Prudential Variable Contract Real Property Account 10-Q 2007 Q3 Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2007

OR

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

Commission file number 033-20083-01

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 Jersey 07102-2992

(Address of principal executive offices) (Zip Code)

(973) 802-6000

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES þ      NO o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 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 the Exchange Act). YES o     NO þ

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Registrant)

INDEX

		Page
Forward Looking Statement Disclosure			3
Part I – Financial Information
Item 1.	Financial Statements (Unaudited)
A.	THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
	Statements of Net Assets – September 30, 2007 and December 31, 2006		4
	Statements of Operations – Nine and Three Months Ended September 30, 2007 and 2006		4
	Statements of Changes in Net Assets – Nine and Three Months Ended September 30, 2007 and 2006		4
	Notes to the Financial Statements of the Real Property Account		5
B.	THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
	Consolidated Statements of Assets and Liabilities – September 30, 2007 and December 31, 2006		8
	Consolidated Statements of Operations – Nine and Three Months Ended September 30, 2007 and 2006		9
	Consolidated Statements of Changes in Net Assets – Nine Months Ended September 30, 2007 and 2006		10
	Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2007 and 2006		11
	Consolidated Schedules of Investments – September 30, 2007 and December 31, 2006		12
	Notes to Consolidated Financial Statements of the Partnership		14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		26
Item 4.	Controls and Procedures		27
Part II – Other Information
Item 1A.	Risk Factors		27
Item 4.	Submission of Matters to a Vote of Security Holders		27
Item 6.	Exhibits		27
Signatures			28

2

Forward-Looking Statement Disclosure

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon 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; (5) changes in our assumptions related to deferred policy acquisition costs and valuation of business acquired or goodwill; (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) regulatory or legislative changes; (11) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities, including in connection with our divestiture or winding down of businesses; (12) 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; (13) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (14) effects of acquisitions, divestitures and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions; and (15) 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” included in the Annual Report on Form 10-K for the year ended December 31, 2006 for discussion of certain risks relating to the operation of the Partnership.

3

FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS September 30, 2007 and December 31, 2006
	September 30, 2007
	(unaudited)			December 31, 2006
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	98,972,771		$	92,863,117
Net Assets	$	98,972,771		$	92,863,117
NET ASSETS,representing:
Equity of contract owners	$	72,032,289		$	68,090,994
Equity of The Prudential Insurance Company of America		26,940,482			24,772,123
	$	98,972,771		$	92,863,117
Units outstanding		36,317,133			36,089,056
Portfolio shares held		2,741,864			2,741,864
Portfolio net asset value per share	$	36.10		$	33.87
STATEMENTS OF OPERATIONS For the nine and three months ended September 30, 2007 and 2006
		1/1/2007-9/30/2007			1/1/2006-9/30/2006			7/1/2007-9/30/2007			7/1/2006-9/30/2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
INVESTMENT INCOME
Net investment income from Partnership operations	$	3,668,668		$	3,300,451		$	1,357,587		$	1,263,183
EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		416,574			377,213			141,718			129,853
NET INVESTMENT INCOME		3,252,094			2,923,238			1,215,869			1,133,330
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership		2,154,066			5,801,859			(163,197	)		598,533
Net realized gain (loss) on sale of investments in Partnership		286,920			27,478			(21,249	)		2
NET GAIN (LOSS) ON INVESTMENTS		2,440,986			5,829,337			(184,446	)		598,535
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	5,693,080		$	8,752,575		$	1,031,423		$	1,731,865
STATEMENTS OF CHANGES IN NET ASSETS For the nine and three months ended September 30, 2007 and 2006
		1/1/2007-9/30/2007			1/1/2006-9/30/2006			7/1/2007-9/30/2007			7/1/2006-9/30/2006
	(unaudited)			(unaudited)			(unaudited)			(unaudited)
OPERATIONS
Net investment income	$	3,252,094		$	2,923,238		$	1,215,869		$	1,133,330
Net change in unrealized gain (loss) on investments in Partnership		2,154,066			5,801,859			(163,197	)		598,533
Net realized gain (loss) on sale of investments in Partnership		286,920			27,478			(21,249	)		2
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		5,693,080			8,752,575			1,031,423			1,731,865
CAPITAL TRANSACTIONS
Net withdrawals by contract owners		(129,104	)		(1,011,353	)		(509,942	)		(346,997	)
Net contributions (withdrawals) by The Prudential Insurance Company of America		545,678			(993,170	)		651,660			(1,904,883	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS		416,574			(2,004,523	)		141,718			(2,251,880	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		6,109,654			6,748,052			1,173,141			(520,015	)
NET ASSETS
Beginning of period		92,863,117			83,277,385			97,799,630			90,545,452
End of period	$	98,972,771		$	90,025,437		$	98,972,771		$	90,025,437

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

4

NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
September 30, 2007
(Unaudited)

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 GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates.

The interim financial data as of September 30, 2007 and for the nine and three months ended September 30, 2007 and 2006 is unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods.

In September 2006, the 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 must 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 on the financial position and result of operations of the Account.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Company plans to adopt this guidance effective January 1, 2008. The Company is currently assessing the impact of SFAS No. 157 on the Company’s consolidated financial position and results of operations.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” including an amendment of FASB Statement No. 115. This statement provides companies with an option to report selected financial assets and liabilities at fair value. This statement is effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Company plans to adopt this guidance effective January 1, 2008. The Company is currently assessing the impact of SFAS No. 159 on its consolidated financial position and results of operations.

5

  B. Investment in Partnership Interest

The investment in the Partnership is based on the Account’s proportionate interest of the Partnership’s market value. At September 30, 2007 and December 31, 2006 the Account’s interest in the Partnership was 40.6% or 2,741,864 shares.

  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.

Note 3: Charges and Expenses

  A. Mortality Risk and Expense Risk Charges

Mortality risk and expense risk charges are determined daily using an effective annual rate of 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 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.

6

Note 4: 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 5: Net Withdrawals by Contract Owners

Net contract owner withdrawals for the real estate investment option in Prudential’s variable insurance and variable annuity products for the nine months ended September 30, 2007 and 2006, were as follows:

	Nine Months Ended September 30,
	(Unaudited)
	2007			2006
PDISCO+/VIP	$	(2,419	)	$	(375,877	)
PVAL/PVAL $100,000+ face value		(126,685	)		(635,476	)
TOTAL	$	(129,104	)	$	(1,011,353	)

Note 6: Partnership Distributions

As of September 30, 2007, the Partnership had made no current year distributions. For the year ended December 31, 2006, the Partnership made distributions of $6 million. The Account’s share of these distributions was $2.4 million.

Note 7: Unit Information

Outstanding units and unit values at September 30, 2007 and December 31, 2006 were as follows:

	September 30, 2007	December 31, 2006
	(Unaudited)
Units Outstanding:	36,317,133	36,089,056
Unit Value:	2.57408 to 2.84537	2.43678 to 2.68168

Note 8: Financial Highlights

The range of total return for the nine months ended September 30, 2007 and 2006 was as follows:

	Nine Months Ended
	September 30,
	(Unaudited)
	2007	2006
Total Return	5.63% to 6.10%	9.98% to 10.46%

7

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	September 30, 2007
	(Unaudited)		December 31, 2006
ASSETS
REAL ESTATE INVESTMENTS – At estimated market value:
Real estate and improvements (cost: 9/30/2007 – $232,183,894; 12/31/2006 – $199,124,056)	$	249,555,306	$	214,444,568
Real estate partnerships and preferred equity investments (cost: 9/30/2007 – $14,576,963; 12/31/2006 – $22,334,823)		14,576,963		17,941,039
Other real estate investments (cost: 9/30/2007 – $3,137,949; 12/31/2006 – $2,857,851)		3,137,949		2,857,851
Total real estate investments		267,270,218		235,243,458
CASH AND CASH EQUIVALENTS		17,304,021		33,399,532
OTHER ASSETS, NET		3,100,642		3,493,829
Total assets		287,674,881		272,136,819
LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT	$	32,273,790	$	32,710,488
ACCOUNTS PAYABLE AND ACCRUED EXPENSES		3,683,488		3,091,930
DUE TO AFFILIATES		865,090		789,889
OTHER LIABILITIES		991,218		876,487
MINORITY INTEREST		5,883,820		5,751,441
Total liabilities		43,697,406		43,220,235
COMMITMENTS AND CONTINGENCIES
PARTNERS’ EQUITY		243,977,475		228,916,584
Total liabilities and partners’ equity	$	287,674,881	$	272,136,819
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		6,758,960		6,758,960
SHARE VALUE AT END OF PERIOD	$	36.10	$	33.87

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

8

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

	For the Nine Months					For the Three Months
	Ended September 30,					Ended September 30,
	2007			2006		2007			2006
INVESTMENT INCOME:
Revenue from real estate and improvements	$	20,752,762		$	18,839,045	$	7,545,286		$	6,793,128
Equity in income of real estate partnerships		882,293			646,978		254,645			314,399
Interest and equity income on mortgage and other loans receivable		—			125,510		—			—
Income from other real estate investments		280,098			125,172		94,392			94,392
Interest on short-term investments		1,293,428			1,456,221		340,171			461,595
Total investment income		23,208,581			21,192,926		8,234,494			7,663,514
INVESTMENT EXPENSES:
Operating		5,137,964			4,713,495		1,755,099			1,693,204
Investment management fee		2,492,126			2,298,695		851,683			793,607
Real estate taxes		1,656,843			1,627,836		602,234			564,428
Administrative		3,218,654			2,820,122		1,181,123			921,392
Interest expense		1,575,492			1,372,094		446,379			446,825
Minority interest		83,878			220,627		51,391			128,901
Total investment expenses		14,164,957			13,052,869		4,887,909			4,548,357
NET INVESTMENT INCOME		9,043,624			8,140,057		3,346,585			3,115,157
REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS:
Net proceeds from real estate investments sold		18,353,122			67,770		—			—
Less: Cost of real estate investments sold		19,026,181			—		52,381			—
Realization of prior periods’ unrealized gain (loss) on real estate investments sold		(1,380,344	)		—		—			—
NET GAIN (LOSS) REALIZED ON REAL ESTATE INVESTMENTS SOLD		707,285			67,770		(52,381	)		—
Change in unrealized gain (loss) on real estate investments		5,064,340			16,401,107		(1,004,324	)		1,430,286
Less: Minority interest change in unrealized gain(loss) on real estate investments		(245,642	)		2,090,356		(602,027	)		(46,520	)
Net unrealized gain (loss) on real estate investments		5,309,982			14,310,751		(402,297	)		1,476,806
NET REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS		6,017,267			14,378,521		(454,678	)		1,476,806
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	15,060,891		$	22,518,578	$	2,891,907		$	4,591,963

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

9

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)

	For the Nine Months Ended September 30,
	2007		2006
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income	$	9,043,624	$	8,140,057
Net gain (loss) realized on real estate investments sold		707,285		67,770
Net unrealized gain (loss) from real estate investments		5,309,982		14,310,751
Increase (decrease) in net assets resulting from operations		15,060,891		22,518,578
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Withdrawals		—		(6,000,000	)
Increase (decrease) in net assets resulting from capital transactions		—		(6,000,000	)
INCREASE (DECREASE) IN NET ASSETS		15,060,891		16,518,578
NET ASSETS – Beginning of period		228,916,584		205,402,851
NET ASSETS – End of period	$	243,977,475	$	221,921,429

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

10

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

	For the Nine Months Ended September 30,
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets from operations	$	15,060,891		$	22,518,578
Adjustments to reconcile net increase in net assets to net cash from operating activities
Net realized and unrealized loss (gain)		(6,017,267	)		(14,378,521	)
Amortization of deferred financing costs		258,751			—
Distributions in excess of (less than) equity in income of real estate partnerships’ operations		20,063			(59,755	)
Minority interest in consolidated partnerships		83,878			220,627
Bad debt expense		67,818			116,285
(Increase) decrease in accrued interest included in other real estate investments		(280,098	)		(125,172	)
(Increase) decrease in:
Other assets		66,618			(589,493	)
Increase (decrease) in:
Accounts payable and accrued expenses		591,558			680,428
Due to affiliates		75,201			46,089
Other liabilities		114,731			239,715
Net cash flows from (used in) operating activities		10,042,144			8,668,781
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold		18,353,122			67,770
Acquisition of real estate and improvements		(42,209,760	)		(12,159,443	)
Additions to real estate and improvements		(2,138,462	)		(1,310,684	)
Contributions to real estate partnerships		—			(7,289,487	)
Return of investment in real estate partnerships		—			3,620,455
Collection of mortgage loan receivable		—			4,277,769
Origination of other real estate investments		—			(2,638,287	)
Net cash flows from (used in) investing activities		(25,995,100	)		(15,431,907	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals		—			(6,000,000	)
Principal payments on investment level debt		(436,698	)		(407,729	)
Contributions from minority interest partners		294,143			—
Distributions to minority interest partners		—			(65,391	)
Net cash flows from (used in) financing activities		(142,555	)		(6,473,120	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(16,095,511	)		(13,236,246	)
CASH AND CASH EQUIVALENTS – Beginning of period		33,399,532			45,467,485
CASH AND CASH EQUIVALENTS – End of period	$	17,304,021		$	32,231,239
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest	$	1,317,281		$	1,341,565

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

11

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED SCHEDULE OF INVESTMENTS

				September 30, 2007
				Total Rentable
				Square Feet			September 30, 2007
				Unless Otherwise			(Unaudited)				December 31, 2006
	September 30, 2007			Indicated					Estimated				Estimated
Property Name	Ownership	City, State		(Unaudited)			Cost		Market Value		Cost		Market Value
OFFICES
750 Warrenville	WO	Lisle, IL			103,193		$	24,561,578	$	11,500,000	$	24,517,391	$	10,700,000
Summit @ Cornell Oaks	WO	Beaverton , OR			72,109			12,356,027		13,800,000		12,091,490		12,500,000
Westpark	WO	Nashville, TN			97,199			11,307,881		12,800,000		11,033,804		12,800,000
Financial Plaza	WO	Brentwood, TN			98,049			12,358,189		13,700,000		12,333,152		13,500,000
		Offices % as of 9/30/2007			21	%		60,583,675		51,800,000		59,975,837		49,500,000
APARTMENTS
Brookwood Apartments	WO	Atlanta, GA		240 Units				19,389,939		20,800,000		18,918,016		20,100,000
Dunhill Trace Apartments	WO	Raleigh, NC		250 Units				16,327,426		19,800,000		16,287,767		20,400,000
The Reserve	WO	Charlotte, NC		140 Units				13,534,750		13,534,750		—		—
Broadstone Crossing	WO	Austin, TX		225 Units				22,716,166		26,100,000		—		—
		Apartments % as of 9/30/2007			33	%		71,968,281		80,234,750		35,205,783		40,500,000
RETAIL
King’s Market	WO	Rosewell, GA			314,358			37,865,762		28,300,000		37,775,326		28,400,000
Hampton Towne Center	WO	Hampton, VA			174,540			18,046,356		26,200,000		18,042,611		26,000,000
White Marlin Mall	CJV	Ocean City, MD			186,016			16,391,027		23,000,000		15,538,779		22,900,000
Kansas City Portfolio	EJV	Kansas City, KS;MO			487,660			178,716		178,716		7,816,531		3,422,747
Westminster Crossing East, LLC	CJV	Westminster, MD			89,890			12,403,221		18,061,712		12,358,340		17,744,568
Hartnett Crossing	CJV	Dunn, NC			193,235			5,958,844		5,958,844		—		—
CARS Preferred Equity	PE	Various			N/A			14,398,247		14,398,247		14,518,292		14,518,292
		Retail % as of 9/30/2007			48	%		105,242,173		116,097,519		106,049,879		112,985,607
INDUSTRIAL
Smith Road	WO	Aurora, CO		Sold				—		—		11,286,560		14,300,000
		Industrial % as of 9/30/2007			0	%		—		—		11,286,560		14,300,000
HOTEL
Portland Crown Plaza	CJV	Portland, OR			161 Rooms			8,966,728		16,000,000		8,940,820		15,100,000
		Hotel % as of 9/30/2007			7	%		8,966,728		16,000,000		8,940,820		15,100,000
OTHER REAL ESTATE INVESTMENTS
Westminster East	Eloan	Westminster, MD						3,137,949		3,137,949		2,857,851		2,857,851
		Other Real Estate
		Investments % as of
			9/30/2007		1	%		3,137,949		3,137,949		2,857,851		2,857,851
Total Real Estate Investments as a Percentage of Net Assets as of 9/30/2007					110	%		249,898,806		267,270,218		224,316,730		235,243,458

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.

12

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED SCHEDULE OF INVESTMENTS

			September 30, 2007
			(Unaudited)					December 31, 2006
					Estimated					Estimated
	Face Amount		Cost		Market Value			Cost		Market Value
CASH AND CASH EQUIVALENTS — Percentage of Net Assets						7.1	%				14.6	%
Federal Home Loan Bank, 0 coupon bond, October 1, 2007	$	5,403,000	$	5,403,000	$	5,403,000		$	7,245,028	$	7,245,028
Federal Home Loan Bank, 0 coupon bond, October 9, 2007		9,990,000		9,990,000		9,990,000			24,914,167		24,914,167
Total Cash Equivalents				15,393,000		15,393,000			32,159,195		32,159,195
Cash				1,911,021		1,911,021			1,240,337		1,240,337
Total Cash and Cash Equivalents			$	17,304,021	$	17,304,021		$	33,399,532	$	33,399,532

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

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
September 30, 2007 and 2006
(Unaudited)

Note 1:	Summary of Significant Accounting Policies and Pronouncements
	The accompanying unaudited consolidated financial statements of The Prudential Variable Contract Real Property Partnership (the “Partnership”) included herein have been prepared in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the nine months ended September 30, 2007 are not necessarily indicative of the results that may be expected for the year ended December 31, 2007. For further information, refer to the audited consolidated financial statements and notes thereto included in each partner’s Annual Report on Form 10-K for the year ended December 31, 2006.
	Real estate investments are reported at their estimated fair market values.
	FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), was issued in January 2003. In December 2003, FASB issued a revised interpretation of FIN 46 (FIN 46-R”) that supersedes FIN 46. FIN 46-R defers the effective date for applying the provisions of FIN 46 for those companies currently accounting for their investments in accordance with the AICPA Audit and Accounting Guide, “Audits of Investment Companies” (the “Audit Guide”). The FASB is currently considering modifying FIN 46-R to provide an exception for companies that apply the Audit Guide. The Partnership is awaiting the final determination from the FASB in order to evaluate the extent in which, if any, its equity investments may need to be consolidated as a result of this FIN 46-R.
	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 must 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 had no effect on the financial position and result of operations of the Partnership.
	The Partnership adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” an Interpretation of FASB Statement No. 109 as of January 1, 2007. This interpretation prescribes a comprehensive model for how a partnership should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the partnership has taken or expects to take on a tax return. The adoption of FIN 48 had no effect to the financial position and result of operations of the Partnership.
	In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This statement does not require any new fair value measurements, but the application of this statement could change current practices in determining fair value.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
September 30, 2007 and 2006
(Unaudited)

Note 1:	Summary of Significant Accounting Policies and Pronouncements (continued)
	In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” including an amendment of FASB Statement No. 115. This statement provides partnerships with an option to report selected financial assets and liabilities at fair value.
	SFAS No. 157 and SFAS No. 159 are effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Partnership plans to adopt this guidance effective January 1, 2008. The Partnership is currently assessing the impact of SFAS 157 and SFAS 159 on the Partnership’s financial position and results of operations.
	In June 2007, the Accounting Standards Executive Committee issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). The SOP was supposed to be effective for fiscal years beginning on or after December 15, 2007, however FASB has deferred the effective date while addressing implementation issues. The Partnership is awaiting the final determination from the FASB in order to evaluate the impact on the Partnership’s financial position and results of operations.
Note 2:	Related Party Transactions
	Pursuant to an investment management agreement, Prudential Investment Management, Inc. (“PIM”), which is an indirectly owned subsidiary of Prudential Financial Inc. (“PFI”), charges the Partnership a daily investment management fee at an annual rate of 1.25% of the average daily gross asset valuation of the Partnership. For the nine months ended September 30, 2007 and 2006 investment management fees incurred by the Partnership were $2,492,126 and $2,298,695, respectively. For the three months ended September 30, 2007 and 2006 investment management fees incurred by the Partnership were $851,683 and $793,607, respectively.
	The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the nine months ended September 30, 2007 and 2006 were $87,122 and $98,197, respectively, and are classified as administrative expense in the Consolidated Statements of Operations. The amounts incurred for the three months ended September 30, 2007 and 2006 were $29,041 and $36,732, respectively, and are classified as administrative expense in the Consolidated Statements of Operations.
Note 3:	Commitments and Contingencies
	The Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. These matters are generally covered by insurance. In the opinion of the Partnership’s management, the outcome of such matters will not have a material effect on the Partnership.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
September 30, 2007 and 2006
(Unaudited)

Note 4: Financial Highlights

	For The Nine Months Ended September 30,
	2007			2006			2005			2004			2003
Per Share(Unit) Operating Performance:
Net Asset Value, beginning of period	$	33.87		$	29.59		$	26.15		$	24.66		$	24.11
Income From Investment Operations:
Investment income, before management fee		1.71			1.50			1.22			1.04			1.12
Investment Management fee		(0.37	)		(0.33	)		(0.29	)		(0.27	)		(0.24	)
Net realized and unrealized gain (loss) on investments		0.89			2.07			2.05			0.82			(0.84	)
Net Increase in Net Assets Resulting from Operations		2.23			3.24			2.98			1.59			0.04
Net Asset Value, end of period	$	36.10		$	32.83		$	29.13		$	26.25		$	24.15
Total Return, before Management Fee(a):		7.70	%		12.14	%		12.58	%		7.58	%		1.15	%
Ratios/Supplemental Data:
Net Assets, end of period (in millions)	$	244		$	222		$	208		$	193		$	185
Ratios to average net assets(b):
Total Portfolio Level Expenses		1.15	%		1.15	%		1.10	%		1.06	%		1.00	%
Investment Income before Management Fee		5.02	%		4.87	%		3.04	%		4.13	%		4.62	%

(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.

16

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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

(a) Liquidity and Capital Resources

As of September 30, 2007, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $17.3 million, a decrease of approximately $16.1 million from $33.4 million at December 31, 2006. The decrease was primarily due to the acquisition of the Partnership’s retail investment in Dunn, North Carolina and the apartment investments in Charlotte, North Carolina and Austin, Texas, as described below. Partially offsetting this decrease was the sale of the Partnership’s industrial investment in Aurora, Colorado and the retail investment in Kansas City, Kansas, as described below. In addition, sources of liquidity included net cash flow from property operations. The Partnership uses cash for its real estate investment activities and for its distributions to its partners. As of September 30, 2007, approximately 6% of the Partnership’s total assets consisted of cash and cash equivalents.

Dispositions for the nine months ended September 30, 2007 included the sale of two properties. On February 7, 2007 the Partnership’s industrial property located in Aurora, Colorado was sold, resulting in net proceeds of approximately $14.7 million to the Account. On June 29, 2007 the Partnership sold the retail investment in Kansas City, Kansas, which resulted in net proceeds of $3.7 million after the repayment of debt.

Acquisitions for the nine months ended September 30, 2007 included the purchase of three properties. In May, the Partnership invested $22.7 million to acquire the 225-unit garden apartment property located in Austin, Texas. In August, the Partnership made a contribution of $5.9 million to fund the purchase of a 192,235 square foot neighborhood/community shopping center located in Dunn, North Carolina. In September, the Partnership invested $13.6 million to acquire the 140-unit garden apartment property located in Charlotte, North Carolina.

During the nine months ended September 30, 2007, the Partnership spent approximately $2.1 million on capital improvements to various existing properties. Approximately $0.9 million was associated with redevelopment expenses at the retail property in Ocean City, Maryland, approximately $0.5 million funded the renovation of an apartment property in Atlanta, Georgia, and approximately $0.3 million was associated with capital improvements at the office properties in Brentwood, Tennessee. The remaining $0.5 million was associated with minor capital improvements and transaction costs related to leasing expenses of various other properties.

17

(b) Results of Operations

The following is a comparison of the Partnership’s results of operations for the nine and three-month periods ended September 30, 2007 and 2006.

Net Investment Income Overview

The Partnership’s net investment income for the nine months ended September 30, 2007 was approximately $9.0 million, an increase of approximately $0.9 million from the prior year period. The office, apartment and retail sector investments posted increases of approximately $0.3 million, $0.5 million and $0.9 million, respectively, from the prior year period. Offsetting this increase was a decrease in net investment income in the industrial sector investment of approximately $0.6 million from the prior year period. In addition, other net investment income decreased approximately $0.3 million from the prior year period. The components of this net investment income are discussed below by property type.

The Partnership’s net investment income for the quarter ended September 30, 2007 was approximately $3.3 million, an increase of approximately $0.2 million from the prior year period. The office and apartment sector investments posted increases of approximately $0.1 million and $0.4 million, respectively, from the prior year period. Net investment income for the retail and hotel sector investments remained unchanged from the prior year period. Offsetting this increase was a decrease in net investment income in the industrial sector investment of approximately $0.2 million from the prior year period. In addition, other net investment income decreased approximately $0.2 million, from the prior year period. The components of this net investment income are discussed below by property type.

Valuation Overview

The Partnership recorded an aggregate net realized gain of approximately $0.7 million for the nine months ended September 30, 2007, compared to an aggregate net realized gain of approximately $0.1 million for the prior year period. The aggregate net realized gain of approximately $0.7 million for the nine months ended September 30, 2007 was attributable to the retail and industrial sector investments. The partnership recorded an aggregate net realized loss of approximately $0.1 million for the quarter ended September 30, 2007, compared to no net realized gain or loss for the prior year period. The aggregate net realized loss of approximately $0.1 million for the quarter ended September 30, 2007 was attributable to the retail sector investments. The components of these valuation gains and/or losses are discussed below by property type.

The Partnership recorded an aggregate net unrealized gain of approximately $5.3 million for the nine months ended September 30, 2007, compared to an aggregate net unrealized gain of approximately $14.3 million for the prior year period. The Partnership recorded an aggregate net unrealized loss of approximately $0.4 million for the three months ended September 30, 2007, compared to an aggregate net unrealized gain of approximately $1.5 million for the prior year period. The aggregate net unrealized gain for the nine months ended September 30, 2007 was attributable to valuation gains in the office, apartment and hotel sector investments that recorded gains of approximately $1.7 million, $3.0 million and $0.7 million respectively. Partially offsetting the aggregated net unrealized gain was the loss of $0.1 million in the retail sector investments. The aggregate net unrealized loss for the three months ended September 30, 2007 was the result of recorded losses in the retail and hotel sector investments of approximately $1.8 million and $0.3 million, respectively. Partially offsetting these losses included valuation gains of approximately $1.2 million in the office sector investments and $0.5 million in the apartment sector investments. The components of these valuation gains and/or losses are discussed below by property type.

18

The following table presents a comparison of the Partnership’s sources of net investment income, and realized and unrealized gains or losses by investment type for the nine and three-month periods ended September 30, 2007 and 2006:

	Nine Months Ended						Three Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Net Investment Income:
Office properties	$	2,850,757		$	2,503,937		$	1,004,205		$	852,401
Apartment properties		1,278,936			779,306			640,578			236,838
Retail properties		5,276,342			4,426,107			1,824,046			1,778,777
Industrial property		14,363			578,378			(1,595	)		199,418
Hotel property		979,791			963,740			453,390			430,337
Land		—			(43,508	)		—			—
Other (including interest income, investment mgt fee, etc.)		(1,356,565	)		(1,067,903	)		(574,039	)		(382,614	)
Total Net Investment Income	$	9,043,624		$	8,140,057		$	3,346,585		$	3,115,157
Net Realized Gain (Loss) on Real Estate Investments:
Apartment properties		—			70,689			—			—
Retail properties		361,453			—			(52,381	)		—
Land		—			(2,919	)		—			—
Industrial property		345,832			—			—			—
Total Net Realized Gain (Loss) on Real Estate Investments		707,285			67,770			(52,381	)		—
Net Unrealized Gain (Loss) on Real Estate Investments:
Office properties		1,692,160			2,493,348			1,153,887			305,619
Apartment properties		2,972,253			797,104			542,403			(208,560	)
Retail properties		(53,704	)		5,758,846			(1,766,903	)		572,084
Industrial property		—			1,463,579			—			840,782
Hotel property		699,273			3,797,874			(331,684	)		(33,119	)
Total Net Unrealized Gain (Loss) on Real Estate Investments		5,309,982			14,310,751			(402,297	)		1,476,806
Net Realized and Unrealized Gain (Loss) on Real Estate Investments	$	6,017,267		$	14,378,521			($454,678	)	$	1,476,806

19

OFFICE PROPERTIES

	Net Investment		Net Investment		Unrealized			Unrealized
	Income/(Loss)		Income/(Loss)		Gain/(Loss)			Gain/(Loss)			Occupancy		Occupancy
Nine Months Ended September 30,	2007		2006		2007			2006			2007		2006
Property
Lisle, IL	$	420,962	$	324,823	$	755,813		$	292,021			61%		38%
Brentwood, TN		842,377		756,318		(274,078	)		(299,760	)		100%		100%
Oakbrook Terrace, IL(1)		—		1,323		—			—			N/A		N/A
Beaverton, OR		782,795		679,636		1,035,463			1,901,087			91%		76%
Brentwood, TN		804,623		741,837		174,962			600,000			100%		100%
	$	2,850,757	$	2,503,937	$	1,692,160		$	2,493,348
	Net Investment		Net Investment		Unrealized			Unrealized
	Income/(Loss)		Income/(Loss)		Gain/(Loss)			Gain/(Loss)
Three Months Ended September 30,	2007		2006		2007			2006
Property
Lisle, IL	$	202,520	$	138,253	$	(32,613	)	$	(307,979	)
Brentwood, TN		287,843		266,463		(104,620	)		(167,389	)
Beaverton, OR		268,880		213,570		792,313			780,987
Brentwood, TN		244,962		234,115		498,807			—
	$	1,004,205	$	852,401	$	1,153,887		$	305,619

^{(1) The Oakbrook Terrace, Illinois office property was sold on June 8, 2005 but certain post-closing adjustments were recognized during the nine months ended September 30, 2006.}

Net Investment Income

Net investment income for the Partnership’s office properties was approximately $2.9 million for the nine months ended September 30, 2007, an increase of approximately $0.4 million from the prior year period. Net investment income for the Partnership’s office properties was approximately $1.0 million for the quarter ended September 30, 2007, an increase of approximately $0.1 million from the prior year period. The increase for both the nine and three month periods ended September 30, 2007 was primarily due to increased occupancy at the properties in Lisle, Illinois and Beaverton, Oregon and increased rents at the properties in Brentwood, Tennessee.

Unrealized Gain/(Loss)

The office properties owned by the Partnership recorded an aggregate net unrealized gain of approximately $1.7 million for the nine months ended September 30, 2007, compared to an aggregate net unrealized gain of approximately $2.5 million for the prior year period. The aggregate net unrealized gain of approximately $1.7 million for the nine months ended September 30, 2007 was primarily due to improving market conditions and increased occupancies at the properties in Lisle, Illinois and Beaverton, Oregon. Partially offsetting these unrealized gains included a net unrealized loss of approximately $0.3 million at the property in Brentwood, Tennessee due to capital improvements that did not translate into valuation gains.

The office properties owned by the Partnership recorded an aggregate net unrealized gain of approximately $1.2 million during the quarter ended September 30, 2007, compared to an aggregate net unrealized gain of approximately $0.3 million for the prior year period. The net unrealized gain of approximately $1.2 million for the quarter ended September 30, 2007 was primarily due to continued improving market conditions at the property in Beaverton, Oregon and Brentwood, Tennessee. Partially offsetting these unrealized gains were unrealized losses recorded at the properties in Brentwood, Tennessee and Lisle, Illinois due to capital improvements that did not translate into valuation gains.

20

APARTMENT PROPERTIES

									Realized /
	Net Investment		Net Investment			Unrealized			Unrealized
	Income/(Loss)		Income/(Loss)			Gain/(Loss)			Gain/(Loss)			Occupancy		Occupancy
Nine Months Ended September 30,	2007		2006			2007			2006			2007		2006
Property
Atlanta, GA	$	250,388	$	351,593		$	228,077		$	170,649			92%		95%
Raleigh, NC		445,473		437,763			(639,658	)		626,455			96%		90%
Gresham/Salem, OR(1)		—		(10,050	)		—			169			N/A		N/A
Jacksonville, FL(2)		17,342		—			—			70,520			N/A		N/A
Austin, TX(3)		508,926		—			3,383,834			—			94%		N/A
Charlotte, NC(4)		56,807		—			—			—			95%		N/A
	$	1,278,936	$	779,306		$	2,972,253		$	867,793
	Net Investment		Net Investment			Unrealized			Unrealized
	Income/(Loss)		Income/(Loss)			Gain/(Loss)			Gain/(Loss)
Three Months Ended September 30,	2007		2006			2007			2006
Property
Atlanta, GA	$	96,019	$	114,657		$	384,959		$	(137,072	)
Raleigh, NC		194,479		122,231			167,444			(71,488	)
Gresham/Salem, OR(1)		—		(50	)		—			—
Austin, TX(3)		293,273		—			(10,000	)		—
Charlotte, NC(4)		56,807		—			—			—
	$	640,578	$	236,838		$	542,403		$	(208,560	)

(1)	The Gresham, Oregon and Salem, Oregon apartment properties were sold on August 10, 2005 and March 10, 2005, respectively, but certain post-closing adjustments were recognized during the nine and three month periods ended September 30, 2006.
(2)	The Jacksonville, Florida apartment property was sold on November 30, 2005 but certain post-closing adjustments were recognized during the nine months ended September 30, 2007.
(3)	Net investment income for the nine and three month periods ended September 30, 2007 reflects partial period results for the Austin, Texas apartment property that was acquired on May 8, 2007.
(4)	Net investment income for the nine and three month periods ended September 30, 2007 reflects partial period results for the Charlotte, North Carolina apartment property that was acquired on September 6, 2007.

Net Investment Income

Net investment income for the Partnership’s apartment properties was approximately $1.3 million for the nine months ended September 30, 2007, an increase of approximately $0.5 million from the prior year period. Net investment income for the Partnership’s apartment properties was approximately $0.6 million for the three months ended September 30, 2007, an increase of approximately $0.4 million from the prior year period. The increase in net investment income for both the nine and three month periods ended September 30, 2007 was primarily due to the acquisition of the apartment properties in Austin, Texas and Charlotte, North Carolina and favorable market conditions in Raleigh, North Carolina.

Total Realized and Unrealized Gain/Loss

The apartment properties owned by the Partnership recorded an aggregate net unrealized gain of approximately $3.0 million for the nine months ended September 30, 2007, compared to an aggregate net realized and unrealized gain of approximately $0.9 million for the prior year period. The apartment properties owned by the Partnership recorded an aggregate net unrealized gain of approximately $0.5 million for the quarter ended September 30, 2007, compared to an aggregate net unrealized loss of approximately $0.2 million for the prior year period. The aggregate net unrealized gain for the nine-month period ended September 30, 2007 was primarily due to the acquisition of the apartment property in Austin, Texas at cost, which resulted in $3.4 million in valuation gains and improving market conditions at the apartment property in Atlanta, Georgia. The aggregate unrealized gain for the three months ended September 30, 2007 were a result of continued improving market conditions at the apartment properties in Atlanta, Georgia and Raleigh, North Carolina.

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RETAIL PROPERTIES

							Realized/			Realized/
	Net Investment			Net Investment			Unrealized			Unrealized
	Income/(Loss)			Income/(Loss)			Gain/(Loss)			Gain/(Loss)			Occupancy		Occupancy
Nine Months Ended September 30,	2007			2006			2007			2006			2007		2006
Property
Roswell, GA	$	1,584,095		$	1,573,010		$	(190,435	)	$	1,101,171			94%		95%
Kansas City, KS; MO(1)		158,663			(56,085	)		361,453			(345,788	)		N/A		91%
Hampton, VA		973,673			983,373			196,255			(105,132	)		100%		100%
Ocean City, MD		605,871			645,473			(336,204	)		122,365			89%		84%
Westminster, MD(2)		1,171,141			464,981			272,262			4,986,230			100%		98%
Westminster, MD(3)		—			124,362			—			—			N/A		N/A
Dunn, NC(4)		62,983			—			4,418			—			90%		N/A
CARS Preferred Equity(5)		719,916			690,993			—			—			N/A		N/A
	$	5,276,342		$	4,426,107		$	307,749		$	5,758,846
							Realized/			Realized/
	Net Investment			Net Investment			Unrealized			Unrealized
	Income/(Loss)			Income/(Loss)			Gain/(Loss)			Gain/(Loss)
Three Months Ended September 30,	2007			2006			2007			2006
Property
Roswell, GA	$	532,486		$	533,961		$	(1,727,833	)	$	486,624
Kansas City, KS; MO(1)		(3,250	)		57,905			(52,381	)		117,840
Hampton, VA		322,134			331,673			99,975			—
Ocean City, MD		223,546			243,574			(133,826	)		(28,645	)
Westminster, MD(2)		431,502			359,841			(9,637	)		(3,735	)
Dunn, NC(4)		62,984			—			4,418			—
CARS Preferred Equity		254,644			251,823			—			—
	$	1,824,046		$	1,778,777		$	(1,819,284	)	$	572,084

(1)	Net investment income (loss) for the nine and three month periods ended September 30, 2007 reflects partial period results for the remaining retail property in Kansas City, Kansas that was sold on June 29, 2007. Net investment income for the nine and three month periods ended September 30, 2006 reflects results for all four retail properties located in Kansas City, Kansas and Kansas City, Missouri, prior to the sale of three out of the four centers on May 15, 2006.
(2)	The Westminster, Maryland retail property was acquired on June 13, 2006.
(3)	Mortgage Loan Receivable (mortgage paid in full on March 3, 2006).
(4)	Net investment income for the nine and three month periods ended September 30, 2007 reflects partial period results for the Dunn, North Carolina retail property that was acquired on August 17, 2007.
(5)	Net investment income for the nine months ended September 30, 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/ (Loss)

Net investment income for the Partnership’s retail properties was approximately $5.3 million for the nine months ended September 30, 2007, a net increase of approximately $0.9 million from the prior year period. Net investment income for the Partnership’s retail properties was approximately $1.8 million for the quarter ended September 30, 2007, unchanged from the prior year period. The increase in net investment income for the nine-month period ended September 30, 2007 was primarily due to the additional net investment income generated by the Westminster, Maryland, and Dunn, North Carolina retail properties that were acquired on June 13, 2006, and August 17, 2007, respectively, and reduced expenses at the Kansas City, Kansas retail property.

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Total Realized and Unrealized Gain/(Loss)

The retail properties owned by the Partnership recorded an aggregate net realized and unrealized gain of approximately $0.3 million for the nine months ended September 30, 2007, compared to an aggregate net realized and unrealized gain of approximately $5.8 million for the prior year period. The unrealized gain for the nine months ended September 30, 2007 was primarily due to the recognized realized gains of approximately $0.4 million generated by the sale of the Kansas City, Kansas retail property on June 29, 2007 and continued investor demand at the Hampton, Virginia and Westminster, Maryland retail properties. These realized and unrealized gains were partially offset by an unrealized loss of approximately $0.3 million recorded at the retail property in Ocean City, Maryland due to capital expenses including tenant improvements, leasing commissions and other capital costs expended in connection with recent redevelopment and leasing efforts. The retail property in Roswell, Georgia also recorded a loss of approximately $0.2 million as a result of the property’s recent marketing efforts.

The retail properties owned by the Partnership recorded an aggregate net realized and unrealized loss of approximately $1.8 million for the quarter ended September 30, 2007, compared to an aggregate net realized and unrealized gain of approximately $0.6 million the prior year period. The unrealized loss for the quarter ended September 30, 2007 was primarily due to the $1.7 million loss recorded at the retail property in Roswell, Georgia, which reflects offers received in connection with marketing efforts of the property as described above. In addition, redevelopment and leasing expenses amounted to approximately $0.1 million in unrealized losses for the retail property in Ocean City, Maryland. Partially offsetting these unrealized losses was an unrealized gain of approximately $0.1 million at the retail property in Hampton, Virginia due to continued investor demand.

INDUSTRIAL PROPERTY

	Net Investment			Net Investment		Realized		Unrealized
	Income/(Loss)			Income/(Loss)		Gain/(Loss)		Gain/(Loss)		Occupancy		Occupancy
Nine Months Ended September 30,	2007			2006		2007		2006		2007		2006
Property
Aurora, CO (1)	$	14,363		$	578,378	$	345,832	$	1,463,579		N/A		85%
	Net Investment			Net Investment		Realized		Unrealized
	Income/(Loss)			Income/(Loss)		Gain/(Loss)		Gain/(Loss)
Three Months Ended September 30,	2007			2006		2007		2006
Property
Aurora, CO (1)	$	(1,595	)	$	199,418	$	—	$	840,782

^{(1) Net investment income (loss) for the nine and three month periods ended September 30, 2007 reflects partial period results for the Aurora,Colorado industrial property that was sold on February 7, 2007.}

Net Investment Income/(Loss)

Net investment income for the Partnership’s industrial property was minimal for the nine months ended September 30, 2007, reflecting a decrease of approximately $0.6 million from the prior year period. Net investment loss for the Partnership’s industrial property was minimal for the quarter ended September 30, 2007, reflecting a decrease of approximately $0.2 million from the prior year period. The decrease in net investment income for both the nine and three month periods ended September 30, 2007 was primarily due to the loss of rent and certain post closing adjustments at the property as a result of the sale on February 7, 2007.

Total Realized and Unrealized Gain/(Loss)

The industrial property owned by the Partnership recorded a realized gain of approximately $0.3 million for the nine months ended September 30, 2007, compared to an unrealized gain of approximately $1.5 million for the prior year period. The realized gain for the nine-month period ended September 30, 2007 was due to the February 7, 2007 sale at a price above market value.

The industrial property owned by the Partnership recorded no realized gain or loss for the quarter ended September 30, 2007, compared to a net unrealized gain of approximately $0.8 million for the prior year period.

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HOTEL PROPERTY

	Net Investment		Net Investment		Unrealized			Unrealized
	Income/(Loss)		Income/(Loss)		Gain/(Loss)			Gain/(Loss)			Occupancy		Occupancy
Nine Months Ended September 30,	2007		2006		2007			2006			2007		2006
Property
Lake Oswego, OR	$	979,791	$	963,740	$	699,273		$	3,797,874			77%		78%
	Net Investment		Net Investment		Unrealized			Unrealized
	Income/(Loss)		Income/(Loss)		Gain/(Loss)			Gain/(Loss)
Three Months Ended September 30,		2007		2006		2007			2006
Property
Lake Oswego, OR	$	453,390	$	430,337	$	(331,684	)	$	(33,119	)

Net Investment Income

Net investment income for the Partnership’s hotel property was approximately $1.0 million for the nine months ended September 30, 2007, unchanged from the prior year period. Net investment income for the Partnership’s hotel property was approximately $0.5 million for the quarter ended September 30, 2007, also unchanged from the prior year period.

Unrealized Gain/(Loss)

The hotel property owned by the Partnership recorded an unrealized gain of approximately $0.7 million for the nine months ended September 30, 2007, compared to an unrealized gain of approximately $3.8 million for the prior year period.

The hotel property owned by the Partnership recorded an unrealized loss of approximately $0.3 million for the quarter ended September 30, 2007, compared to a minimal unrealized loss during the prior year period. The unrealized loss for the three-month period ended September 30, 2007 reflected increased expense levels for marketing and administration.

Other

Other net investment loss increased by approximately $0.3 million for the nine-month period ended September 30, 2007 from the prior year period. Other net investment loss increased by approximately $0.2 million for the three months ended September 30, 2007, compared to the prior year period. Other net investment income includes interest income from short-term investments and 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.

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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 unaudited Consolidated Financial Statements of the Account and the Partnership may change significantly.

The following sections discuss those critical accounting policies applied in preparing the unaudited 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, 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.

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.

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

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 September 30, 2007 and September 30, 2006.

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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 unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

ITEM 3. 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 20.3% of its investment portfolio as of September 30, 2007, 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. In accordance with its 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 September 30, 2007:

		Estimated Market Value		Weighted Average
	Maturity	(millions)		Interest Rate
Cash and Cash equivalents	0-3 months	$	17.3		5.61	%

     The table below discloses the Partnership’s debt as of September 30, 2007. 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 debt obligations and the related weighted-average interest rates by expected matu rity dates for the fixed rate debt.

Debt (in $ thousands),															Estimated
including current portion	2007		2008		2009		2010		2011		Thereafter		Total		Fair Value
Weighted Average Fixed Interest Rate		5.35%		5.74%		6.75%		6.75%		6.75%		6.75%		6.35%
Fixed Rate	$	258	$	15,984	$	9,277	$	565	$	604	$	5,586	$	32,274	$	32,311
Variable Rate		—		—		—		—		—		—		—		—
Total Mortgage Loans Payable	$	258	$	15,984	$	9,277	$	565	$	604	$	5,586	$	32,274	$	32,311

     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 rates and/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.

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Item 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the 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 Act Rules 13a-15(e) and 15d-15(e),under the Securities Exchange Act of 1934, as amended as of September 30, 2007. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2007, 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 Act Rule 13a — 15(f) and 15d — 15(f), during the quarter ended September 30, 2007, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1A. Risk Factors

You should carefully consider the risks described under “—Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006. 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 our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

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.

Item 6. Exhibits

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

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SIGNATURES

     Pursuant to the requirements 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: November 12, 2007	By:	/s/ Richard J. Carbone
		Richard J. Carbone Senior Vice President and Chief Financial Officer (Authorized Signatory and Principal Financial Officer)

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