Prudential Variable Contract Real Property Account 10-K 2006 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2006

OR

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

Commission file Number033-20083-01

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

in respect of

THE PRUDENTIAL VARIABLE CONTRACT

REAL PROPERTY ACCOUNT

(Exact name of Registrant as specified in its charter)

New Jersey	22-1211670
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

751 Broad Street, Newark, New Jersey07102-2992

(Address of principal executive offices) (Zip Code)

(973) 802-6000

(Registrant’s telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  YES o     NO þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  YES o     NO þ

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 if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in part III of thisForm 10-K or any amendment to thisForm 10-K.  o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act (check one)

Large accelerated filer o     Accelerated filer o     Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in

Rule 12b-2 of this Act)  Yes o     No þ

DOCUMENTS INCORPORATED BY REFERENCE

INFORMATION REQUIRED TO BE FURNISHED PURSUANT TO PART III OF THISFORM 10-K IS SET FORTH IN, AND IS HEREBY INCORPORATED BY REFERENCE HEREIN FROM, THE DEFINITIVE PROXY STATEMENT OF PRUDENTIAL FINANCIAL, INC., FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 8, 2007, TO BE FILED BY PRUDENTIAL FINANCIAL, INC. WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A NOT LATER THAN 120 DAYS AFTER DECEMBER 31, 2006.

THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)

INDEX

Item		Page
No.		No.
	Cover Page
	Index		2
	Forward-Looking Statement Disclosure		3
PART I
1.	Business		4
1A.	Risk Factors		6
1B.	Unresolved Staff Comments		6
2.	Properties		6
3.	Legal Proceedings		6
4.	Submission of Matters to a Vote of Security Holders		7
PART II
5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		7
6.	Selected Financial Data		7
7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		7
7A.	Quantitative and Qualitative Disclosures About Market Risk		14
8.	Financial Statements and Supplementary Data		15
9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		15
9A.	Controls and Procedures		15
9B.	Other Information		15
PART III
10.	Directors, Executive Officers and Corporate Governance		16
11.	Executive Compensation		17
12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		18
13.	Certain Relationships and Related Transactions, and Director Independence		18
14.	Principal Accounting Fees and Services		18
PART IV
15.	Exhibits, Financial Statement Schedules		19
	Exhibit Index		19
	Signatures		21

2

Forward-Looking Statement Disclosure

Certain of the statements included in this Annual Report onForm 10-K, including but not limited to those in the 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 The Prudential Insurance Company of America, or the “Company”, or The Prudential 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 stock, real estate and other financial markets; (2) interest rate fluctuations; (3) re-estimates of our reserves for future policy benefits and claims; (4) 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 or goodwill; (5) changes in our assumptions related to deferred policy acquisition costs and valuation of business acquired; (6) changes in our claims-paying or credit ratings; (7) investment losses and defaults; (8) competition in our product lines and for personnel; (9) changes in tax law; (10) economic, political, currency and other risks relating to our international operations; (11) regulatory or legislative changes; (12) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities, including in connection with our divestiture or winding down of businesses; (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; and (16) changes in statutory or accounting principles generally accepted in the United States of America, or “U.S. GAAP”, accounting principles, practices or policies. 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” for discussion of certain risks relating to the operation of the Partnership.

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PART I

Item 1.  Business

The Prudential Variable Contract Real Property Account (the “Real Property Account” or the “Registrant”) was established on November 20, 1986. Pursuant to New Jersey law, the Real Property Account was established as a separate investment account of The Prudential Insurance Company of America (“Prudential”). The Real Property Account was established to provide a real estate investment option offered in connection with the funding of benefits under certain variable life insurance and variable annuity contracts (the “Contracts”) issued by The Prudential Insurance Company of America.

The assets of the Real Property Account are invested in The Prudential Variable Contract Real Property Partnership (the “Partnership”). The Partnership, a general partnership organized under New Jersey law on April 29, 1988, was formed through an agreement among Prudential, Pruco Life Insurance Company (“Pruco Life”) and Pruco Life Insurance Company of New Jersey (“Pruco Life of New Jersey”), to provide a means for assets allocated to the real estate investment option under certain variable life insurance and variable annuity contracts issued by the respective companies to be invested in a commingled pool.

The Partnership has an investment policy of investing at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans. The largest portion of these real estate investments are direct ownership interests in income-producing real estate, such as office buildings, shopping centers, hotels, apartments, or industrial properties. Approximately 10% of the Partnership’s assets are generally held in cash or invested in liquid instruments and securities although the Partners reserve discretion to increase this amount to meet partnership liquidity requirements.

Office Properties – The Partnership owns office properties in Lisle, Illinois; Brentwood, Tennessee; and Beaverton, Oregon. Total square footage owned is approximately 370,550, of which 79%, or 291,652 square feet, are leased between 1 and 10 years.

Apartment Complexes – The Partnership owns apartment complexes in Atlanta, Georgia and Raleigh, North Carolina, comprising a total of 490 apartment units, of which 91%, or 445 units, are leased. Leases range from month to month to one year.

Retail Property – The Partnership owns retail centers in Roswell, Georgia; Kansas City, Kansas; Ocean City, Maryland; Hampton, Virginia; and Westminster, Maryland. Total square footage owned is approximately 814,878, of which 95%, or 770,473 square feet, are leased between 1 and 30 years.

Industrial Properties – The Partnership owns an industrial property in Aurora, Colorado. Total square footage owned is approximately 277,930, of which 85%, or 234,997 square feet, are leased between 1 and 10 years.

Hotel Property – The Partnership owns a hotel property in Lake Oswego, Oregon. This joint venture investment has 161 rooms. Occupancy for the year ended 2006 averaged 79.6%.

Investment in Real Estate Trust – The Partnership liquidated its entire investment in REIT shares in December 2001. The Partnership does, however, maintain a preferred equity investment in an existing private real estate investment trust, or “REIT” (See Item 7(a)).

The Partnership’s investments are maintained so as to meet the diversification requirements set forth in treasury regulations issued pursuant to Section 817(h) of the Internal Revenue Code relating to the investments of variable life insurance and variable annuity separate accounts. Section 817(h) requires, among other things, that the partnership will have no more than 55% of the assets invested in any one investment, no more than 70% of the assets will be invested in any two investments, no more than 80% of the assets will be invested in any three investments, and no more than 90% of the assets will be invested in any four investments. To comply with regulatory requirements of the State of Arizona, the Partnership will limit additional investments in any one parcel or related parcels to an amount not exceeding 10% of the Partnership’s gross assets as of the prior fiscal year.

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For information regarding the Partnership’s investments, operations, and other significant events, see Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations and Financial Statements and Supplementary Data.

The following is a description of general conditions in the U.S. real estate markets. It does not relate to specific properties held by the Partnership. The Partnership does not have widely diversified holdings; therefore, the discussions of vacancy rates, property values and returns in this section are not necessarily relevant to the Partnership’s portfolio. These results are not indicative of future performance.

MARKET CONDITIONS

Commercial property market fundamentals continued to improve steadily last year despite the dramatic slowdown in the U.S. housing market and the modest deceleration in economic growth. Healthy tenant demand and limited new supply caused vacancy rates to decline across most property types for a third consecutive year, allowing more markets to move decisively from recovery into the rent growth phase of the cycle. Although trailing one-year total returns for private real estate, as measured by the National Council of Real Estate Investment Fiduciaries’ Property Index, peaked in the first quarter, commercial real estate delivered a healthy total return of 16.6% in 2006.

Debt Market

The commercial real estate debt markets weathered the brief spike in long-term interest rates in 2006 with little disruption. Debt remained readily available for borrowers across all property types and with little differentiation in spreads by sector. Year-end origination data is not yet available. However, at the end of the third quarter,year-to-date commercial mortgage originations were about 11% higher than at the same time in 2005, according to the Mortgage Bankers Association. The public debt markets for commercial real estate also remained active last year. New issuance of commercial mortgage-backed securities surged to nearly $300 billion in 2006, a 25% rise above the record volume in 2005.

Public Real Estate Securities

Equity REITs delivered average total returns of about 35% in 2006, according to the National Association of Real Estate Investment Trusts. A private-equity-fueled surge in Mergers and Acquisitions, or “M&A” activity helped drive REIT share prices higher in 2006 as more private capital converged on the REIT market as a source of large portfolios of quality assets. More than $110 billion in real estate M&A deals were announced in 2006, including about $70 billion in privatizations of public REITs. All major property types performed well. Office REITs led all major property types with average total returns of about 45%, followed by apartment REITs, which gained nearly 40%.

Property Markets

Office: The office sector continued to attract significant investor interest in 2006. According to Real Capital Analytics, or “RCA,” office transaction volume soared to nearly $134 billion last year, an increase of about 33% over the volume in 2005 and more than 80% over 2004. Office space market fundamentals in a growing number of markets are very attractive today. According to Torto Wheaton Research, or “TWR,” the average office vacancy rate in its 56 market coverage universe fell from 13.6% at year-end 2005 to 12.6% in 4Q06, its lowest level since 2Q01.

Industrial: Investor demand for warehouse properties also remained fairly strong in 2006, despite a modest slowdown in the manufacturing sector. According to RCA, industrial transaction volume totaled nearly $39 billion in 2006, an increase of about 9% over the total in 2005. Transaction volumes declined over the second half of last year, however. Industrial space market fundamentals continued to improve in 2006. According to TWR, the average industrial vacancy rate fell about 50 bps last year to 9.4%, its lowest level since 3Q01.

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Residential: The slowdown in the U.S. housing market produced mostly positive effects in the apartment market in 2006. Apartment fundamentals continued to strengthen as vacancies fell and rent concessions became less common. However, apartment transaction volumes fell about 1% in 2006 to a little more than $87 billion, while the average unit price declined 3%. Many apartment markets recorded healthy rent growth in 2006 as concessions were eliminated and landlords regained enough pricing power to push rents higher, especially on the coasts.

Retail: Retail transaction activity continued to decline last year. In 2006, total volume was down about 12% from the peak in October 2005. Retail prices, however, have remained firm. Average retail transaction cap rates fell about 30 bps in 2006 to 6.7%, according to RCA, while average unit prices rose by 13%. Retail space market fundamentals and retailer demand have remained healthy.

Hotel: The lodging sector enjoyed one of its best years ever in 2006. According to Smith Travel Research, room demand rose 1.1% from 2005 to 2006, while supply expanded just 0.6%. Continued strong room demand pushed average occupancy rates 0.5% higher and allowed operators to increase average daily rates 7%. As a result, revenue per available room, or “RevPAR,” rose 7.5% in 2006. Luxury hotels and urban locations continued to perform well, with RevPAR growth rates of 11.7% and 9.7%, respectively.

Item 1A.  Risk Factors

These risks could materially affect our business, results of operations or financial condition or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our businesses described elsewhere in this Annual Report onForm 10-K.

All real estate investments are subject to varying degrees of risk. The yields available from investments depend on the amounts of income generated and expenses incurred. If investment properties do not generate revenues sufficient to meet operating expenses, including debt service and capital expenditures, cash flow will be adversely affected.

The revenues and value of a particular real estate investment may be adversely affected by a number of factors, including, but not limited to: the cyclical nature of the real estate market, general national economic conditions, local economic conditions, local real estate conditions, and fluctuations in operating costs, including real estate taxes and utilities. Certain significant expenditures associated with each equity investment, such as mortgage payments, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in income from the investment. If a property is mortgaged to secure payment of indebtedness, and if the mortgaged property is unable to produce enough revenue to cover its mortgage or other debt payments, a loss could be sustained as a result of foreclosure on the property or the exercise of other remedies by the lender. In addition, a property’s revenues and real estate value may also be affected by such factors as potential liability under applicable federal, state and local laws and regulations, which may vary widely depending upon location, including tax laws, environmental laws, Americans with Disabilities Act accessibility requirements, and rent stabilization laws.

Item 1B.  Unresolved Staff Comments

None.

Item 2.  Properties

Not Applicable.

Item 3.  Legal Proceedings

None.

Item 4.  Submission of Matters to a Vote of Security Holders

Contract owners participating in the Real Property Account have no voting rights with respect to the Real Property Account.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Owners of the Contracts may participate by allocating all or part of the net premiums or purchase payments to the Real Property Account. Contract values vary with the performance of the Real Property Account’s investments through the Partnership. Participating interests in the Real Property Account are not traded in any public market; therefore a discussion of market information is not relevant.

As of December 31, 2006, approximately 32,863 contract owners of record held investments in the Real Property Account.

Item 6.  Selected Financial Data

RESULTS OF OPERATIONS:

	Year Ended December 31,
	2006		2005		2004		2003			2002			2001			2000
Total Investment Income	$	28,623,487	$	28,644,271	$	29,076,163	$	27,060,494		$	27,077,048		$	27,480,593		$	26,387,938
Net Investment Income	$	11,161,728	$	9,219,171	$	7,799,606	$	10,613,409		$	10,864,043		$	12,350,306		$	13,638,117
Net Realized and Unrealized Gain (Loss) on Real Estate Investments		18,352,005		15,460,619		3,280,394		(6,467,364	)		(8,517,663	)		(2,547,749	)		4,487,022
Net Increase in Net Assets Resulting From Operations	$	29,513,733	$	24,679,790	$	11,080,000	$	4,146,045		$	2,346,380		$	9,802,557		$	18,125,139

FINANCIAL POSITION:

	Year Ended December 31,
	2006		2005		2004		2003		2002		2001		2000
Total Assets	$	272,136,819	$	246,015,115	$	240,575,611	$	235,627,852	$	229,720,113	$	234,594,652	$	221,512,296
Long Term Lease Obligation	$	0	$	0	$	0	$	0	$	0	$	0	$	0
Investment Level Debt	$	32,710,488	$	33,195,607	$	43,773,767	$	43,934,494	$	35,699,108	$	28,994,521	$	10,092,355

Item 7.  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 audited Consolidated Financial Statements of the Account and the Partnership and the related Notes included in this filing.

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(a)  Liquidity and Capital Resources

As of December 31, 2006, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $33.4 million, a decrease of approximately $12.1 million from $45.5 million at December 31, 2005. The decrease was primarily due to an additional funding for a preferred equity investment in a private real estate investment trust, or “REIT”, the acquisition of a retail property and a distribution to the Partners, as discussed below. Partially offsetting the decrease were proceeds received in connection with a loan payoff, as described below, and the cash flows from the Partnership’s operating activities of $11.9 million. Sources of liquidity included net cash flow from property operations, sales, 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 December 31, 2006, approximately 12.3% of the Partnership’s total assets consisted of cash and cash equivalents.

During 2006, the Partnership completed the second funding of its preferred equity investment in its existing Capital Automotive, or “CARS”, REIT for $7.3 million. CARS owns approximately 364 properties, which are leased to sixty automobile dealership operators throughout the United States. This investment is expected to pay to investors an annual preferred return of 7.5% for years one through five, 8.75% during years six and seven, and 12% for all subsequent years. In addition, the Partnership invested $14.8 million in June to acquire an 89,849 square-foot retail property located in Westminster, Maryland.

Dispositions for the year included the sale of a portfolio of three retail properties located in Kansas City, Kansas and Kansas City, Missouri resulting in net proceeds of $3.6 million after the repayment of debt.

The Partnership made distributions to its Partners totaling $6.0 million during 2006.

The Partnership issued a Leasehold Mortgage Loan to a borrower in January 2004 in connection with the redevelopment of a retail center in Westminster, Maryland. The loan was paid in full by the borrower in March 2006, resulting in proceeds of approximately $4.3 million.

The Partnership spent approximately $3.2 million on capital improvements to various existing properties during 2006. Approximately $1.3 million was associated with leasing expenses at the office property in Lisle, Illinois, approximately $0.4 million funded the renovation of an apartment complex in Atlanta, Georgia and approximately $0.5 million was spent on budgeted capital projects and leasing expenses at the industrial property in Aurora, Colorado. The remaining $1.0 million was associated with minor capital improvements and transaction costs associated with leasing expenses of various other properties.

(b)  Results of Operations

The following is a comparison of the Partnership’s results of operations for the periods ended December 31, 2006 and 2005.

Net Investment Income Overview

The Partnership’s net investment income for the year ended December 31, 2006 was approximately $11.2 million, an increase of $2.0 million from $9.2 million for the prior year. The office, retail, industrial and hotel sector investments posted increases of approximately $0.3 million, $1.7 million, $0.2 million and $0.2 million, respectively, from the prior year. Partially offsetting this increase was a decrease in net investment income in the apartment sector of approximately $0.9 million. In addition, the land sector posted a slight decrease in net investment income during the year ended December 31, 2006. Other net investment income (loss) decreased $0.4 million during the year ended December 31, 2006 from the prior year. The components of this net investment income are discussed below by property type sector.

Valuation Overview

The Partnership recorded an aggregate net realized gain of approximately $0.1 million for the year ended December 31, 2006, compared to an aggregate net realized gain of $6.2 million for the prior year. The Partnership recorded an aggregate net unrealized gain of approximately $18.3 million for the year ended December 31, 2006, compared to an aggregate net unrealized gain of $9.2 million for the prior year. The aggregate net realized and unrealized gain of $18.4 million for the year ended December 31, 2006 was attributable to valuation gains in all property type sectors. Partially offsetting these gains for the year ended December 31, 2006 was a slight realized loss recorded in the land sector. The components of these valuation gainsand/or losses are discussed below by property type sector.

8

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 years ended December 31, 2006 and 2005.

	Twelve Months Ended December 31,
	2006			2005
Net Investment Income:
Office properties	$	3,407,082		$	3,100,955
Apartment complexes		1,059,134			1,952,155
Retail properties		6,128,671			4,402,792
Industrial property		773,668			574,977
Hotel property		1,288,716			1,086,783
Land		(36,582	)		—
Other (including interest income, investment mgt fee, portfolio level expenses,etc.)		(1,458,961	)		(1,898,491	)
Total Net Investment Income	$	11,161,728		$	9,219,171
Net Realized Gain (Loss) on Real Estate Investments:
Apartment Complex		70,689			4,446,010
Office Building		—			1,174,380
Land		(2,919	)		598,432
Total Net Realized Gain (Loss) on Real Estate Investments		67,770			6,218,822
Net Unrealized Gain (Loss) on Real Estate Investments:
Office properties		2,514,348			3,298,783
Apartment complexes		3,588,692			516,658
Retail properties		6,265,806			3,011,793
Industrial property		2,132,560			1,369,434
Hotel property		3,782,829			1,045,129
Total Net Unrealized Gain (Loss) on Real Estate Investments		18,284,235			9,241,797
Net Realized and Unrealized Gain (Loss) on Real Estate Investments	$	18,352,005		$	15,460,619

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OFFICE PROPERTIES

								Realized/
	Net Investment		Net Investment		Unrealized			Unrealized
	Income/(Loss)		Income/(Loss)		Gain/(Loss)			Gain/(Loss)			Occupancy		Occupancy
Year Ended December 31,	2006		2005		2006			2005			2006		2005
Property
Lisle, IL	$	376,939	$	313,356	$	(644,356	)	$	(98,837	)		38%		38%
Brentwood, TN		1,084,255		984,017		69,832			1,254,008			100%		93%
Oakbrook Terrace, IL (1)		1,323		203,313		—			1,174,380			N/A		N/A
Beaverton, OR		940,713		851,182		1,888,872			809,842			79%		78%
Brentwood, TN (2)		1,003,852		749,087		1,200,000			1,333,767			100%		100%
	$	3,407,082	$	3,100,955	$	2,514,348		$	4,473,160

(1)	The Oakbrook Terrace, Illinois office property was sold on June 8, 2005 but certain post-closing adjustments were recognized in the year ended December 31, 2006.
(2)	Net Investment Income for the year ended December 31, 2005 reflects a partial period rent abatement that was provided to the tenant as part of the lease.

Net Investment Income

Net investment income for the Partnership’s office properties was approximately $3.4 million for the year ended December 31, 2006, an increase of approximately $0.3 million from the prior year. The increase was primarily due to (a) increased rents and lower expenses at the office property in Lisle, Illinois; (b) stabilized occupancy and increased rents at the office properties in Brentwood, Tennessee; and (c) increased rents and higher occupancy at the office property in Beaverton, Oregon. Partially offsetting this increase was the loss of income from the Oakbrook Terrace, Illinois office property that was sold on June 8, 2005.

Total Realized and Unrealized Gain/(Loss)

The office properties owned by the Partnership recorded an aggregate net unrealized gain of approximately $2.5 million during the year ended December 31, 2006, compared to an aggregate net realized and unrealized gain of $4.5 million for the prior year. The net unrealized gain of $2.5 million for the year ended December 31, 2006 was primarily due to strengthening market fundamentals and investor demand in the office sector in Beaverton, Oregon as well as improving market conditions at the office properties in Brentwood, Tennessee. Partially offsetting these unrealized gains was a net unrealized loss of approximately $0.6 million at the office property in Lisle, Illinois due to continued soft market conditions, which resulted in a decrease in market rental rates.

APARTMENT COMPLEXES

						Realized/		Realized/
	Net Investment			Net Investment		Unrealized		Unrealized
	Income/(Loss)			Income/(Loss)		Gain/(Loss)		Gain/(Loss)			Occupancy		Occupancy
Year Ended December 31,	2006			2005		2006		2005			2006		2005
Property
Atlanta, GA	$	505,136		$	123,570	$	2,507,734	$	(597,672	)		90%		91%
Raleigh, NC		589,289			678,498		1,080,958		1,114,329			92%		93%
Jacksonville, FL (1)		(25,126	)		902,707		70,520		4,283,549			N/A		N/A
Gresham/Salem, OR (1)		(10,165	)		247,380		169		162,462			N/A		N/A
	$	1,059,134		$	1,952,155	$	3,659,381	$	4,962,668

(1) The Salem, Oregon, Gresham, Oregon and Jacksonville, Florida apartment properties were sold on March 10, 2005, August 10, 2005 and November 30, 2005, respectively, but certain post-closing adjustments were recognized in the year ended December 31, 2006.

Net Investment Income

Net investment income for the Partnership’s apartment properties was $1.1 million for the year ended December 31, 2006, a decrease of approximately $0.9 million from the prior year. The decrease was primarily due to the loss of income on the Salem, Oregon, Gresham, Oregon and Jacksonville, Florida apartment properties that were sold on March 10, 2005, August 10, 2005 and November 30, 2005, respectively, and increased operating expenses at the apartment property in Raleigh, North Carolina. Partially offsetting the decrease was an increase in net investment income for the apartment property in Atlanta, Georgia due to increased rents, reduced operating expenses and lowered rental concessions.

10

Total Realized and Unrealized Gain/(Loss)

The apartment properties owned by the Partnership recorded an aggregate net realized and unrealized gain of $3.7 million for the year ended December 31, 2006, compared to an aggregate net realized and unrealized gain of $5.0 million for the prior year. The aggregate net realized and unrealized gain for the year ended December 31, 2006 was primarily due to valuation gains resulting from investor demand and the strengthening of both market and property fundamentals, which included reduced rental concessions and increased rental rates, at the apartment properties in Atlanta, Georgia and Raleigh, North Carolina. In addition, the Jacksonville, Florida apartment property that was sold in November 2005 recognized realized gains of approximately $0.1 million due to the disbursement of reserved funds that were escrowed at closing for any post-closing operating adjustments.

RETAIL PROPERTIES

	Net Investment			Net Investment			Unrealized			Unrealized
	Income/(Loss)			Income/(Loss)			Gain/(Loss)			Gain/(Loss)			Occupancy		Occupancy
Year Ended December 31,	2006			2005			2006			2005			2006		2005
Property
Roswell, GA	$	2,096,974		$	1,767,394		$	1,071,439		$	1,652,340			93%		94%
Kansas City, KS; MO (1)		(34,810	)		195,927			(164,205	)		(5,069,318	)		90%		81%
Hampton, VA		1,307,686			1,272,509			(107,277	)		5,096,161			100%		100%
Ocean City, MD		746,520			871,644			79,619			1,332,610			92%		85%
Westminster, MD (2)		908,788			—			5,386,230			—			98%		N/A
Westminster, MD (3)		124,362			278,799			—			—			N/A		N/A
Westminster, MD (4)		—			(5,704	)		—			—			N/A		N/A
CARS Preferred Equity (5)		979,151			22,223			—			—			N/A		N/A
	$	6,128,671		$	4,402,792		$	6,265,806		$	3,011,793

(1)	Net investment income (loss) for the year ended December 31, 2006 reflects partial period results for the three out of four Kansas City, Kansas and Kansas City, Missouri retail properties that were sold on May 15, 2006. Occupancy for the year ended December 31, 2006 reflects remaining retail property in Kansas City, Kansas.
(2)	Net investment income for the year ended December 31, 2006 reflects partial period results for the Westminster, Maryland retail property that was acquired on June 13, 2006.
(3)	Mortgage Loan Receivable (mortgage paid in full on March 3, 2006).
(4)	Classified as Other Real Estate Investment (mortgage paid in full September 13, 2004).
(5)	Net investment income for the year ended December 31, 2006 reflects partial period results for the second funding of the Partnership’s preferred equity investment, which occurred on February 14, 2006.

Net Investment Income

Net investment income for the Partnership’s retail properties was $6.1 million for the year ended December 31, 2006, an increase of approximately $1.7 million from the prior year. The increase was primarily due to (a) stabilized occupancy and increased rents at the retail center in Roswell, Georgia; (b) income received from the preferred equity investments made by the Partnership on December 16, 2005 and February 14, 2006, respectively; (c) the acquisition of a retail property in Westminster, Maryland in June 2006; and (d) increased rents at the retail property in Hampton, Virginia. Partially offsetting the increase were (a) increased operating expenses at the retail property in Ocean City, Maryland; (b) the loss of income as well as higher expenses at the retail properties in Kansas City, Kansas and Kansas City, Missouri due to the prepayment penalty of the existing mortgage on the three properties upon their respective sales in May 2006; and (c) the loss of interest income for the Mortgage Loan Receivable that was paid in full by the borrower on March 7, 2006.

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Unrealized Gain/(Loss)

The retail properties owned by the Partnership recorded an aggregate net unrealized gain of $6.3 million for the year ended December 31, 2006, compared to an aggregate net unrealized gain of $3.0 million for the prior year. The unrealized gain for the year ended December 31, 2006 was primarily due to the acquisition of the retail property in Westminster, Maryland at cost, which resulted in $5.4 million in valuation gains. In addition, unrealized gains of approximately $1.1 million and $0.1 million were recorded at the retail properties in Roswell, Georgia due to continued investor demand and in Ocean City, Maryland due to strengthening market fundamentals, respectively. Partially offsetting these gains for the year ended December 31, 2006 were unrealized losses of approximately $0.2 million recorded at the retail properties in Kansas City, Kansas and Kansas City, Missouri due to the three properties having been sold slightly below their previously appraised values and $0.1 million recorded at the retail property in Hampton, Virginia reflecting updated market conditions.

INDUSTRIAL PROPERTY

	Net Investment		Net Investment		Unrealized		Unrealized
	Income/(Loss)		Income/(Loss)		Gain/(Loss)		Gain/(Loss)		Occupancy		Occupancy
Year Ended December 31,	2006		2005		2006		2005		2006		2005
Property
Aurora, CO	$	773,668	$	574,977	$	2,132,560	$	1,369,434		85%		78%

Net Investment Income

Net investment income for the Partnership’s industrial property was $0.8 million for the year ended December 31, 2006, an increase of approximately $0.2 million from the prior year. The increase was primarily due to higher occupancy, increased rents and reduced operating expenses, compared to the prior year.

Unrealized Gain/(Loss)

The industrial property owned by the Partnership recorded a net unrealized gain of approximately $2.1 million for the year ended December 31, 2006, compared to a net unrealized gain of $1.4 million for the prior year. The net unrealized gain for the year ended December 31, 2006 was primarily due to continued improving market fundamentals and investor demand in the industrial sector at Aurora, Colorado.

HOTEL PROPERTY

	Net Investment		Net Investment		Unrealized		Unrealized
	Income/(Loss)		Income/(Loss)		Gain/(Loss)		Gain/(Loss)		Occupancy		Occupancy
Year Ended December 31,	2006		2005		2006		2005		2006		2005
Property
Lake Oswego, OR	$	1,288,716	$	1,086,783	$	3,782,829	$	1,045,129		80%		80%

Net Investment Income

Net investment income for the Partnership’s hotel property was $1.3 million for the year ended December 31, 2006, an increase of approximately $0.2 million from the prior year. The increase was primarily due to higher average daily rates generated at the hotel compared to the prior year.

Unrealized Gain/(Loss)

The hotel property owned by the Partnership recorded a net unrealized gain of $3.8 million for the year ended December 31, 2006, compared to a net unrealized gain of $1.0 million for the prior year. The net unrealized gain for the year ended December 31, 2006 reflects the continued strengthening of market and property fundamentals and investor demand.

12

Land

The Blue Springs, Missouri land property was sold on November 28, 2005, but certain post-closing adjustments were recognized during the year ended December 31, 2006, which resulted in a slight decrease to net investment income. The same land property also recorded a slight realized loss during the year ended December 31, 2006, which reflects a post-closing adjustment to the $0.6 million gain recognized during the fourth quarter of 2005 when the land was sold.

Other

Other net investment income (loss) decreased $0.4 million for the year ended December 31, 2006 from the prior year period. Other net investment income (loss), which is included in Net Investment Income, includes interest income from short-term investments, investment management fees, and portfolio level expenses.

(c)  Inflation

The Partnership’s leases with a majority of its commercial tenants provide for recoveries of expenses based upon the tenant’s proportionate share of,and/or increases in, real estate taxes and certain operating costs, which may partially reduce the Partnership’s exposure to increases in operating costs resulting from inflation.

Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America, or “U.S. GAAP”, requires the application of accounting policies that often involve a significant degree of judgment. Management reviews critical estimates and assumptions on an ongoing basis. If management determines, as a result of its consideration of facts and circumstances, that modifications in assumptions and estimates are appropriate, results of operations and financial position as reported in the audited Consolidated Financial Statements of the Account and the Partnership may change significantly.

The following sections discuss those critical accounting policies applied in preparing the audited Consolidated Financial Statements of the Account and the Partnership that are most dependent on the application of estimates and assumptions.

Valuation of Investments

Real Estate Investments — Real estate investments are shown at estimated market value in accordance with the terms of the Partnership’s contracts. 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. Market 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 Chief Real Estate Appraiser of Prudential Investment Management, Inc., or “PIM”, which is an indirectly owned subsidiary of Prudential Financial, Inc., is responsible for assuring that the valuation process provides independent and reasonable property market value estimates. American Appraisal Associates, or the “Appraisal Management Firm”, an entity not affiliated with PIM, 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. Unless a property is currently held for sale, the market value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments.

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Unconsolidated real estate partnerships are valued at the Partnership’s equity in net assets as reflected in the partnership’s 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.

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 or that achieve a certain level of leasing. Where conditions precedent to funding have been met by its development partner, and the Partnership’s commitment to fund is firm, the amount of any unrealized gain or loss is recognized based upon the difference between the estimated investment’s market value as described above and the Partnership’s funding obligation. The funding obligation and related assets are recorded in the consolidated financial statements.

As described above, the estimated market value of real estate and real estate related assets is determined through an appraisal process. These estimated market values may vary significantly from the prices at which the real estate investments would sell, because 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 market values represent subjective estimates, management believes that these estimated market values are reasonable approximations of market prices and that the aggregate estimated value of investments in real estate is fairly presented as of December 31, 2006, and 2005.

Land and development properties held for future development is carried at acquisition cost including soft costs incurred prior to development.

Other Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the audited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

ITEM 7A.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk — The Partnership’s exposure to market rate risk for changes in interest rates relates to approximately 28.55% of its investment portfolio as of December 31, 2006, which consists primarily of short-term fixed rate commercial paper and fixed and variable interest rate debt. The Partnership does not use derivative financial instruments. By policy, the Partnership places its investments with high quality debt security issuers, limits the amount of credit exposure to any one issuer, limits duration by restricting the term, and holds investments to maturity except under unusual circumstances.

The table below presents the amounts and related weighted interest rates of the Partnership’s cash equivalents and short-term investments at December 31, 2006:

			Estimated Market Value		Average
	Maturity		(in $ millions)		Interest Rate
Cash and Cash equivalents		0-3 months	$	33.4		5.57%

The table below discloses the Partnership’s debt as of December 31, 2006. All of the Partnership’s long-term debt bears interest at fixed rates and therefore the fair value of these instruments is affected by changes in market interest rates. The following table presents principal cash flows based upon maturity dates of the

14

debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt.

Debt (in $ thousands),															Estimated
Including Current Portion	2007		2008		2009		2010		2011		Thereafter		Total		Fair Value
Average Fixed Interest Rate		5.35%		5.74%		6.75%		6.75%		6.75%		6.75%		6.50%
Fixed Rate	$	588	$	16,090	$	9,277	$	565	$	604	$	5,586	$	32,710	$	32,876
Variable Rate		—		—		—		—		—		—		—		—
Total Mortgage Loans Payable	$	588	$	16,090	$	9,277	$	565	$	604	$	5,586	$	32,710	$	32,876

The Partnership is exposed to market risk from tenants. While the Partnership has not experienced any significant credit losses, in the event of significant increases in interest ratesand/or an economic downturn, delinquencies could increase and result in losses to the Partnership and the Account that could adversely affect its operating results and liquidity.

Item 8.  Financial Statements and Supplementary Data

The financial statements and supplementary data are listed in the accompanying Index to the Financial Statements and Supplementary Data on F-1.

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission, or “SEC”, is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange ActRules 13a-15(e) and15d-15(e), under the Securities Exchange Act of 1934, as amended, as of December 31, 2006. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2006, our disclosure controls and procedures were effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings. There has been no change in our internal control over financial reporting, as defined in Exchange ActRules 13a-15(e) and15d-15(e), during the year ended December 31, 2006, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information

None.

15

PART III

Item 10.  Directors, Executive Officers and Corporate Governance

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

DIRECTORS

FREDERIC K. BECKER – Director (current term expires June, 2007). Chairman, Audit Committee; Member, Executive Committee. President, Wilentz Goldman & Spitzer, P.A. (law firm). Age 71.

GORDON M. BETHUNE – Director (current term expires June 2007). Member, Compensation Committee. Member, Corporate Governance and Business Ethics Committee. Former Chairman and Chief Executive Officer Continental Airlines, Inc., Retired. Mr. Bethune is also a director of Aloha Airlines, Honeywell International, Inc., Sprint Nextel Corporation, and Willis Group Holdings Limited. Age 65.

W. GASTON CAPERTON, III – Director (current term expires June, 2007). Member, Finance and Dividends Committee. Member, Investment Committee. President, The College Board. Governor Caperton is also a director of Energy Corporation of America, Owens Corning, United Bankshares, Inc., and West Virginia Media. Age 66.

GILBERT F. CASELLAS – Director (current term expires June, 2007). Member, Audit Committee. Counsel for Mintz Levin Cohn Ferris Glovsky, and Popeo, P.C. (law firm). Mr. Casellas is also a director of The Swarthmore Group, Inc. Age 53.

JAMES G. CULLEN – Director (current term expires June, 2007). Chairman, Compensation Committee; Member, Audit Committee; Member, Executive Committee. Retired President and Chief Operating Officer Bell Atlantic Corporation. Mr. Cullen is also a director of Agilient Technologies, Inc., Johnson & Johnson, and NeuStar, Inc. Age 63.

WILLIAM H. GRAY, III – Director (current term expires June, 2007). Chairman, Corporate Governance and Business Ethics Committee; Member, Executive Committee. Retired. Mr. Gray is the Chairman of The Amani Group, LLC. Mr. Gray is also a director of Dell Computer Corporation, JP Morgan Chase & Co., Pfizer, Inc., and Visteon Corporation. Age 64.

JON F. HANSON – Director (current term expires June, 2007). Chairman, Executive Committee; Chairman, Finance and Dividends Committee; Chairman, Investment Committee. Chairman of The Hampshire Companies. Mr. Hanson is also a director of CD&L, Inc., HealthSouth Corp., James E. Hanson Management Company, Pascack Community Bank, and Yankee Global Enterprises. Age 69.

CONSTANCE J. HORNER – Director (current term expires June, 2007). Member, Compensation Committee; Member, Corporate Governance and Business Ethics Committee. Former Assistant to the President of the United States. Ms. Horner is also a director of Ingersoll-Rand Company, Ltd., and Pfizer, Inc. Age 64.

KARL J. KRAPEK – Director (current term expires June, 2007). Member, Finance and Dividends Committee. Member, Investment Committee. Retired President and Chief Operating Officer, United Technologies Corporation. Mr. Krapek is also a director of Connecticut Bank and Trust Company, Delta Airlines, Inc., Lucent Technologies, Inc., and Visteon Corporation. Age 57.

CHRISTINE A. POON – Director (current term expires June, 2007). Vice Chairman, Board of Directors and Worldwide Chairman, Medicines and Nutritionals Johnson & Johnson. Board Member, Johnson & Johnson. Age 54.

ARTHUR F. RYAN – Chairman of the Board (current term expires June, 2007). Member, Executive Committee. Mr. Ryan is also a director of Regeneron Pharmaceuticals, Inc. Age 64.

JAMES A. UNRUH – Director (current term expires June, 2007). Member, Audit Committee. Founding Principal, Alerion Capital Group, LLC. Mr. Unruh is also a director of Tenet Healthcare Corporation, CSG Systems International, Inc. (“CSG”), and Qwest Communications, Inc. (“Qwest”). Age 64.

16

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

PRINCIPAL OFFICERS **

VIVIAN L. BANTA – Chief Executive Officer, Insurance Division, Prudential. Age 56.

SUSAN L. BLOUNT – Senior Vice President and General Counsel, Prudential. Age 49.

RICHARD J. CARBONE – Senior Vice President and Chief Financial Officer, Prudential. Age 59.

BERNARD J. JACOB – Senior Vice President and Treasurer, Prudential. Age 51.

KATHLEEN M. GIBSON – Vice President, Secretary and Corporate Governance Officer, Prudential. Age 52.

ROBERT C. GOLDEN – Executive Vice President, Prudential. Age 60.

MARK B. GRIER – Vice Chairman, Financial Management, Prudential. Age 54.

ARTHUR F. RYAN – Chief Executive Officer and President, Prudential. Age 64.

PETER B. SAYRE – Senior Vice President and Controller, Prudential. Age 53.

SHARON C. TAYLOR – Senior Vice President, Prudential.  Age 52.

**Principal officers of The Prudential Insurance Company of America hold comparable positions with Prudential Financial, Inc.

Code of Ethics

We have adopted a code of business conduct and ethics, known as “Making the Right Choices,” which applies to our Chief Executive Officer, Chief Financial Officer and our Principal Accounting Officer, as well as to our directors and other employees. Making the Right Choices is posted on Prudential Financial’s website atwww.investor.prudential.com. Our code of business conduct and ethics, any amendments and any waiver granted to any of our directors or executive officers are available free of charge on our website atwww.investor.prudential.com.

The Audit Committee of the Company consists of four members of its Board of Directors, who, in the business judgment of the Board of Directors, are independent within the meaning SEC rules. In addition, the Board of Directors has determined that at least one member of the Audit Committee, Mr. Unruh, has the requisite experience to be designated an audit committee financial expert as that term is defined by rules of the SEC. Specifically, Mr. Unruh has accounting and financial management expertise, which he gained through his experience as Senior Vice President, Finance, of a New York Stock Exchange listed company, as well as experience in financial management positions in other organizations and other similar positions.

Additional information called for by this item is hereby incorporated by reference to the section entitled “Item 1: Election of Directors,” “Compliance with Section 16(a) of the Exchange Act,” “Corporate Governance,” “Committees of the Board of Directors — Audit Committee” and “Report of the Audit Committee” (except to the extent that portions of such report are permitted by SEC rules not to be so incorporated) in Prudential Financial’s definitive proxy statement for the Annual Meeting of Shareholders to be held on May 8, 2007, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the year ended December 31, 2006.

Item 11.  Executive Compensation

The Real Property Account does not pay any fees, compensation or reimbursement to any Director or Officer of the Registrant.

17

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Not applicable.

Item 13.  Certain Relationships and Related Transactions, and Director Independence

See Related Transactions in Note 10 of Notes to Financial Statements of the Partnership onpage F-23.

Additional information called for by this item is hereby incorporated by reference to the section entitled “Corporate Governance” in Prudential Financial’s definitive proxy statement for the Annual Meeting of Shareholders to be held on May 8, 2007, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the year ended December 31, 2006.

Item 14.  Principal Accounting Fees and Services

The Audit Committee of the Board of Directors of Prudential Financial, Inc. has appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm of Prudential Financial, Inc. and certain of its domestic and international subsidiaries, including the Registrant. The Audit Committee has established a policy requiring its pre-approval of all audit and permissible non-audit services provided by the independent auditor. The specific information called for by this item is hereby incorporated by reference to the section entitled “Item 2 — Ratification of the Appointment of Independent Auditors” in the definitive proxy statement of Prudential Financial, Inc. for the Annual Meeting of Shareholders to be held on May 8, 2007, to be filed with the SEC pursuant to Regulation 14A within 120 days after the year ended December 31, 2006.

18

PART IV

Item 15.  Exhibits, Financial Statement Schedules

(a)  The following documents are filed as part of this report:

1.  Financial Statements

See the Index to Financial Statements and Supplementary Data on page F-1.

2.  Financial Statement Schedules

The following financial statement schedules of The Prudential Variable Contract Real Property Partnership should be read in conjunction with the financial statements in Item 8 of this Annual Report onForm 10-K:

Schedule III – Real Estate Owned: Properties

Schedule IV – Mortgage Loans on Real Estate

See the Index to Financial Statements and Supplementary Data on page F-1.

3.  Documents Incorporated by Reference

See the following list of exhibits.

4.  Exhibits

See the following list of exhibits.

(b)  None.

(c)   The following is a list of Exhibits to the Registrant’s Annual Report onForm 10-K for the fiscal year ended December 31, 2006. The Registrant will furnish a copy of any Exhibit listed below to any security holder of the Registrant who requests it upon payment of a fee of 15 cents per page. All Exhibits are either contained in this Annual Report onForm 10-K or are incorporated by reference as indicated below.

3.1	Amended Charter of The Prudential Insurance Company of America, filed as Exhibit (3A) in Post-Effective Amendment No. 18 toForm S-1, Registration StatementNo. 33-20083-01, filed April 14, 2005, and incorporated herein by reference.
3.2	Amended By-Laws of The Prudential Insurance Company of America, filed as Exhibit (3B) in Post-Effective Amendment No. 29 toForm N-6, Registration StatementNo. 33-20000, filed April 21, 2006, and incorporated herein by reference.
3.3	Resolution of the Board of Directors establishing The Prudential Variable Contract Real Property Account, filed as Exhibit (3C) in Post-Effective Amendment No. 9 toForm S-1, Registration Statement No.33-20083-01, filed April 9, 1997, and incorporated herein by reference.
4.1	Revised Individual Variable Annuity Contract filed as Exhibit (4A)( i) in Post-Effective Amendment No. 9 toForm S-1, Registration StatementNo. 33-20083-01, filed April 9, 1997, and incorporated herein by reference.
4.2	Discovery Plus Contract, filed as Exhibit (4A)(ii) in Post-Effective Amendment No. 9 toForm S-1, Registration Statement No.33-20083-01, filed April 9, 1997, and incorporated herein by reference.
4.3	Custom VAL (previously named Adjustable Premium VAL) Life Insurance Contracts with fixed death benefit, filed as Exhibit (4C)(i) in Post-Effective Amendment No. 19 toForm S-6, Registration StatementNo. 33-20000, filed April 19, 1997,, and incorporated herein by reference.

19

4.4	Custom VAL (previously named Adjustable Premium VAL) Life Insurance Contracts with variable death benefit, filed as Exhibit (4C)(ii) in Post-Effective Amendment No. 19 toForm S-6, Registration StatementNo. 33-20000, filed April 19, 1997, and incorporated herein by reference.
4.5	Variable Appreciable Life Insurance Contracts with fixed death benefit, filed as Exhibit (4B)(i) in Post Effective Amendment No. 19 toForm S-6, Registration StatementNo. 33-20000, filed April 19, 1997, and incorporated herein by reference.
4.6	Variable Appreciable Life Insurance Contracts with variable death benefit, filed as (4B)(ii) in Post Effective Amendment No. 19 to FormS-6, Registration StatementNo. 33-20000, filed April 19, 1997, and incorporated herein by reference.
9.	None.
10.1	Investment Management Agreement between Prudential Investment Management, Inc. and The Prudential Variable Contract Real Property Partnership, filed in Post-Effective Amendment No. 16 toForm S-1, Registration StatementNo. 33-20083-01, filed April 10, 2003, and incorporated herein by reference.
10.2	Administrative Service Agreement among PIM, Prudential Insurance Company of America, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey, filed as Exhibit (10B) in Post-Effective Amendment No. 17 toForm S-1, Registration StatementNo. 33-20083-01, filed April 12, 2004, and incorporated herein by reference.
10.3	Partnership Agreement of The Prudential Variable Contract Real Property Partnership filed as Exhibit (10C) in Post-Effective Amendment No. 9 toForm S-1, Registration StatementNo. 33-20018, filed April 9, 1997, and incorporated herein by reference.
11.	Not applicable.
12.	Not applicable.
16.	None.
18.	None.

22.	Not applicable.
23.	None.
24.	Powers of Attorney are filed herewith.

31.1	Section 302 Certification of the Chief Executive Officer.
31.2	Section 302 Certification of the Chief Financial Officer.
32.1	Section 906 Certification of the Chief Executive Officer.
32.2	Section 906 Certification of the Chief Financial Officer.

20

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
in respect of
The Prudential Variable Contract Real Property Account
(Registrant)

Date: March 23, 2007	By:	/s/ Richard J. Carbone
		Richard J. Carbone Senior Vice President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  Arthur F. Ryan Arthur F. Ryan	Chairman of the Board, Chief Executive Officer, President and Director	March 23, 2007
/s/  Richard J. Carbone Richard J. Carbone	Chief Financial Officer	March 23, 2007
/s/  Peter Sayre Peter Sayre	Senior Vice President and Controller (Principal Accounting Officer)	March 23, 2007

21

Signature	Title	Date
*Frederic K. Becker Frederic K. Becker	Director	March 23, 2007
*Gordon M. Bethune Gordon M. Bethune	Director	March 23, 2007
*W. Gaston Caperton, III W. Gaston Caperton, III	Director	March 23, 2007
*Gilbert F. Casellas Gilbert F. Casellas	Director	March 23, 2007
*James G. Cullen James G. Cullen	Director	March 23, 2007
*William H. Gray, III William H. Gray, III	Director	March 23, 2007
*Jon F. Hanson Jon F. Hanson	Director	March 23, 2007
*Constance J. Horner Constance J. Horner	Director	March 23, 2007
*Karl J. Krapek Karl J. Krapek	Director	March 23, 2007
*Christine A. Poon Christine A. Poon	Director	March 23, 2007
*James A. Unruh James A. Unruh	Director	March 23, 2007

By:*  /s/  Thomas C. Castano

Thomas C. Castano

(Attorney-in-fact)

22

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Registrant)

INDEX

		Page
A.	THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
	Financial Statements:
	Report of Independent Registered Public Accounting Firm		F-2
	Statements of Net Assets – December 31, 2006 and 2005		F-3
	Statements of Operations – Years Ended December 31, 2006, 2005, 2004		F-3
	Statements of Changes in Net Assets – Years Ended December 31, 2006, 2005, 2004		F-3
	Notes to Financial Statements		F-4
B.	THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
	Financial Statements:
	Report of Independent Registered Public Accounting Firm		F-9
	Report of Independent Registered Public Accounting Firm on Financial Statement Schedules		F-10
	Consolidated Statements of Assets and Liabilities – December 31, 2006 and 2005		F-11
	Consolidated Statements of Operations – Years Ended December 31, 2006, 2005 and 2004		F-12
	Consolidated Statements of Changes in Net Assets — Years Ended December 31, 2006, 2005 and 2004		F-13
	Consolidated Statements of Cash Flows – Years Ended December 31, 2006, 2005 and 2004		F-14
	Consolidated Schedule of Investments – December 31, 2006 and 2005		F-15
	Notes to Financial Statements		F-17
	Financial Statement Schedules:
	For the period ended December 31, 2006
	Schedule III – Real Estate Owned: Properties		F-27
	Schedule IV – Mortgage Loans on Real Estate		F-28

All other schedules are omitted because they are not applicable, or because the required information is included in the financial statements or notes thereto.

F-1

Report of Independent Registered Public Accounting Firm

To the Contract Owners of

The Prudential Variable Contract Real Property Account

and the Board of Directors of

The Prudential Insurance Company of America

In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of The Prudential Variable Contract Real Property Account at December 31, 2006 and 2005, and the results of its operations and the changes in its net assets for each of the three years in the period ended December 31, 2006, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of The Prudential Insurance Company of America; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of shares at December 31, 2006 with The Prudential Variable Contract Real Property Partnership, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

March 20, 2007

F-2

FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS
December 31, 2006 and 2005

	2006		2005
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	92,863,117	$	83,277,385
Net Assets	$	92,863,117	$	83,277,385
NET ASSETS, representing:
Equity of contract owners	$	68,090,994	$	60,796,985
Equity of The Prudential Insurance Company of America		24,772,123		22,480,400
	$	92,863,117	$	83,277,385
Units outstanding		36,089,056		36,749,552
Portfolio shares held		2,741,864		2,814,362
Portfolio net asset value per share	$	33.87	$	29.59

STATEMENTS OF OPERATIONS
For the years ended December 31, 2006, 2005 and 2004

	2006		2005		2004
INVESTMENT INCOME
Net investment income from Partnership operations	$	4,526,160	$	3,737,105	$	3,162,352
EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		509,687		460,468		435,006
NET INVESTMENT INCOME		4,016,473		3,276,637		2,727,346
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership		7,413,826		3,745,793		628,942
Net realized gain (loss) on sale of investments in Partnership		27,482		2,520,876		701,429
NET GAIN (LOSS) ON INVESTMENTS		7,441,308		6,266,669		1,330,371
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	11,457,781	$	9,543,306	$	4,057,717

STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 2006, 2005 and 2004

	2006			2005			2004
OPERATIONS
Net investment income	$	4,016,473		$	3,276,637		$	2,727,346
Net change in unrealized gain (loss) on investments in Partnership		7,413,826			3,745,793			628,942
Net realized gain (loss) on sale of investments in Partnership		27,482			2,520,876			701,429
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		11,457,781			9,543,306			4,057,717
CAPITAL TRANSACTIONS
Net contributions (withdrawals) by contract owners		(865,224	)		(841,882	)		(1,350,431	)
Net contributions (withdrawals) by The Prudential Insurance Company of America		(1,006,825	)		(1,113,369	)		(666,590	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS		(1,872,049	)		(1,955,251	)		(2,017,021	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		9,585,732			7,588,055			2,040,696
NET ASSETS
Beginning of period		83,277,385			75,689,330			73,648,634
End of period	$	92,863,117		$	83,277,385		$	75,689,330

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

F-3

NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
December 31, 2006

Note 1:   General

The Prudential Variable Contract Real Property Account (the “Account”) was established on November 20, 1986 by resolution of the Board of Directors of The Prudential Insurance Company of America (“Prudential”), which is 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 Prudential’s other assets. The Account is used to fund benefits under certain variable life insurance and variable annuity contracts issued by Prudential. These products are Variable Appreciable Life (“PVAL and PVAL $100,000+ Face Value”), Discovery Plus (“PDISCO+”), and Variable Investment Plan (“VIP”).

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 variable annuity contracts. The Account, along with the Pruco Life Variable Contract Real Property Account and the Pruco Life of New Jersey 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 U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

In September 2006, the staff of the U.S. Securities and Exchange Commission, or “SEC”, issued Staff Accounting Bulletin, or “SAB”, No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” The interpretations in this SAB express the staff’s views regarding the process of quantifying financial statement misstatements. Specifically, the SEC staff believes that registrants must quantify the impact on current period financial statements of correcting all misstatements, including both those occurring in the current period and the effect of reversing those that have accumulated from prior periods. This SAB should be applied beginning with the first fiscal year ending after November 15, 2006, with early adoption encouraged. Since the Account’s method for quantifying financial statement misstatements already considers those occurring in the current period and the effect of reversing those that have accumulated from prior periods, the adoption of SAB No. 108 should have no effect to the financial position and result of operations of the Account.

  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 December 31, 2006 and 2005 the Account’s interest in the Partnership was 40.6% or 2,741,864 shares and 40.6% or 2,814,362 shares respectively.

  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 The Prudential Insurance Company of America

Prudential 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.

F-4

NOTES TO THE FINANCIAL STATEMENTS
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
December 31, 2006

Note 3:   Taxes

Prudential 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 4:   Net Withdrawals by Contract Owners

Net contract owner withdrawals for the real estate investment option in The Prudential Insurance Company of America’s variable insurance and variable annuity products for the years ended December 31, 2006, 2005 and 2004 were as follows:

				PVAL &
				PVAL
				$100,000+
	VIP &			Face
2006:	PDISCO+			Value			Total
Contract Owner Net Payments:	$	7,765		$	3,832,194		$	3,839,959
Policy Loans:		0			(1,337,252	)		(1,337,252	)
Policy Loan Repayments and Interest:		0			1,216,739			1,216,739
Surrenders, Withdrawals, and Death Benefits:		(611,189	)		(2,485,769	)		(3,096,958	)
Net Transfers To Other Subaccounts or Fixed Rate Option:		134,505			1,152,025			1,286,530
Administrative and Other Charges:		(1,390	)		(2,772,852	)		(2,774,242	)
Net Withdrawals by Contract Owners	$	(470,309	)	$	(394,915	)	$	(865,224	)

				PVAL &
				PVAL
				$100,000+
	VIP &			Face
2005:	PDISCO+			Value			Total
Contract Owner Net Payments:	$	12,796		$	3,991,805		$	4,004,601
Policy Loans:		0			(1,160,988	)		(1,160,988	)
Policy Loan Repayments and Interest:		0			1,194,065			1,194,065
Surrenders, Withdrawals, and Death Benefits:		(554,301	)		(2,603,294	)		(3,157,595	)
Net Transfers To Other Subaccounts or Fixed Rate Option:		22,921			1,033,843			1,056,764
Administrative and Other Charges:		(1,695	)		(2,777,034	)		(2,778,729	)
Net Withdrawals by Contract Owners	$	(520,279	)	$	(321,603	)	$	(841,882	)

				PVAL & PVAL
	VIP &			$100,000+ face
2004:	PDISCO+			value			Total
Contract Owner Net Payments:	$	33,557		$	4,168,816		$	4,202,373
Policy Loans:		0			(1,144,139	)		(1,144,139	)
Policy Loan Repayments and Interest:		0			1,219,695			1,219,695
Surrenders, Withdrawals, and Death Benefits:		(476,794	)		(2,385,471	)		(2,862,265	)
Net Transfers To Other Subaccounts or Fixed Rate Option:		263,856			(166,388	)		97,468
Administrative and Other Charges:		(1,927	)		(2,861,636	)		(2,863,563	)
Net Withdrawals by Contract Owners	$	(181,308	)	$	(1,169,123	)	$	(1,350,431	)

F-5

NOTES TO THE FINANCIAL STATEMENTS
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
December 31, 2006

Note 5:   Unit Activity

Transactions in units for the years ended December 31, 2006, 2005 and 2004 were as follows:

													PVAL
													$100,000+
2006:				PDISCO+			VIP			PVAL			face value
Company Contributions:	1,289,694		Contract Owner Contributions:		61,105			42,871			1,371,500			1,814,985
Company Redemptions:	(1,567,945	)	Contract Owner Redemptions:		(208,442	)		(97,978	)		(1,589,371	)		(1,776,915	)

													PVAL
													$100,000+
2005:				PDISCO+			VIP			PVAL			face value
Company Contributions:	1,373,623		Contract Owner Contributions:		51,235			66,652			1,592,159			1,430,019
Company Redemptions:	(1,709,303	)	Contract Owner Redemptions:		(224,793	)		(145,446	)		(1,756,695	)		(1,422,819	)

														PVAL
										��				$100,000+
2004:				PDISCO+			VIP				PVAL			face value
Company Contributions:	1,721,406		Contract Owner Contributions:		251,872			74,919				1,684,883			1,762,982
Company Redemptions:	(1,918,713	)	Contract Owner Redemptions:		(256,989	)		(169,082	)			(1,934,487	)		(2,106,617	)

Note 6:   Purchases and Sales of Investments

The aggregate costs of purchases and proceeds from sales of investments in the Partnership for the years ended December 31, 2006, 2005 and 2004 were as follows:

	December 31, 2006			December 31, 2005			December 31, 2004
Purchases:	$	0		$	0		$	0
Sales:	$	(2,381,736	)	$	(2,415,719	)	$	(2,452,028	)

F-6

NOTES TO THE FINANCIAL STATEMENTS
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
December 31, 2006

Note 7:   Financial Highlights

Prudential Insurance Company of America (the “Company” or “Prudential”) sells a number of variable annuity and variable life insurance products. These products have unique combinations of features and fees that are charged against the contract owner’s account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns.

The following table was developed by determining which products offered by Prudential Insurance Company of America have the lowest and highest total expense ratio. The summary may not reflect the minimum and maximum contract charges offered by the Company as contract owners may not have selected all available and applicable contract options as discussed in Note 1. The table reflects contract owner units only.

	At year ended						For year ended
	Units		Unit Value		Net Assets		Investment			Expense Ratio **			Total Return ***
	(000’s)		Lowest- Highest		(000’s)		Income Ratio *			Lowest-Highest			Lowest-Highest
December 31, 2006		26,281	$	2.43678 to $2.68168	$	68,091		5.10	%		0.60	% to 1.20%		13.11% to 13.78%
December 31, 2005		26,664	$	2.15433 to $2.35694	$	60,797		4.64	%		0.60	% to 1.20%		11.82% to 12.48%
December 31, 2004		27,073	$	1.92668 to $2.09540	$	54,956		4.15	%		0.60	% to 1.20%		4.81% to 5.43%
December 31, 2003		27,766	$	1.83832 to $1.98753	$	53,574		5.77	%		0.60	% to 1.20%		1.03% to 1.63%
December 31, 2002		28,139	$	1.81952 to $1.95560	$	53,487		5.59	%		0.60	% to 1.20%		0.02% to 0.62%

The table above reflects information for units held by contract owners. Prudential also maintains a position in the Real Property Account, to provide for property acquisitions and capital expenditure funding needs. Prudential held 9,807,865, 10,086,116, 10,421,720, 10,619,027 and 11,217,512 units representing $24,772,123, $22,480,400, $20,733,052, $20,075,011 and $20,962,590 of net assets as of December 31, 2006, 2005, 2004, 2003 and 2002, respectively. Charges for mortality risk, expense risk and administrative expenses are used by Prudential to purchase additional units in its account resulting in no impact to its net assets.

*	This amount represents the proportionate share of the net investment income from the underlying Partnership divided by the total average assets of the Account. This ratio excludes those expenses, such as mortality and expense charges, that result in direct reductions in the unit values.
**	These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying Partnership are excluded.
***	These amounts represent the total return for the periods indicated, including changes in the value of the underlying Partnership, and reflect deductions for all items included in the expense ratio. The total return does not include any expense assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented.

  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 1.2%, 0.9%, 0.6% and 1.2% for PDISCO+, PVAL, PVAL $100,000 + face value and VIP, 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 Prudential. The mortality risk and expense risk charges are assessed through reduction in unit values.

  B.  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 PVAL and PVAL $100,000 + face value are (1) state premium

F-7

NOTES TO THE FINANCIAL STATEMENTS
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
December 31, 2006

taxes; (2) sales charges, up to 0.50%, which are deducted in order to compensate Prudential for the cost of selling the contract and (3) transaction costs 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 Prudential 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.

  C.  Deferred Sales Charge

A deferred sales charge, applicable to PVAL and PVAL $100,000 + face value and not to exceed 50% of the first year’s primary annual premium for PVAL contracts, is imposed upon surrenders of certain variable life insurance contracts to compensate Prudential 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. No sales charge will be imposed after the tenth year of the contract. No sales charge will be imposed on death benefits.

Also a deferred sales charge is imposed upon the withdrawals of certain purchase payments to compensate Prudential for sales and other marketing expenses for PDISCO+ and VIP. The amount of any sales charge will depend on the amount withdrawn and the number of contract years that have elapsed since the contract owner or annuitant made the purchase payments deemed to be withdrawn. No sales charge is made against the withdrawal of investment income. A reduced sales charge is imposed in connection with the withdrawal of a purchase payment to effect an annuity if three or more contract years have elapsed since the contract date, unless the annuity effected is an annuity certain. No sales charge is imposed upon death benefit payments or upon transfers made between subaccounts. This deferred sales charge is assessed through the redemption of units.

  D.  Partial Withdrawal Charge

A charge is imposed by Prudential on partial withdrawals of the cash surrender value for PVAL and PVAL $100,000 + face value. 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.

  E.   Annual Maintenance Charge

An annual maintenance charge, applicable to PDISCO+ and VIP, of $30 will be deducted if and only if the contract fund is less than $10,000 on a contract anniversary or at the time a full withdrawal is effected, including a withdrawal to effect an annuity. The charge is made by reducing accumulation units credited to a contract owner’s account.

Note 8:   Related Party

Prudential and its affiliates perform various services on behalf of the Partnership in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions.

F-8

Report of Independent Registered Public Accounting Firm

To the Partners of

The Prudential Variable Contract Real Property Partnership:

In our opinion, the accompanying consolidated statements of assets and liabilities, including the consolidated schedule of real estate investments, and the related consolidated statements of operations, of changes in net assets and of cash flows present fairly, in all material respects, the financial position of The Prudential Variable Contract Real Property Partnership (the “Partnership”) at December 31, 2006 and 2005, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2006 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of The Prudential Insurance Company of America. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

New York, New York

February 15, 2007

F-9

Report of Independent Registered Public Accounting Firm on
Financial Statement Schedules

To the Partners of

The Prudential Variable Contract Real Property Partnership:

Our audits of the consolidated financial statements referred to in our report dated February 15, 2007 appearing in this Annual Report onForm 10-K also included an audit of the financial statement schedules listed in Item 15(a)(2) of thisForm 10-K. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

PricewaterhouseCoopers LLP

New York, New York

February 15, 2007

F-10

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	December 31, 2006		December 31, 2005
ASSETS
REAL ESTATE INVESTMENTS – At estimated market value:
Real estate and improvements(cost:12/31/2006 – $199,124,056;12/31/2005 – $183,767,148)	$	214,444,568	$	178,628,645
Real estate partnerships and preferred equity investments (cost:12/31/2006 – $22,334,823;12/31/2005 – $18,578,394)		17,941,039		14,348,816
Mortgage and other loans receivable(cost:12/31/2006 – $0;12/31/2005 – $4,277,769)		—		4,277,769
Other real estate investments(cost:12/31/2006 – $2,857,851;12/31/2005 – $0)		2,857,851		—
Total real estate investments		235,243,458		197,255,230
CASH AND CASH EQUIVALENTS		33,399,532		45,467,485
OTHER ASSETS, NET		3,493,829		3,292,400
Total assets	$	272,136,819	$	246,015,115
LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT	$	32,710,488	$	33,195,607
ACCOUNTS PAYABLE AND ACCRUED EXPENSES		3,091,930		2,545,052
DUE TO AFFILIATES		789,889		760,926
OTHER LIABILITIES		876,487		472,336
MINORITY INTEREST		5,751,441		3,638,343
Total liabilities		43,220,235		40,612,264
COMMITMENTS AND CONTINGENCIES
PARTNERS’ EQUITY		228,916,584		205,402,851
Total liabilities and partners’ equity	$	272,136,819	$	246,015,115
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		6,758,960		6,941,631
SHARE VALUE AT END OF PERIOD	$	33.87	$	29.59

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

F-11

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2006		2005			2004
INVESTMENT INCOME:
Revenue from real estate and improvements	$	25,460,860	$	27,087,813		$	27,810,539
Equity in income of real estate partnerships		962,208		252,618			629,190
Interest and equity income on mortgage and other loans receivable		125,510		281,134			138,296
Income from other real estate investments		219,564		—			246,764
Interest on short-term investments		1,855,345		1,022,706			251,374
Total investment income		28,623,487		28,644,271			29,076,163
INVESTMENT EXPENSES:
Operating		6,355,543		7,420,509			7,545,335
Investment management fee		3,075,176		2,845,519			2,666,103
Real estate taxes		2,069,169		2,382,626			2,687,018
Administrative		3,923,413		4,438,482			5,243,944
Interest expense		1,814,686		2,173,789			2,910,841
Minority interest		223,772		164,175			223,316
Total investment expenses		17,461,759		19,425,100			21,276,557
NET INVESTMENT INCOME		11,161,728		9,219,171			7,799,606
REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS:
Net proceeds from real estate investments sold		67,770		55,054,217			7,105,000
Less: Cost of real estate investments sold		—		47,015,948			7,307,410
Realization of prior years’ unrealized gain (loss) on real estate investments sold		—		(655,341	)		(1,932,410	)
Minority interest in realized gain (loss) on real estate investments sold		—		2,474,788			—
NET GAIN (LOSS) REALIZED ON REAL ESTATE INVESTMENTS SOLD		67,770		6,218,822			1,730,000
Change in unrealized gain (loss) on real estate investments		20,294,808		10,475,654			2,457,887
Less: Minority interest in unrealized gain (loss) on real estate investments		2,010,573		1,233,857			907,493
Net unrealized gain (loss) on real estate investments		18,284,235		9,241,797			1,550,394
NET REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS		18,352,005		15,460,619			3,280,394
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	29,513,733	$	24,679,790		$	11,080,000

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

F-12

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

	Year Ended December 31,
	2006			2005			2004
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income	$	11,161,728		$	9,219,171		$	7,799,606
Net gain (loss) realized on real estate investments sold		67,770			6,218,822			1,730,000
Net unrealized gain (loss) from real estate investments		18,284,235			9,241,797			1,550,394
Increase (decrease) in net assets resulting from operations		29,513,733			24,679,790			11,080,000
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Withdrawals
(2006-182,671;2005-198,677; and2004-226,527 shares, respectively)		(6,000,000	)		(6,000,000	)		(6,000,000	)
Increase (decrease) in net assets resulting from capital transactions		(6,000,000	)		(6,000,000	)		(6,000,000	)
INCREASE (DECREASE) IN NET ASSETS		23,513,733			18,679,790			5,080,000
NET ASSETS – Beginning of period		205,402,851			186,723,061			181,643,061
NET ASSETS – End of period	$	228,916,584		$	205,402,851		$	186,723,061

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

F-13

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2006			2005			2004
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets from operations	$	29,513,733		$	24,679,790		$	11,080,000
Adjustments to reconcile net increase in net assets to net cash from operating activities
Net realized and unrealized loss (gain)		(18,352,005	)		(15,460,619	)		(3,280,394	)
Amortization of deferred financing costs		—			(34,620	)		(108,232	)
Distributions in excess of (less than) equity in income of real estate partnership operations		(87,396	)		(148,668	)		(209,678	)
Minority interest in consolidated partnerships		223,772			164,175			223,316
Bad debt expense		(239,380	)		240,176			459,103
(Increase) Decrease in accrued interest included in other real estate investments		(219,564	)		—			—
(Increase) decrease in:
Other assets		37,951			2,815,778			(304,747	)
Increase (decrease) in:
Accounts payable and accrued expenses		546,878			(550,954	)		97,254
Due to affiliates		28,963			39,507			(296,513	)
Other liabilities		404,151			(150,564	)		(324,210	)
Net cash flows from (used in) operating activities		11,857,103			11,594,001			7,335,899
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold		67,770			41,676,816			7,105,000
Acquisition of real estate and improvements		(12,159,443	)		—			—
Additions to real estate and improvements		(3,197,470	)		(6,198,211	)		(7,746,015	)
Contributions to real estate partnerships		(7,289,487	)		(7,142,900	)		(467,875	)
Return of investment in real estate partnerships		3,620,455			—			—
Origination of mortgage loan receivable		—			(2,945,709	)		(1,332,060	)
Collection of mortgage loan receivable		4,277,769			—			4,975,000
Origination of other real estate investments		(2,638,287	)		—			(4,475,000	)
Net cash flows from (used in) investing activities		(17,318,693	)		25,389,996			(1,940,950	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals		(6,000,000	)		(6,000,000	)		(6,000,000	)
Proceeds from investment level debt		—			—			8,750,000
Principal payments on investment level debt		(485,119	)		(853,525	)		(8,910,727	)
Distributions to minority interest partners		(121,244	)		(2,220,169	)		(578,854	)
Net cash flows from (used in) financing activities		(6,606,363	)		(9,073,694	)		(6,739,581	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(12,067,953	)		27,910,303			(1,344,632	)
CASH AND CASH EQUIVALENTS – Beginning of period		45,467,485			17,557,182			18,901,814
CASH AND CASH EQUIVALENTS – End of period	$	33,399,532		$	45,467,485		$	17,557,182
Cash paid for interest	$	1,806,320		$	2,324,397		$	2,595,651

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

F-14

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

			2006 Total Rentable
			Square Feet			December 31,
			Unless Otherwise			2006				2005
	December 31, 2006		Indicated					Estimated				Estimated
Property Name	Ownership	City, State	(Unaudited)			Cost		Market Value		Cost		Market Value
REAL ESTATE INVESTMENTS
OFFICES
750 Warrenville	WO	Lisle, IL		103,193		$	24,517,391	$	10,700,000	$	23,173,035	$	10,000,000
Summit @ Cornell Oaks	WO	Beaverton , OR		72,109			12,091,490		12,500,000		12,046,574		10,566,213
Westpark	WO	Nashville, TN		97,199			11,033,804		12,800,000		10,903,925		12,600,290
Financial Plaza	WO	Brentwood, TN		98,049			12,333,152		13,500,000		12,333,151		12,300,000
		Offices % as of12/31/06		22	%		59,975,837		49,500,000		58,456,685		45,466,503
APARTMENTS
Brookwood Apartments	WO	Atlanta, GA		240 Units			18,918,016		20,100,000		18,481,376		17,155,625
Dunhill Trace Apartments	WO	Raleigh, NC		250 Units			16,287,767		20,400,000		16,170,782		19,202,057
		Apartments % as of12/31/06		18	%		35,205,783		40,500,000		34,652,158		36,357,682
RETAIL
King’s Market	WO	Rosewell, GA		314,358			37,775,326		28,400,000		37,646,731		27,199,960
Hampton Towne Center	WO	Hampton, VA		174,540			18,042,611		26,000,000		18,035,334		26,100,000
White Marlin Mall	CJV	Ocean City, MD		186,016			15,538,779		22,900,000		15,328,836		21,500,000
Westminster Crossing East, LLC	CJV	Westminster, MD		89,890			12,358,340		17,744,568
Kansas City Portfolio	EJV	Kansas City, KS; MO		487,660			7,816,531		3,422,747		11,413,171		7,183,593
CARS Preferred Equity	PE	Various		N/A			14,518,292		14,518,292		7,165,223		7,165,223
		Retail % as of 12/31/06		49	%		106,049,879		112,985,607		89,589,295		89,148,776
INDUSTRIAL
Smith Road	WO	Aurora, CO		277,930			11,286,560		14,300,000		10,823,619		11,704,500
		Industrial % as of12/31/06		6	%		11,286,560		14,300,000		10,823,619		11,704,500
HOTEL
Portland Crown Plaza	CJV	Portland, OR		161 Rooms			8,940,820		15,100,000		8,823,785		10,300,000
		Hotel % as of 12/31/06		7	%		8,940,820		15,100,000		8,823,785		10,300,000
MORTGAGE AND OTHERLOANS RECEIVABLEWestminster West	Eloan	Westminster, MD					—		—		4,277,769		4,277,769
		Mortgage and Other Loans Receivable % as of 12/31/06		0	%		—		—		4,277,769		4,277,769
OTHER REAL ESTATE INVESTMENTS
Westminster East	Eloan	Westminster, MD					2,857,851		2,857,851		—		—
		Other Real Estate Investments %as of12/31/06		1	%		2,857,851		2,857,851		—		—
Total Real Estate Investments as a Percentage of Net Assets as of12/31/06				103	%		224,316,730		235,243,458		206,623,311		197,255,230

WO – Wholly Owned Investment

CJV – Consolidated Joint Venture

EJV – Joint Venture Investment accounted for under the equity method

PE – Preferred equity investments accounted for under the equity method

Eloan – Mezzanine loan accounted for under the equity method

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

F-15

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED SCHEDULE OF INVESTMENTS

			December 31, 2006					December 31, 2005
					Estimated					Estimated
	Face Amount		Cost		Market Value			Cost		Market Value
CASH AND CASH EQUIVALENTS — Percentage of Net Assets						14.6	%				22.1	%
Federal Home Loan Bank, 1.75%, January 3, 2006	$	488,000	$	—	$	—		$	487,908	$	487,908
Federal Home Loan Bank, 0 coupon bond, January 02, 2007		7,246,000		7,245,028		7,245,028			44,033,621		44,033,621
Federal Home Loan Bank, 0 coupon bond, January 25, 2007		25,000,000		24,914,167		24,914,167			—		—
Total Cash Equivalents				32,159,195		32,159,195			44,521,529		44,521,529
Cash				1,240,337		1,240,337			945,956		945,956
Total Cash and Cash Equivalents			$	33,399,532	$	33,399,532		$	45,467,485	$	45,467,485

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

F-16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 1:     Organization

On April 29, 1988, The Prudential Variable Contract Real Property Partnership (the “Partnership”), a general partnership organized under New Jersey law, was formed through an agreement among The Prudential Insurance Company of America (“Prudential”), Pruco Life Insurance Company (“Pruco Life”), and Pruco Life Insurance Company of New Jersey (“Pruco Life of New Jersey”). The Partnership was established as a means by which assets allocated to the real estate investment option under certain variable life insurance and variable annuity contracts issued by the respective companies could be invested in a commingled pool. The partners in the Partnership are Prudential, Pruco Life and Pruco Life of New Jersey.

The Partnership’s policy is to invest at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans.

The estimated market value of the Partnership’s shares is determined daily, consistent with the Partnership Agreement. On each day during which the New York Stock Exchange is open for business, the net asset value of the Partnership is estimated using the estimated market value of its assets, principally as described in Notes 2A, 2B and 2C below, reduced by any liabilities of the Partnership. The periodic adjustments to property values described in Notes 2A, 2B and 2C below and other adjustments to previous estimates are made on a prospective basis. There can be no assurance that all such adjustments to estimates will be made timely.

Shares of the Partnership are held by The Prudential Variable Contract Real Property Account, Pruco Life Variable Contract Real Property Account and Pruco Life of New Jersey Variable Contract Real Property Account (the “Real Property Accounts”) and may be purchased and sold at the then current share value of the Partnership’s net assets. Share value is calculated by dividing the estimated market value of net assets of the Partnership as determined above by the number of shares outstanding. A contract owner participates in the Partnership through interests in the Real Property Accounts.

PREI^tm is the real estate advisory unit of Prudential Investment Management, Inc. (“PIM”), which is an indirectly owned subsidiary of Prudential Financial Inc. (“PFI”). PREI^tm provides investment advisory services to the Partnership’s partners pursuant to the terms of the Advisory Agreement as described in Note 10.

Note 2:    Summary of Significant Accounting Policies

A:

Basis of Presentation – The accompanying consolidated financial statements of the Partnership have been presented on the market value basis of accounting in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements of Partnership include wholly owned entities, and those real estate partnerships in which the Partnership has a controlling interest. All significant inter-company balances and transactions have been eliminated in consolidation.

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:      Real Estate Investments – Real estate investments are shown at estimated market value in accordance with the terms of the Partnership’s contracts. Properties owned are

F-17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 2:     Summary of Significant Accounting Policies (continued)

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. Market 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 Chief Real Estate Appraiser of PIM is responsible to assure that the valuation process provides independent and reasonable property market value estimates. American Appraisal Associates (the “Appraisal Management Firm”), an entity not affiliated with PIM, 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. Unless a property is currently held for sale, the market value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments.

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 and development properties held for future development is carried at acquisition cost including soft costs incurred prior to development.

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 or those achieve a certain level of leasing. Where conditions precedent to funding have been met by its development partners, and the Partnership’s commitment to fund is firm, the amount of any unrealized gain or loss is recognized based upon the difference between the estimated investment’s market 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 December 31, 2006 and 2005, no such funding obligation existed.

As described above, the estimated market value of real estate and real estate related assets is determined through an appraisal process. These estimated market 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 market values represent subjective estimates, management believes these estimated market values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate is fairly presented as of December 31, 2006 and 2005.

F-18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 2:    Summary of Significant Accounting Policies (continued)

D:      Other Real Estate Investments – Other real estate investments include short term notes receivable, which are valued at the amount due and approximate market value.

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 market value.

F:

Other Assets – Cash of $167,311 and $156,268 was maintained by the wholly owned and consolidated properties at December 31, 2006 and 2005, respectively, for tenant security deposits and is 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 $211,058 and $51,162 at December 31, 2006 and 2005, 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. For debt assumed, 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 – Included in Other Assets are deferred financing costs amounting to $309,894 and $246,495 which are net of accumulated amortization of $80,227 and $80,227 as of December 31, 2006 and 2005, respectively, and which are being amortized over the term of the related obligation.

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 market value, net income is not reduced by depreciation or amortization expense.

J:      Equity in Income of Real Estate Partnership – 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.

L:      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”), which 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

F-19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 2:    Summary of Significant Accounting Policies (continued)

Audit and Accounting Guide, “Audits of Investment Companies” (the “Audit Guide”). The effective date is delayed while the AICPA finalizes the proposed Statement of Position (“SOP”) on the clarification of the scope of the Audit Guide. Following the issuance of the final SOP, the FASB will consider modifyingFIN 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 thisFIN 46-R.

In September 2006, the staff of the U.S. Securities and Exchange Commission, or “SEC”, issued Staff Accounting Bulletin, or “SAB”, No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” The interpretations in this SAB express the staff’s views regarding the process of quantifying financial statement misstatements. Specifically, the SEC staff believes that registrants must quantify the impact on current period financial statements of correcting all misstatements, including both those occurring in the current period and the effect of reversing those that have accumulated from prior periods. This SAB should be applied beginning with the first fiscal year ending after November 15, 2006, with early adoption encouraged. Since the Partnership’s method for quantifying financial statement misstatements already considers those occurring in the current period and the effect of reversing those that have accumulated from prior periods, the adoption of SAB No. 108 should have no effect to the financial position and result of operations of the Partnership.

Note 3:    Disclosure of Supplemental Cash Flow Information and Non-Cash Investing and Financing Activity

Cash paid for interest during the years ended December 31, 2006, 2005, and 2004, was $1,806,320, $2,324,397, and $2,595,651, respectively.

During the fourth quarter of 2005, a minority interest partner bought out the Account’s investment in a consolidated real estate partnership resulting in net proceeds of $15.9 million. This transaction resulted in the assumption of a mortgage loan by the partner of approximately $10.0 million and a reduction of the partner’s minority interest of $3.7 million.

F-20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 4:     Real Estate Partnership and Preferred Equity Investments

Real estate partnerships and preferred equity investments are valued at the Partnership’s equity in net assets as reflected by the partnership’s financial statements with properties valued as indicated in Note 2C above. The Partnership’s combined financial position and results of operations are summarized as follows (in 000’s):

	December 31,
	2006		2005
Partnership Assets and Liabilities
Real estate at estimated market value	$	22,018	$	34,365
Other assets		453		1,384
Total assets		22,471		35,749
Investment level debt		2,978		18,272
Other liabilities		253		551
Total liabilities		3,231		18,823
Net assets	$	19,240	$	16,926
Partnership’s share of net assets	$	17,941	$	14,349

	Year Ended December 31,
	2006		2005		2004
Partnership Operations
Rental revenue	$	3,364	$	4,115	$	3,125
Other revenue		—		—		1,710
Total revenue		3,364		4,115		4,835
Real estate expenses and taxes		1,017		2,326		2,481
Interest Expense		1,396		1,477		1,500
Total Expenses		2,413		3,803		3,981
Net Investment Income	$	951	$	312	$	854
Partnership’s equity in income of real estate partnerships	$	962	$	253	$	629

F-21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 5:     Investment Level Debt

Debt includes mortgage loans payable as summarized below (in 000’s):

	As of12/31/06				As of12/31/05		As of12/31/06
			Partnership’s
	100% Principal		Share of		100% Principal
	Balance		Principal Balance		Balance		Interest			Maturity
	Outstanding		Outstanding(1)		Outstanding		Rate(2)			Date		Terms(3)
			(Unaudited)
Mortgages of Wholly Owned Properties & Consolidated Partnerships
Hampton, VA	$	8,239	$	8,239	$	8,671		6.75	%		2018		PP, P&I
Ocean City, MD		6,973		5,181		7,026		7.24	%		2008		PP, P&I
Raleigh, NC		8,750		8,750		8,750		3.09	%		2008		PP, I
Atlanta, GA		8,748		8,748		8,749		4.90	%		2009		PP, P&I
Total	$	32,710	$	30,918	$	33,196
Mortgages on Equity Partnerships
Kansas City, MO – Cherokee Hill	$	2,978	$	2,156	$	3,032		7.79	%		2007		PP, P&I
Kansas City, MO – Ten Quivira		—		—		6,575
Kansas City, MO- Ten Quivira Parcel		—		—		946
Kansas City, KS – Devonshire		—		—		2,108
Kansas City, MO – Brywood Center		—		—		5,611
Total	$	2,978	$	2,156	$	18,272

(1)	Represents the Partnership’s interest in the loan based upon the estimated percentage of net assets which would be distributed to the Partnership if the partnership were liquidated at December 31, 2006. It does not represent the Partnership’s legal obligation.
(2)	The Partnership’s weighted average interest rate was 6.14% at December 31, 2006 and 2005. The weighted average interest rates were calculated using the Partnership’s annualized interest expense for each loan (derived using the same percentage as that in (1) above) divided by the Partnership’s share of total debt.
(3)	Loan Terms PP=Prepayment penalties applicable to loan, I=Interest only, P&I=Principal and Interest

As of December 31, 2006, mortgage loans payable on wholly owned properties and consolidated partnerships are payable as follows:

Year Ending December 31,	(in 000’s)
2007	$	588
2008		16,090
2009		9,277
2010		565
2011		604
Thereafter		5,586
Total	$	32,710

The mortgage loans payable of wholly owned properties and consolidated partnerships are secured by real estate investments with an estimated market value of $89.4 million.

F-22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 5:     Investment Level Debt (continued)

As of December 31, 2006, principal amounts of mortgage loans payable on the equity partnerships are payable as follows:

			(Unaudited)
	100% Loan Balance		Partnership’s Share
Year Ending December 31,	(in 000’s)		(in 000’s)
2007	$	2,978	$	2,156
Total	$	2,978	$	2,156

Based on borrowing rates available to the Partnership at December 31, 2006 for loans with similar terms and average maturities, the Partnership’s mortgages on wholly owned properties and consolidated partnerships have an estimated fair value of approximately $33 million, and a carrying value of $33 million. The Partnership’s mortgage loan payable on the equity partnership has an estimated fair value of approximately $3 million and a carrying value of $3 million. Different assumptions or changes in future market conditions could significantly affect estimated fair value.

Note 6:     Purchase Commitment Obligations

Purchase commitments includes forward commitments without conditions waived, commitments to purchase real estateand/or fund additional expenditures on previously acquired properties and loan take out agreements. Certain purchases of real estate are contingent on a developer building the real estate according to plans and specifications outlined in the pre-sale agreement or the property achieving a certain level of leasing. It is anticipated that funding will be provided by operating cash flow, real estate investment sales and deposits from the Partnership.

As of December 31, 2006, the Partnership had the following outstanding purchase commitments:

	Commitments
Property Type	(000’s)
Apartments	$	20,805
Total	$	20,805

F-23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 7:     Concentration of Risk on Real Estate Investments

At December 31, 2006, the Partnership had real estate investments located throughout the United States. The diversification of the Partnership’s holdings based on the estimated market values and established NCREIF regions is as follows:

	Estimated
Region	Market Value		Region %
	(in 000’s)
East North Central	$	13,093		5.57	%
Mideast		92,987		39.53	%
Mountain		16,036		6.82	%
Northeast		299		0.13	%
Pacific		28,801		12.24	%
Southeast		77,200		32.82	%
Southwest		3,365		1.43	%
West North Central		3,462		1.47	%
Total	$	235,243		100.00	%

The allocations on the previous page are based on (1) 100% of the estimated market value of wholly-owned properties and consolidated joint ventures and mortgage and other loans receivable, and (2) the estimated market value of the Partnership’s net equity in non-consolidated ventures.

Note 8:     Leasing Activity

The Partnership leases space to tenants under various operating lease agreements. These agreements, without giving effect to renewal options, have expiration dates ranging from 2007 to 2025. At December 31, 2006, the aggregate future minimum base rental payments under non-cancelable operating leases for wholly owned and consolidated joint venture properties by year are as follows:

Year Ending December 31,
	(in 000’s)
2007	$	14,159
2008		13,132
2009		10,225
2010		8,750
2011		6,479
Thereafter		26,014
Total	$	78,759

F-24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 9:     Commitments and Contingencies

In 1986, Prudential committed to fund up to $100 million to enable the Partnership to acquire real estate investments. Contributions to the Partnership under this commitment have been utilized for property acquisitions, and were to be returned to Prudential on an ongoing basis from contract owners’ net contributions and other available cash. The amount of the commitment has been reduced by $10 million for every $100 million in current value net assets of the Partnership. As of December 31, 2006, the cost basis of Prudential’s equity interest in the Partnership under this commitment (held through the Real Property Accounts) was $44.2 million. Prudential terminated this commitment on December 31, 2002.

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 Prudential’s management, the outcome of such matters will not have a significant effect on the financial position of the Partnership.

Note 10:   Other 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 years ended December 31, 2006, 2005 and 2004 management fees incurred by the Partnership were $3.1 million, $2.8 million, and $2.7 million, for each of the years, respectively.

The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the years ended December 31, 2006, 2005 and 2004 were $146,930; $123,630; and $141,130, respectively, and are classified as administrative expenses in the Consolidated Statements of Operations.

During the years ended December 31, 2006, 2005 and 2004, the Partnership made the following distributions to the Partners:

Year Ended December 31,	(000’s)
2006	$	6,000
2005	$	6,000
2004	$	6,000

F-25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Year Ended December 31, 2006, 2005, and 2004

Note 11:   Financial Highlights

	For the Year Ended December 31,
	2006			2005			2004			2003			2002
Per Share(Unit) Operating Performance:
Net Asset Value, beginning of period	$	29.59		$	26.15		$	24.66		$	24.11		$	23.82
Income From Investment Operations:
Investment income, before management fee		2.07			1.67			1.44			1.71			1.63
Investment Management fee		(0.45	)		(0.40	)		(0.36	)		(0.33	)		(0.30	)
Net realized and unrealized gain (loss) on investments		2.66			2.17			0.41			(0.83	)		(1.04	)
Net Increase in Net Assets Resulting from Operations		4.28			3.44			1.49			0.55			0.29
Net Asset Value, end of period	$	33.87		$	29.59		$	26.15		$	24.66		$	24.11
Total Return, before Management Fee(a):		16.03	%		14.76	%		7.61	%		3.63	%		2.52	%
Ratios/Supplemental Data:
Net Assets, end of period (in millions)	$	229		$	205		$	187		$	182		$	184
Ratios to average net assets(b):
Total Portfolio Level Expenses		1.51	%		1.46	%		1.43	%		1.35	%		1.28	%
Investment Income before Management Fee		6.58	%		4.89	%		5.76	%		7.12	%		6.85	%

(a)	Total Return, before management fee is calculated by geometrically linking quarterly returns which are calculated using the formula below:
	Net Investment Income + Net Realized and Unrealized Gains/(Losses)

	Beg. Net Asset Value + Time Weighted Contributions −Time Weighted Distributions
(b)	Average net assets are based on beginning of quarter net assets.

Note 12:   Subsequent Events

On February 7, 2007, the Partnership sold Smith Road, a wholly owned property, to an unrelated party for a cash selling price of $15,000,000 and realized net proceeds of $14,649,241 after selling costs. The sale resulted in a gain of $349,110.

F-26

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

SCHEDULE III – REAL ESTATE OWNED: PROPERTIES
DECEMBER 31, 2006

							Costs			Gross Amount at Which
			Initial Costs to the Partnership				Capitalized			Carried at Close of Year
	Encumbrances				Building &		Subsequent to					Building &				Year of		Date
Description	at12/31/06		Land		Improvements		Acquisition			Land		Improvements		Total		Construction		Acquired
Properties:
Office Building Lisle, IL		None		1,780,000		15,743,881		6,993,510			1,949,206		22,568,185		24,517,391		1985		Apr., 1988
Garden Apartments Atlanta, GA		8,748,000		3,631,212		11,168,904		4,117,900	(b)		4,902,385		14,015,631		18,918,016		1987		Apr., 1988
Retail Shopping Center Roswell, GA		None		9,454,622		21,513,677		6,807,027			11,135,593		26,639,733		37,775,326		1988		Jan., 1989
Garden Apartments Raleigh, NC		8,750,000		1,623,146		14,135,553		529,068			1,715,699		14,572,068		16,287,767		1995		Jun., 1995
Hotel Portland, OR		—		1,500,000		6,508,729		932,091			1,500,000		7,440,820		8,940,820		1989		Dec., 2003
Office Building Nashville, TN		None		1,797,000		6,588,451		2,648,353			1,855,339		9,178,465		11,033,804		1982		Oct., 1995
Office Building Beaverton, OR		None		816,415		9,897,307		1,377,768			845,887		11,245,603		12,091,490		1995		Dec., 1996
Industrial Building Aurora, CO		None		1,338,175		7,202,411		2,745,974			1,415,159		9,871,401		11,286,560		1997		Sep., 1997
Office Complex Brentwood, TN		None		2,425,000		7,063,755		2,844,397			2,463,601		9,869,551		12,333,152		1987		Oct., 1997
Retail Shopping Center Hampton, VA		8,239,566		2,339,100		12,767,956		2,935,555			4,839,418		13,203,193		18,042,611		1998		May, 2001
Retail Shopping Center Westminster, MD		—		3,031,735		9,326,605		(0	)		3,031,735		9,326,605		12,358,340		2005		June, 2006
Retail Shopping Center Ocean City, MD		6,972,922		1,517,099		8,495,039		5,526,641			1,517,099		14,021,680		15,538,779		1986		Nov., 2002
		32,710,488		31,253,504		130,412,268		37,458,284			37,171,121		161,952,935		199,124,056

		2006		2005			2004
(a)	Balance at beginning of year		183,767,148		224,584,885			223,943,870
	Additions:
	Acquistions		12,358,340		—			—
	Improvements, etc.		2,998,568		6,187,973			7,502,358
	Conversions from JV to WO							—
	Deletions:
	Sale		—		(47,005,710	)		(6,861,343	)
	Balance at end of year		199,124,056		183,767,148			224,584,885
(b)	Net of $1,000,000 settlement received from lawsuit.

F-27

MORTGAGE LOAN RECEIVABLE

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

SCHEDULE IV – MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 2006

Principal amount

of Loans

Face

Carrying

Subject to

Periodic

Amount

Amount

Delinquent

Interest

Final Maturity

payment

Prior

of

of

Principal or

Description

Rate

Date

Terms

Liens

Mortgages

Mortgages

Interest

Loans Receivables:

Westminster, MD

10.00

%

3/3/2006

*

I only

—

—

—

—

	2006			2005
Balance at beginning of year		4,277,769			1,332,060
Additions during the period:
New Mortgage loans
Other – drawdown on loan					2,752,035
Other – accrued interest					493,674
Deductions during the period:
Cost of real estate sold
Foreclosures
Cost of mortgages sold		(4,277,769	)
Amortization of premium
Other – accrued interest payment					(300,000	)
Balance at end of year		—			4,277,769

* I is Interest only

F-28