UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2008

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

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

 

New Jersey		22-2426091
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

213 Washington Street, Newark, New Jersey 07102-2992
(Address of principal executive offices) (Zip Code)

     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. YES þ NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer, accelerated filer, and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer   þ (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO þ

 

 

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Registrant)
INDEX

		Page
Forward Looking Statement Disclosure			3
Part I — Financial Information
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets – September 30, 2008 and December 31, 2007			4
Statements of Operations – Nine and Three Months Ended September 30, 2008 and 2007			4
Statements of Changes in Net Assets – Nine and Three Months Ended September 30, 2008 and 2007			4
Notes to the Financial Statements of the Real Property Account			5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Consolidated Statements of Assets and Liabilities – September 30, 2008 and December 31, 2007			11
Consolidated Statements of Operations – Nine and Three Months Ended September 30, 2008 and 2007			12
Consolidated Statements of Changes in Net Assets–Nine Months Ended September 30, 2008 and 2007			13
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2008 and 2007			14
Consolidated Schedules of Investments – September 30, 2008 and December 31, 2007			15
Notes to Consolidated Financial Statements of the Partnership			17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3. Quantitative and Qualitative Disclosures About Market Risk			36
Item 4. Controls and Procedures			37
Part II — Other Information
Item 1A. Risk Factors			37
Item 4. Submission of Matters to a Vote of Security Holders			41
Item 6. Exhibits			41
Signatures			42

Forward-Looking Statement Disclosure

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company of New Jersey, or the “Company”, or the Pruco Life of New Jersey Variable Contract Real Property Account, or the “Real Property Account”. There can be no assurance that future developments affecting the Company and the Real Property Account will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets, particularly in light of the stress experienced by the global financial markets that began in the second half of 2007 and substantially increased in the third quarter of 2008; (2) the availability and cost of external financing for our operations, which has been affected by the stress experienced by the global financial markets; (3) interest rate fluctuations; (4) re-estimates of our reserves for future policy benefits and claims; (5) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (6) changes in our assumptions related to deferred policy acquisition costs and valuation of business acquired; (7) changes in our claims-paying or credit ratings; (8) investment losses and defaults; (9) competition in our product lines and for personnel; (10) changes in tax law; (11) regulatory or legislative changes, including government actions in response to the stress experienced by the global financial markets; (12) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities; (13) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (14) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (15) effects of acquisitions, divestitures and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions; (16) changes in statutory or “U.S. GAAP” accounting principles, practices or policies; and (17) changes in assumptions for retirement expense. The Company and the Real Property Account do not intend, and are under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in this Quarterly Report on Form 10-Q for discussion of certain risks relating to the operation of the Partnership and investment in our securities.

FINANCIAL STATEMENTS OF

STATEMENTS OF NET ASSETS
September 30, 2008 and December 31, 2007

		September 30, 2008
		(unaudited)				December 31, 2007
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership		$	10,720,949			$	10,764,653
Net Assets		$	10,720,949			$	10,764,653
NET ASSETS, representing:
Equity of contract owners		$	7,550,168			$	7,715,262
Equity of Pruco Life Insurance Company of New Jersey			3,170,781				3,049,391
		$	10,720,949			$	10,764,653
Units outstanding			3,348,019				3,333,399
Portfolio shares held			294,526				294,526
Portfolio net asset value per share		$	36.40			$	36.55

STATEMENTS OF OPERATIONS
For the nine and three months ended September 30, 2008 and 2007

		1/1/2008-9/30/2008				1/1/2007-9/30/2007				7/1/2008-9/30/2008				7/1/2007-9/30/2007
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
INVESTMENT INCOME
Net investment income from Partnership operations		$	367,686			$	394,082			$	104,689			$	145,830
EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration			33,124				32,964				11,123				11,133
NET INVESTMENT INCOME			334,562				361,118				93,566				134,697
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership			(411,390	)			231,385				(355,525	)			(17,530	)
Net realized gain (loss) on sale of investments in Partnership			0				30,820				0				(2,283	)
NET GAIN (LOSS) ON INVESTMENTS			(411,390	)			262,205				(355,525	)			(19,813	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	(76,828	)		$	623,323			$	(261,959	)		$	114,884

STATEMENTS OF CHANGES IN NET ASSETS
For the nine and three months ended September 30, 2008 and 2007

		1/1/2008-9/30/2008				1/1/2007-9/30/2007				7/1/2008-9/30/2008				7/1/2007-9/30/2007
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
OPERATIONS
Net investment income		$	334,562			$	361,118			$	93,566			$	134,697
Net change in unrealized gain (loss) on investments in Partnership			(411,390	)			231,385				(355,525	)			(17,530	)
Net realized gain (loss) on sale of investments in Partnership			0				30,820				0				(2,283	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS			(76,828	)			623,323				(261,959	)			114,884
CAPITAL TRANSACTIONS
Net withdrawals by contract owners			(102,804	)			(225,395	)			(48,629	)			(179,735	)
Net contributions by Pruco Life Insurance Company of New Jersey			135,928				258,359				59,752				190,868
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS			33,124				32,964				11,123				11,133
TOTAL INCREASE (DECREASE) IN NET ASSETS			(43,704	)			656,287				(250,836	)			126,017
NET ASSETS
Beginning of period			10,764,653				9,975,186				10,971,785				10,505,456
End of period		$	10,720,949			$	10,631,473			$	10,720,949			$	10,631,473

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

NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
September 30, 2008
(Unaudited)

Note 1: General

Pruco Life of New Jersey Variable Contract Real Property Account (the “Account”) was established on October 30, 1987 by resolution of the Board of Directors of Pruco Life Insurance Company of New Jersey (“Pruco Life of New Jersey”), a wholly-owned subsidiary of the Prudential Insurance Company of America (“Prudential”), an indirect wholly-owned subsidiary of Prudential Financial, Inc. (“PFI”) as a separate investment account pursuant to New Jersey law and is registered under the Securities Act of 1933, as amended. The assets of the Account are segregated from Pruco Life of New Jersey’s other assets. The Account is used to fund benefits under certain variable life insurance and variable annuity contracts issued by Pruco Life of New Jersey. These products are Appreciable Life (“VAL”), Variable Life (“VLI”), Discovery Plus (“SPVA”), and Discovery Life Plus (“SPVL”).

The assets of the Account are invested in The Prudential Variable Contract Real Property Partnership (the “Partnership”). The Partnership is the investment vehicle for assets allocated to the real estate investment option under certain variable life insurance and annuity contracts. The Account, along with the Pruco Life Variable Contract Real Property Account and The Prudential Variable Contract Real Property Account, are the sole investors in the Partnership. These financial statements should be read in conjunction with the financial statements of the Partnership.

The Partnership has a policy of investing at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans.

Note 2: Summary of Significant Accounting Policies and Pronouncements

A. Basis of Accounting

The accompanying financial statements are prepared in conformity with U.S. GAAP. The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

The interim financial data as of September 30, 2008 and for the nine and three months ended September 30, 2008 and 2007 is unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Account adopted this guidance effective January 1, 2008. The adoption of SFAS No. 157 has no effect on the Account’s financial position and results of operations. See Note 9 for more information on SFAS No. 157.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” including an amendment of FASB Statement No. 115. This statement provides companies with an option to report selected financial assets and liabilities at fair value. This statement is effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Account adopted this guidance effective January 1, 2008. The Account did not make a fair value option election for its existing debt. The adoption of SFAS No. 159 has no effect on the Account’s financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” This statement, which addresses the accounting for business acquisitions, is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited, and generally applies to business acquisitions completed after December 31, 2008. Among other things, the new standard requires that all acquisition-related costs be expensed as incurred, and that all restructuring costs related to acquired operations be expensed as incurred. This new standard also addresses the current and subsequent accounting for assets and liabilities arising from contingencies acquired or assumed and, for acquisitions both prior and subsequent to December 31, 2008, requires the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. The Account is currently assessing the impact of SFAS No. 141R on its financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 will change the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. This statement is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. Upon adoption, SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. The Account is currently assessing the impact of SFAS No. 160 on its financial position and results of operations.

B. Investment in Partnership Interest

The investment in the Partnership is based on the Account’s proportionate interest of the Partnership’s market value. At September 30, 2008 and December 31, 2007 the Account’s interest in the Partnership was 4.3% or 294,526 shares. Properties owned by the Partnership are illiquid and based on estimated fair value as discussed in the notes to the Partnership’s audited financial statements.

C. Income Recognition

Net investment income and realized and unrealized gains and losses are recognized daily. Amounts are based upon the Account’s proportionate interest in the Partnership.

D. Equity of Pruco Life Insurance Company of New Jersey

Pruco Life of New Jersey maintains a position in the Account for liquidity purposes, including unit purchases and redemptions, Partnership share transactions, and expense processing. The position does not affect contract owners’ accounts or the related unit values.

Note 3: Charges and Expenses

A. Mortality Risk and Expense Risk Charges

Mortality risk and expense risk charges are determined daily using an effective annual rate of 0.6%, 0.35%, 0.9% and 0.9% for VAL, VLI, SPVA and SPVL, respectively. Mortality risk is the risk that life insurance contract owners may not live as long as estimated or annuitants may live longer than estimated and expense risk is the risk that the cost of issuing and administering the policies may exceed related charges by Pruco Life of New Jersey. The mortality risk and expense risk charges are assessed through reduction in unit values.

B. Administrative Charges

Administrative charges are determined daily using an effective annual rate of 0.35% applied daily against the net assets representing equity of contract owners held in each subaccount for SPVA and SPVL. Administrative charges include costs associated with issuing the contract, establishing and maintaining records, and providing reports to contract owners. The administrative charge is assessed through reduction in unit values.

C. Cost of Insurance and Other Related Charges

Contract owner contributions are subject to certain deductions prior to being invested in the Account. The deductions for VAL and VLI are (1) state premium taxes; (2) sales charges, not to exceed 5% for VAL and 9% for VLI, which are deducted in order to compensate Pruco Life of New Jersey for the cost of selling the contract and (3) transaction costs, applicable to VAL, which are deducted from each premium payment to cover premium collection and processing costs. Contracts are subject to charges on each basic premium for assuming a guaranteed minimum death benefit risk. This charge compensates Pruco Life of New Jersey for the risk that an insured may die at a time when the death benefit exceeds the benefit that would have been payable in the absence of a minimum guarantee. These charges are assessed through the redemption of units.

D. Deferred Sales Charge

A deferred sales charge is imposed upon surrenders of certain variable life insurance contracts to compensate Pruco Life of New Jersey for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the contract was issued, but will not exceed 45% of one scheduled annual premium for VAL and 9% of the initial premium payment for SPVL. No sales charge will be imposed after the sixth and tenth year of the contract for SPVL and VAL, respectively. No sales charge will be imposed on death benefits. This deferred sales charge is assessed through the redemption of units.

E. Partial Withdrawal Charge

A charge is imposed by Pruco Life of New Jersey on partial withdrawals of the cash surrender value for VAL. A charge equal to the lesser of $15 or 2% will be made in connection with each partial withdrawal of the cash surrender value of a contract. This charge is assessed through the redemption of units.

Note 4: Taxes

Pruco Life of New Jersey is taxed as a “life insurance company”, as defined by the Internal Revenue Code. The results of operations of the Account form a part of PFI’s consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Account. As such, no provision for the tax liability has been recorded in these financial statements.

Note 5: Net Withdrawals by Contract Owners

Net contract owner withdrawals for the real estate investment option in Pruco Life of New Jersey’s variable insurance and variable annuity products for the nine months ended September 30, 2008 and 2007, were as follows:

		Nine Months Ended September 30,
		(Unaudited)
		2008				2007
VAL		$	(114,134	)		$	(170,790	)
VLI			(20,018	)			(51,628	)
SPVA			32,000				0
SPVL			(652	)			(2,977	)
TOTAL		$	(102,804	)		$	(225,395	)

Note 6: Partnership Distributions

As of September 30, 2008, the Partnership had made no current year distributions. For the year ended December 31, 2007, the Partnership made no distributions.

Note 7: Unit Information

Outstanding units and unit values at September 30, 2008 and December 31, 2007 were as follows:

		September 30, 2008				December 31, 2007
		(Unaudited)
Units Outstanding:			3,348,019				3,333,399
Unit Value:			2.77218 to 3.37268				2.80966 to 3.39532

Note 8: Financial Highlights

The range of total return for the nine months ended September 30, 2008 and 2007 was as follows:

		Nine Months Ended
		September 30,
		(Unaudited)
		2008				2007
Total Return		-1.33% to -0.67%				5.60% to 6.30%

Note 9: Fair Value Disclosure

SFAS No. 157 establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 — Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These generally provide the most reliable evidence and should be used to measure fair value whenever available.

Level 2 — Fair value is based on inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data.

Level 3 — Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability.

The investment in the Partnership is based on the Account’s proportionate interest of the Partnership’s fair value which approximates the Partnership’s net asset value. Properties owned by the Partnership are illiquid and based on estimated fair value from property appraisal reports prepared by independent real estate appraisers as discussed in the notes to the Partnership’s audited financial statements.

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. In the reconciliation of these three approaches, the one most heavily relied upon is the one then recognized as the most appropriate by the independent appraiser for the type of real estate in the market.

In general, the input values used in the appraisal process are unobservable, therefore unless indicated otherwise; real estate investments and debt are classified as Level 3 under SFAS157 fair value hierarchy. The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities.

Table 1:

		($ in 000’s)
						Quoted Prices in
						Active Markets				Significant Other				Significant
		Amounts Measured				for Identical				Observable Inputs				Unobservable
		at Fair 9/30/2008				Assets (Level 1)				(Level 2)				Inputs (Level 3)
Assets:
Investment in The Prudential Variable Contract Real Property Partnership		$	10,721			$	—			$	—			$	10,721
Total Assets		$	10,721			$	—			$	—			$	10,721

Table 2:

		($ in 000’s)
		Fair Value Measurements
		Using Significant
		Unobservable Inputs
		(Level 3)
Beginning balance @ 12/31/07		$	10,765
Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations		$	(411	)
Net Investment Income from Partnership operations		$	367
Acquisition/Additions			—
Equity Income			—
Contributions			—
Disposition/Settlements			—
Equity losses			—
Distributions			—
Ending balance @ 9/30/08		$	10,721
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date relating to assets still held at the reporting date		$	(411	)

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

		September 30, 2008
		(Unaudited)				December 31, 2007
ASSETS
REAL ESTATE INVESTMENTS — At estimated fair value:
Real estate and improvements (cost: 09/30/2008 - $243,622,010; 12/31/2007 -$236,466,116)		$	253,212,890			$	254,394,053
Real estate partnerships and preferred equity investments (cost: 09/30/2008 - $14,431,965; 12/31/2007 - $14,523,934)			13,618,795				14,523,934
Total real estate investments		$	266,831,685			$	268,917,987
CASH AND CASH EQUIVALENTS			26,144,873				18,215,871
OTHER ASSETS, NET			3,812,033				3,033,040
Total assets		$	296,788,591			$	290,166,898
LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT		$	39,716,338			$	32,121,712
ACCOUNTS PAYABLE AND ACCRUED EXPENSES			3,010,547				2,184,812
DUE TO AFFILIATES			891,080				901,371
OTHER LIABILITIES			1,071,598				920,454
MINORITY INTEREST			6,068,207				7,004,790
Total liabilities			50,757,770				43,133,139
COMMITMENTS AND CONTINGENCIES
PARTNERS’ EQUITY			246,030,821				247,033,759
Total liabilities and partners’ equity		$	296,788,591			$	290,166,898
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD			6,758,960				6,758,960
SHARE VALUE AT END OF PERIOD		$	36.40			$	36.55

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		For the Nine Months Ended September 30,								For the Three Months Ended September 30,
		2008				2007				2008				2007
INVESTMENT INCOME:
Revenue from real estate and improvements		$	23,205,896			$	21,032,860			$	7,809,725			$	7,639,678
Equity in income of real estate partnerships			721,587				882,293				211,724				254,645
Interest on short-term investments			344,807				1,293,428				113,428				340,171
Total investment income			24,272,290				23,208,581				8,134,877				8,234,494
INVESTMENT EXPENSES:
Operating			5,401,923				5,137,964				1,924,396				1,755,099
Investment management fee			2,608,842				2,492,126				877,672				851,683
Real estate taxes			2,173,562				1,656,843				691,942				602,234
Administrative			4,739,796				3,218,654				2,211,888				1,181,123
Interest expense			1,477,183				1,575,492				518,514				446,379
Minority interest			(566,900	)			83,878				(491,998	)			51,391
Total investment expenses			15,834,406				14,164,957				5,732,414				4,887,909
NET INVESTMENT INCOME			8,437,884				9,043,624				2,402,463				3,346,585
REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS:
Net proceeds from real estate investments sold			—				18,353,122				—				—
Less: Cost of real estate investments sold			—				19,026,181				—				52,381
Realization of prior years’ unrealized gain (loss) on real estate investments sold			—				(1,380,344	)			—				—
NET GAIN (LOSS) REALIZED ON REAL ESTATE INVESTMENTS SOLD			—				707,285				—				(52,381	)
Change in unrealized gain (loss) on real estate investments			(9,744,277	)			5,064,340				(8,818,256	)			(1,004,324	)
Less: Minority interest in unrealized gain (loss) on real estate investments			(303,455	)			(245,642	)			(659,452	)			(602,027	)
Net unrealized gain (loss) on real estate investments			(9,440,822	)			5,309,982				(8,158,804	)			(402,297	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS			(9,440,822	)			6,017,267				(8,158,804	)			(454,678	)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	(1,002,938	)		$	15,060,891				($5,756,341	)		$	2,891,907

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)

		For the Nine Months Ended September 30,
		2008				2007
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income		$	8,437,884			$	9,043,624
Net gain (loss) realized on real estate investments sold			—				707,285
Net unrealized gain (loss) from real estate investments			(9,440,822	)			5,309,982
INCREASE (DECREASE) IN NET ASSETS			(1,002,938	)			15,060,891
NET ASSETS — Beginning of period			247,033,759				228,916,584
NET ASSETS — End of period		$	246,030,821			$	243,977,475

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

		For the Nine Months Ended September 30,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets from operations		$	(1,002,938	)		$	15,060,891
Adjustments to reconcile net increase (decrease) in net assets to net cash from operating activities
Net realized and unrealized loss (gain)			9,440,822				(6,017,267	)
Amortization of deferred financing costs			63,913				258,751
Distributions in excess of (less than) equity in income of real estate partnerships’ operations			91,969				20,063
Minority interest in consolidated partnerships			(566,900	)			83,878
Bad debt expense			1,104,707				67,818
(Increase) decrease in:
Other assets			(1,947,610	)			66,618
Increase (decrease) in:
Accounts payable and accrued expenses			825,735				591,558
Due to affiliates			(10,291	)			75,201
Other liabilities			151,144				114,731
Net cash flows from (used in) operating activities			8,150,551				10,322,242
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold			—				18,353,122
Acquisition of real estate and improvements			—				(42,209,760	)
Additions to real estate and improvements			(7,749,947	)			(2,418,560	)
Net cash flows from (used in) investing activities			(7,749,947	)			(26,275,198	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from investment level debt			23,557,099				—
Principal payments on investment level debt			(15,962,473	)			(436,698	)
Contributions from minority interest partners			80,000				294,143
Distributions to minority interest partners			(146,228	)			—
Net cash flows from (used in) financing activities			7,528,398				(142,555	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			7,929,002				(16,095,511	)
CASH AND CASH EQUIVALENTS — Beginning of period			18,215,871				33,399,532
CASH AND CASH EQUIVALENTS — End of period			26,144,873			$	17,304,021
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest		$	1,413,270			$	1,317,281

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

										2008 Total Rentable
										Square Feet				September 30, 2008
										Unless Otherwise				(unaudited)								December 31, 2007
		September 30, 2008								Indicated								Estimated Fair								Estimated Fair
Property Name		Ownership				City, State				(Unaudited)				Cost				Value				Cost				Value
OFFICES
750 Warrenville		WO				Lisle, IL					103,193			$	25,018,250			$	9,861,536			$	24,512,521			$	11,500,000
Summit @ Cornell Oaks		WO				Beaverton , OR					72,109				12,416,714				12,600,000				12,401,252				13,800,000
Westpark		WO				Nashville, TN					97,199				11,374,428				13,400,000				11,323,885				13,100,000
Financial Plaza		WO				Brentwood, TN					98,049				12,371,092				13,000,000				12,371,092				13,700,000
						Offices % as of 9/30/08					20	%			61,180,484				48,861,536				60,608,750				52,100,000
APARTMENTS
Brookwood Apartments		WO				Atlanta, GA					240 Units				19,730,035				20,651,354				19,548,293				20,200,000
Dunhill Trace Apartments		WO				Raleigh, NC					250 Units				16,409,349				20,700,000				16,375,037				19,800,000
Broadstone Crossing		WO				Austin, TX					225 Units				22,725,427				27,600,000				22,723,849				27,100,000
The Reserve At Waterford Lakes		WO				Charlotte, NC					140 Units				13,618,447				13,500,000				13,535,450				13,500,000
						Apartments % as of 9/30/08					34	%			72,483,258				82,451,354				72,182,629				80,600,000
RETAIL
King’s Market		WO				Rosewell, GA					314,358				37,893,595				18,500,000				37,883,222				24,700,000
Hampton Towne Center		WO				Hampton, VA					174,540				18,110,120				27,600,000				18,050,090				26,500,000
White Marlin Mall		CJV				Ocean City, MD					186,016				22,682,512				29,100,000				17,016,325				23,900,000
Westminster Crossing East, LLC		CJV				Westminster, MD					89,890				15,044,721				20,500,000				15,637,841				21,094,053
Kansas City Portfolio		EJV				Kansas City, KS;MO					487,660				106,173				106,173				140,911				140,911
CARS Preferred Equity		PE				Various					N/A				14,325,792				13,512,622				14,383,023				14,383,023
Harnett Crossing		CJV				Dunn, NC					193,235				6,023,625				7,400,000				5,958,844				7,200,000
						Retail % as of 9/30/08					47	%			114,186,538				116,718,795				109,070,256				117,917,987
HOTEL
Portland Crown Plaza		CJV				Portland, OR					161 Rooms				10,203,696				18,800,000				9,128,415				18,300,000
						Hotel % as of 9/30/08					8	%			10,203,696				18,800,000				9,128,415				18,300,000
Total Real Estate Investments as a Percentage of Net Assets as of 9/30/08											109	%		$	258,053,976			$	266,831,685			$	250,990,050			$	268,917,987

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

						September 30, 2008
						(unaudited)								December 31, 2007
										Estimated								Estimated
		Face Amount				Cost				Fair Value				Cost				Fair Value
CASH AND CASH EQUIVALENTS - Percentage of Net Assets											10.6	%							7.4	%
Federal Home Loan Bank, 0 coupon bond, October  , 2008		$	980,000			$	980,000			$	980,000			$	2,065,813			$	2,065,813
Federal Home Loan Bank, 0 coupon bond, October  , 2008			7,550,804				7,550,804				7,550,804				4,998,313				4,998,313
Federal Home Loan Bank, 0 coupon bond, November  , 2008			15,500,304				15,500,304				15,500,304				9,997,633				9,997,633
Total Cash Equivalents							24,031,108				24,031,108				17,061,759				17,061,759
Cash							2,113,765				2,113,765				1,154,112				1,154,112
Total Cash and Cash Equivalents						$	26,144,873			$	26,144,873			$	18,215,871			$	18,215,871

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
(Unaudited)

Note 1: Summary of Significant Accounting Policies and Pronouncements

	A.		Basis of Presentation - The accompanying unaudited consolidated financial statements of The Prudential Variable Contract Real Property Partnership (the “Partnership”) included herein have been prepared in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the nine months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008. For further information, refer to the audited consolidated financial statements and notes thereto included in each partner’s Annual Report on Form 10-K for the Year Ended December 31, 2007.
	B.		Management’s Use of Estimates in the Financial Statements — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
	C.		New Accounting Pronouncements - FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), was issued in January 2003. In December 2003, FASB issued a revised interpretation of FIN 46 (“FIN 46-R”) that supersedes FIN 46. FIN 46-R defers the effective date for applying the provisions of FIN 46 for those companies currently accounting for their investments in accordance with the AICPA Audit and Accounting Guide, “Audits of Investment Companies” (the “Audit Guide”). The FASB is currently considering modifying FIN 46-R to provide an exception for companies that apply the Audit Guide. The Partnership is awaiting the final determination from the FASB in order to evaluate the extent in which, if any, its equity investments may need to be consolidated as a result of this FIN 46-R.
			The Partnership adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” an Interpretation of FASB Statement No. 109 as of January 1, 2007. This interpretation prescribes a comprehensive model for how a Partnership should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Partnership has taken or expects to take on a tax return. The adoption of FIN 48 had no effect to the financial position and result of operations of the Partnership.
			In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This statement does not require any new fair value measurements, but the application of this statement could change current practices in determining fair value. This adoption did not change the methodology used to fair value our real estate investments.
			In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” including an amendment of FASB Statement No. 115. This statement provides partnerships with an option to report selected financial assets and liabilities at fair value.
			SFAS No. 157 and SFAS No. 159 are effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Partnership adopted SFAS No. 157 and SFAS No. 159 effective January 1, 2008, however, the Partnership did not make a fair value option election for its existing debt. The adoption does not have any effect on the Partnership’s consolidated financial position and results of operations. Please refer to Notes 1D and 2 for details.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
(Unaudited)

Note 1: Summary of Significant Accounting Policies and Pronouncements (continued)

	C.		New Accounting Pronouncements (continued)
			In June 2007, the Accounting Standards Executive Committee issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP 07-1 was originally determined to be effective for fiscal years beginning on or after December 15, 2007, however, on February 6, 2008, FASB issued a final Staff Position indefinitely deferring the effective date and prohibiting early adoption of SOP 07-1 while addressing implementation issues.
			In December 2007, FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations”, and SFAS No. 160, “Non-controlling interests in Consolidated Financial Statements, an Amendment to ARB No. 51” (“SFAS 160”). SFAS 141R expands the definition of a business and redefines the acquisition date in a merger and acquisition transaction. It significantly modifies the existing SFAS 141, including changes to acquisition related contingent consideration, pre-acquisition contingencies, non controlling interest, restructuring costs, in-process R&D, goodwill and partial acquisition. SFAS 160 requires the non-controlling interest to be reported as a separate component of equity. It also changes the allocation of losses and accounting in step acquisitions. The provisions in SFAS 160 should be applied prospectively except for the presentation and disclosure requirements, which are required retrospectively for all periods presented. SFAS 141R and SFAS 160 are effective for the acquisition closing after the first annual reporting period beginning after December 15, 2008. The Partnership is currently reviewing the provisions in SFAS 141R and SFAS 160, and assessing whether the changes would be material to its financial statements upon adoption.
	D.		Real Estate Investments — Real estate investments are shown at estimated fair value. Properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and below market leases, in-place leases, and tenant relationships at the time of acquisition.
			Fair value estimates are based upon property appraisal reports prepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter. The fair value measurement objective is to determine the exit price at which the Partnership would receive to sell an asset based on the highest and best use valuation premise or pay to transfer a liability taking into consideration the perspectives of market participant and the assumptions they may use. The Chief Real Estate Appraiser of Prudential Investment Management, Inc. (“PIM”), which is an indirectly owned subsidiary of Prudential Financial Inc. (“PFI”), is responsible to assure that the valuation process provides independent and reasonable property fair value estimates. An unaffiliated third party appraisal firm has been appointed by PIM to assist the Chief Real Estate Appraiser in maintaining and monitoring the independence and the accuracy of the appraisal process. The fair value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments.
			The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. In the reconciliation of these three approaches, the one most heavily relied upon is the one then recognized as the most appropriate by the independent appraiser for the type of real estate in the market.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
(Unaudited)

Note 1: Summary of Significant Accounting Policies and Pronouncements (continued)

	D.		Real Estate Investments (continued)
			In general, the input values used in the appraisal process are unobservable, therefore unless indicated otherwise; real estate investments are classified as Level 3 under SFAS 157 fair value hierarchy.
			Unconsolidated real estate partnerships are valued at the Partnership’s equity in net assets as reflected in the partnerships’ financial statements with properties valued as described above. Under the equity method, the investment is initially recorded at the original investment amount, plus or minus additional amounts invested or distributed, and is subsequently adjusted for the Partnership’s share of undistributed earnings or losses, including unrealized appreciation and depreciation, from the underlying entity.
			Land held for development is reported at estimated fair value, which approximates the acquisition cost plus soft costs incurred prior to development. The estimated fair value is determined based on the amount at which the Partnership would receive if the land were sold at the reporting date taking into consideration the assumptions that market participants may use.
			The Partnership periodically enters into forward contracts to acquire, for a fixed price, real estate investments to be constructed in accordance with predetermined plans and specifications. The funding obligation/forward contract obligation and related asset are recorded in the consolidated financial statements in the period in which the project is waived or deemed to have reached substantial completion, equal to or over 90% complete, and the Partnership’s commitment to fund is firm. The amount of any unrealized gain or loss recognized is based upon the difference between the estimated investment’s fair value as described above and the Partnership’s funding obligation. The funding obligation and related assets are recorded in the consolidated financial statements. As of September 30, 2008 and December 31, 2007, no such funding obligation existed.
			As described above, the estimated fair value of real estate and real estate related assets is determined through an appraisal process. These estimated fair values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller and could be material to the consolidated financial statements. Although the estimated fair values represent subjective estimates, management believes these estimated fair values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate is fairly presented as of September 30, 2008 and December 31, 2007.
	E.		Cash and Cash Equivalents - Cash and cash equivalent are comprised of all short-term investments and investments in money market funds with a maximum maturity of three months. Cash equivalents consist of investments in the Prudential Investment Liquidity Pool offered and managed by an affiliate of PFI and are accounted for at fair value.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
(Unaudited)

Note 1: Summary of Significant Accounting Policies and Pronouncements (continued)

	F.		Other Assets — Restricted cash of $115,000 and $186,736 was maintained by the wholly owned and consolidated properties at September 30, 2008 and December 31, 2007, respectively. Tenant security deposits are included in Other Assets on the Consolidated Statements of Assets and Liabilities. Other assets also include tenant receivables and are net of allowance for uncollectible accounts of $1,028,269 and $39,764 at September 30, 2008 and December 31, 2007, respectively.
	G.		Investment Level Debt - Investment level debt is stated at the principal amount of the obligations outstanding. At times the Partnership may assume debt in connection with the purchase of real estate. The Partnership allocates a portion of the purchase price to the below/above market debt and amortizes the premium/discount over the remaining life of the debt.
	H.		Deferred Financing Costs — Deferred financing costs related to debt were capitalized and amortized over the terms of the related obligations.
	I.		Revenue Recognition - Revenue from real estate is recognized when earned in accordance with the terms of the respective leases. Revenue from certain real estate investments is net of all or a portion of related real estate expenses, as lease arrangements vary as to responsibility for payment of these expenses between tenants and the Partnership. Since real estate is stated at estimated fair value, net income is not reduced by depreciation or amortization expense.
	J.		Equity in Income of Real Estate Partnerships - Equity in income from real estate partnership operations represents the Partnership’s share of the current year’s partnership income as provided for under the terms of the partnership agreements. As is the case with wholly owned real estate, partnership net income is not reduced by depreciation or amortization expense. Frequency of distribution of income is determined by formal agreements or by the executive committee of the partnership.
	K.		Federal Income Taxes — The Partnership is not a taxable entity under the provisions of the Internal Revenue Code. The income and capital gains and losses of the Partnership are attributed, for federal income tax purposes, to the Partners in the Partnership. The Partnership may be subject to state and local taxes in jurisdictions in which it operates.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
(Unaudited)

Note 2: Fair Value Disclosure

			Fair Value Measurements:
			SFAS 157 establishes a fair value measurement framework, provides a single definition of fair value and requires expanded disclosure summarizing fair value measurements. This statement provides a three-level hierarchy based on the input values used in the valuation process; level 1—quoted price, level 2—indirect observable inputs and level 3—unobservable inputs. For items classified as Level 3, a reconciliation of the beginning and ending balances, as shown in table 2 below, is also required.
			Table 1 below summarizes the assets measured at fair value on a recurring basis.
			Table 1:

		(in 000’s)
		Amounts				Quoted prices in				Significant
		measured at				active markets				other				Significant
		fair value				for identical				observable				unobservable
		9/30/2008				assets (level 1)				inputs (level 2)				inputs (level 3)
Assets:
Real estate and improvements		$	253,213			$	—			$	—			$	253,213
Real estate partnerships and preferred equity investments			13,619				—				—				13,619
Total		$	266,832			$	—			$	—			$	266,832

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
(Unaudited)

NOTE 2: Fair Value Disclosure (continued)

Table 2:

(in 000’s)
Fair value measurements using significant unobservable inputs
(Level 3)

						Real estate and
						partnerships and
		Real estate and				preferred equity
		improvements				investments				Total
Beginning balance @ 1/1/08		$	254,394			$	14,524			$	268,918
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)			(8,931	)			(813	)			(9,744	)
Equity income (losses)/interest income			—				722				722
Acquisition/issuances/contributions			7,750				—				7,750
Dispositions/settlements/distributions			—				(814	)			(814	)
Ending balance @ 9/30/08		$	253,213			$	13,619			$	266,832
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date		$	(8,931	)		$	(813	)		$	(9,744	)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
(Unaudited)

Note 3: Reclassification

Certain prior period balances have been reclassified to conform with current period presentation. Such reclassifications had no effect on previously reported net assets.

Note 4: Related Party Transactions

Pursuant to an investment management agreement, PIM charges the Partnership a daily investment management fee at an annual rate of 1.25% of the average daily gross asset valuation of the Partnership. For the nine months ended September 30, 2008 and 2007, investment management fees incurred by the Partnership were $2,608,842 and $2,492,126, respectively.

The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the nine months ended September 30, 2008 and 2007 were $40,222 and $87,122, respectively, and are classified as administrative expense in the Consolidated Statements of Operations.

Note 5: Investment Level Debt

On April 1, 2008, White Marlin Mall refinanced their existing loan for a construction loan in order to complete Phase III development at the property. The interest rate is one-day LIBOR + 225 basis points. The maturity date is April 1, 2010 with a one-year extension (April 1, 2011). Total loan amount is not to exceed $16,624,000. As of September 30, 2008 the balance outstanding is $14,586,522.

On June 30, 2008 Dunhill Trace refinanced their existing loan of $9,000,000. The interest rate is 90-day DMBS + 142 basis points. The maturity date is June 30, 2013.

Note 6: Commitments and Contingencies

The Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. These matters are generally covered by insurance. In the opinion of the Partnership’s management, the outcome of such matters will not have a material effect on the Partnership.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
(Unaudited)

Note 7: Financial Highlights

		For The Nine Months Ended September 30,
		2008				2007				2006				2005				2004
Per Share(Unit) Operating Performance:
Net Asset Value, beginning of period		$	36.55			$	33.87			$	29.59			$	26.15			$	24.66
Income From Investment Operations:
Investment income, before management fee			1.55				1.71				1.50				1.22				1.04
Investment Management fee			(0.39	)			(0.37	)			(0.33	)			(0.29	)			(0.27	)
Net realized and unrealized gain (loss) on investments			(1.31	)			0.89				2.07				2.05				0.82
Net Increase in Net Assets Resulting from Operations			(0.15	)			2.23				3.24				2.98				1.59
Net Asset Value, end of period		$	36.40			$	36.10			$	32.83			$	29.13			$	26.25
Total Return, before Management Fee:			0.64	%			7.70	%			12.14	%			12.58	%			7.58	%
Total Return, after Management Fee (a):			-0.41	%			6.58	%			10.96	%			11.39	%			6.46	%
Ratios/Supplemental Data:
Net Assets, end of period (in millions)		$	246			$	244			$	222			$	208			$	193
Ratios to average net assets for the year ended (b):
Total Portfolio Level Expenses			1.08	%			1.15	%			1.15	%			1.10	%			1.06	%
Investment Income before Management Fee			4.20	%			5.02	%			4.87	%			3.04	%			4.13	%

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All of the assets of the Real Property Account, or the “Account”, are invested in the Partnership. Accordingly, the liquidity and capital resources and results of operations for the Account are contingent upon those of the Partnership. Therefore, this management’s discussion and analysis addresses these items at the Partnership level. The partners in the Partnership are Prudential, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey, or collectively, the “Partners”.

The following discussion and analysis of the liquidity and capital resources and results of operations of the Partnership should be read in conjunction with the unaudited Consolidated Financial Statements of the Account and the Partnership and the related Notes included in this filing.

(a) Liquidity and Capital Resources

As of September 30, 2008, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $26.1 million, an increase of approximately $7.9 million from $18.2 million at December 31, 2007. The increase was primarily due to cash flows received from the Partnership’s operating activities and the repayment of the Partnership’s preferred equity investment, as discussed below. Partially offsetting this increase was a contribution to an existing retail property in Dunn, North Carolina as well as capital expenditures to existing properties, as detailed below. Sources of liquidity included net cash flow from property operations, financings, and interest from short-term investments. The Partnership uses cash for its real estate investment activities and for its distributions to its partners. As of September 30, 2008, approximately 8.8% of the Partnership’s total assets consisted of cash and cash equivalents.

During the nine months ended September 30, 2008, the Partnership made an additional $2.6 million preferred equity investment in an existing retail property located in Ocean City, Maryland to fund costs associated with the redevelopment of the center. This investment was repaid with interest on April 1, 2008 with proceeds to the Partnership totaling $4.0 million in conjunction with the refinancing of the existing loan as discussed below.

The Partnership did not have any dispositions or acquisitions for the nine months ended September 30, 2008. The Partnership refinanced two existing loans during the nine months ended September 30, 2008. The retail property in Ocean City, Maryland refinanced for loan proceeds of $16.6 million, of which $9.8 million represents additional indebtedness. $2.0 million of the loan remains to be funded for future costs associated with the redevelopment of the property. The apartment property in Raleigh, North Carolina refinanced for the amount of $9.0 million.

During the nine months ended September 30, 2008, the Partnership spent approximately $2.1 million on capital improvements to various existing properties. Approximately $1.1 million was associated with the renovation of the hotel property in Lake Oswego, Oregon; approximately $0.5 million funded renovation and tenant improvements costs at the office property in Lisle, Illinois; and approximately $0.2 million contributed to interior renovations at the apartment property in Atlanta, Georgia. The remaining $0.3 million was associated with minor capital improvements and transaction costs associated with leasing expenses of various other properties. Additionally, $5.7 million of capital improvements was funded at the retail property in Ocean City, Maryland through the aforementioned third party loan.

(b) Results of Operations

The following is a comparison of the Partnership’s results of operations for the nine and three-month periods ended September 30, 2008, and 2007.

Net Investment Income Overview

The Partnership’s net investment income for the nine months ended September 30, 2008 was approximately $8.4 million, a decrease of approximately $0.6 million from the prior year period. The decrease in net investment income was primarily attributable to a $0.8 million decline in the retail sector investments’ net investment income from the prior year period. Additionally other net investment loss increased approximately $1.0 million during the nine months ended September 30, 2008 from the prior year period. Partially offsetting the decrease were increases in the office and apartment sector investments’ net investment income of approximately $0.1 million and $1.1 million, respectively, from the prior year period. The industrial and hotel sector investments’ net investment incomes remained relatively unchanged. The components of this net investment income are discussed below by property type.

The Partnership’s net investment income for the quarter ended September 30, 2008 was approximately $2.4 million, a decrease of approximately $0.9 million from the prior year period. The decrease in net investment income was primarily attributable to a $0.7 million decline in the retail sector investments’ net investment income from the prior year period. Additionally, other net investment loss increased approximately $0.2 million during the quarter ended September 30, 2008 from the prior year period. The office, apartment, industrial, and hotel sector investments’ net investment incomes remained relatively unchanged. The components of this net investment income and/or loss are discussed below by investment type.

Valuation Overview

The Partnership did not record any realized gains for the nine and three-month periods ended September 30, 2008, compared with net realized gains of approximately $0.7 million and net realized loss of $0.1 million for the prior year periods, respectively.

The Partnership recorded a net unrealized loss of approximately $9.4 million for the nine months ended September 30, 2008, compared with a net unrealized gain of approximately $5.3 million for the prior year period. The net unrealized loss for the nine months ended September 30, 2008 was attributable to property valuation declines in the office, retail, and hotel sector investments of approximately $3.8 million, $6.7 million, and $0.5 million, respectively. Partially offsetting these unrealized losses were net unrealized gains of approximately $1.6 million related to the apartment sector investments. The components of these valuation gains and/or losses are discussed below by property type.

The Partnership recorded a net unrealized loss of approximately $8.2 million for the quarter ended September 30, 2008, compared with a net unrealized loss of approximately $0.4 million for the prior year period. The net unrealized loss for the quarter ended September 30, 2008 was attributable to property valuation declines in the office, retail, and hotel sector investments of approximately $1.4 million, $7.3 million, and $0.4 million, respectively. Partially offsetting these unrealized losses were net unrealized gains of approximately $0.9 million recorded in the apartment sector investments. The components of these valuation gains and/or losses are discussed below by property type.

The following table presents a comparison of the Partnership’s sources of net investment income, and realized and unrealized gains or losses by investment type for the nine and three-month periods ended September 30, 2008 and 2007.

		Nine Months Ended September 30,								Three Months Ended September 30,
		2008				2007				2008				2007
Net Investment Income:
Office properties		$	2,946,458			$	2,850,757			$	1,002,889			$	1,004,205
Apartment properties			2,403,477				1,278,936				703,351				640,578
Retail properties			4,464,769				5,276,342				1,060,885				1,824,046
Industrial property			—				14,363				—				(1,595	)
Hotel property			961,822				979,791				432,562				453,390
Other (including interest income, investment management fee, etc.)			(2,338,642	)			(1,356,565	)			(797,223	)			(574,039	)
Total Net Investment Income		$	8,437,884			$	9,043,624			$	2,402,464			$	3,346,585
Net Realized Gain (Loss) on Real Estate Investments:
Retail properties			—				361,453				—				(52,381	)
Industrial property			—				345,832				—				—
Net Realized Gain (Loss) on Real Estate Investments			—				707,285				—				(52,381	)
Net Unrealized Gain (Loss) on Real Estate Investments:
Office properties			(3,810,194	)			1,692,160				(1,447,594	)			1,153,887
Apartment properties			1,550,725				2,972,253				940,413				542,403
Retail properties			(6,721,128	)			(53,704	)			(7,292,156	)			(1,766,903	)
Hotel property			(460,225	)			699,273				(359,467	)			(331,684	)
Net Unrealized Gain (Loss) on Real Estate Investments			(9,440,822	)			5,309,982				(8,158,804	)			(402,297	)
Net Realized and Unrealized Gain (Loss) on Real Estate Investments			($9,440,822	)		$	6,017,267				($8,158,804	)			($454,678	)

OFFICE PROPERTIES

		Net Investment				Net Investment				Unrealized				Unrealized
		Income/(Loss)				Income/(Loss)				Gain/(Loss)				Gain/(Loss)				Occupancy				Occupancy
Nine Months Ended September 30,		2008				2007				2008				2007				2008				2007
Property
Lisle, IL		$	523,139			$	420,962			$	(2,144,192	)		$	755,813				70	%			61	%
Brentwood, TN			780,310				842,377				249,458				(274,078	)			89	%			100	%
Beaverton, OR			840,781				782,795				(1,215,460	)			1,035,463				88	%			91	%
Brentwood, TN			802,228				804,623				(700,000	)			174,962				100	%			100	%
		$	2,946,458			$	2,850,757			$	(3,810,194	)		$	1,692,160
Three Months Ended September 30,
Property
Lisle, IL		$	229,109			$	202,520			$	(1,007,132	)		$	(32,613	)
Brentwood, TN			256,049				287,843				273,195				(104,620	)
Beaverton, OR			279,321				268,880				(13,657	)			792,313
Brentwood, TN			238,410				244,962				(700,000	)			498,807
		$	1,002,889			$	1,004,205			$	(1,447,594	)		$	1,153,887