $2 million,  consisting of $350,000 in cash and 150,000 company
common shares valued at $1,650,000.  The principal  asset of Apple Realty Group,
Inc. was its  brokerage  contract  with Apple.  Under the terms of the brokerage
contract with Apple, the company  received a real estate  commission equal to 2%
of the purchase price of the properties  acquired plus  reimbursement of certain
expenses. During 1999, 1998, and 1997, the company earned $561,484,  $2,665,100,
and $1,031,066,  respectively, in real estate brokerage commissions. The company
amortized  $241,438,   $1,054,470,  and  $546,000,  in  1999,  1998,  and  1997,
respectively,  of the purchase  price for the  brokerage  contract.  The company
amortized  the  purchase  price of the  contract in  relationship  to the assets
acquired through the date of the merger.

    The company also  provided  property  management  and  advisory  services to
Apple.  Property  management  services were 5% of monthly  rental  revenues plus
reimbursement of certain  expenses.  Advisory services were .1% to .25% based on
total capital  raised by Apple and the financial  performance  of Apple.  During
1999, 1998, and 1997, the company earned $1,893,120,  $2,220,594,  and $822,497,
respectively, for management and advisory services.

    During  1997,  the  company  purchased  417,778  common  shares of Apple for
$3,760,000.  The company received  distributions on this investment of $194,580,
$340,483, and $253,172 in 1999, 1998, and 1997, respectively.

    During  May,  1999,  Apple  paid the  company  $1.5  million  to modify  the
company's  right of first  refusal to purchase  Apple and the service  contracts
between Apple and the company to allow for termination of such agreements in the
event of a change of control of the company. The company recorded the payment as
other income.

    Prior to the Apple merger,  officers of the company held 200,000 Apple Class
B Convertible  Shares which  converted  into 640,000 of the  company's  Series A
Convertible Preferred Shares upon consummation of the merger.

    Mr.  Knight  also serves as Chairman  and Chief  Executive  Officer of Apple
Suites,  Inc., a hospitality  REIT formed during 1999,  and also owns  companies
which provide  services to Apple Suites,  Inc. During 1999, the company provided
services  and rented  office space to these  entities  and  received  payment of
approximately $214,000.

OTHER  RELATIONSHIPS  Leslie A.  Grandis,  a director of the company,  is also a
partner in McGuire,  Woods, Battle & Boothe LLP, which serves as general counsel
to the company.  Martin  Zuckerbrod  and Harry S.  Taubenfeld,  directors of the
company, provide real estate legal services to the company.


<PAGE>

NOTE 8
EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
                                                                                    1999                  1998                 1997
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                        <C>                  <C>                   <C>
Numerator:
Net income available to common shareholders                                $  17,713,564        $   23,210,642        $  19,225,553
  Numerator for basic and diluted earnings per share-income
    available to common stockholders after assumed conversion              $  17,713,564        $   23,210,642        $  19,225,553
Denominator:
  Denominator for basic earnings per share-weighted-average shares            39,182,802            37,630,546           32,617,823
Effect of dilutive securities:
  Stock options                                                                       21                20,402                2,014
  Series A Convertible Preferred Stock*                                               --                    --                   --
------------------------------------------------------------------------------------------------------------------------------------
  Denominator for diluted earnings per share-adjusted
    weighted-average shares and assumed conversions                           39,182,823            37,650,948           32,619,837
------------------------------------------------------------------------------------------------------------------------------------

  Basic and diluted earnings per common share                              $         .45         $         .62        $         .59
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

*Series A Convertible  Preferred Stock was not included in dilutive earnings per
common share calculation since its effect was anti-dilutive.

NOTE 9
QUARTERLY FINANCIAL DATA (UNAUDITED)

The  following is a summary of  quarterly  results of  operations  for the years
ended December 31, 1999 and 1998:

<TABLE>
<CAPTION>
                                                              First              Second               Third             Fourth
1999                                                        Quarter             Quarter             Quarter            Quarter
--------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>                 <C>                 <C>
Revenues                                              $  24,528,378   $      26,635,539   $      35,100,597    $     38,777,010
Income before interest income (expense)                   9,207,685           9,622,021          12,580,451          13,665,221
Net income                                                5,832,410           6,218,561           8,732,122           9,254,009
Distributions to preferred shareholders                          --                  --           4,923,280           7,400,258
Net income available to common shareholders               5,832,410           6,218,561           3,808,842           1,853,751
Basic and diluted earnings per
  common share                                                  .15                 .16                 .09                 .05
Distributions per share                                         .26                 .27                 .27                 .27

1998
--------------------------------------------------------------------------------------------------------------------------------
Revenues                                              $  20,962,469   $      22,721,906   $      24,999,279   $      24,954,294
Income before interest income (expense)                   7,963,956           8,572,162           9,405,990           9,459,167
Net income                                                5,236,048           5,512,931           6,289,373           6,172,290
Distributions to preferred shareholders                          --                  --                  --                  --
Net income available to common shareholders               5,236,048           5,512,931           6,289,373           6,172,290
Basic and diluted earnings per common share                     .15                 .15                 .16                 .16
Distributions per share                                         .25                 .26                 .26                 .26
--------------------------------------------------------------------------------------------------------------------------------
</TABLE>


NOTE 10
SUBSEQUENT EVENT

As of  February  17,  2000,  the  company  entered  into a  contract  to sell 16
apartment  communities for a gross selling price of approximately  $135 million,
with a net  book  value  of $105  million  at  December  31,  1999.  There is no
assurance that this transaction will take place.