INVESTMENT OBJECTIVES AND POLICIES

GENERAL

     The Company intends to invest in existing residential apartment communities
in  Texas  and the  southwestern  region  of the  United  States.  Pending  such
investment,  the proceeds of this  offering  may be invested in U.S.  Government
securities,  certificates  of deposit  from banks  located in the United  States
having a net worth of at least $50,000,000,  bank repurchase agreements covering
the securities of the U.S.  Government or U.S.  governmental  agencies issued by
banks located in the U.S. having a net worth of at least  $50,000,000,  bankers'
acceptances,  prime commercial paper or similar highly liquid  investments (such
as money market funds selected by the Company) or evidences of indebtedness.  In
addition,  to the  extent  the  proceeds  are not  invested  in real  estate  as
described herein, the Company has the ability to invest in such securities.  All
proceeds of this offering  received by the Company must be invested or committed
for  investment in properties or allocated to working  capital  reserves or used
for  other  proper  Company  purposes  within  the  later  of  two  years  after
commencement of the offering or one year after termination of the offering;  any
proceeds  not  invested or  committed  for  investment  or  allocated to working
capital  reserves or used for other proper  Company  purposes by the end of such
time period shall be returned to investors,  within 30 days after the expiration
of such period,  but the Company may elect to return such  proceeds  earlier if,
and to the extent, required by applicable law (including to the extent necessary
to avoid characterization as an "investment company").

     The principal investment objectives of the Company are:

     (i) to preserve and protect the capital of the Company;

     (ii) to provide quarterly distributions to Shareholders, a portion of which
may  constitute a  nontaxable  return of capital  (rather  than current  taxable
income); and

     (iii)  to  provide  long-term  capital  appreciation  in the  value  of the
Company's investments.

     The Company  anticipates that achievement of such objectives will enable it
to provide the  Shareholders  with  appreciation  in the value of their  Shares.
There  can be no  assurance  that the  Company  will  achieve  such  objectives.
Attainment of the objectives is contingent in part upon the Company's ability to
acquire suitable properties. To the extent such objectives cannot simultaneously
be pursued or  achieved,  the Company  plans to pursue the  objective of regular
quarterly  distributions  to  Shareholders  in  preference  to the  objective of
long-term  capital  appreciation in the value of Company  investments and in the
value of Shares.

   The Company's primary business  objectives are to increase  distributions per
Share and the value of its properties by:

     (i) increasing occupancy rates and rental income at properties;

     (ii) implementing expense controls; and

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<PAGE>

     (iii) emphasizing regular maintenance and periodic  renovations,  including
additions to amenities.

     The Company may make  acquisitions  of  established  apartment  communities
involved in foreclosure proceedings when the Advisor and the Company believe the
property may have below  market-rate  leases,  correctable  vacancy  problems or
other cash flow growth potential.  In suitable situations,  the Company also may
make  acquisitions of properties from  over-leveraged  owners of such properties
and from governmental regulatory authorities and lending institutions which have
taken  control  of such  properties,  as well as  mortgagees-in-possession  and,
possibly, through bankruptcy reorganization proceedings.

     In connection with the acquisition of Properties, the Company sets aside an
amount  determined by it to be necessary to fund repairs and improvements  which
the Company  believes should be made at the Property,  to make it competitive in
its market and, where appropriate, to permit rental increases.

     The  Company  will seek to assure  that its  Properties  remain  attractive
residences  for  their  tenants  and are  desirable  locations  for  prospective
tenants.   The  maintenance,   custodial  and  groundskeeping   staff  of  Apple
Residential  Management Group,  Inc. performs regular  maintenance and upkeep on
the properties to preserve and enhance their practical and aesthetic attributes.
The physical  appearance  of, and tenant  satisfaction  with,  each Property are
evaluated on a regular basis by the Company's executive officers.

     The  Company's  management  places  strong  emphasis on the  marketing  and
promotion of its Properties.  Marketing plans focus on each Property's  specific
needs for maximizing occupancy. Marketing programs include television, radio and
newspaper advertising, all designed to attract tenants in each market.

     The Board of Directors may, in its sole discretion,  issue Shares, or other
equity or debt securities of the Company,  to sellers of properties,  as part or
all of the purchase  price of the property.  Shares or such other equity or debt
securities  of the Company may also be issued,  at the  election of the Board of
Directors,  to the Advisor or its  Affiliates in lieu of cash payments  required
under the Advisory  Agreement or other contract or  obligation.  See "Summary of
Organizational Documents -- Issuance of Securities."

     The  Company  will not issue any  equity  securities  senior to the  Shares
unless the  holders of a  majority  of the  outstanding  Shares  authorize  such
issuance by an appropriate amendment to the Company's Articles of Incorporation.

     The Company has no present  intention of making any loans to other  persons
or investing in the  securities  of other  issuers for the purpose of exercising
control of such issuers.  As described below,  under "Types of Investments," the
Company is subject to certain  limitations on its ability to make mortgage loans
or invest its assets in the securities of other issuers.  Such  limitations  can
only be changed with the consent of the holders of a majority of the outstanding
Shares. Within such limitations, however, the Board of Directors, acting without
Shareholder  approval,  may set and change the  Company's  policy  regarding the
making of loans and the investment in securities of other issuers.

     Except with respect to the permitted temporary  investment of proceeds from
the sales of Shares pending investments in properties (see "General" above), the
Company has no present  intention of investing in the securities of or interests
in other  persons,  or  engaging  in the  purchase  and sale  (or  turnover)  of
investments other than its real property investments.  The Company may engage in
certain joint venture  investments (see "Joint Venture  Investments"  below) and
may  invest up to 20% of its  total  assets in the  equity  securities  of other
issuers,  although  the Company has no present  intention  to engage in any such
activities.  The  Company  has no plans to  invest  in the  securities  of other
issuers for the purpose of exercising control.

     Although  the  Company  has no  present  intention  to do so,  the Board of
Directors  might cause the Company to invest a portion of its assets (subject to
the  limitations  set forth in the By-Laws,  as described  below under "Types of
Investments")  in common  stock or other  equity  securities  of other  REITs or
limited  partnerships  holding real estate.  Such an investment,  if undertaken,
would be based on a  determination  by the Board of Directors that investment in
such  common  stock  or  equity  securities  furthered  the  overall  investment
obSectives  and policies of the Company in a way not  furthered by the Company's
direct  investment  in  real  property.  For  example,  although  not  presently
anticipated,  the Company could decide to further its diversification  objective
by acquiring an equity interest in a REIT owning  properties in other regions of
the United  States,  rather than seeking to invest  directly in real



                                       27
<PAGE>

properties  located in such other region.  Any such decision would be based upon
the perceived  best interests of the Company and the  Shareholders  at the time.
Furthermore,  any such  investment  would be based upon a  determination  by the
Board of  Directors,  based upon  advice of counsel  to the  Company,  that such
investment would not adversely impact the Company's continued qualification as a
REIT  for  Federal  income  tax  purposes.  If the  Company  undertook  any such
investment,  such investment could be made in listed or  publicly-traded  equity
securities or, alternatively, in securities of a private issuer.

     If  undertaken at all, the Company would expect to invest only in a Company
engaged  principally  in the ownership and operation of  multi-family  apartment
communities. Subject to that limitation, the Company would not necessarily limit
itself  to  investments  in other  companies  of any  specific  size or with any
specific period of prior operations.

INVESTMENT CRITERIA

     The Advisor is charged with  identifying  and  recommending  to the Company
suitable investments. The Advisor will make such recommendations based upon such
relevant factors as (i) the potential for realizing capital  appreciation;  (ii)
current  and  projected  cash flow and the  ability to  increase  rental  income
through capable management; (iii) neighborhood location, condition and design of
the property;  (iv) historical and projected  occupancy rates; (v) prospects for
liquidity through sale,  financing or refinancing;  (vi) economic  conditions in
the community;  (vii)  geographic  location and type of property in light of the
Company's  diversification  objectives;  and  (viii) the  purchase  price of the
property  as it  relates  to  prices  of  comparable  properties  in  comparable
locations.

     The Company's  management  believes  there is substantial  opportunity  for
growth  from   acquisitions  of   multi-family   properties  in  Texas  and  the
southwestern  region of the United States.  Management believes that the current
real estate  environment is conducive to  advantageous  acquisitions of existing
multi-family  properties that meet the Company's  investment  criteria.  In many
instances,  such  acquisitions  may be  made  for  less  than  the  cost  of new
construction.

     Generally, the Advisor is not required to, and will not, advise the Company
on  investments  in  securities,  i.e.,  the  temporary  investment  of offering
proceeds pending  investment of such proceeds in real property,  as described in
"Investment Objectives and Policies -- General." It is expected that the Company
will  make  its  own  decisions  with  respect  to  such  temporary   securities
investments.

     Apple Realty Group,  Inc.,  an Affiliate of the Advisor,  will receive a 2%
real estate commission upon each purchase by the Company of a property. See "The
Advisor and Affiliates -- Apple Realty Group, Inc."

     Any  property  acquisition  made with  proceeds  representing  the  Minimum
Offering  amount  ($15  million)  will  require the  approval  of the  Executive
Committee of the Board of Directors.  Otherwise the  acquisition of any property
with a contract purchase price not greater than $15,000,000 may be undertaken by
the President acting alone (unless it is an acquisition from an Affiliate of the
Advisor).  Any property  acquisition  with a contract  purchase price  exceeding
$15,000,000 will require the consent of the Executive  Committee of the Board of
Directors.  Any  acquisition  from an  Affiliate of the Advisor will require the
consent of a majority of all Independent Directors and of the entire Board.

TYPES OF INVESTMENTS

     The Company intends to invest in existing residential apartment communities
in Texas and the southwestern  region of the United States. The Company does not
intend to invest in undeveloped  land except in connection  with the acquisition
of an  existing  apartment  community.  The  Company  does not intend to make or
invest in any mortgage  loans (except that the Company may hold  purchase  money
obligations secured by mortgages on properties sold by it). Except in connection
with  permitted  joint venture  investments  (see "Joint  Venture  Investments,"
below) and except with respect to permitted temporary investments (see "General"
above),  the Company will not invest more than 20 percent of its total assets in
equity  securities of or interests in other issuers for a period in excess of 18
months.  Within  certain  limitations,  the Board of  Directors  can  change the
investment  objectives  and policies of the Company.  See "Changes in Objectives
and Policies," below.



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<PAGE>


     In addition,  the  Company's  Bylaws  prohibit it from  engaging in certain
investment and other activities,  including:  (i) investing more than 10 percent
of the total assets of the Company in unimproved real property or mortgage loans
on unimproved real property;  (ii) investing in commodities or commodity  future
contracts or effecting  short sales of commodities  or  securities,  except when
done solely for hedging purposes; (iii) investing in or making mortgage loans on
property  unless the Company  obtains a mortgagee's  or owner's title  insurance
policy or  commitment as to the priority of the mortgage or the condition of the
title;  (iv)  investing in contracts for the sale of real estate unless they are
recordable  in the chain of title;  (v) making or investing  in mortgage  loans,
including  construction  loans,  on any property if the aggregate  amount of all
mortgage  loans  outstanding  on the property (at the time the Company  makes or
invests in its mortgage loan),  including the loans of the Company, would exceed
85 percent of the  appraised  value of the  property;  (vi)  investing in junior
mortgage loans (provided that this and the foregoing limitations shall not apply
to the  Company  taking back  secured  debt in  connection  with the sale of any
property);  (vii) issuing  securities that are  redeemable;  (viii) issuing debt
securities  unless the  historical  debt service  coverage (in the most recently
completed  fiscal year) as adjusted for known changes is sufficient  properly to
service the higher level of debt or unless the cash flow of the Company (for the
last fiscal year) excluding extraordinary,  nonrecurring items, is sufficient to
cover the debt service on all debt securities to be outstanding;  (ix) investing
more  than  20%  of  its  total   assets  in  the  equity   securities   of  any
non-governmental issuers,  including other REITs or limited partnerships,  for a
period in excess of 18  months;  (x)  issuing  equity  securities  on a deferred
payment basis or other similar  arrangement;  (xi)  incurring any  indebtedness,
secured or unsecured,  if such indebtedness  would result in an aggregate amount
of  indebtedness  in excess of 100  percent of Net  Assets,  before  subtracting
liabilities  (unless  the excess  borrowing  is  approved  by a majority  of the
Independent  Directors  and  disclosed  to the  Shareholders  as required by the
Bylaws); (xii) allowing aggregate borrowings of the Company to exceed 50 percent
of the Adjusted Net Asset Value  (before  subtracting  any  liabilities)  of the
Company  unless the excess  borrowing is similarly  approved by the  Independent
Directors and disclosed to the  Shareholders;  (xiii) engaging in any short sale
of or underwriting or distributing, as an agent, securities issued by others, or
engaging in trading, as compared with investment activities; and (xiv) acquiring
securities  in  any  company  engaging  in  activities  or  holding  investments
prohibited by the above prohibitions, the Code or Virginia law.

DIVERSIFICATION

     One of the Company's investment  objectives is to own properties in various
geographic  locations within Texas and the southwestern  United States,  thereby
minimizing  the  effects of  changes  in  specific  industries,  local  economic
conditions or similar risks.  The extent of geographic  diversification  depends
upon the number of separate  properties which can be purchased.  There can be no
assurance that the Company will achieve significant diversification. There is no
limit on the amount or  percentage of net proceeds from the sale of Shares which
may be invested in any single property.

JOINT VENTURE INVESTMENTS

     Some of the Company's investments may be made through partnerships or joint
ventures.  The Company's  partner or joint venturer could be an Affiliate of the
Advisor.  While each such  partnership  or joint  venture  agreement may vary in
form, depending on negotiations,  in no case will the co-venturer have any legal
right to take action  which  would  prevent  the  Company  from  carrying on its
business as described in this  Prospectus.  Any joint venture  investment of the
Company would be subject to the same  conditions,  limitations and  restrictions
applicable to a Company  investment not  undertaken as a joint venture,  and the
use of a joint venture structure would not itself be designed to alter or expand
the  investment  objectives  and policies of the Company.  Investment  through a
joint  venture  could,  for example,  permit the Company to invest in a property
which is too large for the Company to acquire by itself.

   The Company  anticipates that any joint venture investment it might undertake
would involve only the ownership and operation of apartment  communities  of the
same  general type sought to be acquired  directly by the  Company.  The Company
could,  for  example,  use a joint  venture  investment  to acquire  one or more
apartment  communities  located  outside  of the  regions  in which the  Company
normally  operates  with a view toward  minimizing  risks  otherwise  associated
entering new markets. Although the


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<PAGE>


Board of  Directors  would seek to contract  only with a joint  venture  partner
which is competent  and  financially  secure,  the Company has not set any other
specific criteria which it would follow in connection with the identification of
joint venturers.

     Joint venture  arrangements may under certain  circumstances  involve risks
not  otherwise  present  in  investments  directly  in  properties   themselves,
including,  for  example,  the risk of  impasse  and risks  associated  with the
possibility  that the co-venturer may at any time  experience  adverse  business
developments  or  have  economic  or  business  interests  or  goals  which  are
inconsistent with the economic or business interests or goals of the Company.

     There is no  limitation  on the  percentage of the proceeds of the offering
that can be invested in joint ventures.

BORROWING POLICIES

     To maximize  potential  cash flow and  minimize  risk to the  Company,  the
Company  intends  to  purchase  its  properties   either  on  an  "all-cash"  or
unleveraged  basis,  or using the  limited  interim  borrowing  described  under
"Business  and  Properties-Properties  Owned by the  Company."  The Company will
endeavor to repay any interim  borrowings  with proceeds from the sale of Shares
and thereafter to hold its properties on an unleveraged basis.  However, for the
purpose of flexibility in operations,  the Company will have the right,  subject
to the approval of the Board of Directors, to borrow.

     One purpose of borrowing  could be to permit the Company's  acquisition  of
additional   properties   through  the  "leveraging"  of  Shareholders'   equity
contributions.  Alternatively,  the Company might find it necessary to borrow to
permit  the  payment  of  operating   deficits  at  properties   already  owned.
Furthermore, although not anticipated,  properties may be financed or refinanced
if the  Board  of  Directors  deems  it in the best  interests  of  Shareholders
because,  for example,  indebtedness  can be incurred on favorable terms and the
incurring of  indebtedness  is expected to improve the  Shareholders'  after-tax
cash return on invested capital. See "Sale and Refinancing  Policies" below. See
"Risk  Factors -- Real Property  Investment  Risks -- Possible  Borrowing;  Debt
Financing May Reduce Cash Flow and Increase Risk of Default."

     Loans obtained by the Company may be evidenced by promissory  notes secured
by mortgages on the  Company's  properties.  In addition,  the Company may grant
other forms of  security to a lender,  including  a  conditional  assignment  of
leases and rents of the Company's  properties.  As a general policy, the Company
would seek to obtain  mortgages  securing  indebtedness  which encumber only the
particular  property to which the  indebtedness  relates,  but  recourse on such
loans may include all of the Company's  assets. If recourse on any loan incurred
by the Company to acquire or refinance any particular  property  includes all of
the Company's assets, the equity of the Company in its other properties could be
reduced or eliminated through foreclosure on that loan.

     Subject to the approval of the Board of  Directors,  the Company may borrow
from the Advisor or its  Affiliates or establish a line of credit with a bank or
other lender. The Advisor and its Affiliates are under no obligation to make any
such loans,  however.  Any loans made by the Advisor or its  Affiliates  must be
approved by a majority of the Independent  Directors as being fair,  competitive
and  commercially  reasonable  and no less  favorable  to the Company than loans
between unaffiliated lenders and borrowers under the same circumstances.

     The Company's  Bylaws  prohibit the Company from incurring debt (secured or
unsecured) if such debt would result in aggregate  debt  exceeding  100% of "Net
Assets"  (defined  generally  to  mean  assets  at  cost),   before  subtracting
liabilities,  unless the  excess  borrowing  is  approved  by a majority  of the
Independent  Directors  and  disclosed  to the  Shareholders  as required by the
Bylaws. The Bylaws also prohibit the Company from allowing aggregate  borrowings
to exceed 50% of the Company's  "Adjusted Net Asset Value" (defined generally to
mean assets at fair market value),  before subtracting  liabilities,  subject to
the  same  exception.  In  addition,  the  Bylaws  provide  that  the  aggregate
borrowings  of the Company must be  reasonable  in relation to the Net Assets of
the Company  and must be reviewed  quarterly  by the  Directors.  Subject to the
foregoing  limitations  on the  permitted  maximum  amount of debt,  there is no
limitation  on the  number of  mortgages  or deeds of trust  which may be placed
against any particular property.


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<PAGE>

MANAGEMENT OF PROPERTIES

     Day-to-day  property  management  services  for the  Company's  residential
properties  will be provided by Apple  Residential  Management  Group,  Inc., an
Affiliate of the Advisor,  subject to review by the Board of Directors. For such
services,  Apple  Residential  Management  Group,  Inc.  will  receive a monthly
Property  Management  Fee  equal  to 5% of the  monthly  gross  revenues  of the
properties.  The Company intends that Apple  Residential  Management Group, Inc.
will  also  be  responsible   for  the   accounting   and  financial   reporting
responsibilities  for  each  of  the  properties  the  Company  acquires.  Apple
Residential  Management Group,  Inc. will be reimbursed for expenses,  including
salaries and related  overhead  expenses,  associated  with such  accounting and
financial reporting  responsibilities.  The Company believes that the monthly 5%
property  management fee it pays to Apple Residential  Management Group, Inc. is
commercially  reasonable.  However,  such fee may  represent an expense which is
greater than the management  expenses of  self-administered  REITs, which do not
use an outside property management company.

     The Company will enter into a property management  agreement (the "Property
Management  Agreement")  with Apple  Residential  Management  Group,  Inc.  with
respect to each of the Company's residential  properties at the time the Company
acquires  each such  property.  The  agreement  will have an initial term of two
years and thereafter will be renewed automatically for successive two-year terms
until  terminated  as provided  therein or until the property is sold. A copy of
the form of that  agreement  has been filed as an  exhibit  to the  registration
statement of which this Prospectus is a part; reference is made to the agreement
itself for a complete  statement of its provisions.  See "Conflicts of Interest"
and "Compensation."

     Depending  on the  location of the  Company's  real  property  investments,
unaffiliated,   independent   property  management  companies  may  also  render
day-to-day  property management services pursuant to contracts with the Company.
Such contracts with the Company may provide for unaffiliated  property  managers
to  receive  either  fixed or  performance-based  incentive  fees  for  property
management services, subject to the condition that compensation to such property
managers must be fair, competitive and commercially  reasonable.  It is intended
that the management  capabilities of the property  managers will maximize rental
revenues of specific  properties through renewing leases at higher market rates;
renovating  and  retenanting   under-performing   properties;  and  constructing
additional rental space on the sites of existing properties, where appropriate.

     Apple Residential  Management  Group,  Inc.  currently manages no apartment
complexes.

RESERVES

     A portion of the proceeds of this offering will be reserved to meet working
capital needs and contingencies  associated with the Company's  operations.  The
Company will  initially  allocate to its working  capital  reserve not less than
0.5%  of  the  proceeds  of the  offering.  As  long  as the  Company  owns  any
properties,  the Company will retain as working capital reserves an amount equal
to at  least  0.5% of the  proceeds  of the  offering,  subject  to  review  and
re-evaluation  by the  Board  of  Directors.  If such  reserves  and  any  other
available  income of the  Company  become  insufficient  to cover the  Company's
operating  expenses and  liabilities,  it may be necessary to obtain  additional
funds  by  borrowing,   refinancing  properties  or  liquidating  the  Company's
investment in one or more properties.

SALE AND REFINANCING POLICIES

     The Company is under no obligation to sell its investment  properties,  and
currently  anticipates  that it  will  hold  its  investment  properties  for an
indefinite  length of time.  However,  sale may occur at any time if the Advisor
deems it advisable for the Company based upon current  economic  considerations,
and the Board of Directors  concurs with such decision.  In deciding  whether to
sell a property,  the Advisor will also take into  consideration such factors as
the amount of appreciation in value, if any, to be realized,  federal, state and
local tax  consequences,  the  possible  risks of  continued  ownership  and the
anticipated advantages to be gained for the Shareholders from sale of a property
versus continuing to hold such property.


                                       31
<PAGE>

     Currently,  the Company expects that within  approximately  three (3) years
from  Initial  Closing,  it will use its best  efforts  either  (i) to cause the
Shares to be listed on a national  securities  exchange  or quoted on the NASDAQ
National Market System or (ii) to cause the Company to dispose of  substantially
all  of  its  properties  in  a  manner  which  will  permit   distributions  to
Shareholders  of cash or  marketable  securities.  The taking of either  type of
action would be conditioned on the Board of Directors determining such action to
be prudent and in the best interests of the Shareholders,  and would be intended
to provide Shareholders with liquidity either by initiating the development of a
market  for the  Shares  or by  disposing  of  properties  and  distributing  to
Shareholders cash or other securities then being actively traded.  However,  the
Company is under no  obligation to take any of the  foregoing  actions,  and any
such action, if taken, might be taken after the referenced three-year period.

     At such  time as the  Company,  acting  through  its  Board  of  Directors,
determines that sale of a property is in the best interests of the Company,  the
Company must first offer such  property for sale to  Cornerstone  Realty  Income
Trust,  Inc.  Cornerstone  Realty Income Trust,  Inc. is a Virginia  corporation
which is a public real estate investment trust. Cornerstone Realty Income Trust,
Inc. was founded by Glade M. Knight, who currently serves as the Chairman of the
Board,  President  and a Director  of that  entity.  Mr.  Knight  also serves as
Chairman  of  the  Board,   President  and  a  Director  of  the  Company.   See
"Management-Directors  and Officers." Any such sale of a property by the Company
to Cornerstone Realty Income Trust, Inc. would require the consent of a majority
of both the entire  Board of  Directors  of the  Company  and a majority  of the
Independent Directors of the Company.

     The Company has also agreed with Cornerstone Realty Income Trust, Inc. that
if the Company  proposes the sale or disposition of the Company or substantially
all of its assets,  business or stock (whether such transaction is structured as
a sale,  exchange,  merger,  consolidation,  lease, share exchange or otherwise)
(any such transaction, a "Sale of the Company"), it will first offer Cornerstone
Realty  Income Trust,  Inc. the right to become the acquiring  party in any such
proposed  transaction  before  concluding  the proposed Sale of the Company to a
third party.  As in the case of a sale of an individual  property by the Company
to  Cornerstone  Realty  Income  Trust,  Inc.,  any such Sale of the  Company to
Cornerstone Realty Income Trust, Inc. would require the consent of a majority of
both  the  entire  Board of  Directors  of the  Company  and a  majority  of the
Independent  Directors  of the  Company.  Depending  upon  the  form of any such
transaction, it might also require the consent of Shareholders owning a majority
of the outstanding Shares.

     If the third party offers cash for the property,  assets, stock or business
of the Company,  Cornerstone  Realty  Income  Trust,  Inc. must offer cash if it
wishes  to  exercise  its right of first  refusal.  If the  third  party  offers
property  other  than  cash,  Cornerstone  Realty  Income  Trust,  Inc.  will be
permitted to offer property of a like  character with the same value.  The value
of the property offered by the third party and Cornerstone  Realty Income Trust,
Inc. will be the market value if the property has a readily ascertainable market
value (such as listed stock),  and otherwise will be determined in good faith by
agreement  of the boards of  directors  of the  Company and  Cornerstone  Realty
Income Trust, Inc., or if such boards are unable to agree, by the average of two
appraisals undertaken by two qualified independent  appraisers,  one selected by
each board of directors.

     If the Company  defaults in its obligation to grant to  Cornerstone  Realty
Income  Trust,  Inc.  a first  right to  acquire a  property  or to  become  the
acquiring party in a proposed Sale of the Company, the Company will be obligated
to pay  Cornerstone  Realty Income Trust,  Inc. as  liquidated  and  agreed-upon
damages  cash in the amount of 3% of the  aggregate  consideration  agreed to be
paid for the  property,  assets,  stock or  business  by any third  party in the
transaction  with  respect  to which  there is a breach.  The  presence  of this
liquidated  damages  provision  is  intended,  in part,  to cause the Company to
comply with its agreements  with  Cornerstone  Realty Income Trust,  Inc. rather
than breach such agreements in an effort to conclude a transaction  with a third
party at a higher  price.  However,  the presence of the right of first  refusal
held by Cornerstone  Realty Income Trust,  Inc. with respect to the various sale
or disposition  transactions  which may be sought or proposed by the Company may
materially hamper the Company's ability to obtain the highest possible price for
its properties,  assets, stock or business from a third party. A third party may
be  reluctant  to engage in  negotiations  and due  diligence  with respect to a
possible  purchase or acquisition  transaction  knowing that Cornerstone  Realty
Income Trust, Inc. can


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substitute  itself as purchaser or acquiror at the same purchase or  acquisition
price simply by exercising its right of first refusal. Thus, the presence of the
right of first  refusal may make it difficult for the Company to sell its assets
to anyone  other than  Cornerstone  Realty  Income  Trust,  Inc.  The absence of
competing prospective purchasers could tend to decrease the price the Company is
able to obtain for its assets.  Although the  requirement  for the approval of a
majority of the Independent Directors of the Company is intended to overcome any
potential  conflict  of  interest  which  might be  involved in any such sale to
Cornerstone  Realty Income Trust, Inc., there can be no assurance that a sale by
the  Company to  Cornerstone  Realty  Income  Trust,  Inc.  would be on terms as
favorable  as a sale by the  Company  to a third  party,  since  there may be no
alternative to selling assets to Cornerstone Realty Income Trust, Inc.

     Unless  required to maintain  REIT  status,  the Company does not intend to
borrow or refinance to make  distributions.  Although not  anticipated,  in some
cases it might be  advantageous  for the Company to incur mortgage  indebtedness
on, or finance or  refinance,  a property  to further the  Company's  investment
objectives.  If the original  mortgage  indebtedness,  if any, on a property has
been  significantly  reduced  and/or  if a  particular  property  has  increased
substantially   in  value,   then   financing   (or   refinancing   of  existing
indebtedness), if achievable, may permit the Company to realize a portion of the
appreciation in value of the property and retain the property. See "Risk Factors
- -- Real Property  Investment Risks -- Possible  Borrowing;  Debt Financing May
Reduce Cash Flow and Increase Risk of Default."

     Under its  Property  Acquisition/Disposition  Agreement  with the  Company,
Apple Realty  Group,  Inc.,  an Affiliate of the Advisor,  may receive a 2% real
estate  commission  upon each sale by the  Company of a property.  Apple  Realty
Group,  Inc. will not be entitled to any  disposition  fee in connection  with a
sale of a property by the Company to  Cornerstone  Realty Income Trust,  Inc. or
any Affiliate of Apple Realty Group,  Inc., but will be reimbursed for its costs
in marketing such property.  See "Investment Objectives and Policies -- Sale and
Refinancing  Policies" for a discussion of the possibility  that properties will
be sold by the Company to Cornerstone Realty Income Trust, Inc.

     It is also possible that Apple Realty  Group,  Inc., or an Affiliate,  will
render services, and receive compensation, in connection with Company financings
and refinancings, although there are no specific agreements for such services as
of the date of this Prospectus.  See "The Advisor and Affiliates -- Apple Realty
Group, Inc."

CHANGES IN OBJECTIVES AND POLICIES

     Subject to the limitations in the Articles of Incorporation, the Bylaws and
the Virginia Stock  Corporation Act, the powers of the Company will be exercised
by or under the  authority  of, and the business and affairs of the Company will
be controlled  by, the Board of Directors.  The Board of Directors  also has the
right and power to  establish  policies  concerning  investments  and the right,
power and  obligation  to monitor  the  procedures,  investment  operations  and
performance of the Company.

     In general,  the  Articles of  Incorporation  and the Bylaws can be amended
only with the affirmative  vote of a majority of the outstanding  Common Shares,
except that the Bylaws may be amended by the  Directors  if  necessary to comply
with  the  REIT  provisions  of the  Code  or with  other  applicable  laws  and
regulations.  The Bylaws contain  certain  restrictions on the activities of the
Company and prohibit the Company from engaging in certain activities. See "Types
of Investments."

     Within  the  express  restrictions  and  prohibitions  of the  Bylaws,  the
Articles of Incorporation  and applicable law,  however,  the Board of Directors
has significant  discretion to modify the investment  objectives and policies of
the Company, as stated in this Prospectus.  The Company has no present intention
to modify any of such investment objectives and policies,  and it is anticipated
that any such  modification  would occur only if business and  economic  factors
affecting  the Company  made the  Company's  stated  investment  objectives  and
policies  unworkable  or  imprudent.  By way of  illustration  only,  owing to a
significant change in economic conditions, the Board of Directors could elect to
acquire apartment  communities  outside of Texas and the southwestern  region of
the United States,  or to acquire one or more commercial  properties in addition
to residential properties.

     Thus,  while this  Prospectus  accurately  and fully  discloses the current
investment objectives and policies of the Company, prospective Shareholders must
be aware that the Board of  Directors,  acting  consistently



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<PAGE>

with the Company's organizational documents,  applicable law and their fiduciary
obligations,  may elect to modify or expand such  objectives  and policies  from
time to time. Any such action by the Board of Directors  would be based upon the
perceived best interests of the Company and the Shareholders.




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