You can access it via this Link.

I have not read it yet.

Ray 

A few extracts.

  Management believes that the full economic effect of the recent economic deterioration has yet to fully impact real estate markets and, while economic conditions are likely to weaken further, commercial real estate market fundamentals should remain stable to slightly declining in the near term. Management believes that the likelihood of ongoing negative pressures on markets remain high in the near term. At the same time current commercial real estate fundamentals are, for the most part, in solid shape, and therefore suggest a capacity to weather these pressures. In particular, management believes that commercial real estate net operating income will be bolstered in the near-term as leases are renewed at current market rents that are sharply higher than rents in force when those leases were signed several years ago. While the erosion in employment will dilute the demand for space, the effects should be mitigated by the modest flow of new construction due for delivery over the year ahead. In addition to near-term macroeconomic conditions that impact the supply and demand for commercial real estate, the performance of the Account can also be affected by geopolitical risks, industry or sector slowdowns, and event risk affecting individual properties, tenants, or geographies.

          While management cannot predict the exact nature or timing of such changes or the magnitude of their impact on the Account, our experience has demonstrated that market fluctuations can and will take place without advance notice, and any significant changes could have a direct and meaningful impact on the returns of the Account. Please refer to the section entitled “Item 1A. Risk Factors,” included in the Form 10-K, for a more detailed description of the risks associated with an investment in the Account.

Also the following:

With slow growth or mild recession in the first half of 2008, followed by only a weak rebound in the second half of the year, growth in tenant demand for office, industrial, and retail space will likely slip, rent growth will likely slow or flatten, and vacancy rates will probably inch up. The degree of commercial real estate market weakening will be mitigated by the generally balanced conditions that currently prevail in many if not most metro area markets. In addition, the credit market constraints now in play, combined with the weaker demand outlook, will likely constrain new commercial real estate construction activity into 2009. Constrained additions to supply along with the expected strengthening in economic growth will set the stage for a repair of fundamentals in 2009.

Commercial real estate pricing in the near term will be largely determined by a combination of factors including the level and uncertainty associated with Treasury rates, inflation, and the general pricing of risk across all asset types. Assuming that the period of economic weakness is short-lived, Treasury rates should achieve a cycle low in the first alf of the year and then slowly rebound as the economy recovers, with transitory volatility as inflation expectations ebb and flow. Low Treasury rates should cushion the impact of wider cap rate spreads which, for commercial real estate, are approaching their long-term norms. Additionally, pricing pressures have so far been concentrated on properties that are in less attractive locations or have less attractive investment characteristics. Management believes that such distinctions will continue in light of the ongoing strong investor demand for the most attractive properties. Nonetheless, in light of less available and more expensive commercial mortgage debt, it is possible that the number of investors pursuing commercial real estate will be smaller in 2008 than in prior years, contributing to some easing of pricing pressure across the quality spectrum. There is some evidence of this in the reduction in transaction volume in recent months relative to volumes in the prior three years. At the same time, management believes the quality of commercial mortgage credit is holding up well; delinquency rates remain very low and distressed sales of commercial property are not, at this point, prevalent.

          Management believes that the Account’s property investments are diversified by both sector and geographic location, which will allow it to weather a continued slowdown of economic and real estate market conditions. The Account will continue to balance these fundamentals against pricing pressures when executing its core investment strategy. However, market conditions affecting real estate investments at any given time cannot be predicted, and any downturn in one or a number of the markets in which the Account invests could significantly and adversely impact the Account’s returns.

Under "Performance" this:

After several years of increasing investor demand for commercial real estate and historic price increases, transaction activity almost came to a halt and price appreciation leveled off or slightly declined in some markets during the quarter. Individual property investment value increases have become smaller and the number experiencing declines in values increased, as is evidenced by the Net Realized and Unrealized Gains and Losses on Investments and Mortgage Loans Payable. Real estate is an investment which should be considered from a long term perspective. The Account’s annualized total returns (after expenses) over the past one, three, five and 10 year periods ended March 31, 2008 were 10.16%, 13.63%, 12.19% and 9.65%, respectively. As of March 31, 2008, the Account’s annualized total return since inception was 9.46%.

Ray 

Some interesting stuff, Ray--some of which may be new (I'm still in Dallas away from my files).

For example, have we ever seen the "Valuation Hierarchy" on pages 7-8?  I don't recall the investments separated into three levels. 

Not surprisingly, premiums and transfers to the Account have slowed year over year. Net unrealized losses are real, but modest.

The Account still holds nearly 20% in marketable securities.  REITS still down around 2% and all fixed income paper is very, very short term.

In terms of liquidity, the Account now holds $3.58 billion vs. $1.98 billion a year ago.

Mortgage loans payable are $1,426,620,000 out of Total Assets of $17,451,335,000.

I recommend going to page 50--the section on "Liquidity and Capital Resources."

This listing of "market risk sensitive instruments" (19.35% of the Account) may be a new category, but I'm not sure.

Thanks again, Ray, for posting the link.  Bob U. 

Edit: tried to add some zeroes to loans payable and total assets but it appears not to have taken. 

I read the material on p. 50 and it talks about the net outflow of capital from the Account and it say this about it: "Management believes that the recent net negative outflow may be a reflection of investor concerns with possible effects of the weakening economy and turmoil in capital markets and real estate capital markets in particular."

If the experience of the active posters to this forum with sizable investments in the REA are  characteristic of investor behavior (highly unlikely?) than I would say the 2nd quarter will see a larger net outflow but as the entire 10-Q seems to say, it all depends on what will happen in the future. Still I see more net outflows but this does not worry me at all. As for the reason I can't disagree with the above statement but I think they by-passed the most obvious reason - the virtual stagnation of the Account in Q1. But as that is probably a product of the factors they mention above, I really can't disagree with them.

Right now, oil prices and the effect on consumer spending being ignored (I am not saying one should ignore these!) the markets seem to be predicting an up-turn in economic activity for the 2nd half of the year as the FED suggested. I don't think that would be immediately translated into a substantial improvement in the performance of the REA as I believe the commercial real estate market will lag the up-turn (if it materializes). But I would agree, the Account should rebound in 2009 as it did once before. 

Ray