U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

Commission File Number 333-63656

CORNERSTONE REALTY FUND, LLC

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

California		33-0827161
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

4590 MACARTHUR BLVD., SUITE 610, NEWPORT BEACH, CALIFORNIA 92660

(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

949-852-1007

(ISSUER’S TELEPHONE NUMBER)

Not Applicable

(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST REPORT)

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

YES ý NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). o Yes ý No

As of August 2, 2004, the Fund had 45,724 units of membership interest issued and outstanding.

PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements


Cornerstone Realty Fund, LLC

Condensed Balance Sheets at June 30, 2004 (unaudited) and December 31, 2003

Condensed Statements of Operations for the Three Months and Six Months ended June 30, 2004 (unaudited) and June 30, 2003 (unaudited)

Condensed Statements of Members’ Capital for the Six Months ended June 30, 2004 (unaudited)

Condensed Statements of Cash Flows for the Six Months ended June 30, 2004 (unaudited) and June 30, 2003 (unaudited)

Notes to Condensed Financial Statements (unaudited)

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED BALANCE SHEETS

	June 30, 2004		December 31, 2003(A)
	(unaudited)
ASSETS
Assets
Cash and cash equivalents	$	5,514,351	$	1,464,206

Investments in real estate
Land	4,539,400		4,539,400
Buildings and improvements, less accumulated depreciation of $228,048 in 2004 and $128,674 in 2003	7,632,357		7,605,000
Intangible asset – in place leases, less accumulated amortization of $70,404 in 2004 and $0 in 2003	97,010		167,414
	12,268,767		12,311,814
Other assets
Tenant and other receivables	45,702		27,297
Receivable from managing member	59,839		59,839
Prepaid insurance	18,227		—
Leasing commissions, less accumulated amortization of $5,378 in 2004 and $1,974 in 2003	25,857		6,912
Office equipment, less accumulated depreciation of $2,854 in 2004 and $2,732 in 2003	—		122
Total assets	$	17,932,743	$	13,870,190

LIABILITIES AND MEMBERS’ CAPITAL
Liabilities
Accounts payable and accrued liabilities	$	81,679	$	89,173
Real estate taxes payable	122,430		115,325
Tenant security deposits	138,550		145,629
Total liabilities	342,659		350,127

Members’ capital (100,000 units authorized, 43,039 units issued and outstanding in 2004 and 33,012 units issued and outstanding in 2003)	17,590,084		13,520,063
	$	17,932,743	$	13,870,190

(A) Derived from the audited financial statements as of December 31, 2003.

The accompanying notes are an integral part of these interim financial statements.

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended June 30,					Six Months Ended June 30,
	2004			2003		2004			2003
				(restated)					(restated)
Revenues
Rental revenues	$	285,583		$	201,943	$	587,375		$	396,310
Amortization of in-place leases	(32,852		)	—		(70,404		)	—
Tenant reimbursements and other income	85,814			43,701		123,076			73,505
Interest, dividends and other income	1,863			1,343		2,206			4,267
	340,408			246,987		642,253			474,082

Expenses
Property operating and maintenance	80,604			30,917		151,262			59,893
Property taxes	61,284			38,436		120,576			76,126
General and administrative	84,212			23,462		117,751			68,789
Interest on advances payable to managing member	—			1,470		—			2,911
Depreciation and amortization	51,389			27,617		102,900			55,316
	277,489			121,902		492,489			263,035

Net income	$	62,919		$	125,085	$	149,764		$	211,047

Net income allocable to managing member	$	6,292		$	12,508	$	14,976		$	21,105

Net income allocable to unitholders	$	56,627		$	112,577	$	134,788		$	189,942

Per unit amounts:
Basic and diluted income allocable to unitholders	$	1.40		$	4.97	$	3.58		$	9.09

Basic and diluted weighted average units outstanding	40,399			22,650		37,606			20,902

The accompanying notes are an integral part of these interim financial statements.

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENT OF MEMBERS’ CAPITAL

(Unaudited)

Balance, December 31, 2003	$	13,520,063

Net proceeds from offering	4,527,670
Distributions to unitholders	(404,873		)
Deferred offering costs repaid to managing member	(202,540		)
Net income	149,764

Balance, June 30, 2004	$	17,590,084

The accompanying notes are an integral part of these interim financial statements.

CORNERSTONE REALTY FUND, LLC

(a California limited liability company)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2004			2003
				(restated)
OPERATING ACTIVITIES
Net Income	$	149,764		$	211,047
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	173,304			55,316
Changes in operating assets and liabilities:
Other assets	(58,981		)	(34,122		)
Accounts payable, accrued liabilities and security deposits	(14,573		)	(99,333		)
Real estate taxes payable	7,105			2,336

Net cash provided by operating activities	256,619			135,244

INVESTING ACTIVITIES
Additions to buildings	(126,731		)	(26,987		)

Net cash used in investing activities	(126,731		)	(26,987		)

FINANCING ACTIVITIES
Advances from managing member	—			3,056
Net proceeds from offering	4,527,670			2,834,465
Distributions to members	(404,873		)	(59,302		)
Deferred offering costs repaid to managing member	(202,540		)	(126,680		)

Net cash provided by financing activities	3,920,257			2,651,539

Net increase in cash	4,050,145			2,759,796

Cash and cash equivalents at beginning of period	1,464,206			1,062,947

Cash and cash equivalents at end of period	$	5,514,351		$	3,822,743

The accompanying notes are an integral part of these interim financial statements.

CORNERSTONE REALTY FUND, LLC

(a California Limited Liability Company)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business

Cornerstone Realty Fund, LLC, a California limited liability company (the “Fund”) (formerly Cornerstone Multi-Tenant Industrial Business Parks Fund, LLC and Cornerstone Industrial Properties Income and Growth Fund I, LLC), was formed on October 28, 1998. The members of the Fund are Cornerstone Industrial Properties, LLC, a California limited liability company, as the Managing Member (“Managing Member”), Terry G. Roussel, an individual, and other various unitholders as described below. The purpose of the Fund is to acquire, operate and sell multi-tenant industrial properties. The Fund currently is issuing and selling in a public offering equity interests (“units”) in the Fund, and is admitting the new unitholders as members of the Fund. As of August 2, 2004, the Fund has issued 45,724 units to unitholders for gross offering proceeds of $22,862,000.

The unaudited condensed financial statements of the Fund have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and in accordance with the rules and regulations of the Securities and Exchange Commission. The condensed financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The condensed financial statements included herein should be read in conjunction with the Fund’s Annual Report on Form 10-K for the year ended December 31, 2003.

The interim condensed financial statements have been prepared in accordance with the Fund’s customary accounting practices. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a presentation in accordance with accounting principles generally accepted in the United States have been included. Operating results for the three and six months ended June 30, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004.

Each member’s liability is limited pursuant to the provisions of the Beverly-Killea Limited Liability Company Act. The term of the Fund shall continue until December 31, 2010, unless terminated sooner pursuant to the operating agreement.

The operating agreement, as amended and restated, provides, among other things, for the following:

The Managing Member generally has complete and exclusive discretion in the management and control of the Fund; however, unitholders holding the majority of all outstanding and issued units have certain specified voting rights which include the removal and replacement of the Managing Member.

Net Cash Flow from Operations, as defined, will be distributed 90% to the unitholders and 10% to the Managing Member until the unitholders have received either an 8% or 12% cumulative, non-compounded annual return on their Invested Capital Contributions, as defined. The 12% return applies to specified early investors for the twelve-month period subsequent to the date of their Invested Capital Contributions and is in lieu of the 8% return during that period.

Net Sales Proceeds, as defined, will be distributed first, 100% to the unitholders in an amount equal to their Invested Capital Contributions; then, 90% to the unitholders and 10% to the Managing Member until the unitholders have received an amount equal to the unpaid balance of their aggregate cumulative, non-compounded annual return on their Invested Capital Contributions; and thereafter, 50% to the unitholders and 50% to the Managing Member.

Net Income, as defined, is allocated first, 10% to the Managing Member and 90% to the unitholders until Net Income allocated equals cumulative Net Losses, as defined, previously allocated in such proportions; second, in proportion to and to the extent of Net Cash Flow from Operations and Net Sales Proceeds previously distributed to the members, exclusive of distributions representing a return of Invested Capital Contributions; and then 50% to the Managing Member and 50% to the unitholders.

Net Loss is allocated first, 50% to the Managing Member and 50% to the unitholders, until Net Loss allocated equals cumulative Net Income previously allocated in such proportions; then remaining Net Loss is allocated 10% to the Managing Member and 90% to the unitholders.

All allocations and distributions to the unitholders are to be pro rata in proportion to their share of the allocations and distributions.

2. Restatement

During the fourth quarter of 2003, the Managing Member reevaluated its practice of charging the Fund interest on unreimbursed offering costs. Accordingly, the Fund has restated its previously issued financial statements.

As a result of the restatement, at June 30, 2004 and December 31, 2003, the Fund has recorded a receivable from the Managing Member of $59,839. The following summarizes the impact of this restatement on net income from amounts previously reported for the three months ended June 30, 2003:

Net income, as previously reported	$	117,661
Adjustment	7,424
Net income, as restated	$	125,085

3. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amount of revenue and expenses during the reporting periods. Actual results could materially differ materially from the estimates in the near term.

Cash and Cash Equivalents

Cash and cash equivalents consist primarily of interest-bearing investments with original maturities of 90 days or less at the date of purchase. Included in cash and cash equivalents at June 30, 2004 is $138,550 related to tenant security deposits.

Investments in Real Estate

Investments in real estate are stated at cost and include land, buildings and building improvements. Expenditures for ordinary maintenance and repairs are expensed to operations as incurred. Significant replacements, betterments and tenant improvements which improve or extend the useful lives of the buildings are capitalized. Depreciation of the buildings and building improvements is computed on a straight-line basis over their estimated useful lives of 39 years. Tenant improvements are depreciated over the shorter of the useful asset life or the related lease term.

The Fund evaluates the carrying value for investments in real estate in accordance with Financial Accounting Standards Board (“FASB”) Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”). FAS 144 requires that when events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable, companies should evaluate the need for an impairment write-down. When an impairment write-down is required, the related assets are adjusted to their estimated fair value.

In June 2001 the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 and No. 142 require the Fund to record at acquisition an intangible asset or liability for the value attributable to in-place leases. The requirements are applicable to all acquisitions subsequent to July 1, 2001. As of June 30, 2004, the Fund has recorded $97,010, net of $70,404 of amortization, as an intangible asset attributable to the value of the leases in place as of the date of acquisition.

Office Equipment and Leasing Commissions

Office equipment is stated at cost and is depreciated on a straight-line basis over the estimated useful lives of the related assets, typically five years. Leasing commissions are stated at cost and amortized on a straight-line basis over the related lease term.

Revenue Recognition

Rental revenues are recorded on an accrual basis as they are earned over the lives of the respective tenant leases on a straight-line basis. Rental receivables are periodically evaluated for collectibility.

Fair Value of Financial Instruments

The Fund believes that the recorded values of all financial instruments approximate their current values.

Income Tax Matters

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

Concentration of Credit Risk

The Fund maintains its cash at banks with federally insured accounts and uninsured money market funds. The amounts are substantially uninsured. No losses have been experienced related to such amounts.

Impact of New Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, as amended in December 2003 (“Interpretation No. 46R”), which applies immediately to arrangements created after January 31, 2003. Interpretation No. 46R applies to arrangements created before February 1, 2003 beginning no later than March 31, 2004. The initial adoption of Interpretation No. 46R did not have a material impact on the Fund’s financial position or results of operations.

4. Investments in Real Estate

On September 27, 2002, the Fund acquired an existing multi-tenant industrial business park known as Normandie Business Center, located in Torrance, California for an investment of $3,901,696. Normandie Business Center consists of two single-story buildings containing a total of 48,711 leasable square feet.

On December 27, 2002, the Fund acquired an existing multi-tenant industrial business park known as the Sky Harbor Business Park, located in Northbrook, Illinois for an investment of $2,553,996. Sky Harbor Business Park consists of a single-story building containing a total of 41,422 leasable square feet.

On December 10, 2003, the Fund acquired an existing multi-tenant industrial park known as Arrow Business Center located in Irwindale, California for an investment of $5,910,579. The property consists of three single-story buildings containing a total of 69,592 leasable square feet.

Industrial space in the properties is generally leased to tenants under lease terms that provide for the tenants to pay increases in operating expenses in excess of specified amounts.

5. Deferred Offering Costs Advanced by Managing Member

Unrecovered offering costs incurred by the Managing Member for the six months ended June 30, 2004 are as follows:

Balance, December 31, 2003	$	595,528
Costs incurred	184,140
Costs paid	(202,540		)

Balance, June 30, 2004	$	577,128

Specific incremental costs in connection with the offering of membership units are incurred by the Managing Member. Reimbursement of such offering costs is limited to 4% of the gross proceeds of the related offerings. Offering costs incurred by the Managing Member in excess of the 4% limitation are deferred, and will be reimbursed from future offering proceeds. Any offering costs incurred by the Managing Member that are not reimbursed by the Fund will be reflected as a capital contribution to the Fund by the Managing Member, with an offsetting expense recognized in the Fund’s statement of operations. Through June 30, 2004, the Managing Member has incurred $577,128 of unrecovered offering costs.

6. Related Party Transactions

In order to fund its initial operating costs, the Fund has received, from its Managing Member, cumulative unsecured advances and related interest totaling $476,227 through December 31, 2003. Through December 31, 2003, the Fund has fully repaid this $476,227.

During the six months ended June 30, 2003, the Managing Member funded $101,079 to the Fund’s unitholders related to a 5% annual return on their Invested Capital Contributions, which will not be reimbursed to the Managing Member by the Fund.

The Managing Member and/or its affiliates are entitled to receive various fees, compensation and reimbursements as specified in the Fund’s operating agreement, including commissions of 9% of the first $3,000,000 of gross proceeds from the offering of units and 7% thereafter, marketing fees of 2% of gross proceeds from the offering of units less $60,000, and expense allowances of 1.5% of gross proceeds from the offering of units. During the six months ended June 30, 2004 and 2003, the total fees, compensation and reimbursements were $535,483 and $332,535, respectively.

The Fund is to reimburse the Managing Member for deferred offering costs incurred by its Managing Member in the amount of 4% of the gross proceeds from the offering of units. During the six months ended June 30, 2004 and 2003, the Fund reimbursed $202,540 and $126,680, respectively, of these costs to the Managing Member.

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

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with the Fund’s financial statements and notes thereto contained elsewhere in this report. Certain statements in this section and elsewhere contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may relate to risks and other factors that may cause the Fund’s future results of operations to be materially different than those expressed or implied herein. Some of these risks and other factors include, but are not limited to: (i) no assurance that Fund properties will continue to experience minimal or no vacancy; (ii) tenants may not be able to meet their financial obligations; (iii) rental revenues from the properties may not be sufficient to meet the Fund’s cash requirements for operations, capital requirements and distributions; (iv) suitable investment properties may not continue to be available; and (v) adverse changes to the general economy may disrupt operations.

Critical Accounting Policies

The Fund’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amount of revenue and expenses during the reporting period. Actual results could differ materially from the estimates in the near term.

Revenue Recognition

Investments in Real Estate

The Fund evaluates the carrying value for investments in real estate in accordance with Financial

Accounting Standards Board (“FASB”) Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”). FAS 144 requires that when events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable, companies should evaluate the need for an impairment write-down. When an impairment write-down is required, the related assets are adjusted to their estimated fair value.

In June 2001 the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 and No. 142 require the Fund to record at acquisition an intangible asset or liability for the value attributable to in-place leases. The requirements are applicable to all acquisitions subsequent to July 1, 2001. As of June 30, 2004, the Fund has recorded $97,010 net of $70,404 of amortization as an intangible asset attributable to the value of the leases in place as of the date of acquisition.

Off-balance Sheet Financings and Liabilities

Other than lease commitments and legal contingencies incurred in the normal course of business, the Fund does not have any off-balance sheet financing arrangements or liabilities. The Fund does not have any majority-owned subsidiaries or any interests in, or relationships with, any special-purpose entities.

Impact of New Accounting Pronouncements

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities, as amended in December 2003 (“Interpretation No. 46R”), which applies immediately to arrangements created after January 31, 2003. Interpretation No. 46R applies to arrangements created before February 1, 2003 beginning no later than March 31, 2004. The initial adoption of Interpretation No. 46R did not have a material impact on the Fund’s financial position or results of operations.

Results of Operations

As of June 30, 2004, the Fund has purchased three multi-tenant industrial business park properties in two different major metropolitan areas. The properties were purchased from the proceeds from the sale of membership units, without debt financing. The properties were purchased in the latter parts of September 2002, December 2002 and December 2003, respectively. As a result of the dates of purchase, Fund operations for 2003 reflect the net income from only two properties. For the three months and six months ended June 30, 2004, Fund operations reflect operations for the three properties purchased.

Three months ended June 30, 2004 and 2003

The Fund’s net income for the three months ended June 30, 2004 and 2003 was $62,919 and $125,085, respectively. Revenue increased from $246,987 to $340,408 . This increase primarily reflects the addition of Arrow Business Center, partially offset by a reduction in occupancy at Sky Harbor Business Park in July of 2003. Property operating and maintenance expenses, and property taxes increased from $69,353 in 2003 to $141,888 in 2004 due to the addition of Arrow Business Center, additional HVAC repair costs and legal expenses regarding tenant rent collection matters at Normandie Business Center. The rent receivable relating to these two tenants is fully reserved at June 30, 2004. Depreciation and amortization increased from $27,617 to $51,389 due to the addition of Arrow Business Center. General and administrative costs increased from $23,462 to $84,212. The majority of this increase is attributable to the additional legal and accounting effort related to the restatement of the Fund’s financial statements included the December 31, 2003 10-K. Most of these costs are not considered recurring.

Six months ended June 30, 2004 and 2003

The Fund’s net income for the six months ended June 30, 2004 and 2003 was $149,764 and $211,047, respectively. Revenue increased from $474,082 to $642,253 . This increase primarily reflects the addition of Arrow Business Center, partially offset by a reduction in occupancy at Sky Harbor Business Park in July of 2003. Property operating and maintenance expenses, and property taxes increased from $136,019 in 2003 to $271,838 in 2004 due to the addition of Arrow Business Center, additional HVAC repair costs and legal expenses regarding tenant rent collection matters at Normandie Business Center incurred in the second quarter. Depreciation and amortization increased from $55,316 to $102,900 due to the addition of Arrow Business Center. General and administrative costs increased from $68,789 to $117,751. The majority of this increase, incurred in the second quarter, is attributable to the additional legal and accounting effort related to the restatement of the Fund’s financial statements included the December 31, 2003 10-K. Most of these costs are not considered recurring.

Liquidity and Capital Resources

As of June 30, 2004, the Fund has received $21,659,500 ($22,862,000 as of August 2, 2004) of gross proceeds from the sale of membership units, and $109,979 as a capital contribution from the Managing Member. As of June 30, 2004, the Fund has $5,514,351 ($6,589,905 at August 2, 2004) in cash and cash equivalents.

The Fund intends to continue offering membership units for sale and use the existing cash balance and net proceeds from the sale of units for the acquisition of additional multi-tenant industrial business park properties, capital improvements to the properties, and for operating expenses and reserves.

The Fund expects to meet its short-term liquidity requirements from net cash generated by operations, which we believe will be adequate to meet operating costs of the properties and the Fund, and allow for cash distributions to the unitholders.

The Fund’s offering and organizational activities have been financed by the Managing Member. A portion of those costs have been reimbursed to the Managing Member at the rate of 4% of gross proceeds of the Fund’s unit sales pursuant to the prospectus for the offering. The Fund will continue to incur organizational and offering expenses and the Managing Member, although not obligated, intends to continue providing advances for offering and organizational expenses until the sale of membership units is completed. The Managing Member must raise funds through the sale of its own debt or equity securities to obtain the cash necessary to provide these advances. There can be no assurance as to the amount or timing of the Managing Member’s receipt of funds. The Fund will not reimburse the Managing Member for any amounts advanced by it for offering and organizational expenses which exceed the amounts and percentages set forth in the prospectus for the offering. Any such expenses incurred by the Managing Member on behalf of the Fund that are not reimbursed by the Fund will be reflected as a capital contribution to the Fund by the Managing Member with an offsetting expense recognized in the Fund’s statement of operations.

Contractual Obligations

As of June 30, 2004, the Fund had no significant contractual obligations or commercial commitments.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Fund invests its cash and cash equivalents in FDIC insured savings accounts which, by their nature, are not subject to interest rate fluctuations.

Item 4. Controls and Procedures

The Fund’s disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that the Fund files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Chief Executive Officer and the Chief Financial Officer of Cornerstone Ventures, Inc., the manager of the managing member of the Fund, have reviewed the effectiveness of the Fund’s disclosure controls and procedures as of the end of the period covered by this report and have concluded that the disclosure controls and procedures are effective. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the last day they were evaluated.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

PART II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32		Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this quarterly report to be signed on its behalf by the undersigned, thereunto duly authorized this 11^th day of August 2004.

CORNERSTONE REALTY FUND, LLC

By:	CORNERSTONE INDUSTRIAL PROPERTIES, LLC
	its Managing Member

	By:	CORNERSTONE VENTURES, INC.
		its Manager

		By:	/s/ Terry G. Roussel
			Terry G. Roussel, President
			(Principal Executive Officer)

		By:	/s/ Gary W. Nielson
			Gary W. Nielson,
			Chief Financial Officer
			(Principal Financial Officer and Principal Accounting Officer)

		/s/ TERRY G. ROUSSEL
	Date: August 11, 2004	Terry G. Roussel
		Chief Executive Officer (Principal Executive Officer) of Cornerstone Ventures, Inc., the Managing Member of Cornerstone Industrial Properties, LLC, the Managing Member of Cornerstone Realty Fund, LLC

	/s/ GARY W. NIELSON
Date: August 11, 2004	Gary W. Nielson
	Chief Financial Officer (Principal Financial Officer) of Cornerstone Ventures, Inc., the Managing Member of Cornerstone Industrial Properties, LLC, the Managing Member of Cornerstone Realty Fund, LLC

	/s/ TERRY G. ROUSSEL
Date: August 11, 2004	Terry G. Roussel
	Chief Executive Officer (Principal Executive Officer) of Cornerstone Ventures, Inc., Managing Member of Cornerstone Industrial Properties, LLC, the Managing Member of Cornerstone Realty Fund, LLC

	/s/ GARY W. NIELSON
Date: August 11, 2004	Gary W. Nielson
	Chief Financial Officer (Principal Financial Officer) of Cornerstone Ventures, Inc., Managing Member of Cornerstone Industrial Properties, LLC, the Managing Member of Cornerstone Realty Fund, LLC