UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2008

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

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

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

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

(973) 802-6000

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

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a 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 o      NO þ

 

 

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

		Page
Forward Looking Statement Disclosure			3
Part I — Financial Information
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets – March 31, 2008 and December 31, 2007			4
Statements of Operations – Three Months Ended March 31, 2008 and 2007 .			4
Statements of Changes in Net Assets – Three Months Ended March 31, 2008 and 2007			4
Notes to the Financial Statements of the Real Property Account			5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Consolidated Statements of Assets and Liabilities – March 31, 2008 and December 31, 2007			8
Consolidated Statements of Operations – Three Months Ended March 31, 2008 and 2007			9
Consolidated Statements of Changes in Net Assets–Three Months Ended March 31, 2008 and 2007			10
Consolidated Statements of Cash Flows – Three Months Ended March 31, 2008 and 2007			11
Consolidated Schedules of Investments – March 31, 2008 and December 31, 2007			12
Notes to Consolidated Financial Statements of the Partnership			14
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 3. Quantitative and Qualitative Disclosures About Market Risk			32
Item 4. Controls and Procedures .			33
Part II — Other Information
Item 1A. Risk Factors			33
Item 4. Submission of Matters to a Vote of Security Holders .			33
Item 6. Exhibits			33
Signature			34

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; (3) re-estimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (5) changes in our assumptions related to deferred policy acquisition costs, 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; (11) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities, including in connection with our divestiture or winding down of businesses; (12) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (13) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (14) effects of acquisitions, divestitures and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions; and (15) changes in statutory or accounting principles generally accepted in the United States of America, or “U.S. GAAP”, accounting principles, practices or policies. The Company and the Real Property Account do not intend, and are under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2007 for discussion of certain risks relating to the operation of the Partnership and investment in our securities.

FINANCIAL STATEMENTS OF

STATEMENTS OF NET ASSETS
March 31, 2008 and December 31, 2007

		March 31, 2008
		(unaudited)				December 31, 2007
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership		$	10,875,727			$	10,764,653
Net Assets		$	10,875,727			$	10,764,653
NET ASSETS, representing:
Equity of contract owners		$	7,731,415			$	7,715,262
Equity of Pruco Life Insurance Company of New Jersey			3,144,312				3,049,391
		$	10,875,727			$	10,764,653
Units outstanding			3,338,247				3,333,399
Portfolio shares held			294,526				294,526
Portfolio net asset value per share		$	36.93			$	36.55

STATEMENTS OF OPERATIONS
For the three months ended March 31, 2008 and 2007

		1/1/2008-3/31/2008				1/1/2007-3/31/2007
		(unaudited)				(unaudited)
INVESTMENT INCOME
Net investment income from Partnership operations		$	141,171			$	117,149
EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration			10,990				10,804
NET INVESTMENT INCOME			130,181				106,345
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments from Partnership			(30,097	)			83,865
Net realized gain (loss) on sale of investments from Partnership			0				15,213
NET GAIN (LOSS) ON INVESTMENTS			(30,097	)			99,078
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	100,084			$	205,423

STATEMENTS OF CHANGES IN NET ASSETS
For the three months ended March 31, 2008 and 2007

		1/1/2008-3/31/2008				1/1/2007-3/31/2007
		(unaudited)				(unaudited)
OPERATIONS
Net investment income		$	130,181			$	106,345
Net change in unrealized gain (loss) on investments in Partnership			(30,097	)			83,865
Net realized gain (loss) on sale of investments in Partnership			0				15,213
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS			100,084				205,423
CAPITAL TRANSACTIONS
Net contributions (withdrawals) by contract owners			(52,334	)			8,935
Net contributions (withdrawals) by Pruco Life Insurance Company of New Jersey			63,324				1,869
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS			10,990				10,804
TOTAL INCREASE (DECREASE) IN NET ASSETS			111,074				216,227
NET ASSETS
Beginning of period			10,764,653				9,975,186
End of period		$	10,875,727			$	10,191,413

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
March 31, 2008
(Unaudited)

Note 1: General

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

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

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

Note 2: Summary of Significant Accounting Policies and Pronouncements

A. Basis of Accounting

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

The interim financial data as of March 31, 2008 and for the three months ended March 31, 2008 and 2007 is unaudited; however, in the opinion of management, the interim data includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods.

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

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

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

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 March 31, 2008 and December 31, 2007 the Account’s interest in the Partnership was 4.3% or 294,526 shares. Properties owned by the Partnership are illiquid and based on estimated fair value as discussed in the notes to the Partnership’s audited financial statements.

C. Income Recognition

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

D. Equity of Pruco Life Insurance Company of New Jersey

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

Note 3: Charges and Expenses

A. Mortality Risk and Expense Risk Charges

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

B. Administrative Charges

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

C. Cost of Insurance and Other Related Charges

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

D. Deferred Sales Charge

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

E. Partial Withdrawal Charge

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

Note 4: Taxes

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

Note 5: Net Contributions (Withdrawals) by Contract Owners

Net contract owner contributions (withdrawals) for the real estate investment option in Pruco Life of New Jersey’s variable insurance and variable annuity products for the three months ended March 31, 2008 and 2007, were as follows:

		Nine Months Ended March 31,
		(Unaudited)
		2008				2007
VAL		$	(45,441	)		$	17,970
VLI			(6,739	)			(1,759	)
SPVA			0				0
SPVL			(154	)			(7,276	)
TOTAL		$	(52,334	)		$	8,935

Note 6: Partnership Distributions

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

Note 7: Unit Information

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

		March 31, 2008				December 31, 2007
		(Unaudited)
Units Outstanding:			3,338,247				3,333,399
Unit Value:			2.82980 to 3.42736				2.80966 to 3.39532

Note 8: Financial Highlights

The range of total return for the three months ended March 31, 2008 and 2007 was as follows:

		Three Months Ended
		March 31,
		(Unaudited)
		2008				2007
Total Return		0.72% to 0.94%				1.85% to 2.08%

Note 9: Fair Value Disclosure

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

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

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

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

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

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

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

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

		($ in 000’s)
		Amounts				Quoted Prices in				Significant
		Measured at				Active Markets				Other				Significant
		Fair				for Identical				Observable				Unobservable
		3/31/2008				Assets (Level 1)				Inputs (Level 2)				Inputs (Level 3)
Assets:
Investment in The Prudential Variable Contract Real Property Partnership		$	10,876			$	—			$	—			$	10,876
Total Assets		$	10,876			$	—			$	—			$	10,876

		($ in 000’s)
		Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
		Investment in
		The Prudential
		Variable Contract
		Real Property Partnership				Total
Beginning balance @ 12/31/07		$	10,765			$	10,765
Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations			(30	)			(30	)
Net Investment Income from Partnership operations			141				141
Acquisition/Additions			—				—
Equity Income			—				—
Distributions			—				—
Ending balance @ 3/31/08		$	10,876			$	10,876
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date		$	(30	)		$	(30	)

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

		March 31, 2008
		(Unaudited)				December 31, 2007
ASSETS
REAL ESTATE INVESTMENTS — At estimated fair value:
Real estate and improvements (cost: 03/31/2008 - $236,349,852; 12/31/2007 - $233,233,775)		$	253,661,712			$	251,161,712
Real estate partnerships and preferred equity investments (cost:
03/31/2008 - $14,555,001; 12/31/2007 - $14,523,934)			14,555,001				14,523,934
Other real estate investments (cost: 03/31/2008 - $3,325,707; 12/31/2007 - $3,232,341)			3,325,707				3,232,341
Total real estate investments		$	271,542,420			$	268,917,987
CASH AND CASH EQUIVALENTS			17,244,462				18,215,871
OTHER ASSETS, NET			3,969,951				3,033,040
Total assets		$	292,756,833			$	290,166,898
LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT		$	31,968,048			$	32,121,712
ACCOUNTS PAYABLE AND ACCRUED EXPENSES			2,348,564				2,184,812
DUE TO AFFILIATES			874,929				901,371
OTHER LIABILITIES			883,364				920,454
MINORITY INTEREST			7,099,159				7,004,790
Total liabilities			43,174,064				43,133,139
COMMITMENTS AND CONTINGENCIES
PARTNERS’ EQUITY			249,582,769				247,033,759
Total liabilities and partners’ equity		$	292,756,833			$	290,166,898
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD			6,758,960				6,758,960
SHARE VALUE AT END OF PERIOD		$	36.93			$	36.55

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		For the Three Months Ended March 31,
		2008				2007
INVESTMENT INCOME:
Revenue from real estate and improvements		$	7,614,660			$	6,488,231
Equity in income of real estate partnerships			300,449				299,380
Income from other real estate investments			93,366				92,340
Interest on short-term investments			124,243				531,674
Total investment income			8,132,718				7,411,625
INVESTMENT EXPENSES:
Operating			1,723,610				1,723,979
Investment management fee			861,522				810,632
Real estate taxes			734,846				511,886
Administrative			1,111,128				984,469
Interest expense			442,153				677,921
Minority interest			19,791				14,343
Total investment expenses			4,893,050				4,723,230
NET INVESTMENT INCOME			3,239,668				2,688,395
REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS:
Net proceeds from real estate investments sold			—				14,649,241
Less: Cost of real estate investments sold			—				11,286,691
Realization of prior years’ unrealized gain (loss) on real estate investments sold			—				3,013,440
NET GAIN (LOSS) REALIZED ON REAL ESTATE INVESTMENTS SOLD			—				349,110
Change in unrealized gain (loss) on real estate investments			(616,077	)			2,049,817
Less: Minority interest in unrealized gain (loss) on real estate investments			74,581				125,197
Net unrealized gain (loss) on real estate investments			(690,658	)			1,924,620
NET REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS			(690,658	)			2,273,730
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		$	2,549,010			$	4,962,125

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 Three Months Ended March 31,
		2008				2007
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income		$	3,239,668			$	2,688,395
Net gain (loss) realized on real estate investments sold			—				349,110
Net unrealized gain (loss) from real estate investments			(690,658	)			1,924,620
Increase (decrease) in net assets resulting from operations			2,549,010				4,962,125
NET ASSETS — Beginning of period			247,033,759				228,916,584
NET ASSETS — End of period		$	249,582,769			$	233,878,709

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 Three Months Ended March 31,
		2008				2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets from operations		$	2,549,010			$	4,962,125
Adjustments to reconcile net increase in net assets to net cash from operating activities
Net realized and unrealized loss (gain)			690,658				(2,273,730	)
Amortization of deferred financing costs			11,704				238,710
Distributions in excess of (less than) equity in income of real estate partnerships’ operations			(31,066	)			(5,084	)
Minority interest in consolidated partnerships			19,791				14,343
Bad debt expense			18,600				281
(Increase) Decrease in accrued interest included in other real estate investments			(93,366	)			(92,340	)
(Increase) decrease in:
Other assets			(967,217	)			117,476
Increase (decrease) in:
Accounts payable and accrued expenses			163,752				(477,834	)
Due to affiliates			(26,444	)			47,558
Other liabilities			(37,090	)			741
Net cash flows from (used in) operating activities			2,298,332				2,532,246
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold			—				14,649,241
Additions to real estate and improvements			(3,116,077	)			(299,258	)
Net cash flows from (used in) investing activities			(3,116,077	)			14,349,983
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on investment level debt			(153,664	)			(144,910	)
Net cash flows from (used in) financing activities			(153,664	)			(144,910	)
NET CHANGE IN CASH AND CASH EQUIVALENTS			(971,409	)			16,737,319
CASH AND CASH EQUIVALENTS — Beginning of period			18,215,871				33,399,532
CASH AND CASH EQUIVALENTS — End of period		$	17,244,462			$	50,136,851
DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest		$	430,449			$	724,038

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

										2008 Total Rentable
										Square Feet				March 31, 2008
										Unless Otherwise				(unaudited)								December 31,2007
		March 31, 2008								Indicated								Estimated Fair								Estimated Fair
Property Name		Ownership				City, State				(Unaudited)				Cost				Value				Cost				Value
OFFICES
750 Warrenville		WO				Lisle, IL					103,193			$	24,546,795			$	10,500,000			$	24,512,521			$	11,500,000
Summit @ Cornell Oaks		WO				Beaverton , OR					72,109				12,399,094				12,700,000				12,401,252				13,800,000
Westpark		WO				Nashville, TN					97,199				11,323,885				13,100,000				11,323,885				13,100,000
Financial Plaza		WO				Brentwood, TN					98,049				12,371,092				13,700,000				12,371,092				13,700,000
						Offices % as of 3/31/08					20%				60,640,866				50,000,000				60,608,750				52,100,000
APARTMENTS
Brookwood Apartments		WO				Atlanta, GA					240 Units				19,605,815				20,300,000				19,548,293				20,200,000
Dunhill Trace Apartments		WO				Raleigh, NC					250 Units				16,394,772				20,100,000				16,375,037				19,800,000
Broadstone Crossing		WO				Austin, TX					225 Units				22,723,849				27,600,000				22,723,849				27,100,000
The Reserve At Waterford Lakes		WO				Charlotte, NC					140 Units				13,558,045				13,500,000				13,535,450				13,500,000
						Apartments % as of 3/31/08					33%				72,282,481				81,500,000				72,182,629				80,600,000
RETAIL
King’s Market		WO				Rosewell, GA					314,358				37,883,922				24,700,000				37,883,222				24,700,000
Hampton Towne Center		WO				Hampton, VA					174,540				18,053,425				27,200,000				18,050,090				26,500,000
White Marlin Mall		CJV				Ocean City, MD					186,016				19,481,322				26,700,000				17,016,325				23,900,000
Westminster Crossing East, LLC		CJV				Westminster, MD					89,890				12,405,500				17,961,712				12,405,500				17,861,712
Kansas City Portfolio		EJV				Kansas City, KS;MO					487,660				189,483				189,483				140,911				140,911
CARS Preferred Equity		PE				Various					N/A				14,365,518				14,365,518				14,383,023				14,383,023
Harnett Crossing		CJV				Dunn, NC					193,235				5,958,845				7,200,000				5,958,844				7,200,000
						Retail % as of 3/31/08					48%				108,338,015				118,316,713				105,837,915				114,685,646
HOTEL
Portland Crown Plaza		CJV				Portland, OR					161 Rooms				9,643,491				18,400,000				9,128,415				18,300,000
						Hotel % as of 3/31/08					7%				9,643,491				18,400,000				9,128,415				18,300,000
OTHER REAL ESTATE INVESTMENTS
Westminster East		Eloan				Westminster, MD									3,325,707				3,325,707				3,232,341				3,232,341
						Other Real Estate					1%				3,325,707				3,325,707				3,232,341				3,232,341
						Investments % as of
							3/31/2008
Total Real Estate Investments as a											109%			$	254,230,560			$	271,542,420			$	250,990,050			$	268,917,987
Percentage of Net Assets as of 3/31/08

WO — Wholly Owned Investment
CJV — Consolidated Joint Venture
EJV — Joint Venture Investment accounted for under the equity method
PE — Preferred equity investments accounted for under the equity method
Eloan — Mezzanine loan accounted for under the equity method

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

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

						March 31, 2008
						(unaudited)								December 31, 2007
										Estimated Fair								Estimated Fair
		Face Amount				Cost				Value				Cost				Value
CASH AND CASH EQUIVALENTS — Percentage of Net Assets											6.9	%							7.4	%
Federal Home Loan Bank, 0 coupon bond, April, 2008		$	3,281,000			$	3,281,000			$	3,281,000			$	2,065,813			$	2,065,813
Federal Home Loan Bank, 0 coupon bond, April, 2008			2,997,025				2,997,025				2,997,025				4,998,313				4,998,313
Federal Home Loan Bank, 0 coupon bond, May, 2008			9,976,250				9,976,250				9,976,250				9,997,633				9,997,633
Total Cash Equivalents							16,254,275				16,254,275				17,061,759				17,061,759
Cash							990,187				990,187				1,154,112				1,154,112
Total Cash and Cash Equivalents						$	17,244,462			$	17,244,462			$	18,215,871			$	18,215,871

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

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

Note 1: Summary of Significant Accounting Policies and Pronouncements

	A.		Basis of Presentation - The accompanying unaudited consolidated financial statements of The Prudential Variable Contract Real Property Partnership (the “Partnership”) included herein have been prepared in accordance with the requirements of Form 10-Q and accounting principles generally accepted in the United States of America for interim financial information. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2008 are not necessarily indicative of the results that may be expected for the year ended December 31, 2008. For further information, refer to the audited consolidated financial statements and notes thereto included in each partner’s Annual Report on Form 10-K for the Year Ended December 31, 2007.
	B.		Management’s Use of Estimates in the Financial Statements — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
	C.		New Accounting Pronouncements - FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), was issued in January 2003. In December 2003, FASB issued a revised interpretation of FIN 46 (“FIN 46-R”) that supersedes FIN 46. FIN 46-R defers the effective date for applying the provisions of FIN 46 for those companies currently accounting for their investments in accordance with the AICPA Audit and Accounting Guide, “Audits of Investment Companies” (the “Audit Guide”). The FASB is currently considering modifying FIN 46-R to provide an exception for companies that apply the Audit Guide. The Partnership is awaiting the final determination from the FASB in order to evaluate the extent in which, if any, its equity investments may need to be consolidated as a result of this FIN 46-R.
			In September 2006, the staff of the U.S. Securities and Exchange Commission, or “SEC”, issued Staff Accounting Bulletin, or “SAB”, No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements.” The interpretations in this SAB express the staff’s views regarding the process of quantifying financial statement misstatements. Specifically, the SEC staff believes that registrants must quantify the impact on current period financial statements of correcting all misstatements, including both those occurring in the current period and the effect of reversing those that have accumulated from prior periods. This SAB must be applied beginning with the first fiscal year ending after November 15, 2006, with early adoption encouraged. Since the Partnership’s method for quantifying financial statement misstatements already considers those occurring in the current period and the effect of reversing those that have accumulated from prior periods, the adoption of SAB No. 108 had no effect on the financial position and result of operations of the Partnership.
			The Partnership adopted FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes,” an Interpretation of FASB Statement No. 109 as of January 1, 2007. This interpretation prescribes a comprehensive model for how a partnership should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the partnership has taken or expects to take on a tax return. The adoption of FIN 48 had no effect to the financial position and result of operations of the Partnership.
			In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This statement does not require any new fair value measurements, but the application of this statement could change current practices in determining fair value. This adoption did not change the methodology used to fair value our real estate investments.

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

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

	C.		New Accounting Pronouncements (continued)
			In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities,” including an amendment of FASB Statement No. 115. This statement provides partnerships with an option to report selected financial assets and liabilities at fair value.
			SFAS No. 157 and SFAS No. 159 are effective for fiscal years beginning after November 15, 2007 with early adoption permitted. The Partnership adopted SFAS No. 157 and SFAS No. 159 effective January 1, 2008, however, the Partnership did not make a fair value option election for its existing debt. The adoption does not have any effect on the Partnership’s consolidated financial position and results of operations. Please refer to Notes 1E and 2 for details.
			In June 2007, the Accounting Standards Executive Committee issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the “Audit Guide”). SOP 07-1 was originally determined to be effective for fiscal years beginning on or after December 15, 2007, however, on February 6, 2008, FASB issued a final Staff Position indefinitely deferring the effective date and prohibiting early adoption of SOP 07-1 while addressing implementation issues.
	D.		Real Estate Investments — Real estate investments are shown at estimated fair value. The cost of properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and below market leases, in-place leases, and tenant relationships at the time of acquisition. Fair value estimates are based upon property appraisal reports prepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter. The Chief Real Estate Appraiser of Prudential Investment Management, Inc. (“PIM”), which is an indirectly owned subsidiary of Prudential Financial, Inc. (“PFI”), is responsible to assure that the valuation process provides independent and reasonable property fair value estimates. An unaffiliated third party appraisal firm has been appointed by PIM to assist the Chief Real Estate Appraiser in maintaining and monitoring the independence and the accuracy of the appraisal process. The fair value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments.
			Unconsolidated real estate partnerships are valued at the Partnership’s equity in net assets as reflected in the Partnerships’ financial statements with properties valued as described above and in Note 1E below. Under the equity method, the investment is initially recorded at the original investment amount, plus or minus additional amounts invested or distributed, and is subsequently adjusted for the Partnership’s share of undistributed earnings or losses, including unrealized appreciation and depreciation, from the underlying entity.

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

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

	D.		Real Estate Investments (continued)
			The Partnership periodically enters into forward contracts to acquire, for a fixed price, real estate investments to be constructed in accordance with predetermined plans and specifications. Where conditions precedent to funding have been met by its development partners, and the Partnership’s commitment to fund is firm, the amount of any unrealized gain or loss is recognized based upon the difference between the estimated investment’s fair value as described above and the Partnership’s funding obligation. The funding obligation and related assets are recorded in the consolidated financial statements. As of March 31, 2008 and December 31, 2007, no such funding obligation existed.
			Land and development properties held for future development is carried at acquisition cost including soft costs incurred prior to development.
			As described above, the estimated fair value of real estate and real estate related assets is determined through an appraisal process. These estimated fair values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller and could be material to the consolidated financial statements. Although the estimated fair values represent subjective estimates, management believes these estimated fair values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate is fairly presented as of March 31, 2008 and December 31, 2007.
	E.		Valuation Methodology - The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
			The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. In the reconciliation of these three approaches, the one most heavily relied upon is the one then recognized as the most appropriate by the independent appraiser for the type of real estate in the market.
			In general, the input values used in the appraisal process are unobservable, therefore unless indicated otherwise; real estate investments are classified as Level 3 under SFAS157 fair value hierarchy.
	F.		Other Real Estate Investments – Other real estate investments include short-term notes receivable, which are valued at the amount due and approximate fair value.
	G.		Cash and Cash Equivalents – Cash and cash equivalent are comprised of all short-term investments and investments in money market funds with a maximum maturity of three months. Cash equivalents consist of investments in the Prudential Investment Liquidity Pool offered and managed by an affiliate of PFI and are accounted for at fair value.
	H.		Other Assets – Restricted cash of $115,000 and $186,736 was maintained by the wholly owned and consolidated properties at March 31, 2008 and December 31, 2007, respectively. Tenant security deposits are included in Other Assets on the Consolidated Statements of Assets and Liabilities. Other assets also include tenant receivables and are net of allowance for uncollectible accounts of $28,885 and $39,764 at March 31, 2008 and December 31, 2007, respectively.

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

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

	I.		Investment Level Debt – Investment level debt is stated at the principal amount of the obligations outstanding. At times the Partnership may assume debt in connection with the purchase of real estate. The Partnership allocated a portion of the purchase price to the below/above market debt and amortizes the premium/discount over the remaining life of the debt.
	J.		Deferred Financing Costs – Deferred Financing Costs related to debt were capitalized and amortized over the terms of the related obligations.
	K.		Revenue Recognition - Revenue from real estate is recognized when earned in accordance with the terms of the respective leases. Revenue from certain real estate investments is net of all or a portion of related real estate expenses, as lease arrangements vary as to responsibility for payment of these expenses between tenants and the Partnership. Since real estate is stated at estimated fair value, net income is not reduced by depreciation or amortization expense.
	L.		Equity in Income of Real Estate Partnerships - Equity in income from real estate partnership operations represents the Partnership’s share of the current year’s partnership income as provided for under the terms of the partnership agreements. As is the case with wholly owned real estate, partnership net income is not reduced by depreciation or amortization expense. Frequency of distribution of income is determined by formal agreements or by the executive committee of the Partnership.
	M.		Federal Income Taxes — The Partnership is not a taxable entity under the provisions of the Internal Revenue Code. The income and capital gains and losses of the Partnership are attributed, for federal income tax purposes, to the partners in the Partnership. The Partnership may be subject to state and local taxes in jurisdictions in which it operates.

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

Note 2: Fair Value Disclosure

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

          Table 1:

		($ in 000’s)
		Amounts				Quoted Prices in				Significant
		Measured at				Active Markets				Other				Significant
		Fair Value				for Identical				Observable				Unobservable
		3/31/2008				Assets (Level 1)				Inputs (Level 2)				Inputs (Level 3)
Assets:
Real Estate Investments		$	253,662			$	—			$	—			$	253,662
Real estate partnerships and preferred equity investments			14,555				—				—				14,555
Total Assets		$	268,217			$	—			$	—			$	268,217

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

NOTE 2: Fair Value Disclosure (continued)

Table 2:

		($ in 000’s)
		Fair Value Measurements Using Significant Unobservable Inputs
		(Level 3)
						Real estate
						partnerships and
		Real Estate				Preferred equity
		Investments				investments				Total
Beginning balance @ 12/31/07		$	251,162			$	14,524			$	265,686
Total gains or losses (realized/unrealized) included in earnings (or changes in net assets)			(616	)			—				(616	)
Acquisition/Additions			3,116				—				3,116
Equity Income			—				49				49
Distributions			—				(18	)			(18	)
Ending balance @ 3/31/08		$	253,662			$	14,555			$	268,217
The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date		$	(616	)		$	—			$	(616	)

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

Note 3: 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 three months ended March 31, 2008 and 2007 investment management fees incurred by the Partnership were $861,522 and $810,632, respectively.

The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the three months ended March 31, 2008 and 2007 were $13,407 and $29,041, respectively, and are classified as administrative expense in the Consolidated Statements of Operations.

Note 4: Commitments and Contingencies

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

Note 5: Subsequent Event

On April 1, 2008, the Partnership received from White Marlin Mall, one of the joint ventures, a payment in the amount of $3,963,392 representing return of the Partnership’s preferred equity contribution of $3,918,511, plus outstanding preference of $44,881.

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

Note 6: Financial Highlights

		For The Three Months Ended March 31,
		2008				2007				2006				2005				2004
Per Share(Unit) Operating Performance:
Net Asset Value, beginning of period		$	36.55			$	33.87			$	29.59			$	26.15			$	24.66
Income From Investment Operations:
Investment income, before management fee			0.61				0.52				0.50				0.36				0.35
Investment Management fee			(0.13	)			(0.12	)			(0.11	)			(0.09	)			(0.09	)
Net realized and unrealized gain (loss) on investments			(0.10	)			0.33				0.95				0.36				(0.08	)
Net Increase in Net Assets Resulting from Operations			0.38				0.73				1.34				0.63				0.18
Net Asset Value, end of period		$	36.93			$	34.60			$	30.93			$	26.78			$	24.84
Total Return, before Management Fee (a):			1.38	%			2.53	%			4.89	%			2.79	%			1.10	%
Total Return, after Management Fee :			1.03	%			2.17	%			4.53	%			2.42	%			0.75	%
Ratios/Supplemental Data:
Net Assets, end of period (in millions)		$	250			$	234			$	215			$	191			$	183
Ratios to average net assets for the year ended (b):
Total Portfolio Level Expenses			0.35	%			0.38	%			0.36	%			0.36	%			0.35	%
Investment Income before Management Fee			1.66	%			1.53	%			1.68	%			1.43	%			1.41	%

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 March 31, 2008, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $17.2 million, a decrease of approximately $1.0 million from $18.2 million at December 31, 2007. The decrease was primarily due to the funding of an additional $2.6 million of preferred equity, as discussed below, and capital improvements to existing properties totaling approximately $0.7 million. Partially offsetting the decrease were the cash flows received from the Partnership’s operating activities of approximately $2.3 million. Sources of liquidity included net cash flow from property operations 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 March 31, 2008, approximately 5.9% of the Partnership’s total assets consisted of cash and cash equivalents.

During the three months ended March 31, 2008, the Partnership made an additional $2.6 million preferred equity investment in an existing retail property located in Ocean City, Maryland to fund costs associated with the redevelopment of the center. This investment is structured with an annual preference rate of 8.0%.

The Partnership did not have any dispositions or acquisitions for the three months ended March 31, 2008.

During the three months ended March 31, 2008, the Partnership spent approximately $0.7 million on capital improvements to various existing properties. Approximately $0.5 million was associated with the renovation of the hotel property in Lake Oswego, Oregon and approximately $0.1 million funded the renovation of the apartment property in Atlanta, Georgia. The remaining $0.1 million was associated with minor capital improvements and transaction costs associated with leasing expenses of various other properties.

(b) Results of Operations

The following is a comparison of the Partnership’s results of operations for the three-month periods ended March 31, 2008, and 2007.

Net Investment Income Overview

The Partnership’s net investment income for the quarter ended March 31, 2008 was approximately $3.2 million, an increase of approximately $0.5 million from the prior year. The office, apartment and retail sector investments posted increases of approximately $0.1 million, $0.7 million and $0.2 million, respectively, from the prior year. Partially offsetting these increases was a decrease in net investment income in the industrial sector of approximately $0.1 million. Other loss increased approximately $0.4 million during the quarter ended March 31, 2008 from the prior year. The components of this net investment income and/or loss are discussed below by property type sector.

Valuation Overview

The Partnership did not record any realized gains for the quarter ended March 31, 2008, compared to an aggregate net realized gain of approximately $0.3 million for the prior year period.

The Partnership recorded an aggregate net unrealized loss of approximately $0.7 million for the quarter ended March 31, 2008, compared to an aggregate net unrealized gain of approximately $1.9 million for the prior year. The aggregate net unrealized loss for the quarter ended March 31, 2008 was attributable to property valuation declines in the office and hotel sector investments of approximately $2.1 million and $0.3 million, respectively. Partially offsetting these unrealized losses were net unrealized gains of approximately $0.8 million and $1.0 million recorded in the apartment and retail sector investments, respectively. The components of these valuation gains and/or losses are discussed below by property type.

The following table presents a comparison of the Partnership’s sources of net investment income, and realized and unrealized gains or losses by property type for the three-month periods ended March 31, 2008, and 2007.

		Three Months Ended March 31,
		2008				2007
Net Investment Income:
Office properties		$	971,415			$	852,515
Apartment properties			849,245				141,603
Retail properties			1,900,128				1,666,350
Industrial property			—				113,561
Hotel property			248,858				255,673
Other (including interest income, investment mgt fee, etc.)			(729,978	)			(341,307	)
Total Net Investment Income		$	3,239,668			$	2,688,395
Net Realized Gain (Loss) on Real Estate Investments:
Industrial property			—				349,110
Total Net Realized Gain (Loss) on Real Estate Investments			—				349,110
Net Unrealized Gain (Loss) on Real Estate Investments:
Office properties			(2,132,116	)			408,348
Apartment properties			800,147				(143,081	)
Retail properties			973,371				1,665,629
Hotel property			(332,060	)			(6,276	)
Total Net Unrealized Gain (Loss) on Real Estate Investments			(690,658	)			1,924,620
Net Realized and Unrealized Gain (Loss) on Real Estate Investments		$	(690,658	)		$	2,273,730

OFFICE PROPERTIES

		Net Investment				Net Investment				Unrealized				Unrealized
Three Months Ended		Income/(Loss)				Income/(Loss)				Gain/(Loss)				Gain/(Loss)				Occupancy				Occupancy
March 31,		2008				2007				2008				2007				2008				2007
Property
Lisle, IL		$	123,390			$	70,201			$	(1,034,274	)		$	794,992				61	%			61	%
Brentwood, TN			264,129				273,828				—				—				89	%			100	%
Beaverton, OR			283,672				245,475				(1,097,842	)			(86,644	)			88	%			89	%
Brentwood, TN			300,224				263,011				—				(300,000	)			100	%			100	%
		$	971,415			$	852,515			$	(2,132,116	)		$	408,348

Net Investment Income

Net investment income for the Partnership’s office properties was approximately $1.0 million for the quarter ended March 31, 2008, an increase of approximately $0.1 million from the prior year period. The increase was primarily due to increased rents at the office properties in Lisle, Illinois and Beaverton, Oregon and stabilized occupancy and increased rents at the office property in Brentwood, Tennessee.

Unrealized Gain/(Loss)

The office properties owned by the Partnership recorded an aggregate net unrealized loss of approximately $2.1 million during the quarter ended March 31, 2008, compared to an aggregate net unrealized gain of approximately $0.4 million for the prior year period. The net unrealized loss of $2.1 million for the quarter ended March 31, 2008 was primarily due to increased operating expenses at the office property in Lisle, Illinois and decreased occupancy and softening market conditions at the office property in Beaverton, Oregon.

APARTMENT PROPERTIES

		Net Investment				Net Investment				Unrealized				Unrealized
Three Months Ended		Income/(Loss)				Income/(Loss)				Gain/(Loss)				Gain/(Loss)				Occupancy				Occupancy
March 31,		2008				2007				2008				2007				2008				2007
Property
Atlanta, GA		$	163,136			$	42,310			$	42,477			$	(140,765	)			93	%			86	%
Raleigh, NC			163,376				81,951				280,265				(2,316	)			88	%			95	%
Jacksonville, FL (1)			—				17,342				—				—				N/A				N/A
Austin, TX (2)			391,451				—				500,000				—				94	%			N/A
Charlotte, NC(3)			131,282				—				(22,595	)			—				89	%			N/A
		$	849,245			$	141,603			$	800,147			$	(143,081	)

Net Investment Income

Net investment income for the Partnership’s apartment properties was approximately $0.8 million for the quarter ended March 31, 2008, an increase of approximately $0.7 million from the prior year period. The increase in net investment income was primarily due to (a) the acquisition of the apartment properties in Austin, Texas and Charlotte, North Carolina on May 8, 2007 and September 6, 2007, respectively; (b) increased occupancy at the apartment property in Atlanta, Georgia; and (c) increased rents at the apartment property in Raleigh, North Carolina.

Unrealized Gain/(Loss)

The apartment properties owned by the Partnership recorded an aggregate net unrealized gain of approximately $0.8 million for the quarter ended March 31, 2008, compared to an aggregate net unrealized loss of approximately $0.1 million for the prior year period. The aggregate net unrealized gain for the quarter ended March 31, 2008 was primarily due to improving property fundamentals resulting from a decrease in operating expenses at the apartment property in Austin, Texas and strengthening market conditions at the apartment property in Raleigh, North Carolina.

RETAIL PROPERTIES

		Net Investment				Net Investment				Unrealized				Unrealized
Three Months Ended		Income/(Loss)				Income/(Loss)				Gain/(Loss)				Gain/(Loss)				Occupancy				Occupancy
March 31,		2008				2007				2008				2007				2008				2007
Property
Roswell, GA		$	453,329			$	535,481			$	(700	)		$	1,591,257				82	%			88	%
Kansas City, KS (1)			48,571				85,986				—				31,798				N/A				76	%
Hampton, VA			335,405				320,717				696,665				100,000				99	%			100	%
Ocean City, MD			140,246				146,560				243,234				(144,286	)			68	%			79	%
Westminster, MD			383,562				364,212				100,000				86,860				100	%			100	%
Dunn, NC (2)			287,236				—				(65,828	)			—				35	%			N/A
CARS Preferred Equity			251,779				213,394				—				—				N/A				N/A
		$	1,900,128			$	1,666,350			$	973,371			$	1,665,629