PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC - FORM 10-Q

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EX-32.2 - SECTION 906 CFO CERTIFICATION - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	dex322.htm
EX-31.2 - SECTION 302 CFO CERTIFICATION - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	dex312.htm
EX-32.1 - SECTION 906 CEO CERTIFICATION - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	dex321.htm
EX-31.1 - SECTION 302 CEO CERTIFICATION - PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC	dex311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission file number 033-20018

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

in respect of

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Exact name of registrant as specified in its charter)

New Jersey

22-2426091

(State or other jurisdiction of

incorporation or organization)

(IRS Employer Identification No.)

213 Washington Street, Newark, New Jersey 07102-2992

(Address of principal executive offices) (Zip Code)

(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 X NO

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No

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

(Check one):


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

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

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Registrant)

INDEX


	Page
Forward Looking Statement Disclosure		3
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets – September 30, 2010 and December 31, 2009		4
Statements of Operations – Nine Months Ended September 30, 2010 and 2009		4
Statements of Changes in Net Assets – Nine Months Ended September 30, 2010 and 2009		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, 2010 and December 31, 2009		15
Consolidated Statements of Operations – Nine Months Ended September 30, 2010 and 2009		16
Consolidated Statements of Changes in Net Assets– Nine Months Ended September 30, 2010 and 2009		17
Consolidated Statements of Cash Flows – Nine Months Ended September 30, 2010 and 2009		18
Consolidated Schedules of Investments – September 30, 2010 and December 31, 2009		19
Notes to Consolidated Financial Statements of the Partnership		21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		31
Item 3. Quantitative and Qualitative Disclosures About Market Risk		39
Item 4. Controls and Procedures		39
Part II - Other Information
Item 1A. Risk Factors		40
Item 6. Exhibits		41
Signatures		42

Forward-Looking Statement Disclosure

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company of New Jersey, or the “Company”, or the Pruco Life of New Jersey Variable Contract Real Property Account, or the “Real Property Account”. There can be no assurance that future developments affecting the Company and the Real Property Account will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets; (2) interest rate fluctuations, including prolonged low interest rates; (3) reestimates 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; (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, including the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act; (11) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities; (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) changes in statutory 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, 2009 and in this Quarterly Report on form 10-Q for discussion of certain risks relating to the operation of the Partnership and investment in our securities.

FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS

September 30, 2010 and December 31, 2009


	September 30, 2010 (unaudited)		December 31, 2009
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	7,518,428	$	7,317,018

Net Assets	$	7,518,428	$	7,317,018

NET ASSETS, representing:
Equity of contract owners	$	5,297,903	$	5,103,774
Equity of Pruco Life Insurance Company of New Jersey		2,220,525		2,213,244

	$	7,518,428	$	7,317,018

Units outstanding		3,119,241		3,237,668

Portfolio shares held		271,295		282,778
Portfolio net asset value per share	$	27.71	$	25.88

STATEMENTS OF OPERATIONS
For the three and nine month periods ended September 30, 2010 and 2009	1/1/2010-9/30/2010		1/1/2009-9/30/2009		7/1/2010-9/30/2010		7/1/2009-9/30/2009
	(unaudited)		(unaudited)		(unaudited)		(unaudited)

INVESTMENT INCOME
Net investment income from Partnership operations	$	268,216	$	228,647	$	95,238	$	75,415


EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		21,962		24,520		7,481		7,625

NET INVESTMENT INCOME		246,254		203,947		87,757		67,970


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership		129,767		(1,769,224)		207,092		(420,891)
Net realized gain (loss) on sale of investments in Partnership		102,584		(194,303)		8,461		(194)

NET GAIN (LOSS) ON INVESTMENTS		232,351		(1,963,527)		215,553		(421,085)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	478,605	$	(1,759,580)	$	303,310	$	(353,295)


STATEMENTS OF CHANGES IN NET ASSETS
For the three and nine month periods ended September 30, 2010 and 2009	1/1/2010-9/30/2010		1/1/2009-9/30/2009		7/1/2010 - 9/30/2010		7/1/2009-9/30/2009
	(unaudited)		(unaudited)		(unaudited)		(unaudited)

OPERATIONS
Net investment income	$	246,254	$	203,947	$	87,757	$	67,790
Net change in unrealized gain (loss) on investments in Partnership		129,767		(1,769,224)		207,092		(420,891)
Net realized gain (loss) on sale of investments in Partnership		102,584		(194,303)		8,461		(194)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		478,605		(1,759,580)		303,310		(353,295)


CAPITAL TRANSACTIONS
Net (withdrawals) by contract owners		(137,720)		(127,532)		(65,439)		(43,426)
Net contributions (withdrawals) by Pruco Life Insurance Company of New Jersey		(139,475)		(164,324)		72,920		51,051


NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS		(277,195)		(291,856)		7,481		7,625


TOTAL INCREASE (DECREASE) IN NET ASSETS		201,410		(2,051,436)		310,791		(345,670)

NET ASSETS
Beginning of period		7,317,018		9,322,498		7,207,637		7,616,732

End of period	$	7,518,428	$	7,271,062	$	7,518,428	$	7,271,062

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

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

September 30, 2010

(Unaudited)

Note 1: General

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

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

The interim financial data as of September 30, 2010 and for the three and nine month periods ended September 30, 2010 and 2009 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 December 2007, the Financial Accounting Standards Board (“FASB”) revised authoritative guidance for business combinations, which expands the definition of a business and redefines the acquisition date in a merger and acquisition transaction. It significantly modifies the existing guidance for business combinations, including changes to acquisition related contingent consideration, preacquisition contingencies, non controlling interest, restructuring costs, in-process R&D, goodwill and partial acquisition. This guidance is effective for acquisitions closing after the first annual reporting period beginning after December 15, 2008. The Account adopted this guidance effective January 1, 2009. The Account’s adoption has no effect on the Account’s financial position and results of operations, but may have an effect on the accounting for future business combinations.

In December 2007, FASB revised the accounting, presentation and disclosure for noncontrolling interests in consolidated financial statements. This revised guidance will change the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. This guidance is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. Upon adoption, the guidance requires retroactive adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. The adoption of this guidance has no effect on the Account’s financial position and results of operations.

In April 2009, the FASB revised authoritative guidance for the recognition and presentation of other-than-temporary impairments. This revision amends the other-than-temporary impairment guidance for debt securities and expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity securities in the financial statements. This revision also requires that the required annual disclosures for debt and equity securities be made for interim reporting periods. This revision does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This revision is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Account’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Account’s financial position or results of operations.

In April 2009, the FASB issued authoritative guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This guidance also amends the disclosure requirements in interim and annual periods. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Account’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Account’s financial position or results of operations.

In April 2009, the FASB issued additional guidance for accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. This guidance requires an asset acquired or liability assumed in a business combination that arises from a contingency to be recognized at fair value at the acquisition date, if the acquisition date fair value of that asset or liability can be determined during the measurement period. If the acquisition date fair value of an asset acquired or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or liability shall be recognized at the acquisition date using the guidance in accounting for contingencies. This guidance also amends disclosure requirements. This guidance is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after January 1, 2009. The Account’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Account’s financial position or results of operations.

In April 2009, the FASB issued additional guidance for interim disclosures about fair value of financial instruments requiring, for interim reporting periods of publicly traded companies, disclosures similar to those already required in annual financial statements. This guidance is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted. The Account adopted this guidance within the interim period ending June 30, 2009.

In June 2009, the FASB launched its Accounting Standards Codification (the “Codification), as the sole source of authoritative U.S. GAAP to be applied by nongovernmental entities. The Codification generally does not change the existing rules of U.S. GAAP but rather makes it easier to find and research U.S. GAAP applicable to a particular transaction or specific accounting issue. The Codification is a new structure which takes accounting pronouncements and organizes them by approximately ninety accounting topics and aggregates them in four common accounting areas. Topics within each category are further broken down into subtopics, sections and paragraphs. Accounting standards that are included in the Codification will be considered authoritative whereas those that are not included will be deemed non-authoritative. As a result, there are two levels of U.S. GAAP, authoritative and non-authoritative. The Codification is effective for financial statements that cover the interim and annual periods ending after September 15, 2009 and has impacted the way the Account references U.S. GAAP accounting standards in the financial statements.

In August 2009, the FASB issued updated guidance for the fair value measurement of liabilities. This guidance includes techniques for measuring fair value when a quoted price in an active market for the identical liability is not available and clarifies that restrictions preventing the transfer of a liability should not be considered as a separate input or adjustment in the measurement of its fair value. This guidance is effective for the first reporting period (including interim periods) beginning after issuance. The Account’s adoption of this guidance effective December 31, 2009 did not have a material effect on the Account’s consolidated financial position, results of operations or financial statement disclosures.

In September 2009, the FASB issued updated guidance for the fair value measurement of investments in certain entities that calculate net asset value per share including certain alternative investments such as hedge funds, private equity funds, and venture capital funds. This guidance allows companies to determine the fair value of such investments using net asset value (“NAV”) as a practical expedient if the fair value of the investment is not readily determinable and the investee entity issues financial statements in accordance with measurement principles for investment companies. Use of this practical expedient is prohibited if it is probable the investment will be sold at something other than NAV. This guidance also requires new disclosures for each major category of alternative investments. It is effective for the first annual or interim reporting period ending after December 15, 2009, with early application permitted. The Account’s adoption of this guidance effective December 31, 2009 did not have a material effect on the Account’s financial position or results of operations.

In January 2010, the FASB issued updated guidance that clarifies existing guidance on accounting and reporting by an entity that experiences a decrease in ownership of a subsidiary that is a business. The updated guidance states that a decrease in ownership applies to a subsidiary or group of assets that is a business, but does not apply to a sale of in-substance real estate even if it involves a business, such as an ownership interest in a partnership whose only asset is operating real estate. This guidance also affects accounting and reporting by an entity that exchanges a group of assets that constitutes a business for an equity interest in another entity. The updated guidance also expands disclosures about fair value measurements relating to retained investments in a deconsolidated subsidiary or a preexisting interest held by an acquirer in a business combination. The updated guidance is effective in the first interim or annual reporting period ending on or after December 15, 2009, and is applied on a retrospective basis to the first period that the Account adopted the existing guidance, which was as of January 1, 2009. The Account’s adoption of this updated guidance effective December 31, 2009 did not have a material effect on the Account’s financial position, results of operations, or financial statement disclosures.

In January 2010, the FASB issued updated guidance that requires new fair value disclosures for significant transfers between Level 1 and 2 measurement categories and separate presentation of purchases, issuances, and settlements within the roll forward of Level 3 activity. Also, this updated fair value guidance clarifies the disclosure requirements about level of disaggregation and valuation techniques and inputs. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity, which is effective for interim and annual reporting periods beginning after December 15, 2010. The Account adopted effective portions of this guidance on January 1, 2010. The required disclosures are provided in Note 9.

B.	Investment in Partnership Interest

The investment in the Partnership is based on the Account’s proportionate interest of the Partnership’s fair value. At September 30, 2010 and December 31, 2009 the Account’s interest in the Partnership was 4.4% or 271,295 shares and 4.4% or 282,778 shares respectively. Properties owned by the Partnership are illiquid and based on estimated fair value as discussed in the notes to the Partnership’s unaudited financial statements.

C.	Income Recognition

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

D.	Equity of Pruco Life Insurance Company of New Jersey

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

Note 3: Charges and Expenses

A.	Mortality Risk and Expense Risk Charges

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

B.	Administrative Charges

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

C.	Cost of Insurance and Other Related Charges

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

D.	Deferred Sales Charge

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

Also a deferred sales charge is imposed upon the withdrawals of certain purchase payments to compensate Pruco Life of New Jersey for sales and other marketing expenses for SPVA and SPVL. 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. This deferred sales charge is assessed through the redemption of units.

E.	Partial Withdrawal Charge

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

F.	Annual Maintenance Charge

An annual maintenance charge, applicable to SPVA and SPVL, 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. The charge is made by reducing accumulation units credited to a contract owner’s account.

Note 4: Taxes

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

Note 5: Net Withdrawals by Contract Owners

Net contract owner withdrawals for the real estate investment option in Pruco Life of New Jersey’s variable insurance and variable annuity products for the three and nine month periods ended September 30, 2010 and 2009, were as follows:


Three Months Ended September 30, (Unaudited)
	2010		2009
VAL		$(54,793)		$(34,042)
VLI		(10,520)		(2,801)
SPVA		0		(0)
SPVL		(127)		(6,584)
TOTAL		$(65,440)		$(43,427)


Nine Months Ended September 30, (Unaudited)
	2010		2009
VAL		$(118,555)		$(61,426)
VLI		(18,796)		(40,748)
SPVA		(0)		(18,456)
SPVL		(369)		(6,902)
TOTAL		$(137,720)		$(127,532)

Note 6: Partnership Distributions

For the nine months ended September 30, the Partnership made a distribution of $7.5 million. The Pruco Life of New Jersey Account’s share of this distribution was $0.3 million. For the year ended December 31, 2009, the Partnership made a distribution of $8 million. The Pruco Life of New Jersey Account’s share of this distribution was $0.3 million.

Note 7: Unit Information

Outstanding units and unit values at September 30, 2010 and December 31, 2009 were as follows:


	September 30, 2010	December 31, 2009
	(Unaudited)	(Unaudited)
Units Outstanding:	3,119,241	3,237,668
Unit Value:	2.058607 to 2.549735	1.94013 to 2.38693

Note 8: Financial Highlights

The range of total return for the three and nine month periods ended September 30, 2010 and 2009, were as follows:



	Three Months Ended September 30, (Unaudited)
	2010		2009
Total Return		3.98% to 4.22%	-4.84% to -4.62%
	Nine Months Ended September 30, (Unaudited)
	2010		2009
Total Return		6.11% to 6.82%	-19.52% to -18.98%

Note 9: Fair Value Disclosure

FASB guidance on fair value measurements and disclosures establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

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

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

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

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

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

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

In general, the input values used in the appraisal process are unobservable, therefore unless indicated otherwise; underlying assets in the Partnership are classified as Level 3 under the fair value hierarchy. During the three and nine months ended September, 30, 2010, there were no transfers between Level 1 and Level 2.

Table 1 below summarizes the assets measured at fair value on a recurring basis and their respective position in the fair value hierarchy.

Table 1:


	($ in 000’s)
	Fair Value Measurements at September 30, 2010

Assets:	Amounts Measured at Fair Value 09/30/10		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Investment in The Prudential Variable Contract Real Property Partnership	$	7,518	$	-	$	-	$	7,518


Total Assets	$	7,518	$	-	$	-	$	7,518


	($ in 000’s)
	Fair Value Measurements at December 31, 2009

Assets:	Amounts Measured at Fair Value 12/31/2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Investment in The Prudential Variable Contract Real Property Partnership	$	7,317	$	-	$	-	$	7,317


Total Assets	$	7,317	$	-	$	-	$	7,317

Table 2 below provides a reconciliation of the beginning and ending balances for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine month periods ended September 30, 2010 and September 30, 2009.

Table 2:


	($ in 000’s)

	Fair Value Measurements Using Significant Unobservable Inputs for the nine months ending September 30, 2010 (Level 3)

Beginning balance @ 01/01/10	$	7,317

Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations	$	232
Net Investment Income from Partnership operations	$	268
Acquisition/Additions		-
Equity Income		-
Contributions		-
Disposition/Settlements	$	(299)
Equity losses		-
Distributions		-

Ending balance @ 09/30/10	$	7,518


The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in (realized\unrealized) gains

or losses relating to assets still held at the reporting date	$	232


	($ in 000’s)
	Fair Value Measurements Using Significant Unobservable Inputs for the nine months ending September 30, 2009 (Level 3)

Beginning balance @ 01/01/09	$	9,322

Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations	$	(1,963)
Net Investment Income from Partnership operations	$	228
Acquisition/Additions		-
Equity Income		-
Contributions		-
Disposition/Settlements	$	(316)
Equity losses		-
Distributions		-

Ending balance @ 09/30/09	$	7,271


The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in (realized\unrealized) gains

or losses relating to assets still held at the reporting date	$	(1,963)


Table 2:	($ in 000’s)

	Fair Value Measurements Using Significant Unobservable Inputs for the three months ending September 30, 2010
	(Level 3)


Beginning balance @ 07/01/10	$	7,208

Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations	$	215
Net Investment Income from Partnership operations	$	95
Acquisition/Additions		-
Equity Income		-
Contributions		-
Disposition/Settlements
Equity losses		-
Distributions		-

Ending balance @ 09/30/10	$	7,518


The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in (realized\unrealized) gains

or losses relating to assets still held at the reporting date	$	215


	($ in 000’s)
	Fair Value Measurements Using Significant Unobservable Inputs for the three months ending September 30, 2009
	(Level 3)

Beginning balance @ 07/01/09	$	7,617

Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations	$	(421)
Net Investment Income from Partnership operations	$	75
Acquisition/Additions		-
Equity Income		-
Contributions		-
Disposition/Settlements
Equity losses		-
Distributions		-

Ending balance @ 09/30/09	$	7,271


The amount of total gains or losses for the period included in earnings
(or changes in net assets) attributable to the change in (realized\unrealized) gains

or losses relating to assets still held at the reporting date	$	(421)

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES


	September 30, 2010 (Unaudited)		December 31, 2009
ASSETS

REAL ESTATE INVESTMENTS - At estimated fair value:
Real estate and improvements (cost: 09/30/2010 - $193,241,427; 12/31/2009 -$211,091,543)	$	155,800,000	$	167,100,000
Real estate partnerships and preferred equity investment (cost: 09/30/2010 - $14,181,759; 12/31/2009 - $14,238,698)		12,368,572		10,044,510


Total real estate investments		$168,168,572		$177,144,510

CASH AND CASH EQUIVALENTS		37,905,123		24,522,159

OTHER ASSETS, NET		2,770,610		2,629,989


Total assets	$	208,844,305	$	204,296,658


LIABILITIES & PARTNERS’ EQUITY

INVESTMENT LEVEL DEBT (net of unamortized discount: 9/30/10 $3,185; 12/31/09 $1,830)		$30,753,371		$30,824,899

ACCOUNTS PAYABLE AND ACCRUED EXPENSES		2,920,307		2,541,198

DUE TO AFFILIATES		599,082		603,101

OTHER LIABILITIES		1,068,562		1,025,279


Total liabilities		35,341,322		34,994,477


COMMITMENTS AND CONTINGENCIES

NET ASSETS, REPRESENTING PARTNERS’ EQUITY:

GENERAL PARTNERS’ CONTROLLING INTEREST		171,100,610		167,204,272

NONCONTROLLING INTEREST		2,402,373		2,097,909


		173,502,983		169,302,181


Total liabilities and partners’ equity	$	208,844,305	$	204,296,658


NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		6,173,987		6,461,874


SHARE VALUE AT END OF PERIOD	$	27.71	$	25.88

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2010		2009		2010		2009
INVESTMENT INCOME:
Revenue from real estate and improvements	$	18,269,329	$	19,469,511	$	6,294,246	$	6,157,406
Equity in income of real estate partnerships		755,630		776,724		254,645		255,006
Interest on short-term investments		19,258		32,551		7,155		11,862


Total investment income		19,044,217		20,278,786		6,556,046		6,424,274


INVESTMENT EXPENSES:
Operating		4,685,582		5,109,382		1,597,825		1,665,730
Investment management fee		1,731,647		2,017,562		585,676		624,809
Real estate taxes		1,873,401		2,109,217		575,279		640,192
Administrative		3,566,912		3,811,445		1,219,705		1,200,843
Interest expense		753,613		1,359,700		249,563		466,843


Total investment expenses		12,611,155		14,407,306		4,228,048		4,598,417


NET INVESTMENT INCOME		6,433,062		5,871,480		2,327,998		1,825,857


REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net proceeds from real estate investments sold		16,981,750		9,655,626		16,981,750		-
Less: Cost of real estate investments sold		20,353,204		37,901,326		20,353,204		-

Gain (loss) realized from real estate investments sold		(3,371,454)		(28,245,700)		(3,371,454)		-

Less: Reversal of prior periods’ unrealized gain (loss) on real estate investments sold		(5,710,830)		(23,793,594)		(3,564,384)		-


Net gain (loss) recognized on real estate investments sold		2,339,376		(4,452,106)		192,930		-


Change in unrealized gain (loss) on real estate investments held		3,268,807		(43,513,970)		4,759,439		(10,216,120)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS		5,608,183		(47,966,076)		4,952,369		(10,216,120)


Increase (decrease) in net assets resulting from operations	$	12,041,245	$	(42,094,596)	$	7,280,367	$	(8,390,263)


Amounts attributable to noncontrolling interest:
Net investment income attributable to noncontrolling interest		316,497		636,552		159,665		101,363
Net unrealized gain (loss) attributable to noncontrolling interest		328,410		(2,946,944)		47,879		(592,549)

Net increase (decrease) in net assets resulting from operations attributable to the noncontrolling interest	$	644,907	$	(2,310,392)	$	207,544	$	(491,186)


Amounts attributable to general partners’ controlling interest:
Net investment income attributable to general partners’ controlling interest		6,116,565		5,234,928		2,168,333		1,724,494
Net realized gain (loss) attributable to general partners’ controlling interest		2,339,376		(4,452,106)		192,930		-
Net unrealized gain (loss) attributable to general partners’ controlling interest		2,940,397		(40,567,026)		4,711,560		(9,623,571)

Net increase (decrease) in net assets resulting from operations attributable to general partners’ controlling interest	$	11,396,338	$	(39,784,204)	$	7,072,823	$	(7,899,077)

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)


	For the Nine Months Ended September 30,
	2010						2009
	General Partners' Controlling Interest		Noncontrolling Interest		Total		General Partners' Controlling Interest		Noncontrolling Interest		Total
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income	$	6,116,565	$	316,497	$	6,433,062	$	5,234,928	$	636,552	$	5,871,480
Net realized and unrealized gain (loss) from real estate investments		5,279,773		328,410		5,608,183		(45,019,132)		(2,946,944)		(47,966,076)


Increase (decrease) in net assets resulting from operations		11,396,338		644,907		12,041,245		(39,784,204)		(2,310,392)		(42,094,596)


INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Withdrawals		(7,500,000)		-		(7,500,000)		(8,000,000)		-		(8,000,000)
Contributions from noncontrolling interest		-		-		-		-		15,000		15,000
Distributions to noncontrolling interest		-		(340,443)		(340,443)		-		(279,309)		(279,309)


Increase (decrease) in net assets resulting from capital transactions		(7,500,000)		(340,443)		(7,840,443)		(8,000,000)		(264,309)		(8,264,309)


INCREASE (DECREASE) IN NET ASSETS		3,896,338		304,464		4,200,802		(47,784,204)		(2,574,701)		(50,358,905)

NET ASSETS - Beginning of period		167,204,272		2,097,909		169,302,181		213,938,308		4,924,263		218,862,571


NET ASSETS - End of period	$	171,100,610	$	2,402,373	$	173,502,983	$	166,154,104	$	2,349,562	$	168,503,666

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	For the Nine Months Ended September 30,
	2010		2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets from operations	$	12,041,245	$	(42,094,596)
Adjustments to reconcile net increase (decrease) in net assets to net cash provided by (used in) operating activities
Net realized and unrealized loss (gain)		(5,608,183)		47,966,076
Amortization of discount on investment level debt		(1,355)		23,295
Amortization of deferred financing costs		35,173		46,010
Distributions in excess of (less than) equity in income of real estate partnerships’ operations		56,938		70,282
Bad debt expense		133,156		69,047
(Increase) decrease in:
Other assets		(308,950)		64,406
Increase (decrease) in:
Accounts payable and accrued expenses		(39,619)		894,149
Due to affiliates		(4,019)		(213,378)
Other liabilities		43,283		93,474


Net cash flows provided by (used in) operating activities		6,347,669		6,918,765


CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold		16,981,750		9,655,626
Additions to real estate and improvements		(2,035,839)		(2,497,087)


Net cash flows provided by (used in) investing activities		14,945,911		7,158,539


CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals		(7,500,000)		(8,000,000)
Proceeds from investment level debt		429,328		-
Principal payments on investment level debt		(499,501)		(366,192)
Contributions from noncontrolling interest		-		15,000
Distributions to noncontrolling interest		(340,443)		(279,309)


Net cash flows provided by (used in) financing activities		(7,910,616)		(8,630,501)


NET CHANGE IN CASH AND CASH EQUIVALENTS		13,382,964		5,446,803

CASH AND CASH EQUIVALENTS - Beginning of period		24,522,159		27,736,520


CASH AND CASH EQUIVALENTS - End of period	$	37,905,123	$	33,183,323

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS


				2010 Total Rentable Square Feet Unless Otherwise		September 30, 2010 (unaudited)				December 31, 2009
Property Name	September 30, 2010 Ownership		City, State	Indicated (Unaudited)		Cost		Estimated Fair Value		Cost		Estimated Fair Value

OFFICES
750 Warrenville		WO	Lisle, IL		103,193	$	26,272,208	$	7,100,000	$	26,186,415	$	6,700,000
Summit @ Cornell Oaks		WO	Beaverton, OR		72,109		12,794,716		6,900,000		12,625,626		8,500,000
Westpark		WO	Nashville, TN		97,199		14,409,581		9,900,000		13,019,181		8,700,000
Financial Plaza		WO	Brentwood, TN		98,049		12,556,189		9,500,000		12,564,614		9,700,000
			Offices % as of 9/30/10		20%		66,032,694		33,400,000		64,395,836		33,600,000

APARTMENTS

Brookwood Apartments		WO	Atlanta, GA		240 Units		-		-		20,210,830		14,500,000
Dunhill Trace Apartments		WO	Raleigh, NC		250 Units		16,643,496		15,700,000		16,512,970		15,000,000
Broadstone Crossing		WO	Austin, TX		225 Units		22,818,724		23,300,000		22,815,992		21,000,000
The Reserve At Waterford Lakes		WO	Charlotte, NC		140 Units		13,827,007		10,200,000		13,746,940		9,200,000
			Apartments % as of 9/30/10		29%		53,289,227		49,200,000		73,286,732		59,700,000

RETAIL
Hampton Towne Center		WO	Hampton, VA		174,540		18,193,118		16,900,000		18,136,399		18,600,000
White Marlin Mall		CJV	Ocean City, MD		197,098		23,693,383		25,500,000		23,311,878		24,600,000
Westminster Crossing East, LLC		CJV	Westminster, MD		89,890		15,067,129		14,100,000		15,044,877		13,900,000
CARS Preferred Equity		PE	Various		N/A		14,181,759		12,368,572		14,238,698		10,044,510
Harnett Crossing		WO	Dunn, NC		193,235		6,239,696		3,200,000		-		-
Harnett Crossing		CJV	Dunn, NC		N/A		-		-		6,237,926		3,200,000
			Retail % as of 9/30/10		43%		77,375,085		72,068,572		76,969,778		70,344,510
HOTEL
Portland Crown Plaza		CJV	Portland, OR		161 Rooms		10,726,180		13,500,000		10,677,895		13,500,000
			Hotel % as of 9/30/10		8%		10,726,180		13,500,000		10,677,895		13,500,000

Total Real Estate Investments as a Percentage of General Partners' Controlling Interest as of 9/30/10					100%	$	207,423,186	$	168,168,572	$	225,330,241	$	177,144,510

WO - Wholly Owned Investment

CJV - Consolidated Joint Venture

EJV - Joint Venture Investment accounted for under the equity method

PE - Preferred equity investment

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS


			September 30, 2010 (unaudited)				December 31, 2009
	Face Amount		Cost		Estimated Fair Value		Cost		Estimated Fair Value
CASH AND CASH EQUIVALENTS - Percentage of General Partner's Controlling Interest						22.2%				14.7%

Federal Home Loan Bank, 0 coupon bond, October 1, 2010	$	21,213,000	$	21,213,000	$	21,213,000	$	2,999,184	$	2,999,184
Federal Home Loan Bank, 0 coupon bond, October 20, 2010		5,000,000		4,999,499		4,999,499		9,997,769		9,997,769
Federal Home Loan Bank, 0 coupon bond, November 29, 2010		10,000,000		9,997,050		9,997,050		2,999,267		2,999,267
Federal Home Loan Bank, 0 coupon bond, March, 2010				-		-		1,999,660		1,999,660



Total Cash Equivalents				36,209,549		36,209,549		17,995,880		17,995,880

Cash				1,695,574		1,695,574		6,526,279		6,526,279


Total Cash and Cash Equivalents			$	37,905,123	$	37,905,123	$	24,522,159	$	24,522,159

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

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 1: Summary of Significant Accounting Policies

Basis of Presentation - The accompanying 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 that are applicable to real estate investment companies. 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, 2010 are not necessarily indicative of the results that may be expected for the year ended December 31, 2010. For further information, refer to the audited consolidated financial statements and notes of the Partnership for the year ended December 31, 2009. The Partnership has evaluated subsequent events through November 11, 2010, the date these financial statements were available to be issued.

Accounting Pronouncements Adopted- In December 2007, FASB revised authoritative guidance for business combinations, which expands the definition of a business and redefines the acquisition date in a merger and acquisition transaction. It significantly modifies the existing guidance for business combinations, including changes to acquisition related contingent consideration, preacquisition contingencies, noncontrolling interest, restructuring costs, in-process R&D, goodwill and partial acquisition. This guidance is effective for acquisitions closing after the first annual reporting period beginning after December 15, 2008. The Partnership’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations, but may have an effect on the accounting for future business combinations.

In December 2007, FASB revised the accounting, presentation and disclosure for noncontrolling interests in consolidated financial statements. This revised guidance requires noncontrolling interests to be reported as a separate component of equity. It also changes the allocation of losses and accounting in step acquisitions. The provisions in this revision should be applied prospectively except for the presentation and disclosure requirements, which are required retrospectively for all periods presented. After the initial adoption, any retained noncontrolling equity investment as a result of a deconsolidation must be measured at fair value at the date of the deconsolidation. This guidance is effective for the annual periods beginning after December 15, 2008. Pursuant to the Partnership’s adoption on January 1, 2009 of the revised guidance, the Partnership is presenting its noncontrolling interests as equity for all periods presented in the financial statements. Noncontrolling interests, previously reported as a liability, are now required to be reported as a separate component of equity on the balance sheet. In addition, net income (loss) attributable to the noncontrolling interest, which was previously reported as an expense and reflected within Net Investment Income is now reported as a separate amount below “Increase (decrease) in Net Assets Resulting from Operations”.

In April 2009, the FASB revised authoritative guidance for the recognition and presentation of other-than-temporary impairments. This revision amends the other-than-temporary impairment guidance for debt securities and expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity securities in the financial statements. This revision also requires that the required annual disclosures for debt and equity securities be made for interim reporting periods. This revision does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This revision is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Partnership’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

In April 2009, the FASB issued authoritative guidance on determining fair value when the volume and level of activity for the asset or liability have significantly decreased and identifying transactions that are not orderly. This guidance also amends the disclosure requirements in interim and annual periods. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Partnership’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 1: Summary of Significant Accounting Policies (continued)

B. Accounting Pronouncements Adopted (continued)

This guidance also amends disclosure requirements. This guidance is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after January 1, 2009. The Partnership’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

In May 2009, the FASB issued authoritative guidance for subsequent events. Subsequent events are events that occur after balance sheet date but before financial statements are issued or are available to be issued. This guidance addresses the accounting for and disclosure of subsequent events not addressed in other applicable Generally Accepted Accounting Principles (“U.S. GAAP”), including disclosure of the date through which subsequent events have been evaluated. This guidance is effective for interim or annual periods ending after June 15, 2009. The Partnership’s adoption of this guidance, effective with the interim period ending June 30, 2009, did not have a material effect on the Partnership’s consolidated financial position or results of operations. The required disclosure of the date through which subsequent events have been evaluated is provided in Note 1A.

In June 2009, the FASB issued authoritative guidance for the FASB’s Accounting Standards Codification as the source of authoritative U.S. GAAP. The Codification is not intended to change U.S. GAAP but is a new structure which organizes accounting pronouncements by accounting topic. This guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Partnership’s adoption of this guidance, effective with the interim reporting period ending September 30, 2009, impacts the way the Partnership references U.S. GAAP standards in the financial statements.

In September 2009, the FASB issued updated guidance for the fair value measurement of investments in certain entities that calculate net asset value per share including certain alternative investments such as hedge funds, private equity funds, and venture capital funds. This guidance allows companies to determine the fair value of such investments using net asset value (“NAV”) as a practical expedient if the fair value of the investment is not readily determinable and the investee entity issues financial statements in accordance with measurement principles for investment companies. Use of this practical expedient is prohibited if it is probable the investment will be sold at something other than NAV. This guidance also requires new disclosures for each major category of alternative investments. It is effective for the first annual or interim reporting period ending after December 15, 2009, with early application permitted. The Partnership’s adoption of this guidance effective December 31, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

In January 2010, the FASB issued updated guidance that clarifies existing guidance on accounting and reporting by an entity that experiences a decrease in ownership of a subsidiary that is a business. The updated guidance states that a decrease in ownership applies to a subsidiary or group of assets that is a business, but does not apply to a sale of in-substance real estate even if it involves a business, such as an ownership interest in a partnership whose only asset is operating real estate. This guidance also affects accounting and reporting by an entity that exchanges a group of assets that constitutes a business for an equity interest in another entity. The updated guidance also expands disclosures about fair value measurements relating to retained investments in a deconsolidated subsidiary or a preexisting interest held by an acquirer in a business combination. The updated guidance is effective in the first interim or annual reporting period ending on or after December 15, 2009, and is applied on a retrospective basis to the first period that the Partnership adopted the existing guidance, which was as of January 1, 2009. The Partnership’s adoption of this updated guidance effective December 31, 2009 did not have a material effect on the Partnership’s consolidated financial position, results of operations, or financial statement disclosures.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 1: Summary of Significant Accounting Policies (continued)

B. Accounting Pronouncements Adopted (continued)

In January 2010, the FASB issued updated guidance that requires new fair value disclosures about significant transfers between Level 1 and 2 measurement categories and separate presentation of purchases, issuances, and settlements within the roll forward of Level 3 activity. Also, this updated fair value guidance clarifies the disclosure requirements about level of disaggregation and valuation techniques and inputs. This guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity, which are effective for interim and annual reporting periods beginning after December 15, 2010. The Partnership adopted effective portions of this guidance on January 1, 2010. The required disclosures are provided in Note 3.

Note 2: Disclosure of Supplemental Cash Flow Information and Non-Cash Investing and Financing Activity

Cash paid for interest during the nine months ended September 30, 2010 and September 30, 2009, was $718,440, and $1,313,693 respectively.

Note 3: Fair Value Measurements

Valuation Methods:

Real estate investments are carried at fair value. Properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and below market leases, in-place leases, and tenant relationships at the time of acquisition.

In general fair value estimates are based upon property appraisal reports prepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter. The Chief Real Estate Appraiser of Prudential Investment Management, Inc. (“PIM”), which is an indirectly owned subsidiary of Prudential Financial, Inc. (“PFI”), is responsible to assure that the valuation process provides independent and reasonable property fair value estimates. An unaffiliated third party has been appointed by PIM to assist the Chief Real Estate Appraiser in maintaining and monitoring the independence and the accuracy of the appraisal process. The fair value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments.

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. In accordance with FASB authoritative guidance on fair value measurements and disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to come up with the approximated value for the type of real estate in the market.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 3: Fair Value Measurements (continued)

Fair Value Measurements:

FASB authoritative guidance on fair value measurements and disclosures establishes a fair value measurement framework, provides a single definition of fair value and requires expanded disclosure summarizing fair value measurements. This guidance provides a three-level hierarchy based on the inputs used in the valuation process. The level in the fair values hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows;

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

Level 3 – Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the entity’s own assumptions about how market participants would price the asset or liability.

For items classified as Level 3, a reconciliation of the beginning and ending balances, as shown in table 2 below, is also required.

During the three and nine months ended September 30, 2010, there were no transfers between Level 1 and Level 2.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 3: Fair Value Measurements (continued)

Table 1 below summarizes the assets measured at fair value on a recurring basis and their respective position in the fair value hierarchy.


Table 1
					(in 000’s)

			Fair value measurements at September 30, 2010 using

Assets:	Cost at 9/30/10		Amounts measured at fair value 9/30/10		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)


Real estate and improvements	$	193,241	$	155,800	$	-	$	-	$	155,800
Real estate partnerships and preferred equity investment		14,182		12,369		-		-		12,369


Total	$	207,423	$	168,169	$	-	$	-	$	168,169


					(in 000’s)
			Fair value measurements at December 31, 2009 using
Assets:	Cost at 12/31/09		Amounts measured at fair value 12/31/2009		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)


Real estate and improvements	$	211,092	$	167,100	$	-	$	-	$	167,100
Real estate partnerships and preferred equity investment		14,239		10,045		-		-		10,045


Total	$	225,331	$	177,145	$	-	$	-	$	177,145

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 3: Fair Value Measurements (continued)


Table 2
(in 000’s) Fair value measurements using significant unobservable inputs for the nine months ending September 30, 2010 (Level 3)
	Real estate and improvements		Real estate partnerships and preferred equity investment		Total


Beginning balance @ 1/1/10	$	167,100	$	10,045	$	177,145

Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		3,227		2,381		5,608
Equity income (losses)/interest income		-		756		756
Acquisitions, issuances, contributions		2,455		-		2,455
Dispositions, settlements and distributions		(16,982)		(813)		(17,795)

Ending balance @ 9/30/10	$	155,800	$	12,369	$	168,169


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	887	$	2,381	$	3,268


(in 000’s) Fair value measurements using significant unobservable inputs for the nine months ending September 30, 2009 (Level 3)
	Real estate and improvements		Real estate partnerships and preferred equity investment		Total


Beginning balance @ 1/1/09	$	221,196	$	11,797	$	232,993

Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		(46,537)		(1,429)		(47,966)
Equity income (losses)/interest income		-		777		777
Acquisitions, issuances, contributions		2,496		-		2,496
Dispositions, settlements and distributions		(9,655)		(847)		(10,502)

Ending balance @ 9/30/09	$	167,500	$	10,298	$	177,798


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	(42,085)	$	(1,429)	$	(43,514)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 3: Fair Value Measurements (continued)

Table 2


(in 000’s) Fair value measurements using significant unobservable inputs for the three months ending September 30, 2010 (Level 3)
	Real estate and improvements		Real estate partnerships and preferred equity investment		Total


Beginning balance @ 7/1/10	$	168,018	$	11,863	$	179,881

Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		4,429		524		4,953
Equity income (losses)/interest income		-		255		255
Acquisitions, issuances, contributions		335		-		335
Dispositions, settlements and distributions		(16,982)		(273)		(17,255)

Ending balance @ 9/30/10	$	155,800	$	12,369	$	168,169


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	4,235	$	524	$	4,759


(in 000’s) Fair value measurements using significant unobservable inputs for the three months ending September 30, 2009 (Level 3)
	Real estate and improvements		Real estate partnerships and preferred equity investment		Total


Beginning balance @ 7/1/09	$	176,200	$	10,489	$	186,689

Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		(10,078)		(138)		(10,216)
Equity income (losses)/interest income		-		255		255
Acquisitions, issuances, contributions		1,378		-		1,378
Dispositions, settlements and distributions		-		(308)		(308)

Ending balance @ 9/30/09	$	167,500	$	10,298	$	177,798


Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	(10,078)	$	(138)	$	(10,216)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 4: Investment Level Debt

Investment level debt includes mortgage loans payable on wholly owned properties and consolidated partnerships and 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.

Based on borrowing rates available to the Partnership at September 30, 2010 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 $31 million, and a carrying value of $31 million. Different assumptions or changes in future market conditions could significantly affect estimated fair value.

Note 5: Risk

A. Valuation Risk

Recent disruptions in the global capital, credit and real estate markets have led to, among other things, decline in the volume of transaction activity, in the fair value of many real estate and real estate related investments, and a contraction in short-term and long-term debt and equity funding sources. The decline in liquidity and prices of real estate and real estate related investments, as well as the availability of observable transaction data and inputs, may have made it more difficult to determine the fair value of such investments. As a result, these estimated fair values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. These differences could be material to the financial statements. Although the estimated fair values represent subjective estimates, management believes that these estimated fair values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate are fairly presented as of September 30, 2010 and December 31, 2009.

B. Financing, Covenant, and Repayment Risks

In the normal course of business, the Partnership enters into loan agreements with certain lenders to finance its real estate investment transactions. Unfavorable economic conditions could increase related borrowing costs, limit access to the capital markets or result in a decision by lenders not to extend credit to the Partnership. There is no guarantee that the Partnership’s borrowing arrangements or ability to obtain leverage will continue to be available, or if available, will be available on terms and conditions acceptable to the Partnership. Further, these loan agreements contain, among other conditions, events of default and various covenants and representations. In the normal course of business, the Partnership may be in the process of renegotiating terms for loans outstanding that have passed their maturity dates. At September 30, 2010 the Partnership had no outstanding matured loans.

A decline in market value of the Partnership’s assets may also have particular adverse consequences in instances where the Partnership borrowed money based on the fair value of specific assets. A decrease in market value of these assets may result in the lender requiring the Partnership to post additional collateral or otherwise repay these loans.

In the event the Partnership’s current portfolio and investment obligations are not refinanced or extended when they become due and/or the Partnership is required to repay such borrowings and obligations, management anticipates that the repayment of these obligations will be provided by operating cash flow, new debt refinancing, and real estate investment sales.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 6: Commitments and Contingencies

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

Note 7: 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 periods ended September 30, 2010 and September 30, 2009, management fees incurred by the Partnership were $1,731,647 and $2,017,562, respectively. The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the nine months ended September 30, 2010 and September 30, 2009, were $40,222 and $40,222, respectively, and are classified as administrative expenses in the Consolidated Statements of Operations.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

September 30, 2010 and December 31, 2009

Note 8: Financial Highlights


	For The Nine Months Ended September 30,
	2010		2009		2008		2007		2006
Per Share(Unit) Operating Performance:
Net Asset Value attributable to general partners’ controlling interest, beginning of period	$	25.88		$ 31.65		$36.55	$	33.87		$ 29.59
Income From Investment Operations:
Net investment income attributable to general partners’ controlling interest, before management fee		1.24		1.09		1.55		1.71		1.50
Investment Management fee attributable to general partners’ controlling interest		(0.26)		(0.30)		(0.39)		(0.37)		(0.33)
Net realized and unrealized gain (loss) on investments attributable to general partners’ controlling interest		0.85		(6.73)		(1.31)		0.89		2.07

Net Increase in Net Assets Resulting from Operations attributable to general partners’ controlling interest		1.83		(5.94)		(0.15)		2.23		3.24


Net Asset Value attributable to general partners’ controlling interest, end of period	$	27.71		$ 25.71		$36.40	$	36.10		$ 32.83


Total Return attributable to general partners’ controlling interest, before Management Fee:		8.11%		-17.85%		0.64%		7.70%		12.14%
Total Return attributable to general partners’ controlling interest, after Management Fee (a):		7.09%		-18.75%		-0.41%		6.58%		10.96%
Ratios/Supplemental Data:
Net Assets attributable to general partners’ controlling interest, end of period (in millions)	$	171		$ 166		$ 246	$	244		$ 222
Ratios to average net assets for the period ended (b):
Total Portfolio Level Expenses		1.22%		1.23%		1.08%		1.15%		1.15%
Net Investment Income, before Management Fee		4.73%		3.76%		4.20%		5.02%		4.87%

(a) Total Return, after 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 9: Subsequent Event

On October 28, 2010, the Partnership distributed $10.0 million to its Partners as a result of the successful sale of Brookwood Apartments.

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, 2010, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $37.9 million, an increase of approximately $13.4 million from $24.5 million at December 31, 2009. The increase was primarily due to the sale of an apartment property in Atlanta, Georgia. Partially offsetting this increase is the funding of capital expenditures to existing properties and a $7.5 million distribution to the Partners. Sources of liquidity included net cash flow from property operations, sales proceeds, and interest from short-term investments. The Partnership uses cash for its real estate investment activities and for its distributions to its partners. As of September 30, 2010, approximately 18.2% of the Partnership’s total assets consisted of cash and cash equivalents.

The Partnership disposed of an apartment property in Atlanta, Georgia during the nine months ended September 30, 2010. The property sold for net proceeds of approximately $17.0 million. During the nine months ended September 30, 2010, the Partnership made distributions to its Partners totaling $7.5 million. During the nine months ended September 30, 2010, the Partnership attained sole ownership of the retail property in Dunn, North Carolina as the operating partner was removed from the venture.

During the nine months ended September 30, 2010, the Partnership spent approximately $2.0 million and accrued approximately $0.4 million on capital improvements to various existing properties. Approximately $1.4 million was associated with tenant improvements and capital upgrades at the office property in Brentwood, Tennessee; approximately $0.4 million contributed to tenant improvements and exterior upgrades at the retail property in Ocean City, Maryland; and approximately $0.2 million funded interior upgrades at the office property in Beaverton, Oregon. Finally, $0.4 million was associated with minor capital improvements and transaction costs associated with leasing expenses of various other properties.

On October 28, 2010, the Partnership distributed $10.0 million to its Partners as a result of the successful sale of the property in Atlanta, Georgia.

(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, 2010 and 2009.

Net Investment Income Overview

The Partnership’s net investment income attributable to the general partners’ controlling interest for the nine months ended September 30, 2010 was approximately $6.1 million, an increase of approximately $0.9 million from the prior year period. The increase in net investment income attributable to the general partners’ controlling interest was primarily attributable to a $0.6 million increase in the apartment sector investments’ net investment income from the prior year period. Additionally the hotel and retail sector investments’ net investment incomes increased approximately $0.1 million and $0.3 million respectively, from the prior year period, while other net investment loss attributable to the general partners’ controlling interest decreased approximately $0.3 million over the same period. Partially offsetting these increases was a decrease in the office sectors investments’ net investment income attributable to the general partners’ controlling interest of approximately $0.5 million from the prior year period. The components of this net investment income and/or loss attributable to the general partners’ controlling interest are discussed below by investment type.

The Partnership’s net investment income attributable to the general partners’ controlling interest for the quarter ended September 30, 2010 was approximately $2.1 million, an increase of approximately $0.4 million from the prior year period. The increase in net investment income attributable to the general partners’ controlling interest was primarily attributable to the $0.2 million increase in the apartment sector investments’ net investment income, as well as the $0.1 million increases in the retail, and hotel sector investments’ net investment incomes from the prior year period, respectively. The components of this net investment income and/or loss attributable to the general partners’ controlling interest are discussed below by investment type.

Valuation Overview

The Partnership recorded net recognized and unrealized gains attributable to the general partners’ controlling interest of approximately $5.3 million and $4.9 million for the nine and three-month periods ended September 30, 2010, respectively. This is compared with net recognized and unrealized losses attributable to the general partners’ controlling interest of approximately $45.0 million and $9.6 million for the prior year periods, respectively. The net unrealized gains attributable to the general partners’ controlling interest for the nine and three-month periods ended September 30, 2010 were due to valuation increases in the apartment and retail sectors’ investments. The components of these valuation changes are discussed below by investment type. The components of these valuation gains and/or losses attributable to the general partners’ controlling interest are discussed below by property type.

The following table presents a comparison of the Partnership’s sources of net investment income attributable to the general partners’ controlling interest, and recognized and unrealized gains or losses attributable to the general partners’ controlling interest by investment type for the nine and three-month periods ended September 30, 2010 and 2009.


	Nine Months Ended September 30,				Three Months Ended September 30,
	2010		2009		2010		2009
*Net Investment Income:*

Office properties	$	1,613,076	$	2,063,323	$	552,283	$	507,941
Apartment properties		2,501,323		1,883,182		795,792		592,254
Retail properties		3,463,010		3,194,788		1,161,568		1,032,375
Hotel property		550,247		416,843		319,334		261,054
Other (including interest income, investment mgt fee, etc.)		(2,011,091)		(2,323,208)		(660,644)		(669,130)

Total Net Investment Income	$	6,116,565	$	5,234,928	$	2,168,333	$	1,724,494


*Net Recognized Gain (Loss) on Real Estate Investments:*

Apartment Properties		2,339,376		-		192,930		-
Retail properties		-		(4,452,106)		-		-

Net Recognized Gain (Loss) on Real Estate Investments		2,339,376		(4,452,106)		192,930		-


*Net Unrealized Gain (Loss) on Real Estate Investments:*

Office properties		(1,836,857)		(15,033,244)		(732,444)		(3,492,532)
Apartment properties		3,786,674		(10,167,354)		3,465,762		(642,718)
Retail properties		1,029,209		(12,136,729)		2,008,941		(4,728,952)
Hotel property		(38,629)		(3,229,699)		(30,699)		(759,369)

Net Unrealized Gain (Loss) on Real Estate Investments		2,940,397		(40,567,026)		4,711,560		(9,623,571)


Net Recognized and Unrealized Gain (Loss) on Real Estate Investments		$5,279,773		($45,019,132)		$4,904,490		($9,623,571)

OFFICE PROPERTIES


Nine Months Ended September 30,	Net Investment Income/(Loss) 2010		Net Investment Income/(Loss) 2009		Unrealized Gain/(Loss) 2010		Unrealized Gain/(Loss) 2009		Occupancy 2010		Occupancy 2009

Property
Lisle, IL	$	294,699	$	51,479	$	314,207	$	(3,191,325)		48%		36%
Brentwood, TN		(219,304)		319,676		(190,400)		(6,495,216)		68%		70%
Beaverton, OR		691,108		899,962		(1,769,089)		(2,272,417)		88%		88%
Brentwood, TN		846,573		792,206		(191,575)		(3,074,286)		100%		100%

	$	1,613,076	$	2,063,323	$	(1,836,857)	$	(15,033,244)



Three Months Ended September 30,
Property
Lisle, IL	$	145,334	$	5,704	$	(30,487)	$	(894,393)
Brentwood, TN		4,814		(33,309)		(490,696)		(2,003,042)
Beaverton, OR		143,139		295,655		(22,808)		(242,152)
Brentwood, TN		258,996		239,891		(188,453)		(352,945)

	$	552,283	$	507,941	$	(732,444)	$	(3,492,532)

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s office properties was approximately $1.6 million for the nine months ended September 30, 2010, a decrease of approximately $0.5 million from the prior year period. The decrease for the nine month period ended September 30, 2010 was primarily caused by (a) decreased rental income at one of the properties in Brentwood, Tennessee due to free rent given to the building’s largest tenant as part of a renewal of the tenant’s lease; and (b) decreased rental income at the property in Beaverton, Oregon caused by free rent given to a new full-floor tenant. Partially offsetting this decrease was an increase in rental income at the property in Lisle, Illinois due to the completion of the free rent period for one of the building’s larger tenants.

Net investment income attributable to the general partners’ controlling interest for the Partnership’s office properties were relatively unchanged for the quarter ended September 30, 2010 compared with the prior year period.

Unrealized Gain/(Loss)

The office properties owned by the Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $1.8 million during the nine months ended September 30, 2010, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $15.0 million for the prior year period. The net unrealized loss attributable to the general partner’s controlling interest for the nine months ended September 30, 2010 was primarily due to a $1.7 million valuation decline at the property in Beaverton, Oregon based on decreased market and contract rent because of a new full-floor tenant paying a lower rent than the previous tenant.

The office properties owned by the Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.7 million during the quarter ended September 30, 2010, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $3.5 million for the prior year period. The net unrealized loss attributable to the general partner’s controlling interest for the quarter ended September 30, 2010 was primarily due to decreased market leasing assumptions at the properties in Brentwood, Tennessee.

APARTMENT PROPERTIES


Nine Months Ended September 30,	Net Investment Income/(Loss) 2010		Net Investment Income/(Loss) 2009		Recognized & Unrealized Gain/(Loss) 2010		Unrealized Gain/(Loss) 2009		Occupancy 2010		Occupancy 2009

Property
Atlanta, GA⁽¹⁾	$	610,210	$	332,593	$	2,339,376	$	(2,538,635)		N/A		95%
Raleigh, NC		601,243		186,989		569,473		(1,660,188)		96%		96%
Austin, TX		874,775		941,126		2,297,268		(4,083,628)		97%		94%
Charlotte, NC		415,095		422,474		919,933		(1,884,903)		94%		96%

	$	2,501,323	$	1,883,182	$	6,126,050	$	(10,167,354)



Three Months Ended September 30,
Property
Atlanta, GA	$	199,176	$	92,606	$	192,930	$	(596,264)
Raleigh, NC		211,151		79,867		686,599		(29,414)
Austin, TX		267,763		270,168		1,800,000		1,000,000
Charlotte, NC		117,702		149,613		979,163		(1,017,040)

	$	795,792	$	592,254	$	3,658,692	$	(642,718)

⁽¹⁾	The Atlanta, Georgia apartment property was sold on September 29, 2010.

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s apartment properties was approximately $2.5 million for the nine months ended September 30, 2010, an increase of approximately $0.6 million from the prior year period. Net investment income attributable to the general partners’ controlling interest for the Partnership’s apartment properties was approximately $0.8 million for the quarter ended September 30, 2010, an increase of approximately $0.2 million from the prior year period. The increases in net investment income attributable to the general partners’ controlling interest for the nine and three month periods ended September 30, 2010 were primarily due to the write-off of accrued receivables at the property in Raleigh, North Carolina in the prior year period and decreased concessions and average vacancy at the property in Atlanta, Georgia caused by increased demand.

Recognized and Unrealized Gain/(Loss)

The apartment properties owned by the Partnership recorded a net recognized and unrealized gain attributable to the general partners’ controlling interest of approximately $6.1 million for the nine months ended September 30, 2010, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $10.2 million for the prior year period. The net recognized and unrealized gain attributable to the general partners’ controlling interest for the nine month period ended September 30, 2010 was primarily due (a) to a recognized gain at the property in Atlanta, Georgia due to the sale of property; and (b) a net unrealized gain attributable to the general partners’ controlling interest at the property in Austin, Texas due to decreased investment rates and more favorable market leasing assumptions. Investment rates include direct and terminal capitalization rates, and discount rates, which reflect investors’ yield requirements on investments.

The apartment properties owned by the Partnership recorded a recognized and net unrealized gain attributable to the general partners’ controlling interest of approximately $3.7 million for the quarter ended September 30, 2010, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.6 million for the prior year period. The net unrealized gain attributable to the general partners’ controlling interest for the quarter ended September 30, 2010 was due (a) to a valuation increase at each apartment property due to decreased investment rates and more favorable market leasing assumptions: and (b) a recognized gain from the sale of the property in Atlanta, Georgia.

RETAIL PROPERTIES


Nine Months Ended September 30,	Net Investment Income/(Loss) 2010		Net Investment Income/(Loss) 2009			Unrealized Gain/(Loss) 2010			Recognized & Unrealized Gain/(Loss) 2009		Occupancy 2010		Occupancy 2009

Property
Roswell, GA⁽¹⁾	$	-	$	137,068		$	-		$	(4,452,106)		N/A		N/A
Kansas City, KS ⁽²⁾		-		21,094			-			-		N/A		N/A
Hampton, VA		736,320		753,204			(1,756,719	)		(4,314,384)		94%		89%
Ocean City, MD		893,049		845,623			197,525			(1,877,704)		99%		95%
Westminster, MD		933,402		888,835			177,748			(4,100,156)		100%		100%
Dunn, NC ⁽³⁾		150,631		(200,090	)		29,655			(415,885)		35%		34%
CARS Preferred Equity		749,608		749,054			2,381,000			(1,428,600)		N/A		N/A

	$	3,463,010	$	3,194,788		$	1,029,209		$	(16,588,835)




Three Months Ended
September 30,
Property
Roswell, GA⁽¹⁾	$	-	$	(96,692	)	$	-		$	-
Kansas City, KS ⁽²⁾		-		362			-			-
Hampton, VA		232,037		250,499			554,250			(2,501,128)
Ocean City, MD		328,482		278,854			(12,917	)		(370,820)
Westminster, MD		340,296		279,782			897,940			(1,300,036)
Dunn, NC⁽³⁾		8,109		66,926			45,848			(418,568)
CARS Preferred Equity		252,644		252,644			523,820			(138,400)

	$	1,161,568	$	1,032,375		$	2,008,941		$	(4,728,952)

⁽¹⁾	The Roswell, Georgia retail property was sold on May 1, 2009.

⁽²⁾	The Kansas City, Kansas retail property was sold on June 29, 2007 but certain post-closing

adjustments

were recognized during the nine months ended September 30, 2009.

⁽³⁾	A portion of the Dunn, North Carolina retail property was sold on November 12, 2009.

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s retail properties was approximately $3.5 million for the nine months ended September 30, 2010, an increase of approximately $0.3 million from the prior year period. The increase in net investment income attributable to the general partners’ controlling interest for the nine month period ended September 30, 2010 was largely due to the reconciliation of a loss previously misallocated to the partner at the retail property in Dunn, North Carolina during the prior year period. This increase was partially offset by the loss of income related to the disposition of the Roswell, Georgia retail property in the prior year period.

Net investment income attributable to the general partners’ controlling interest for the Partnership’s retail properties was approximately $1.2 million for the quarter ended September 30, 2010, an increase of approximately $0.1 million from the prior year period. The increase in net investment income attributable to the general partners’ controlling interest for the quarter ended September 30, 2010 was largely attributable to (a) an increase in income at the property in Westminster, Maryland due to the refusal of a tenant to pay rent in the prior year period; and (b) a loss of income during the prior year period at the property in Roswell, Georgia due to post-closing costs as a result of its sale.

Recognized and Unrealized Gain/(Loss)

The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.0 million for the nine months ended September 30, 2010, compared with a net recognized and unrealized loss attributable to the general partners’ controlling interest of approximately $16.6 million for the prior year period. The unrealized gain attributable to the general partners’ controlling interest for the nine month period ended September 30, 2010 was primarily due to a valuation gain of approximately $2.4 million in the Capital Automotive Real Estate Services, or “CARS”, preferred equity investment due to a reduction in the expected remaining term of the investment, effectively increasing the probability of repayment. This gain was partially offset by a net unrealized loss attributable to the general partners’ controlling interest of approximately $1.7 million at the property in Hampton, Virginia caused by the near-term potential of large tenants vacating and decreasing market rents.

The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $2.0 million for the quarter ended September 30, 2010, compared with a net recognized and unrealized loss attributable to the general partners’ controlling interest of approximately $4.7 million for the prior year period. The net

unrealized gain attributable to the general partners’ controlling interest for the quarter ended September 30, 2010 was primarily due to (a) valuation gains of $0.6 million and $0.9 million at the properties in Hampton, Virginia and Westminster, Maryland, respectively, as a result of the early renewal of large tenants initially expected to vacate and (b) a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.5 million in the Capital Automotive Real Estate Services, or “CARS”, preferred equity investment due to a reduction in the expected remaining term of the investment, effectively increasing the probability of repayment.

HOTEL PROPERTY


Nine Months Ended September 30,	Net Investment Income/(Loss) 2010		Net Investment Income/(Loss) 2009		Unrealized Gain/(Loss) 2010			Unrealized Gain/(Loss) 2009			Occupancy 2010		Occupancy 2009

Property
Lake Oswego, OR	$	550,247	$	416,843	$	(38,629	)	$	(3,229,699	)		77%		61%



Three Months Ended
September 30,
Property
Lake Oswego, OR	$	319,334	$	261,054	$	(30,699	)	$	(759,369	)

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s hotel property was approximately $0.6 million for the nine months ended September 30, 2010, an increase of approximately $0.1 million from the prior year period. Net investment income attributable to the general partners’ controlling interest for the Partnership’s hotel property was approximately $0.3 million for the quarter ended September 30, 2010, an increase of approximately $0.1 million from the prior year period. The increases in net investment income attributable to the general partners’ controlling interest for the Partnership’s hotel property for the nine and three-month periods ended September 30, 2010 were largely due to improved cost savings in operations and increased average daily room rate and occupancy as a result of the strengthening hospitality market driven by increased business and vacation travel.

Unrealized Gain/(Loss)

The Partnership’s hotel property’s unrealized returns attributable to the general partners’ controlling interest were relatively unchanged for the nine and three-month periods ended September 30, 2010, compared with unrealized losses attributable to the general partners’ controlling interest of approximately $3.2 million and $0.8 million for the prior year periods, respectively.

Other

Other net investment loss attributable to the general partners’ controlling interest decreased approximately $0.3 million over the prior year period for the nine month period ended September 30, 2010. Other net investment loss attributable to the general partners’ controlling interest remained relatively unchanged for the quarter ended September 30, 2010 over the prior year period. Other net investment includes interest income from short-term investments, investment management fees, and portfolio level expenses.

(c) Inflation

A majority of the Partnership’s leases with 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 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.

Accounting Pronouncements Adopted

See Note 1B to our Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements.

Valuation of Investments

Real Estate Investments - Real estate investments are carried at fair value. Properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and below market leases, in-place leases, and tenant relationships at the time of acquisition.

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 general partner’s controlling interest exposure to market rate risk as of September 30, 2010, consists primarily of short-term commercial paper and fixed and variable interest rate debt. The Partnership does not use derivative financial instruments. As a matter of 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, 2010:


	Maturity	Estimated Market Value (millions)	Average Interest Rate

Cash and Cash equivalents	0-3 months	$37.9	1.49%

The table below discloses the Partnership’s debt as of September 30, 2010. The fair value of the Partnership’s long-term debt 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 maturity dates for the debt.


Investment level debt (in $ thousands), including current portion	2010			2011		2012		2013		2014		Thereafter		Total			Estimated Fair Value
Weighted Average Fixed Interest Rate		6.75%			6.75%		6.75%		6.75%		6.75%		6.75%		6.75%
Fixed Rate		$145			$604		$646		$691		$739		$3,510		$6,335			$6,612
Variable Rate		-			$15,421		-		$9,000		-		-		$24,421			$24,360
Premium/(Discount) on Investment Level Debt		($3	)		-		-		-		-		-		($3	)		-

Total Investment Level Debt		$142			$16,025		$646		$9,691		$739		$3,510		$30,753			$30,972

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.

Item 4. 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 Rules 13a-15(e) and 15d-15(e), under the Securities Exchange Act of 1934, as amended, as of September 30, 2010. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2010, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(e), occurred during the quarter ended September 30, 2010, 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, 2009 and in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2010. 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 business described elsewhere in this Quarterly Report on Form 10-Q.

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.

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.

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

in respect of

Pruco Life of New Jersey Variable

Contract Real Property Account

(Registrant)

Date: November 12, 2010


By:		/s/ Scott D. Kaplan
		Scott D. Kaplan
		President and Director
		(Principal Executive Officer)

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC - FORM 10-Q - November 12, 2010

Attached files

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC Reports