----

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

| £ | TRANSITION      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF      1934 |
|--------|----------------------------------------------------------------------------------------------------|

| CALIFORNIA                                                          | 33-0827161                                |
|---------------------------------------------------------------------|-------------------------------------------|
| (State      or other jurisdiction of incorporation or organization) | (I.R.S.      Employer Identification No.) |
|                                                                |                                      |
| 1920      MAIN STREET, SUITE 400, IRVINE, CA                        | 92614                                     |
| (ADDRESS      OF PRINCIPAL EXECUTIVE OFFICES)                       | (ZIP      CODE)                           |

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| PART I.         | FINANCIAL      INFORMATION                                                                                                              |   |
|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------|--------|
|            |                                                                                                                                    |   |
| Item      1.    | Financial      Statements:                                                                                                              |   |
|            |                                                                                                                                    |   |
|            | Condensed Balance Sheets as of June 30, 2008 (unaudited) and      December 31, 2007                                                     | 3      |
|            |                                                                                                                                    |   |
|            | Condensed Statements of Operations for the Three and Six Months      ended June 30, 2008 (unaudited) and June 30, 2007      (unaudited) | 4      |
|            |                                                                                                                                    |   |
|            | Condensed Statement of Members’ Capital for the Six Months      ended June 30, 2008 (unaudited)                                   | 5      |
|            |                                                                                                                                    |   |
|            | Condensed Statements of Cash Flows for the Six Months ended      June 30, 2008 (unaudited) and June 30, 2007      (unaudited)           | 6      |
|            |                                                                                                                                    |   |
|            | Notes to Condensed Financial Statements      (unaudited)                                                                                | 7      |
|            |                                                                                                                                    |   |
| Item      2.    | Management’s Discussion and Analysis of Financial Condition      and Results of Operations                                        | 10     |
|            |                                                                                                                                    |   |
| Item      3.    | Quantitative and Qualitative Disclosure About Market      Risk                                                                          | 12     |
|            |                                                                                                                                    |   |
| Item      4(T). | Controls and Procedures                                                                                                                 | 12     |
|            |                                                                                                                                    |   |
| PART      II.   | OTHER      INFORMATION                                                                                                                  |   |
|            |                                                                                                                                    |   |
| Item      6.    | Exhibits                                                                                                                                | 13     |
|            |                                                                                                                                    |   |
| SIGNATURES      | 14                                                                                                                                      |

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|                                                                                                                                                                                                                               |   | June 30,      2008 |       |   | December 31,      2007 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------|-----------------------------|--------|
|                                                                                                                                                                                                                               |   | (unaudited)             |       |   | (a)                         |   |
| ASSETS                                                                                                                                                                                                                             |   |                    |       |   |                        |   |
|                                                                                                                                                                                                                               |   |                    |       |   |                        |   |
| Cash      and cash equivalents                                                                                                                                                                                                     |   | $                       | 2,596,000  |   |                        | $      | 4,201,000 |   |
| Investments      in real estate                                                                                                                                                                                                    |   |                    |       |   |                        |   |   |   |
| Land                                                                                                                                                                                                                               |   |                    | 11,779,000 |   |                        |   | 11,779,000 |   |
| Buildings      and improvements, net                                                                                                                                                                                               |   |                    | 21,465,000 |   |                        |   | 21,689,000 |   |
| Intangible      lease assets, net                                                                                                                                                                                                  |   |                    | 403,000    |   |                        |   | 424,000 |   |
| Intangible      in-place lease asset, net                                                                                                                                                                                          |   |                    | 136,000    |   |                        |   | 195,000 |   |
|                                                                                                                                                                                                                               |   |                    | 33,783,000 |   |                        |   | 34,087,000 |   |
|                                                                                                                                                                                                                               |   |                    |       |   |                        |   |   |   |
| Tenant      and other receivables, net                                                                                                                                                                                             |   |                    | 293,000    |   |                        |   | 289,000 |   |
| Prepaid      expenses and other assets                                                                                                                                                                                             |   |                    | 57,000     |   |                        |   | 65,000 |   |
| Leasing      commissions, less accumulated amortization of $336,000 as of June 30,      2008 and $269,000 as of December 31, 2007                                                                                             |   |                    | 189,000    |   |                        |   | 188,000 |   |
|                                                                                                                                                                                                                               |   |                    |       |   |                        |   |   |   |
| Total      assets                                                                                                                                                                                                                  |   | $                       | 36,918,000 |   |                        | $      | 38,830,000 |   |
|                                                                                                                                                                                                                               |   |                    |       |   |                        |   |   |   |
| LIABILITIES      AND MEMBERS’ CAPITAL                                                                                                                                                                                        |   |                    |       |   |                        |   |   |   |
|                                                                                                                                                                                                                               |   |                    |       |   |                        |   |   |   |
| Liabilities                                                                                                                                                                                                                        |   |                    |       |   |                        |   |   |   |
| Accounts      payable, accrued and other liabilities                                                                                                                                                                               |   | $                       | 257,000    |   |                        | $      | 338,000 |   |
| Real      estate taxes payable                                                                                                                                                                                                     |   |                    | 242,000    |   |                        |   | 228,000 |   |
| Tenant      security deposits                                                                                                                                                                                                      |   |                    | 309,000    |   |                        |   | 316,000 |   |
| Intangible      lease liability, net                                                                                                                                                                                               |   |                    | 46,000     |   |                        |   | 61,000 |   |
| Total      liabilities                                                                                                                                                                                                             |   |                    | 854,000    |   |                        |   | 943,000 |   |
|                                                                                                                                                                                                                               |   |                    |       |   |                        |   |   |   |
| Members’      capital (100,000 units authorized and issued as of  June 30,      2008 and December 31, 2007; 99,550 and 99,720 units outstanding as of      June 30, 2008 and December 31, 2007, respectively) |   |                    | 36,064,000 |   |                        |   | 37,887,000 |   |
|                                                                                                                                                                                                                               |   |                    |       |   |                        |   |   |   |
| Total      liabilities and members’ capital                                                                                                                                                                                  |   | $                       | 36,918,000 |   |                        | $      | 38,830,000 |   |

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|                                                                                      |   | Three Months Ended      June 30, |      |   | Six Months Ended June     30, |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------|-----------|--------|------------------------------------|--------|
|                                                                                      |   | 2008                                  |      |   | 2007                               |   |   | 2008 |   |   | 2007 |   |
|                                                                                      |   |                                  |      |   |                               |   |   |   |   |   |   |   |
| Revenues                                                                                  |   |                                  |      |   |                               |   |   |   |   |   |   |   |
| Rental      revenues                                                                      |   | $                                     | 855,000   |   |                               | $      | 850,000 |   |   | $ | 1,704,000 |   |   | $ | 1,653,000 |   |
| Tenant      reimbursements and other income                                               |   |                                  | 169,000   |   |                               |   | 156,000 |   |   |   | 350,000 |   |   |   | 315,000 |   |
|                                                                                      |   |                                  | 1,024,000 |   |                               |   | 1,006,000 |   |   |   | 2,054,000 |   |   |   | 1,968,000 |   |
| Expenses                                                                                  |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Property      operating and maintenance                                                   |   |                                  | 284,000   |   |                               |   | 233,000 |   |   |   | 514,000 |   |   |   | 406,000 |   |
| Property      taxes                                                                       |   |                                  | 144,000   |   |                               |   | 156,000 |   |   |   | 289,000 |   |   |   | 291,000 |   |
| General      and administrative                                                           |   |                                  | 85,000    |   |                               |   | 115,000 |   |   |   | 153,000 |   |   |   | 233,000 |   |
| Depreciation      and amortization                                                        |   |                                  | 266,000   |   |                               |   | 272,000 |   |   |   | 530,000 |   |   |   | 530,000 |   |
|                                                                                      |   |                                  | 779,000   |   |                               |   | 776,000 |   |   |   | 1,486,000 |   |   |   | 1,460,000 |   |
|                                                                                      |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Interest      income                                                                      |   |                                  | 10,000    |   |                               |   | 41,000 |   |   |   | 33,000 |   |   |   | 57,000 |   |
| Income      from continuing operations                                                    |   |                                  | 255,000   |   |                               |   | 271,000 |   |   |   | 601,000 |   |   |   | 565,000 |   |
|                                                                                      |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Discontinued      operations                                                              |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Income      from discontinued operations                                                  |   |                                  | -         |   |                               |   | 15,000 |   |   |   | - |   |   |   | 45,000 |   |
| Gain      on sale of real estate                                                          |   |                                  | -         |   |                               |   | 320,000 |   |   |   | - |   |   |   | 320,000 |   |
|                                                                                      |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Net      income                                                                           |   | $                                     | 255,000   |   |                               | $      | 606,000 |   |   | $ | 601,000 |   |   | $ | 930,000 |   |
|                                                                                      |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Net      income allocable to managing member                                              |   | $                                     | 26,000    |   |                               | $      | 61,000 |   |   | $ | 60,000 |   |   | $ | 93,000 |   |
|                                                                                      |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Net      income allocable to unit holders                                                 |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Continuing      operations                                                                |   | $                                     | 229,000   |   |                               | $      | 244,000 |   |   | $ | 541,000 |   |   | $ | 509,000 |   |
| Discontinued      operations                                                              |   |                                  | -         |   |                               |   | 301,000 |   |   |   | - |   |   |   | 328,000 |   |
|                                                                                      |   | $                                     | 229,000   |   |                               | $      | 545,000 |   |   | $ | 541,000 |   |   | $ | 837,000 |   |
| Per      unit amounts                                                                     |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Basic      and diluted income from continuing operations allocable to unit      holders   |   | $                                     | 2.30      |   |                               | $      | 2.44 |   |   | $ | 5.43 |   |   | $ | 5.09 |   |
| Basic      and diluted income from discontinued operations allocable to unit      holders |   |                                  | -         |   |                               |   | 3.01 |   |   |   | - |   |   |   | 3.28 |   |
| Basic      and diluted income allocable to unit holders                                   |   | $                                     | 2.30      |   |                               | $      | 5.45 |   |   | $ | 5.43 |   |   | $ | 8.37 |   |
|                                                                                      |   |                                  |      |   |                               |   |   |   |   |   |   |   |   |   |   |   |
| Basic      and diluted weighted average units outstanding                                 |   |                                  | 99,598    |   |                               |   | 100,000 |   |   |   | 99,635 |   |   |   | 100,000 |   |

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| Balance,      December 31, 2007            |   | $      | 37,887,000 |   |
|--------------------------------------------|--------|--------|------------|--------|
|                                       |   |   |       |   |
| Cash      distributions to unit holders    |   |   | (2,246,000 | )      |
| Cash      distributions to managing member |   |   | (104,000   | )      |
| Units      repurchased and retired         |   |   | (74,000    | )      |
| Net      income                            |   |   | 601,000    |   |
|                                       |   |   |       |   |
| Balance,      June 30, 2008                |   | $      | 36,064,000 |   |

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|                                                                                        |   | Six      Months Ended June 30, |       |
|---------------------------------------------------------------------------------------------|--------|------------------------------------------|------------|
|                                                                                        |   | 2008                                     |       |   | 2007 |   |
| OPERATING      ACTIVITIES                                                                   |   |                                     |       |   |   |   |
| Net      income                                                                             |   | $                                        | 601,000    |   |   | $ | 930,000 |   |
| Adjustments      to reconcile net income to net cash provided by operating      activities: |   |                                     |       |   |   |   |   |   |
| Net      gain on sale of real estate                                                        |   |                                     | -          |   |   |   | (320,000 | ) |
| Provision      for bad debt                                                                 |   |                                     | 32,000     |   |   |   | 11,000 |   |
| Depreciation      and amortization                                                          |   |                                     | 515,000    |   |   |   | 501,000 |   |
| Changes      in operating assets and liabilities                                            |   |                                     |       |   |   |   |   |   |
| Other      assets                                                                           |   |                                     | (96,000    | ) |   |   | 3,000 |   |
| Accounts      payable, accrued and other liabilities                                        |   |                                     | (74,000    | ) |   |   | (273,000 | ) |
|                                                                                        |   |                                     |       |   |   |   |   |   |
| Net      cash provided by operating activities                                              |   |                                     | 978,000    |   |   |   | 852,000 |   |
|                                                                                        |   |                                     |       |   |   |   |   |   |
| INVESTING      ACTIVITIES                                                                   |   |                                     |       |   |   |   |   |   |
| Investments      in real estate                                                             |   |                                     | (159,000   | ) |   |   | (80,000 | ) |
| Net      proceeds received from sale of real estate                                         |   |                                     | -          |   |   |   | 2,939,000 |   |
|                                                                                        |   |                                     |       |   |   |   |   |   |
| Net      cash (used in) provided by investing activities                                    |   |                                     | (159,000   | ) |   |   | 2,859,000 |   |
|                                                                                        |   |                                     |       |   |   |   |   |   |
| FINANCING      ACTIVITIES                                                                   |   |                                     |       |   |   |   |   |   |
| Cash      distributions to unit holders                                                     |   |                                     | (2,246,000 | ) |   |   | (1,246,000 | ) |
| Cash      distributions to managing member                                                  |   |                                     | (104,000   | ) |   |   | - |   |
| Units      repurchased and retired                                                          |   |                                     | (74,000    | ) |   |   | - |   |
|                                                                                        |   |                                     |       |   |   |   |   |   |
| Net      cash used in financing activities                                                  |   |                                     | (2,424,000 | ) |   |   | (1,246,000 | ) |
|                                                                                        |   |                                     |       |   |   |   |   |   |
| Net      increase (decrease) in cash                                                        |   |                                     | (1,605,000 | ) |   |   | 2,465,000 |   |
|                                                                                        |   |                                     |       |   |   |   |   |   |
| Cash      and cash equivalents at beginning of period                                       |   |                                     | 4,201,000  |   |   |   | 2,249,000 |   |
|                                                                                        |   |                                     |       |   |   |   |   |   |
| Cash      and cash equivalents at end of period                                             |   | $                                        | 2,596,000  |   |   | $ | 4,714,000 |   |

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|   | — | CIP      generally has complete and exclusive discretion in the management and      control of our operations; however, unit holders 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 unit      holders and 10% to the Managing Member until the unit holders 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 thatperiod. |
|--------|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | — | Net      Sales Proceeds, as defined, will be distributed first, 100% to the unit      holders in an amount equal to their Invested Capital Contributions; then,      90% to the unit holders and 10% to the Managing Member until the unit      holders 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 unit holders and 50% to      the Managing Member. |
|--------|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | — | Net      Income, as defined, is allocated first, 10% to the Managing Member and 90%      to the unit holders 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 unit    holders. |
|--------|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | — | Net      Loss is allocated first, 50% to the Managing Member and 50% to the unit      holders, 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 unit holders are to be pro rata in      proportion to their ownershipshares. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------|

|   | — | Effective      February 22, 2007, our Operating Agreement was amended to permit      repurchase of units on such terms and conditions as the managing member      may determine. |
|--------|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                                   |   | Lease      Intangibles |    |
|----------------------------------------|--------|------------------------|---------|
| July      1, 2008 to December 31, 2008 |   | $                      | 58,000  |   |
| 2009                                   |   |                   | 91,000  |   |
| 2010                                   |   |                   | 45,000  |   |
| 2011                                   |   |                   | 42,000  |   |
| 2012                                   |   |                   | 42,000  |   |
| Thereafter                             |   |                   | 215,000 |   |
| Total                                  |   | $                      | 493,000 |   |

|                                                                                                      |   | Land   |       |   | Buildings and Improvements |   |       | Intangible Lease Assets |   |   | In-Place Lease Assets |   |   | Intangible Lease Liability |     |
|-----------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|----------------------------|--------|------------|-------------------------|--------|--------|-----------------------|--------|--------|----------------------------|----------|
| Investments      in Real Estate and related lease intangibles                                             |   | $      | 11,779,000 |   |                       | $      | 23,700,000 |                    |   | $      | 550,000               |   |   | $                          | 894,000  |   |   | $ | (155,000 | ) |
|                                                                                                      |   |   |       |   |                       |   |       |                    |   |   |                  |   |   |                       |     |   |   |   |   |   |
| Less:      accumulated depreciation and amortization from continuing      operations                      |   |   | —    |   |                       |   | (2,235,000 | )                       |   |   | (147,000              | )      |   |                       | (758,000 | ) |   |   | 109,000 |   |
| Net      Investments in Real Estate, Real estate assets held-for sale, and related      lease intangibles |   | $      | 11,779,000 |   |                       | $      | 21,465,000 |                    |   | $      | 403,000               |   |   | $                          | 136,000  |   |   | $ | (46,000 | ) |

|                                                                                                      |   | Land   |       |   | Buildings and Improvements |   |       | Intangible Lease Assets |   |   | In-Place Lease Assets |   |   | Intangible Lease Liability |     |
|-----------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|----------------------------|--------|------------|-------------------------|--------|--------|-----------------------|--------|--------|----------------------------|----------|
| Investments      in Real Estate and related lease intangibles                                             |   | $      | 11,779,000 |   |                       | $      | 23,541,000 |                    |   | $      | 550,000               |   |   | $                          | 894,000  |   |   | $ | (155,000 | ) |
|                                                                                                      |   |   |       |   |                       |   |       |                    |   |   |                  |   |   |                       |     |   |   |   |   |   |
| Less:      accumulated depreciation and amortization from continuing      operations                      |   |   | —    |   |                       |   | (1,852,000 | )                       |   |   | (126,000              | )      |   |                       | (699,000 | ) |   |   | 94,000 |   |
| Net      Investments in Real Estate, Real estate assets held-for sale, and related      lease intangibles |   | $      | 11,779,000 |   |                       | $      | 21,689,000 |                    |   | $      | 424,000               |   |   | $                          | 195,000  |   |   | $ | (61,000 | ) |

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| Item 6. | 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. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | 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/ SHARON C. KAISER |   |
|   |                              |   |   | Sharon      C. Kaiser, |
|   |                              |   |   | Chief      Financial Officer |
|   |                              |   |   | (Principal      Financial Officer and |
|   |                              |   |   | Principal      Accounting Officer) |

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