Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[   ] YES     [X] NO

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

[   ] YES    [X] NO

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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.

[X] YES    [   ] NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

[X] YES    [   ] YES    [X] NO

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

[   ] YES    [X] NO

The registrant’s limited partnership units are not publicly traded and therefore have no market value.

Portions of the Prospectus, dated August 4, 2005, and Supplement No. 6 dated April 28, 2008, included as part of the Post Effective Amendment No. 8 to the Registration Statement on Form S-11 (SEC File No. 333-125629) are incorporated in the following sections of this report:

Certain statements in this Report on Form 10-K which are not historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended, including statements regarding the partnership’s expectations, hopes, intentions, beliefs and strategies regarding the future. Forward-looking statements include statements regarding future interest rates and economic conditions and their effect on the partnership and its assets, trends in the California real estate market, estimates as to the allowance for loan losses, estimates of future limited partner withdrawals, 20102013 annualized yield estimates, additional foreclosures in 2010,2013, expectations regarding the level of loan delinquencies, plans to devel opdevelop certain properties, beliefs relating to the impact on the partnership from current economic conditions and trends in the financial and credit markets, expectations as to when liquidations will resume, or how long reduced earnings distributions will be in effect, beliefs regarding the partnership’s ability to recover its investment in certain properties, beliefs regarding the effect of borrower foreclosures on liquidity, the use of excess cash flow and the intention not to sell the partnership’s loan portfolio. Actual results may be materially different from what is projected by such forward-looking statements. Factors that might cause such a difference include unexpected changes in economic conditions and interest rates, the impact of competition and competitive pricing and downturns in the real estate markets in which the partnership has made loans. All forward-looking statements and reasons why results may differ included in this Form 10-K are made as of the d atedate hereof, and we assume no obligation to update any such forward-looking statement or reason why actual results may differ.

Redwood Mortgage Investors VIII, is a California Limited Partnership, (“RMI VIII” or the “partnership”) was organized in 1993, which makes1993. The general partners of the partnership are Redwood Mortgage Corp. (“RMC”) and its wholly-owned subsidiary, Gymno LLC (“Gymno”), a California limited liability company, and Michael R. Burwell (“Burwell”), an individual. The partnership was organized to engage in business as a mortgage lender for the primary purpose of making loans secured primarily by first and second deeds of trust on California real property.estate. Loans are being arranged and serviced by RMC. Michael R. Burwell Gymno Corporationis the president and Redwood Mortgage Corp. (RMC), both California Corporations,majority shareholder (through his holdings and beneficial interests in certain trusts) of RMC. The general partners are solely responsible for partnership business, subject to the voting rights of the limited partners on specified matters. Any one of the general partners ofacting alone has the power and authority to act for and bind the partnership. The addressgeneral partners are required to contribute to capital 1/10 of 1% of the aggregate capital contributions of the limited partners. As of December 31, 2012, the general partners had contributed capital in accordance with Section 4.1 of the partnership agreement.

The rights, duties and powers of the general and limited partners is 900 Veterans Blvd., Suite 500, Redwood City, California 94063.

The general partners are solely responsible for managing the partnership business, subject to the rights of the limited partners to vote on specified matters. Any one of the general partners acting alone has the power and authority to act for and bind the partnership. A majority of the outstanding limited partnership interests may, without the consent of the general partners, vote to: (i) terminate the partnership, (ii) amend the limited partnership agreement, (iii) approve or disapprove the sale of all or substantially all of the assets of the partnership and (iv) remove or replace one or all of the general partners. The approval of the majority of limited partners is required to elect a new general partner to continue the partnership business where there is no remaining general partner after a general partner ce asesceases to be a general partner other than by removal.

Profits and losses are allocated among the limited partners according to their respective capital accounts monthly after 1% of the profits and losses are allocated to and among the general partners. The allocation to the general partners (combined) may not exceed 1%. The limited partners elect, at the time of their subscription for units, to (a) receive a monthly, quarterly or annual cash distributions of their pro-rata share of profits or (b) have earningsprofits credited to their capital accounts and used to invest in partnership activities. The election to receive cash distributions is irrevocable. Subject to certain limitations, a compounding investor may subsequently change his election. Monthly results are subject to subsequent adjustment as a result of quarterly and year-end accounting and reporting. I ncomeIncome taxes – federal and state -– are the obligation of the partners, if and when income taxes apply, other than for the minimum annual California franchise tax paid by the partnership. Investors should not expect the partnership to provide tax benefits of the type commonly associated with limited partnership tax shelter investments.

There are substantial restrictions on transferability of units and accordingly an investment in the partnership is non-liquid. Limited partners have no right to withdraw from the partnership or to obtain the return of their capital account for at least one year from the date of purchase of partnership units. In order to provide a certain degree of liquidity to the limited partners after the one-year period, limited partners may withdraw all or part of their capital accounts from the partnership in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty. The 10% penalty is applicable to the amount withdrawn as stated in the notice of withdrawal and will be deducted from the capital accou nt.account. Once a limited partner has been in the partnership for the minimum five-year period, no penalty is imposed if the withdrawal is made in twenty quarterly installments or longer. Notwithstanding the minimum withdrawal period, the general partners, at their discretion, may liquidate all or part of a limited partner’s capital account in four quarterly installments beginning on the last day of the calendar quarter following the quarter in which the notice of withdrawal is given, subject to a 10% early withdrawal penalty applicable to any sums withdrawn prior to when such sums could have been withdrawn without penalty.

The partnership does not establish a reserve from which to fund withdrawals and, accordingly, the partnership’s capacity to return a limited partner’s capital account is restricted to the availability of partnership cash flow. Furthermore, no more than 20% of the total limited partners’ capital accounts outstanding at the beginning of any year may be liquidated during any calendar year.

The partnership’s primary purposeobjectives are to make investments which will:

The partnership is to invest its capitalengaged in the business of making loans with first and second deeds of trust on real property located in California, including:

As of December 31, 2012, of the partnership’s outstanding loan portfolio, 76% is secured by California properties.1 to 4 unit single family residences, inclusive of condominiums, 19% by commercial properties, 4% by multifamily properties and 1% by undeveloped land. The partnership’s objectivespartnership may also make loans secured by promissory notes which are secured by deeds of trust and are assigned to make investments which will: (i) provide the maximum possible cash returns (ii) preserve and protect the partnership’s capital.  partnership.

Loans are arranged and serviced by RMC.RMC, one of the general partners. The cash flow and the income generated by the real property securing the loan factor into the credit decisions, as does the general creditworthiness, experience and reputation of the borrower. SuchFor loans secured by real property used commercially, such considerations though are subordinate to a determination that the value of the real property is sufficient, in and of itself, as a source of repayment. The amount of the partnership’sour loan combined with the outstanding debt and claims secured by a senior deed of trust on the real property generally will not exceed a specified percentage of the appraised value of the property (the loan to value ratio or LTV) as determined by an independent written appraisal at the time the loan is made. The loan-to-value ratio generally will not exceed 80% for residential properties (including apartments)multi-family), 70% for commercial properties, and 50% for land. The excess of the value of the collateral securing the loan over the total debt owing on the property, including the partnership’s loan, is the “protective equity”.

We believe our LTV policy gives more potential protective equity than competing lenders who fund loans with a higher LTV. However, we may be viewed as an “asset” lender based on our emphasis on LTV in our underwriting process. Being an “asset” lender may increase the likelihood of payment defaults by borrowers. Accordingly, the partnership may have a higher level of loan-payment delinquency and loans designated as impaired for financial reporting purposes than that of lenders, such as banks and other financial institutions subject to federal and state banking regulations, which are typically viewed as “credit” lenders.

Recently enacted federal legislation impacts the valuelending to non-commercial residential borrowers by requiring the lender to consider a borrower’s ability to meet payment obligations specified in the loan documents. The Dodd-Frank Act imposes significant new regulatory restrictions on the origination of residential mortgage loans, under sections concerning "Mortgage Reform and Anti-Predatory Lending." For example, these provisions require that when a consumer loan is made, the lender must make a reasonable and good faith determination, based on verified and documented information concerning the consumer’s financial situation, whether the consumer has a reasonable ability to repay a residential mortgage loan before extending the loan. The Act calls for regulations prohibiting a creditor from extending credit to a consumer secured by a high-cost mortgage without first receiving certification from an independent counselor approved by a government agency. The Act also adds new provisions prohibiting balloon payments for defined high cost mortgages. The general partners are monitoring developments and, if and when applicable will adjust underwriting and lending practices accordingly. Residential lending on owner occupied properties that would be subject to the legislation and regulations generally has not been a significant portion of the collateral isloans made by the protective equity. The partnership’s lending and investment guidelines and criteria are more fully described under the section entitled “Investment Objectives and Criteria”, on pages 40-44 of the Prospectus, a part of the above-referenced Registration Statement, which is incorporated herein by reference.general partners.

The fallout and impactcombination of this virtualgeneral economic conditions of low growth with continuing high unemployment following the 2008 financial seizure in late 2008 began to assert their effects in 2009.  Some of the areas that saw affect were bank failures, further credit availability reductions, further real estate value reductions, continued loan delinquencies and increased foreclosures.  During 2009, 140 banks failed and were taken over by the FDIC.  Continuing in 2010, 30 banks failed through March 15, 2010.  Credit, one of the necessary components of a functioning economic system, virtually ceased to existcrisis and the financial system became illiquid.  Real estate, already suffering from record loan delinquencies and reductions in values throughout late 2007 and 2008, is a heavy user of credit.  Asresultant Great Recession, the capitalconstrained credit markets, constricted and then almost ceased financing for real estate became ever more un available.  This magnified the weaknesses in the already difficultdistressed real estate markets, and caused further uncertainty, difficulty in completing transactions, increased loan delinquencies,the terms and helped cause further real estate value reductions.  Without available real estate credit, owners of real estate could not efficiently sell or refinance property, as underwriting standards materially continued to evolve, tighten and reduce the types of qualifying properties borrower standard that are deemed acceptable risks. In many cases, all cash transactions were necessary to complete a purchase.

As to the balance sheet of the partnership subsequent to the financial crisis and during the Great Recession, the asset mix has migrated from predominantly performing loans to Real Estate Owned (REO) and impaired loans. Total assets, the sum of all assets owned by the partnership, decreased from $424,873,000 at December 31, 2008, to $247,775,000 at December 31, 2012 (a decline of $177,098,000 or 42%). Net loans, the total of loan principal, advances, accrued interest, and unsecured loans, less the allowance for losses, declined over the same dates from $386,589,000 to $46,380,000, respectively (a decline of $340,209,000 or 88%) resulting from a wide varietydecrease in loan balances (principal declined from $363,037,000 at December 31, 2008, to $60,870,000 at December 31, 2012) and an increase in the allowance for loan losses (from $11,420,000 at December 31, 2008, to $19,815,000 at December 31, 2012). This reduction in loan balances reflected the decline during 2009 to 2011 in the fair value of lending programs which has significantly reduced the number of potential borrowers for both residential and commercial properties that may qualify for loans.  Increased lending standards have led to reduced potential viable purchasers of real estate in some cases only all cash buyerscollateral securing impaired loans, the repayment of loans, and the migration of loans to REO. REO increased from $25,693,000 at vulture prices.  InDecember 31, 2008, to $181,333,000 at December 31, 2012, as a consequence of the loan collection efforts undertaken by the general this contributes to a reduced demand for real estate and a real estate market that lacks solid markers to value due to distressed sales which may dominate markets or skew market indicators of value.partners.

The economic downturn continuesCash received from loan payments, loan payoffs, the sale of real estate owned and third-party mortgages obtained on stabilized properties that we own and are included in REO was predominantly used to impactpay down the United Statesamount outstanding on the bank loan, to make the periodic interest and California’s unemployment figures.  Unemployment forprincipal payments on the nation had risenloan, to 6.9 percent byprotect the end of 2008, and continued to rise during 2009.  Average national unemployment rose to 8.2 percent during the first quarter of 2009, then to 9.3 percentsecurity interest in the second quarter, 9.7 percent incollateral securing the third quarter,loans from senior debt and claims, to maintain and develop REO, to meet the operating expenses of the partnership, and to 10.0 percent as of December 2009. By the end of 2009, national unemployment was at the highest level in over 25 years. California’s unemployment mirrored the nation with unemployment rising significantly throughout 2008fund periodic payments to limited partners that elected monthly, quarterly and 2009.  California’s unemployment rate began 2009 at 9.2 percent and ended the year at 12.3 percent.  The California unemployment rate is the highest it has been since the Bureau of Labor Statistics started ke eping records in 1976; in many areas within the state, unemployment rates are at their highest levels since the Great Depression.  These figures do not include the underemployed, where a worker is either employed below their skill level, forced to work part time, or unproductive due to overstaffing.  According to some estimates, up to 20 percent of the nation’s labor force may be underemployed, meaning they are contributing less to the nation’s productivity and spending less because of reduced income and uncertainty about their employment situation.  Overall, the rapid rise in unemployment has caused significant concerns among workers regarding their job security and lowered their confidence in their own financial circumstances.  In situations where workers have lost jobs they may not be able to meet their financial obligations.annual distributions.

In reaction toSeptember 2012, the economic distress and uncertainty,partnership paid all remaining amounts owing under the consumer has become pessimistic.Bank Loan. The Consumer Confidence Index is a measure of consumers’ optimism about the state of the economy.  Generally consumer confidence is high when the unemployment rate is low and GDP growth is high; consumers are also more likely to spend when confidence is high.  The Index is benchmarkedBank Loan balance was $16,789,000, at 100, meaning at that level the consumer is neither optimistic nor pessimistic.  At the start of 2008, consumer confidence index was at 87.3. By December 2008, the index dropped to 38.6 before hitting a record low in February 2009 at 25.3.  Confidence has since rebounded slightly and has ranged from the mid to upper 40s to mid 50s from May 2009 through February 2010.31, 2011.

The mortgage lending business is highly competitive, and the partnership will compete with numerous established entities, some of which have more financial resources and experience in the mortgage lending business. Major competitors in providing mortgage loans include banks, savings and loan associations, thrifts, conduit lenders, mortgage bankers, mortgage brokers, and other entities both larger and smaller than the partnership.  Increased competition

During the last several years many competitors, due to declines in real estate values, increases in loan delinquencies, foreclosures and/or liquidity issues have reduced or eliminated their real estate lending activity. Additionally, the declines in real estate values coupled with reduced overall sales and refinancing activity reduced the overall demand for mortgageloans. With the substantial real estate valuation declines that have taken place over the last several years far fewer borrowers have the ability to provide adequate security to back their loan requests. Competition from other lenders has declined with fewer active lenders in the market although less qualified loan demand exists. The partnership has not been able to capitalize on the reduction in lenders as it has experienced less available cash to invest in new loans could leaddue to reduced yieldsloan payoffs, increased acquisition of real estate owned, and fewer investment opportunities.

The recent credit crisis has led to an increased focus by federal, state and local legislators and regulatory authorities on entities engaged in the financial-services industry generally, principally banks, and on the mortgage industry.  Federal and state regulators are considering aindustry specifically, principally with respect to residential lending to borrowers who intend to occupy the residence. A broad variety of legislative and regulatory proposals coveringare continually being considered and such proposals cover mortgage loan products, loan terms and underwriting standards, risk management practices, foreclosure procedures and consumer protection, any or all of which could have a broader impact acrosssignificantly affect the mortgage industry.  In addition, the U.S. economy is currently experiencing a prolonged and severe recession, which has and will likely continue to cause increased delinquencies, continued home price depreciation and lower home sales.  In response to these trends, the U.S. government has taken several actions which are intended to stabilize the housing market and the banking system, maintain lower interest ra tes, and increase liquidity for lending institutions. These actions are intended to make it easierpossible for qualified borrowers to obtain mortgage financing or to purchase homes, refinance existing loans, avoid foreclosure on their current homes.homes, and to curb perceived lending abuses. It is too early to tell whether these legislative and regulatory initiatives, actions and proposals will achieve their intended effect or what impacthow they will have onaffect our business and the mortgage industry generally.

The San Francisco Bay Area, including the impositionSouth Bay/Silicon Valley, and the Los Angeles metropolitan area are our most significant locations of waiting periodslending activity and the economic vitality of these regions – as well as the performance of the national economy and the financial markets – is of primary importance in determining the availability of new lending opportunities and the performance of previously made loans and operating properties owned.

Commentators have confirmed this trend in recognizing the housing market finally might have turned the long-awaited corner in 2012.  As the Wells Fargo Economics Group Housing Chartbook: January 2013 states “The housing recovery finally asserted itself in 2012, with nearly every key metric posting measurable improvement from prior years.  Sales and prices both rebounded solidly this past year, and new home construction steadily gained momentum over the course of the year.  Progress has been made in dealing with the imbalances left over from the housing boom.  The share of delinquent loans has decreased, as has the distressed share of existing home sales and the proportion of mortgages in a negative equity position.  However, important questions remain as to how large a role investor purchases have played in stabilizing home prices; how much credit availability has truly improved; and, what the government’s role in mortgage finance will ultimately be.”

This being the case, cautious optimism remains the order of the day, as pricing levels and market activity continue to trend positively, but only time will tell whether this improvement is a result of sustainable economic improvement or short-term opportunism. As the Wells Housing Chartbook of January 2013 further recognizes, “Sales of new homes rose 19.9 percent to 367,000, while sales of existing homes, condominiums and townhomes rose 9.2 percent to 4.65 million homes. But some of the stabilization in home prices is undeniably tied to the filinginflux of noticesinvestors that have come in and purchased homes, many for cash.”

Properties generally are acquired by foreclosure on impaired loans, and may be classified as “real estate held for sale” or “real estate held as investment”. Several factors are consideredSee Notes 5 (Real Estate Held for Sale) and 6 (Real Estate Held as Investment) to the financial statements included in determiningPart II, Item 8 of this report for a detailed presentation of the classification of owned properties and include, but are not limited to, properties/real estate market conditions, status of any required permits, repair, improvement or development work to be completed, rental and lease income and investment potential.  Real estate owned (“REO”), which presentation is classified as held for sale in the period in which the criteria are met in accordance with U.S. generally accepted accounting principles (GAAP).  As a property’s status changes, reclassifications may occur.incorporated by this reference into this Item 2.

In the normal course of business, the partnership may become involved in various legal proceedings such as assignment of rents, bankruptcy proceedings, appointment of receivers, unlawful detainers, judicial foreclosure, etc., to enforce the provisions of the deeds of trust, collect the debt owed under the promissory notes, or to protect, or recoup its investment from the real property secured by the deeds of trust and to resolve disputes between borrowers, lenders, lien holders and mechanics. None of these actions typically would be of any material importance. As of the date hereof, the partnership is not involved in any legal proceedings other than those that would be considered part of the normal course of business.

There is no established public trading market for the units, and we do not anticipate that one will develop.

The partnership’s sixth offeringAs of 100,000,000 units at $1 each (minimum purchaseDecember 31, 2012, approximately 8,200 limited partners had an aggregate capital balance set forth in the consolidated Balance Sheet included in Item 8 of 2,000 units) was completed on November 19, 2008 ($200,000,000 in units were previously offered and sold through separate offerings) through broker-dealer member firmsthis report. A description of the Financial Industry Regulatory Agency (FINRA)units, transfer restrictions and withdrawal provisions is described under the section of the prospectus entitled “Description of Units” and “Summary of Limited Partnership Agreement,” on pages 81 through 84 of the prospectus, a “best efforts” basis.  Investorspart of the referenced registration statement, which is incorporated herein by reference, and which pages are included in Exhibit 99.1 to this report.

Partners have the option of withdrawing earningsto elect to have distributed to them amounts equal to current-period profits on a monthly, quarterly, or annual basis or to elect compounding the earnings.profits by foregoing the distribution to them of current-period profits. Limited partners may withdraw from the partnership in accordance with the terms of the limited partnership agreement subject to possible early withdrawal penalties.  There is no established public trading market.  As of December 31, 2009, 7,852 limited partners had an aggregate capital balance of $311,214,000, net of formation loans and syndication costs.

In response to reduced cash flows due to reduced loan payoffs, increased loan delinquencies and increased needs for cash reserves necessary to protect and preserve the partnership’s assets, as of March 16, 2009, the partnership suspended all liquidation payments for withdrawals of limited partners and will not be accepting new liquidationwithdrawal requests until further notice, and innotice. In March 2009 earningscash distributions were also reduced.reduced, and from October 2010 to September 2012, were limited subject to the Amended Bank Agreement.

DuringPlease refer to the years 2007, 2008Statement of Operations in the financial statements and 2009,the Notes thereto included in Part II, Item 8 of this report for information on the 2012 and 2011 net income/(loss)income per $1,000 invested by limited partners, on compounding accounts was $71, 53, and $(67), respectively; such net income/(loss) was credited/(debited) to such limited partners’ capital accounts.  During the years 2007, 2008 and 2009, net income/(loss) per $1,000 investedwhich presentation is incorporated by limited partners on monthly distributing accounts was $69, $52 and $(65) respectively; the 2007 and 2008 net income was paid out as distributions to such limited partners.this reference into this Item 5.

See Notes 1 (General) and expenses during the reported periods.  Such estimates relate principally3 (General Partners and Other Related Parties) to the determinationfinancial statements included in Part II, Item 8 of this report for a detailed presentation of various partnership activities for which the allowance for loan losses,general partners and related parties are compensated, and other related-party transactions, including the valuation of impaired loans, (which itself requires determining the fair value of the collateral), and the valuation of real estate held for sale and held as investment, at acquisition and subsequently.  Actual results could differ significantly from these estimates.formation loan, which presentation is incorporated by this reference into this Item 7.

The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values, and publicly available information on in-market transactions.  Historically, it has been rare for determinations of fair value to be made without substantial reference to current market transactions.  However, in recent years, due to the low levels of real estate transactions, and the rising number of transactions that are distressed (i.e., that are executed by an unwilling seller – often compelled by lenders or other claimants - and/or executed without broad exposure or with market exposure but with few, if any, resulting offers), more interpretation, judgment and interpolation/extrapolation within and across property t ypes is required.

Please refer to the above table and the Statement of Operations in the financial statements included in Part II, Item 8 of this report throughout the discussionsdiscussion of Results of Operations.

The interest on loans decreased for 20092012 and 2011 due to a decrease in the average secured loan portfolio balance, and the decrease in the related average yield rate and(the partnership has modified many of the increase in non-accrualperforming loans resulting in approximately $7,200,000 of foregone (interest notto lower interest rates which reflect current market rates). Foregone interest (not recorded for financial reporting purposes on loans designated asnon-accrual status) in non-accrual status)interest in 2009 compared to none for 2008.  The increase in interest on loans for 20082012, 2011, and 2010, was due to an increase in the average secured loan balance offset by a decrease in the average yield rate.approximately $4,199,000, $11,600,000 and $14,300,000, respectively.  The table below recaps the yearly averages and the effect of the foregone interest on the average yield rate ($ in thousands).

The increases in the provision for loan losses in 20092011 and 2008 resulted from corresponding increasesprior years was primarily related to the allowancesrapidly declining values of real estate, which adversely impacted the value of the collateral securing our loans.  These loans became collateral dependent (see Note 2 of the financial statements) as a result of borrower defaults during the financial crisis/Great Recession.  The number of borrower defaults declined in 2012, in correlation to the reduction in the number and amount of loans outstanding declined and the aforementioned stabilization in real estate values.

The table below summarizes the rental operations, for the year ended December 31, 2009 ($ in thousands):

The partnership may restructure loansrental operations overall experienced a 23% growth in 2012 in rental income and a 35% growth in net operating income (NOI).  Growth was particularly strong in the multi-family portfolio which are delinquent or past maturity.  Thisat December 31, 2012 is done either throughcomprised of 15 properties (668 rental units).  During 2012 the modificationtop five rental properties in terms of an existing loan or by re-writing a whole new loan.  It could involve, among other changes, an extensionNOI (3 in maturity date, a reductionNorthern California and 2 in repayment amount, a reduction in interest rate or granting an additional loan.  Six troubled debt loans were restructured in 2008 resulting in a lossSouthern California, four multi-family and one commercial) accounted for 75% of $2,482,000 which was offset against the loan loss reserve. During 2009,total rental income, 68% of the partnership restructured 22 loans resulting in a losstotal operating expenses, and 82% of $604,000 which was offset against the allowance for loan losses.total NOI.

The partnership relies upon loan payoffs, borrowers’ mortgage payments, the partnership’s line of creditsale and salefinancing of real estate owned and to a lesser degree, retention of income when profitable for the source of funds for new loans.  Recently, mortgage interest rates have decreased somewhat from those available at the inception of the partnership.  If interest rates were to increase substantially, the yield of the partnership’s loans may provide lower yields than other comparable debt-related investments.  Additionally, since

In September 2012, the partnership has made primarily fixed rate loans, if interest rates were to rise,paid the likely result would be a slower prepayment rate forremaining amount owing under the partnership.  This could cause a lower degree of liquidity as well as a slowdown in the ability of the partnership to invest in loans at the then current interest rates.  Conversely, in the event interest rates were to decline, the partnership could experience significant borrower prepayments, which, if the partnership can only obtain the then existing lower rates of interest may cause a dilution of the partnership’s yield on loans, thereby lowering the partnership’s overall yield to the limited partners.  Cash is generated from borrower payments of interest, principal, loan payoffs and from the partnership’s sale of real estate owned properties.

At the time of their subscription to the partnership, limited partners must elect either to receive monthly, quarterly or annual cash distributions from the partnership, or to compound earningsprofits in their capital account. If an investor initially elects to receive monthly, quarterly or annual distributions, such election, once made, is irrevocable. If the investor initially elects to compound earningsprofits in his/hertheir capital account, in lieu of cash distributions, the investor may, after three (3) years, change the election and receive monthly, quarterly or annual cash distributions. EarningsProfits allocable to limited partners, who elect to compound earningsprofits in their capital account, will be retained by the partnership for making further loans or for other proper partnership purposes and such amounts will be added to such limited partners’ capital accounts. The percent of limited partnershipspartners electing distribution of allocated net income, if any, by weighted average to total partners’ capital was 45%56% for 2009, 41%2012, 54% for 20082011 and 39%50% for 2007.2010. In 2009, $4,898,0002012 and 2011, $2,459,000 and $2,688,000, respectively, was distributed to limited partners based on estimated net income; as the full year results of operations was a net loss, these amounts distributed were therefore a return of capital.

The partnership is unable to predict when liquidations will resume or distributions will increase, as it will depend on itsthe ability to collect monies due from borrowers and to dispose of real estate owned, or to receive net rental income from real estate owned, and on the improvement of general economic and capital market conditions and recovery of the real estate market. However, it is anticipated that liquidations will not resume for the remainder of 2010.  In the event the current economic downturn worsens, the disruption in the credit markets is prolonged, or liquidity in the partnership is otherwise further restricted, liquidations will continue to be suspended.2013.  For the foreseeable future, the partnership intends to utilize available cash flows to implementfund its normalbusiness operations, protect its security interests in properties, make real estate loans, and maintain its real estate holdings, and make pay down amounts due under its line of credit.owned. It is anticipated liquidation payments will resume only when the partnership’s cash flows improve to levels that enable the partnership to accomplish these objectives.resume lending business operations, provide consistent profitability, and the economy and the real estate and capital markets stabilize and return to normal levels of activity.

Similarly, the partnership does not currently anticipate an increase in distribution amounts for the remainder of the year.  If borrowers continue to default on their loan obligations, if the partnership’s needs for cash increase substantially, or if income flows into the partnership decrease, then distributions could be reduced further or even suspended.in 2013.  As with the recovery of the real estate market and the economy generally, it is anticipated rebuilding earningsprofits and cash flows will be a slow process. It is not anticipated limited partners will see a quick or large increase in the earningsprofits or distributions. Rather, such increases, if any, are anticipated to grow slowly over time as the economy and the state of the partnership improves.

In some cases in order to satisfy broker-dealers and other reporting requirements, the general partners have valued the limited partners’ interest in the partnership on a basis which utilizes a per unit system of calculation, rather than based upon the investors’ capital account. This information has been reported in this manner in order to allow the partnership to integrate with certain software used by the broker-dealers and other reporting entities. In those cases, the partnership will report to broker-dealers, trust companies and others a “reporting” number of units based upon a $1.00 per unit calculation. The number of reporting units provided will be calculated based upon the limited partner’s capital account value divided by $1.00. Each investor’s ca pitalcapital account balance is set forth periodically on the partnership account statement provided to investors. The reporting units are solely for broker-dealers requiring such information for their software programs and do not reflect actual units owned by a limited partner or the limited partners’ right or interest in cash flow or any other economic benefit in the partnership. Each investor’s capital account balance is set forth periodically on the partnership account statement provided to investors. The amount of partnership earningsprofits each investor is entitled to receive is determined by the ratio each investor’s capital account bears to the total amount of all investor capital accounts then outstanding. The capital account balance of each investor should be included on any FINRA member client account statement in providing a per unit estimated value of the client’s investment in the partnership in accordance with NASD Rule 2340.

While the general partners have set an estimated value for the Units, such determination may not be representative of the ultimate price realized by an investor for such Units upon sale. No public trading market exists for the Units and none is likely to develop. Thus, there is no certainty the Units can be sold at a price equal to the stated value of the capital account. Furthermore, the ability of an investor to liquidate his or her investment is limited subject to certain liquidation rights provided by the partnership, which may include early withdrawal penalties (See the section of the Prospectus entitled “Risk Factors -– Purchase of Units is a long term investment”).