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 June 30, 2015



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

Commission file number 033-08698

____________________________________________________

PRUCO LIFE INSURANCE COMPANY

in respect of

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Exact name of registrant as specified in its charter)

____________________________________________________



	Arizona		22-1944557
	(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

213 Washington Street

Newark, New Jersey 07102

(973) 802-6000

(Address and Telephone Number of Registrant’s Principal Executive Offices)

____________________________________________________

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 x 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check one):

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

Table of Contents

PRUCO LIFE 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 VARIABLE CONTRACT REAL PROPERTY ACCOUNT
	Statements of Net Assets - June 30, 2015 and December 31, 2014	4
	Statements of Operations - Three and Six Months Ended June 30, 2015 and 2014	4
	Statements of Changes in Net Assets - Three and Six Months Ended June 30, 2015 and 2014	4
	Notes to the Financial Statements	5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
	Consolidated Statements of Assets and Liabilities - June 30, 2015 and December 31, 2014	13
	Consolidated Statements of Operations - Three and Six Months Ended June 30, 2015 and 2014	14
	Consolidated Statements of Changes in Net Assets - Six Months Ended June 30, 2015 and 2014	15
	Consolidated Statements of Cash Flows - Six Months Ended June 30, 2015 and 2014	16
	Consolidated Schedules of Real Estate Investments - June 30, 2015 and December 31, 2014	17
	Notes to Consolidated Financial Statements	19
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
Part II - Other Information
Item 1A.	Risk Factors	37
Item 6.	Exhibits	37
Signatures		38

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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, or the “Company”, or Pruco Life 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 or prolonged periods of low interest rates; (3) reestimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, utilization, 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 value of business acquired; (6) changes in our financial strength 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 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 accounting principles generally accepted in the United States of America, or “U.S. GAAP”, practices or policies; and (15) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems. 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 our Annual Report on Form 10-K for the year ended December 31, 2014, for discussion of certain risks relating to the operation of The Prudential Variable Contract Real Property Partnership, or the “Partnership”, and investment in our securities.

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Part I. Financial Information

ITEM 1. Financial Statements (Unaudited)

UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS

June 30, 2015 and December 31, 2014



	June 30, 2015		December 31, 2014
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	100,505,768	$	100,673,266
Net Assets	$	100,505,768	$	100,673,266
NET ASSETS, representing:
Equity of contract owners	$	77,969,225	$	77,231,201
Equity of Pruco Life Insurance Company	22,536,543		23,442,065
	$	100,505,768	$	100,673,266
Units outstanding	28,776,050		29,562,144
Portfolio shares held	2,414,615		2,487,198
Portfolio net asset value per share	$	41.62	$	40.48

STATEMENTS OF OPERATIONS

For the three and six months ended June 30, 2015 and 2014



	Six Months Ended				Three Months Ended
	June 30, 2015		June 30, 2014		June 30, 2015		June 30, 2014
INVESTMENT INCOME
Net investment income allocated from The Prudential Variable Contract Real Property Partnership	$	1,531,686	$	1,881,141	$	815,108	$	905,175
EXPENSES
Charges to contract owners for assuming mortality and expense risk and for administration	230,159		222,836		116,206		111,961
NET INVESTMENT INCOME	1,301,527		1,658,305		698,902		793,214
NET RECOGNIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net unrealized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership	1,225,812		641,403		31,191		908,016
Net recognized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership	67,194		—		67,194		—
NET GAIN (LOSS) ON INVESTMENTS	1,293,006		641,403		98,385		908,016
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	2,594,533	$	2,299,708	$	797,287	$	1,701,230

STATEMENTS OF CHANGES IN NET ASSETS

For the three and six months ended June 30, 2015 and 2014



	Six Months Ended						Three Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
OPERATIONS
Net investment income	$	1,301,527		$	1,658,305		$	698,902		$	793,214
Net unrealized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership	1,225,812			641,403			31,191			908,016
Net recognized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership	67,194			—			67,194			—
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	2,594,533			2,299,708			797,287			1,701,230
CAPITAL TRANSACTIONS
Net contributions (withdrawals) by contract owners	(1,202,848		)	(1,184,742		)	(582,847		)	(587,485		)
Net contributions (withdrawals) by Pruco Life Insurance Company	(1,559,183		)	(1,600,237		)	699,053			699,446
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS	(2,762,031		)	(2,784,979		)	116,206			111,961
TOTAL INCREASE (DECREASE) IN NET ASSETS	(167,498		)	(485,271		)	913,493			1,813,191
NET ASSETS
Beginning of period	100,673,266			99,791,032			99,592,275			97,492,570
End of period	$	100,505,768		$	99,305,761		$	100,505,768		$	99,305,761

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

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NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2015

Note 1: General

Pruco Life Variable Contract Real Property Account (the “Real Property Account” or the “Registrant”) was established on August 27, 1986 and commenced business September 5, 1986. Pursuant to Arizona law, the Real Property Account was established as a separate investment account of Pruco Life Insurance Company (“Pruco Life” or the “Company”), and is registered under the Securities Act of 1933, as amended. Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential”), which is a wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). The assets of the Real Property Account are segregated from Pruco Life’s other assets. The Real Property Account is used to fund benefits under certain variable life insurance and variable annuity contracts issued by Pruco Life. These products are Variable Appreciable Life (“VAL”), Variable Life Insurance (“VLI”), Discovery Plus (“SPVA”), and Discovery Life Plus (“SPVL”).

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


A.	Basis of Accounting

The Unaudited Interim Financial Statements as of June 30, 2015 and the statement of net assets as of December 31, 2014, which has been derived from Audited Financial Statements, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Real Property Account’s Audited Financial Statements included in the Real Property Account’s Annual Report on Form 10-K for the year ended December 31, 2014.

Use of 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 and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates include valuation of investment in the Partnership.


B.	Investment in Partnership Interest

The investment in the Partnership is based on the Real Property Account’s proportionate interest of the Partnership’s fair value. At June 30, 2015 and December 31, 2014, the Real Property Account’s share of the general partners' controlling interest of the Partnership was 53.3% or 2,414,615 shares and 53.5% or 2,487,198 shares, respectively. Properties owned by the Partnership are illiquid and their fair value is based on estimated fair value as discussed in the notes to the unaudited consolidated financial statements of the Partnership.


C.	Income Recognition

Net investment income or loss, recognized and unrealized gains and losses are allocated based upon monthly average net assets for the investment in the Partnership. Amounts are based on the Real Property Account’s proportionate interest in the Partnership.

NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2015

Note 2: Summary of Significant Accounting Policies (continued)


D.	Equity of Pruco Life Insurance Company

Pruco Life maintains a position in the Real Property 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.

There were no cash transactions at the Real Property Account level for the six months ended June 30, 2015 and the year ended December 31, 2014 as all of the transactions are settled by Prudential on behalf of the Real Property Account through a redemption or an issuance of units. Therefore, no statement of cash flows is presented for the six months ended June 30, 2015 and 2014.

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 contracts may exceed related charges by Pruco Life. 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 Real Property Account. The deductions for VAL and VLI are (1) state premium taxes; (2) sales charges, not to exceed 5% for VAL, which are deducted in order to compensate Pruco Life 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 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

For SPVA, there is a deferred sales charge that applies at the time of a full or partial withdrawal, and the amount of the charge (which declines over time) depends on the number of years that have elapsed since the contract was issued.


E.	Partial Withdrawal Charge

A charge is imposed by Pruco Life 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 is taxed as a “life insurance company”, as defined by the Internal Revenue Code. The results of operations of the Real Property Account form a part of Prudential Financial’s consolidated federal tax return. Under current federal, state and local law, no federal, state or local income taxes are payable by the Real Property Account. As such, no provision for a tax liability has been recorded in these financial statements. Prudential management will review periodically the status of the policy in the event of changes in the tax law.

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NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2015

Note 5: Net Contributions (Withdrawals) by Contract Owners

Net contributions (withdrawals) by contract owners for the Real Property Account by product for the three and six months ended June 30, 2015 and 2014 were as follows:



	Six Months Ended June 30,
	2015			2014
VAL	$	(1,007,352	)	$	(997,575	)
VLI	(98,863		)	(112,617		)
SPVA	(447		)	(6,090		)
SPVL	(96,186		)	(68,460		)
TOTAL	$	(1,202,848	)	$	(1,184,742	)

	Three Months Ended June 30,
	2015			2014
VAL	$	(525,855	)	$	(547,510	)
VLI	(28,167		)	(41,632		)
SPVA	(222		)	(224		)
SPVL	(28,603		)	1,881
TOTAL	$	(582,847	)	$	(587,485	)

Note 6: Partnership Distributions

For the six months ended June 30, 2015, the Partnership distributed a total of $5.0 million, which occurred on March 30, 2015. The Real Property Account’s share of this distribution was $3.0 million. For the six months ended June 30, 2014, the Partnership distributed a total of $5.0 million, which occurred on March 26, 2014. The Real Property Account’s share of this distribution was$3.0 million.

For the six months ended June 30, 2015 and 2014, there were no purchases of the Partnership by the Real Property Account.

Note 7: Unit Information

All products referred to in Note 1 for outstanding units and unit values at June 30, 2015 and December 31, 2014 were as follows:



	June 30, 2015			December 31, 2014
Units Outstanding:	28,776,050			29,562,144
Unit Value:	$2.91478	to	$3.76680	$2.85193	to	$3.66932

Note 8: Financial Highlights

The range of total return for the three and six months ended June 30, 2015 and 2014 were as follows:



	Six Months Ended June 30,
	2015			2014
Total Return	2.20%	to	2.66%	1.96%	to	2.41%

	Three Months Ended June 30,
	2015			2014
Total Return	0.60%	to	0.83%	1.54%	to	1.77%

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NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2015

Note 9: Related Party

The Real Property Account has transactions and relationships with Prudential and other affiliates. Due to these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

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

Note 10: Fair Value Measurements

Fair value represents 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 authoritative fair value guidance establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. 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 Real Property Account for identical assets or liabilities. These generally provide the most reliable evidence and should be used to measure fair value whenever available. The Real Property Account had no Level 1 assets or liabilities.

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. The Real Property Account had no Level 2 assets or liabilities.

Level 3 – Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the entity's assumptions about how market participants would price the asset or liability. The Real Property Account’s Level 3 assets consist of the investment in the Partnership, which is based on the Real Property 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 fair value is based on estimates from property appraisal reports prepared by independent real estate appraisers as discussed in the notes to the Partnership’s unaudited consolidated financial statements. All of the Real Property Account’s assets were classified as Level 3.

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. The estimate of fair value of real estate 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 period 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 approximate value for the type of real estate in the market.

During the six months ended June 30, 2015 and 2014, there were no transfers between Level 1, Level 2, and Level 3.

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NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2015

Note 10: Fair Value Measurements (continued)

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

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

Table 1:



	($ in 000’s)
	Fair value measurements at June 30, 2015
	Total		Level 1		Level 2		Level 3
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$	100,506	$	—	$	—	$	100,506



	($ in 000’s)
	Fair value measurements at December 31, 2014
	Total		Level 1		Level 2		Level 3
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$	100,673	$	—	$	—	$	100,673

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NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2015

Note 10: Fair Value Measurements (continued)

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 six months ended June 30, 2015 and 2014.

Table 2:



	($ in 000’s)
	2015
Beginning balance, January 1, 2015	$	100,673
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations	1,293
Net investment income from Partnership operations	1,532
Acquisitions, issuances, and contributions	—
Dispositions, settlements, and distributions	(2,992		)
Ending balance, June 30, 2015	$	100,506
Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	1,226



	($ in 000’s)
	2014
Beginning balance, January 1, 2014	$	99,791
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations	641
Net investment income from Partnership operations	1,881
Acquisitions, issuances, and contributions	—
Dispositions, settlements, and distributions	(3,007		)
Ending balance, June 30, 2014	$	99,306
Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	641

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NOTES TO THE UNAUDITED INTERIM FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2015

Note 10: Fair Value Measurements (continued)

Table 3 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 months ended June 30, 2015 and 2014.

Table 3:



	($ in 000’s)
	2015
Beginning balance, April 1, 2015	$	99,592
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations	99
Net investment income from Partnership operations	815
Acquisitions, issuances, and contributions	—
Dispositions, settlements, and distributions	—
Ending balance, June 30, 2015	$	100,506
Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	31



	($ in 000’s)
	2014
Beginning balance, April 1, 2014	$	97,493
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets) from Partnership operations	908
Net investment income from Partnership operations	905
Acquisitions, issuances, and contributions	—
Dispositions, settlements, and distributions	—
Ending balance, June 30, 2014	$	99,306
Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	908

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THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES



	June 30, 2015(Unaudited)		December 31, 2014
ASSETS
REAL ESTATE INVESTMENTS - At estimated fair value:
Real estate and improvements (cost: 06/30/2015 -- $248,200,497; 12/31/2014 -- $240,778,075)	$	247,580,522	$	235,689,701
CASH AND CASH EQUIVALENTS	31,469,671		32,308,210
OTHER ASSETS, NET	3,204,005		2,947,752
Total assets	$	282,254,198	$	270,945,663
LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT	$	79,647,123	$	70,006,898
ACCOUNTS PAYABLE AND ACCRUED EXPENSES	2,450,362		1,663,710
DUE TO AFFILIATES	714,896		666,963
OTHER LIABILITIES	628,274		934,145
Total liabilities	83,440,655		73,271,716
COMMITMENTS AND CONTINGENCIES
NET ASSETS, REPRESENTING PARTNERS’ EQUITY:
GENERAL PARTNERS’ CONTROLLING INTEREST	188,539,371		188,251,636
NONCONTROLLING INTEREST	10,274,172		9,422,311
Total partners' equity	198,813,543		197,673,947
Total liabilities and partners’ equity	$	282,254,198	$	270,945,663
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD	4,529,591		4,650,878
GENERAL PARTNERS' SHARE VALUE AT END OF PERIOD	$	41.62	$	40.48

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

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THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)



	For the Six Months Ended June 30,					For the Three Months Ended June 30,
	2015			2014		2015			2014
INVESTMENT INCOME:
Revenue from real estate and improvements	$	10,915,095		$	12,652,718	$	5,602,066		$	6,260,029
Interest income	7,099			9,478		2,298			4,214
Total investment income	10,922,194			12,662,196		5,604,364			6,264,243
INVESTMENT EXPENSES:
Operating	1,759,245			2,725,805		882,797			1,309,117
Investment management fee	1,378,984			1,261,889		701,488			629,344
Real estate taxes	1,315,210			1,372,522		641,144			728,631
Administrative	1,591,288			2,024,587		821,025			1,010,911
Interest expense	1,695,680			1,454,936		865,019			726,834
Total investment expenses	7,740,407			8,839,739		3,911,473			4,404,837
NET INVESTMENT INCOME (LOSS)	3,181,787			3,822,457		1,692,891			1,859,406
RECOGNIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net proceeds from real estate investments sold	12,668,032			—		12,668,032			—
Less: Cost of real estate investments sold	14,114,940			—		14,114,940			—
Gain (loss) realized from real estate investments sold	(1,446,908		)	—		(1,446,908		)	—
Less: Reversal of prior periods’ unrealized gain (loss) on real estate investments sold	(1,572,787		)	—		(1,572,787		)	—
Net gain (loss) recognized on real estate investments sold	125,879			—		125,879			—
Change in unrealized gain (loss) on real estate investments	2,895,611			1,484,250		364,119			1,851,507
NET RECOGNIZED AND UNREALIZED GAIN (LOSS)	3,021,490			1,484,250		489,998			1,851,507
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	6,203,277		$	5,306,707	$	2,182,889		$	3,710,913
Amounts attributable to noncontrolling interest:
Net investment income (loss) attributable to noncontrolling interest	$	312,386		$	320,706	$	164,392		$	172,393
Net recognized and unrealized gain (loss) attributable to noncontrolling interest	603,156			287,723		304,869			158,728
Increase (decrease) in net assets resulting from operations attributable to noncontrolling interest	$	915,542		$	608,429	$	469,261		$	331,121
Amounts attributable to general partners’ controlling interest:
Net investment income (loss) attributable to general partners' controlling interest	$	2,869,401		$	3,501,751	$	1,528,499		$	1,687,013
Net recognized gain (loss) attributable to general partners' controlling interest	125,879			—		125,879			—
Net unrealized gain (loss) attributable to general partners' controlling interest	2,292,455			1,196,527		59,250			1,692,779
Increase (decrease) in net assets resulting from operations attributable to general partners' controlling interest	$	5,287,735		$	4,698,278	$	1,713,628		$	3,379,792

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

Table of Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)



	For the Six Months Ended June 30,
	2015									2014
	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 (loss)	$	2,869,401		$	312,386		$	3,181,787		$	3,501,751		$	320,706		$	3,822,457
Net recognized and unrealized gain (loss)	2,418,334			603,156			3,021,490			1,196,527			287,723			1,484,250
Increase (decrease) in net assets resulting from operations	5,287,735			915,542			6,203,277			4,698,278			608,429			5,306,707
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Distributions to general partners	(5,000,000		)	—			(5,000,000		)	(5,000,000		)	—			(5,000,000		)
Distributions to noncontrolling interest	—			(63,681		)	(63,681		)	—			(66,592		)	(66,592		)
Increase (decrease) in net assets resulting from capital transactions	(5,000,000		)	(63,681		)	(5,063,681		)	(5,000,000		)	(66,592		)	(5,066,592		)
INCREASE (DECREASE) IN NET ASSETS	287,735			851,861			1,139,596			(301,722		)	541,837			240,115
NET ASSETS - Beginning of period	188,251,636			9,422,311			197,673,947			185,407,870			9,263,953			194,671,823
NET ASSETS - End of period	$	188,539,371		$	10,274,172		$	198,813,543		$	185,106,148		$	9,805,790		$	194,911,938

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

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THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



	For the Six Months Ended June 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Increase (decrease) in net assets resulting from operations	$	6,203,277		$	5,306,707
Adjustments to reconcile increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities
Net recognized and unrealized loss (gain)	(3,021,490		)	(1,484,250		)
Amortization of deferred financing costs	33,374			14,082
Bad debt expense	1,070			38,732
(Increase) decrease in:
Other assets	(290,698		)	880,215
Increase (decrease) in:
Accounts payable and accrued expenses	503,880			90,930
Due to affiliates	47,933			(20,579		)
Other liabilities	(305,871		)	(343,922		)
Net cash flows provided by (used in) operating activities	3,171,475			4,481,915
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold	12,668,032			—
Acquisition of real estate and improvements	(20,490,522		)	(8,295,624		)
Additions to real estate and improvements	(764,067		)	(2,099,355		)
Net cash flows provided by (used in) investing activities	(8,586,557		)	(10,394,979		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on investment level debt	(534,776		)	(501,677		)
Proceeds from investment level debt	10,175,000			—
Distributions to general partners	(5,000,000		)	(5,000,000		)
Distributions to noncontrolling interest	(63,681		)	(66,592		)
Net cash flows provided by (used in) financing activities	4,576,543			(5,568,269		)
NET CHANGE IN CASH AND CASH EQUIVALENTS	(838,539		)	(11,481,333		)
CASH AND CASH EQUIVALENTS - Beginning of period	32,308,210			43,962,922
CASH AND CASH EQUIVALENTS - End of period	$	31,469,671		$	32,481,589

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

Table of Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULES OF REAL ESTATE INVESTMENTS



			2015 Total Rentable Square Feet Unless Otherwise Indicated (Unaudited)	June 30, 2015 (Unaudited)				December 31, 2014
Property Name	June 30, 2015 Ownership	City, State		Cost		Estimated Fair Value		Cost		Estimated Fair Value
OFFICES
750 Warrenville Road	WO	Lisle, IL	92,209	$	28,537,542	$	6,000,000	$	27,964,168	$	6,200,000
Summit @ Cornell Oaks	WO	Beaverton, OR	—	—		—		14,072,787		12,500,000
		Offices % as of 6/30/15	3%	28,537,542		6,000,000		42,036,955		18,700,000
APARTMENTS
700 Broadway	CJV	Seattle, WA	59 Units	22,934,425		26,200,000		22,897,489		26,100,000
Broadstone Crossing	WO	Austin, TX	225 Units	23,109,693		27,900,000		23,070,315		27,426,986
Vantage Park	CJV	Seattle, WA	91 Units	21,752,135		27,900,000		21,640,623		25,900,000
Station House Apartments of Maplewood	WO	Maplewood, NJ	50 Units	20,490,522		20,490,522		—		—
The Reserve At Waterford Lakes	WO	Charlotte, NC	140 Units	14,753,510		15,200,000		14,676,752		15,000,000
		Apartments % as of 6/30/15	62%	103,040,285		117,690,522		82,285,179		94,426,986
RETAIL
Hampton Towne Center	WO	Hampton, VA	174,540	18,774,787		21,200,000		18,743,265		20,100,000
White Marlin Mall	CJV	Ocean City, MD	197,098	25,680,085		32,600,000		25,610,596		32,600,000
Westminster Crossing East, LLC	CJV	Westminster, MD	89,890	15,277,959		18,900,000		15,220,559		18,900,000
Village Walk	WO	Roswell, GA	88,504	20,749,324		19,500,000		20,749,324		19,300,000
Harnett Crossing	WO	Dunn, NC	189,143	8,472,227		3,490,000		8,469,209		3,980,000
Peachtree Corners Market	WO	Norcross, GA	42,185	19,282,716		19,400,000		19,282,716		19,282,715
Publix at Eagle Landing	WO	North Fort Myers, FL	57,840	8,385,572		8,800,000		8,380,272		8,400,000
		Retail % as of 6/30/15	66%	116,622,670		123,890,000		116,455,941		122,562,715

Total Real Estate Investments at Estimated Fair Values as a Percentage of General Partners’ Controlling Interest as of June 30, 2015			131%	$	248,200,497	$	247,580,522	$	240,778,075	$	235,689,701

WO - Wholly Owned Investment

CJV - Consolidated Joint Venture

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

Table of Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULES OF REAL ESTATE INVESTMENTS



	June 30, 2015 (Unaudited)								December 31, 2014
	Face Amount		Maturity Date	Cost		Estimated Fair Value			Cost		Estimated Fair Value
CASH AND CASH EQUIVALENTS - Percentage of General Partners' Controlling Interest						16.7		%			17.2		%
Investments in Prudential Investment Liquidity Pool:
Federal Home Loan Bank, 0 coupon bond	$	28,000,000	July, 2015	$	28,000,000	$	28,000,000		$	14,700,000	$	14,700,000
Federal Home Loan Bank, 0 coupon bond				—		—			5,000,000		5,000,000
Federal Home Loan Bank, 0 coupon bond				—		—			11,000,000		11,000,000

Total Cash Equivalents				28,000,000		28,000,000			30,700,000		30,700,000
Cash				3,469,671		3,469,671			1,608,210		1,608,210
Total Cash and Cash Equivalents				$	31,469,671	$	31,469,671		$	32,308,210	$	32,308,210

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

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

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 accounting principles generally accepted in the United States of America that are applicable to investment companies. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been made. Operating results for the three and six months ended June 30, 2015 are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. For further information, refer to the audited consolidated financial statements and notes of the Partnership for the year ended December 31, 2014. The Partnership has evaluated subsequent events through August 13, 2015, the date these consolidated financial statements were available to be issued. The partners in the Partnership are The Prudential Insurance Company of America, Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey (collectively the "General Partners").

New Accounting Pronouncement - In February 2015, the Financial Accounting Standards Board (“FASB”) issued updated guidance in Accounting Standards Update 2015-02 Consolidations (Topic 810) that changes the rules regarding consolidation. The pronouncement eliminates specialized guidance for limited partnerships and similar legal entities, and removes the indefinite deferral for certain investment funds. The new guidance is effective for annual periods and interim periods within those annual periods beginning after December 15, 2015, with early adoption permitted. The Partnership is currently assessing the impact of the guidance on the Partnership’s consolidated financial statements.

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

Cash paid for interest during the six months ended June 30, 2015 and June 30, 2014 was $1,662,306 and $1,440,854, 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 or 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. (“Prudential Financial”), 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 the 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 period income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. Key inputs and assumptions include rental income and expense amounts, related rental income and expense growth rates, discount rates and capitalization rates. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to come up with the approximate value for the type of real estate in the market. The real estate investments consist of real estate and improvements and are therefore classified as Level 3.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

Cash equivalents include short-term investments with maturities of three months or less when purchased. Short-term investments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. See below for a description of the levels of fair value hierarchy.

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 levels in the fair value hierarchy within which the fair value measurements fall are 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 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 entity’s own assumptions about how market participants would price the asset or liability.

During the six months ended June 30, 2015 and 2014, there were no transfers between Level 1, Level 2 and Level 3.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

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

Table 1



			(in 000’s)
			Fair value measurements at June 30, 2015 using
Assets:	Cost at 06/30/2015		Amounts measured at fair value 06/30/2015		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant other observable inputs (level 3)
Real estate and improvements	$	248,200	$	247,581	$	—	$	—	$	247,581
Cash equivalents	28,000		28,000		28,000		—		—
Total	$	276,200	$	275,581	$	28,000	$	—	$	247,581

			(in 000’s)
			Fair value measurements at December 31, 2014 using
Assets:	Cost at 12/31/2014		Amounts measured at fair value 12/31/2014		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant other observable inputs (level 3)
Real estate and improvements	$	240,778	$	235,690	$	—	$	—	$	235,690
Cash equivalents	30,700		30,700		30,700		—		—
Total	$	271,478	$	266,390	$	30,700	$	—	$	235,690

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

Table 2

(in 000’s)

Fair value measurements using significant unobservable inputs

for the six months ended June 30, 2015

(Level 3)



	Real estate and improvements
Beginning balance, January 1, 2015	$	235,690
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets)	3,021
Acquisitions, issuances and contributions	21,538
Dispositions, settlements and distributions	(12,668		)
Ending balance, June 30, 2015	$	247,581
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	2,896

(in 000’s)

Fair value measurements using significant unobservable inputs

for the six months ended June 30, 2014

(Level 3)



	Real estate and improvements
Beginning balance, January 1, 2014	$	210,100
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets)	1,484
Acquisitions, issuances and contributions	10,277
Dispositions, settlements and distributions	—
Ending balance, June 30, 2014	$	221,861
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	1,484

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

Table 2

(in 000’s)

Fair value measurements using significant unobservable inputs

for the three months ended June 30, 2015

(Level 3)



	Real estate and improvements
Beginning balance, April 1, 2015	$	238,430
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets)	490
Acquisitions, issuances and contributions	21,329
Dispositions, settlements and distributions	(12,668		)
Ending balance, June 30, 2015	$	247,581
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	364

(in 000’s)

Fair value measurements using significant unobservable inputs

for the three months ended June 30, 2014

(Level 3)



	Real estate and improvements
Beginning balance, April 1, 2014	$	218,546
Net recognized and unrealized gains (losses) included in earnings (or changes in net assets)	1,852
Acquisitions, issuances and contributions	1,463
Dispositions, settlements and distributions	—
Ending balance, June 30, 2014	$	221,861
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	1,852

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

Quantitative Information Regarding Level 3 Assets:

The table below represents quantitative information about the significant unobservable inputs used in the fair value measurement of Level 3 assets. Significant changes in any of those inputs in isolation would result in a significant change in the fair value measurement.



	As of June 30, 2015
Category	Fair Value (in 000’s)		Number of property(ies) in this property type	Valuation Techniques	Unobservable Input	Range (Weighted Average)
Real estate and improvements:
Apartment	$	117,691	5	Discounted cash flow	Exit capitalization rate	5.00% - 6.25% (5.48%)
					Discount rate	6.50% - 7.75% (6.98%)
				Market value**
Office	6,000		1	Discounted cash flow	Exit capitalization rate	8.00% (8.00%)
					Discount rate	9.00% (9.00%)
Retail	123,890		7	Discounted cash flow	Exit capitalization rate	6.25% - 10.00% (7.22%)
					Discount rate	6.50% - 11.00% (7.66%)
	$	247,581

** The market value approach represents assets/liabilities in which estimated fair value represents subjective estimates by management
based on the investment's specific facts and circumstances. For example development assets and recent acquisitions may heavily weight
investment cost while pending sales may heavily weight negotiated sales prices in the related fair value estimates.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

Note 3: Fair Value Measurements (continued)

Fair Value of Financial Instruments Carried at Cost:

As of June 30, 2015 and December 31, 2014, the Partnership’s mortgages on wholly-owned properties and consolidated partnerships have an estimated fair value of approximately $79.9 million and $70.7 million, respectively, and a carrying value (amortized cost) of $79.6 million and $70.0 million, respectively. The estimated fair value is based on the amount at which the Partnership would pay to transfer the debt at the reporting date taking into consideration the effect of nonperformance risk, including the Partnership’s own credit risk. The fair value of debt is determined using the discounted cash flow method, which applies certain key assumptions including the contractual terms of the agreement, market interest rates, interest spreads, credit risk, liquidity and other factors. Different assumptions or changes in future market conditions could significantly affect the estimated fair value. The input values used in determining the fair value on investment level debt are unobservable, and therefore, would be considered as Level 3 under the fair value hierarchy.

Note 4: Risk


A.	Valuation Risk

The estimated fair value of real estate and real estate related assets is generally 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. 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 and improvements are fairly presented as of June 30, 2015 and December 31, 2014.


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 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 June 30, 2015, 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, management anticipates that the repayment of these obligations will be provided by operating cash flow, new debt refinancing, and real estate investment sales.

Note 5: 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 significant effect on the financial position of the Partnership.

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

Note 6: 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 six month periods ended June 30, 2015 and 2014, management fees incurred by the Partnership were $1,378,984 and $1,261,889, respectively. The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the six month periods ended June 30, 2015 and 2014 were $26,814 and $0, respectively, and are classified as administrative expenses in the consolidated statements of operations. For the three month periods ended June 30, 2015 and 2014, management fees incurred by the Partnership were $701,488 and $629,344, respectively. The administrative services the Partnership reimburses PIM incurred for the three month periods ended June 30, 2015 and 2014 were $13,407 and $0, respectively.

Note 7: Share Values and Shares Outstanding

The share value and shares outstanding at June 30, 2015 and 2014 are as follows:




	6/30/2015		6/30/2014
Share Value	$41.62		$38.75
Shares Outstanding	4,529,591		4,776,348

The capital share transactions for the six months ended are as follows:

	6/30/2015		6/30/2014
Beginning of Period	4,650,878		4,907,883
Distributions	(121,287	)	(131,535	)
End of Period	4,529,591		4,776,348

Table of Contents

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2015

(Unaudited)

Note 8: Financial Highlights



	For The Six Months Ended June 30,
	2015			2014			2013			2012			2011
Per Share (Unit) Operating Performance:
Net Asset Value attributable to general partners’ controlling interest, beginning of period	$	40.48		$	37.78		$	34.49		$	32.27		$	28.38
Income From Investment Operations:
Net investment income attributable to general partners’ controlling interest, before management fee	0.93			0.98			1.09			0.96			0.92
Investment Management fee attributable to general partners’ controlling interest	(0.31		)	(0.26		)	(0.25		)	(0.22		)	(0.20		)
Net recognized and unrealized gain (loss) on investments attributable to general partners’ controlling interest	0.52			0.25			0.28			0.03			1.29
Increase (decrease) in Net Assets Resulting from Operations attributable to general partners’ controlling interest	1.14			0.97			1.12			0.77			2.01
Net Asset Value attributable to general partners’ controlling interest, end of period	$	41.62		$	38.75		$	35.61		$	33.04		$	30.39
Total Return attributable to general partners’ controlling interest, before Management Fee (a):	3.58		%	3.28		%	3.99		%	3.07		%	7.78		%
Total Return attributable to general partners’ controlling interest, after Management Fee (a):	2.84		%	2.57		%	3.27		%	2.37		%	7.06		%
Ratios/Supplemental Data:
Net Assets attributable to general partners’ controlling interest, end of period (in millions)	$	189		$	185		$	179		$	171		$	172
Ratios to average net assets for the period ended (b):
Management fees	0.74		%	0.69		%	0.70		%	0.69		%	0.70		%
Other portfolio level expense	0.16		%	0.10		%	0.11		%	0.13		%	0.13		%
Total Portfolio Level Expenses	0.90		%	0.79		%	0.81		%	0.82		%	0.83		%
Net Investment Income, before Management Fee	2.27		%	2.60		%	3.16		%	2.97		%	3.16		%
Net Investment Income, after Management Fee	1.53		%	1.91		%	2.45		%	2.27		%	2.43		%


(a)	Total Return, before/after management fee, is calculated by geometrically linking quarterly returns which are calculated using the formula below:

Net Investment Income before/after management fee + Net Recognized and Unrealized Gains/(Losses)

Beginning Net Asset Value + Time Weighted Contributions - Time Weighted Distributions


(b)	Average net assets are based on beginning of quarter net assets.

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

All of the assets of Pruco Life Variable Contract Real Property Account (the “Real Property Account”) are invested in The Prudential Variable Contract Real Property Partnership (the “Partnership”). Accordingly, the liquidity and capital resources and results of operations for the Real Property Account are contingent upon those of the Partnership. Therefore, this management’s discussion and analysis addresses these items at the Partnership level. The general partners in the Partnership are The Prudential Insurance Company of America, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey, or collectively, the “General 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 financial statements of the Real Property Account and the unaudited consolidated financial statements of the Partnership and the related Notes included in this filing.

(a) Liquidity and Capital Resources

As of June 30, 2015, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $31.5 million, a decrease of approximately $0.8 million from $32.3 million as of December 31, 2014. The decrease was primarily due to the following activities: (a) $10.3 million of equity for an acquisition of an apartment complex located in Maplewood, New Jersey; (b) $5.0 million distribution to the General Partners’ controlling interest; (c) $0.6 million of principal payments made on financed properties; and (d) $0.8 million paid for capital improvements. The $0.8 million payment for capital improvements included the following items: (a) $0.3 million for leasing expenses at the office property in Lisle, Illinois; (b) $0.1 million for unit upgrades at one of the apartment properties in Seattle, Washington; (c) $0.1 million for space renovations at the retail property in Ocean City, Maryland; and (d) $0.3 million for capital improvements and transaction costs associated with leasing expenses at various properties. Partially offsetting this decrease were the following activities: (a) net cash flow generated from property operations of $3.2 million; and (b) $12.7 million of proceeds from the sale of the office in Beaverton, Oregon.

Sources of liquidity included net cash flow from property operations and interest from cash equivalents. The Partnership uses cash for its real estate investment activities and for distributions to its General Partners. As of June 30, 2015, approximately 11.2% of the Partnership’s total assets consisted of cash and cash equivalents.

(b) Results of Operations

The following is a comparison of the Partnership’s results of operations for the three and six month periods ended June 30, 2015 and June 30, 2014.

Net investment income overview

The Partnership’s net investment income attributable to the General Partners’ controlling interest for the six month period ended June 30, 2015 was approximately $2.9 million, a decrease of approximately $0.6 million from the prior year period. The decrease in net investment income attributable to the General Partners’ controlling interest was primarily due to a decrease of $1.1 million in the office sector investments’ net investment income from the prior year period and a decrease of approximately $0.4 million in the hotel sector investments’ net investment income from the prior year period. Partially offsetting this decrease was an increase of approximately $0.6 million from the prior year period in net investment income attributable to the General Partners’ controlling interest from the retail sector and an increase of approximately $0.4 million from the prior year period in net investment income attributable to the General Partners’ controlling interest from the apartment sector.

The Partnership’s net investment income attributable to the General Partners’ controlling interest for the three month period ended June 30, 2015 was approximately $1.5 million, a decrease of approximately $0.2 million from the prior year period. The decrease in net investment income attributable to the General Partners’ controlling interest was primarily due to a decrease of $0.3 million in the office sector investments’ net investment income from the prior year period, a decrease of $0.3 million in the hotel sector investments’ net investment income from the prior year period and a decrease of approximately $0.1 million net investment income from portfolio level expenses. Partially offsetting this decrease was an increase of approximately $0.3 million from the prior year period in net investment income attributable to the General Partners’ controlling interest from the apartment sector and an increase of approximately $0.2 million from the prior year period in net investment income attributable to the General Partners’ controlling interest from the retail sector.

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Valuation overview

The Partnership recorded a net recognized and unrealized gain attributable to the General Partners’ controlling interest of approximately $2.4 million for the six month period ended June 30, 2015. This is compared with a net unrealized gain attributable to the General Partners’ controlling interest of approximately $1.2 million for the prior year period. The unrealized gains attributable to the General Partners’ controlling interest for the six month period ended June 30, 2015 were primarily due to valuation increases in the apartment and retail investments of $3.1 million. A net recognized gain of $0.1 million was attributable to the sale of one office investment located in Beaverton, Oregon. Partially offsetting the gains was an unrealized loss in the office sector investments.

The Partnership recorded a net recognized and unrealized gain attributable to the General Partners’ controlling interest of approximately $0.2 million for the three month period ended June 30, 2015. This is compared with a net unrealized gain attributable to the General Partners’ controlling interest of approximately $1.7 million for the prior year period. The unrealized gains attributable to the General Partners' controlling interest for the three month period ended June 30, 2015 were primarily due to valuation increases in the apartment investments. In addition, a net recognized gain $0.1 million was attributable to the sale of one office investment located in Beaverton, Oregon. Partially offsetting the gains were unrealized losses in the retail and office sector investments.

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The following table presents a comparison of the Partnership’s sources of net investment income attributable to the General Partners’ controlling interest and net recognized and unrealized gains or (losses) attributable to the General Partners’ controlling interest for the three and six month periods ended June 30, 2015 and 2014.



	Six Months Ended June 30,						Three Months Ended June 30,
	2015			2014			2015			2014
Net Investment Income (loss):
Office properties	$	(300,404	)	$	766,328		$	(196,779	)	$	133,037
Apartment properties	2,090,064			1,691,539			1,154,416			823,510
Retail properties	2,808,064			2,172,862			1,418,175			1,195,721
Hotel property	(54,857		)	309,223			(29,273		)	266,588
Other (including interest income, investment management fee, etc.)	(1,673,466		)	(1,438,201		)	(818,040		)	(731,843		)
Total Net Investment Income	$	2,869,401		$	3,501,751		$	1,528,499		$	1,687,013
Net Recognized Gain (Loss) on Real Estate Investments:
Office Properties	$	125,879		$	—		$	125,879		$	—
Net Recognized Gain (Loss) on Real Estate Investments	$	125,879		$	—		$	125,879		$	—
Net Unrealized Gain (Loss) on Real Estate Investments:
Office properties	$	(773,375	)	$	(869,312	)	$	(668,483	)	$	(190,572	)
Apartment properties	1,825,979			888,592			1,190,504			860,998
Retail properties	1,239,851			876,576			(462,771		)	1,032,206
Hotel property	—			300,671			—			(9,853		)
Net Unrealized Gain (Loss) on Real Estate Investments	$	2,292,455		$	1,196,527		$	59,250		$	1,692,779
Net Recognized and Unrealized Gain (Loss) on Real Estate Investments	$	2,418,334		$	1,196,527		$	185,129		$	1,692,779

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OFFICE PROPERTIES



Six Months Ended June 30,	Net Investment Income/(Loss) 2015			Net Investment Income/(Loss) 2014		Recognized/Unrealized Gain/(Loss) 2015			Unrealized Gain/(Loss) 2014			Occupancy 2015		Occupancy 2014
Property
Lisle, IL	$	(59,932	)	$	373,791	$	(773,375	)	$	(1,072,224	)	55	%	38	%
Brentwood, TN #1 ⁽¹⁾	—			15,096		—			—			N/A		N/A
Beaverton, OR ⁽²⁾	(240,472		)	360,419		125,879			202,912			N/A		100	%
Brentwood, TN #2 ⁽¹⁾	—			17,022		—			—			N/A		N/A
	$	(300,404	)	$	766,328	$	(647,496	)	$	(869,312	)



Three Months Ended June 30,
Property
Lisle, IL	$	(12,685	)	$	(60,879	)	$	(568,483	)	$	(302,996	)
Beaverton, OR	(184,094		)	193,916			25,879			112,424
	$	(196,779	)	$	133,037		$	(542,604	)	$	(190,572	)



⁽¹⁾ The Brentwood, Tennessee properties were sold on December 12, 2013. 2014 net investment income represents post closing expense write-offs.
⁽²⁾ The Beaverton, Oregon property was sold on June 8, 2015.

Net investment income/(loss)

Net investment income attributable to the General Partners’ controlling interest for the Partnership’s office properties was a loss of approximately $0.3 million and $0.2 million for the six and three month periods ended June 30, 2015, respectively, which represents a decrease of approximately $1.1 million and $0.3 million from the prior year periods, respectively. The decreases in net income are primarily due to lease termination fees paid in 2014 at the property in Lisle, Illinois, and expenses from the sale of the property in Beaverton, Oregon in 2015.

Recognized and Unrealized gain/(loss)

The office properties owned by the Partnership recorded a net recognized and unrealized loss attributable to the General Partners’ controlling interest of approximately $0.6 million and $0.5 million for the six and three month periods ended June 30, 2015, respectively, compared with a net unrealized loss attributable to the General Partners’ controlling interest of approximately $0.9 million and $0.2 million for the prior year period, respectively. The unrealized loss attributable to the General Partners’ controlling interest for the six month and three month period ended June 30, 2015 was primarily due to a value decrease and capital expenditures at the property in Lisle, Illinois. Partially offsetting these losses was a recognized gain on the sale of the property in Beaverton, Oregon.

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APARTMENT PROPERTIES




Six Months Ended June 30,	Net Investment Income/(Loss) 2015		Net Investment Income/(Loss) 2014			Unrealized Gain/(Loss) 2015		Unrealized Gain/(Loss) 2014		Occupancy 2015		Occupancy 2014
Property
Raleigh, NC	$	—	$	(64,926	)	$	—	$	—	N/A		N/A
Austin, TX	730,420		732,192			433,636		81,449		94	%	98	%
Charlotte, NC	437,626		421,312			123,242		429,444		99	%	99	%
Seattle, WA #1	267,621		295,819			53,603		149,372		92	%	82	%
Seattle, WA #2	397,517		307,142			1,215,498		228,327		98	%	81	%
Maplewood, NJ	256,880		—			—		—		86	%	N/A
	$	2,090,064	$	1,691,539		$	1,825,979	$	888,592



Three Months Ended June 30,
Property
Raleigh, NC	$	—	$	(64,926	)	$	—		$	—
Austin, TX	372,357		358,625			573,296			89,951
Charlotte, NC	216,098		218,430			(41,654		)	219,403
Seattle, WA #1	112,176		156,276			65,870			203,995
Seattle, WA #2	196,905		155,105			592,992			347,649
Maplewood, NJ	256,880		—			—			—
	$	1,154,416	$	823,510		$	1,190,504		$	860,998

Net investment income/(loss)

Net investment income attributable to the General Partners’ controlling interest for the Partnership’s apartment properties was approximately $2.1 million and $1.2 million for the six and three month periods ended June 30, 2015, respectively, which represents an increase of approximately $0.4 million from each of the prior year periods. The increase was primarily due to the acquisition of the apartment complex in Maplewood, New Jersey and increased rents at a property in Seattle, Washington.

Recognized and Unrealized gain/(loss)

The apartment properties owned by the Partnership recorded a net unrealized gain attributable to the General Partners’ controlling interest of approximately $1.8 million and $1.2 million for the six and three month periods ended June 30, 2015, respectively, compared with a net unrealized gain attributable to the General Partners’ controlling interest of approximately $0.9 million for each of the prior year periods. The unrealized gain attributable to the General Partners’ controlling interest for the six month and three month periods ended June 30, 2015 was primarily due to favorable market leasing assumptions at the properties in Austin, Texas and Seattle, Washington.

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RETAIL PROPERTIES




Six Months Ended June 30,	Net Investment Income/(Loss) 2015		Net Investment Income/(Loss) 2014		Unrealized Gain/(Loss) 2015			Unrealized Gain/(Loss) 2014			Occupancy 2015		Occupancy 2014
Property
Hampton, VA	$	702,465	$	598,440	$	1,068,478		$	609,162		96	%	96	%
Ocean City, MD	458,658		430,952		9,807			345,213			96	%	96	%
Westminster, MD	641,827		646,175		(57,400		)	(64,247		)	100	%	100	%
Dunn, NC	174,789		68,500		(493,018		)	(419,070		)	27	%	46	%
Roswell, GA	222,987		266,709		200,000			378,642			94	%	94	%
North Fort Myers, FL	237,490		162,086		394,700			26,876			85	%	88%
Norcross, GA	369,848		—		117,284			—			100	%	N/A
	$	2,808,064	$	2,172,862	$	1,239,851		$	876,576



Three Months Ended June 30,
Property
Hampton, VA	$	352,634	$	330,811	$	(708,338	)	$	596,850
Ocean City, MD	246,140		226,853		14,611			21,631
Westminster, MD	343,585		337,555		(518		)	—
Dunn, NC	85,816		42,766		36,774			295,349
Roswell, GA	85,697		130,423		100,000			91,500
North Fort Myers, FL	114,152		127,313		94,700			26,876
Norcross, GA	190,151		—		—			—
	$	1,418,175	$	1,195,721	$	(462,771	)	$	1,032,206

Net investment income

Net investment income attributable to the General Partners’ controlling interest for the Partnership’s retail properties was approximately $2.8 million for the six month period ended June 30, 2015, which represents an increase of approximately $0.6 million from the prior year period. The increase was largely due to the additional income provided by the property in Norcross, Georgia that was acquired in December, 2014 and the property in North Fort Myers, Florida that was acquired in March, 2014. Net investment income attributable to General Partners’ controlling interest for the Partnership’s retail properties was approximately $1.4 million for the three month period ended June 30, 2015, which represents an increase of approximately $0.2 million from the prior year period. The increase was primarily due to the additional income provided by the property in Norcross, Georgia that was acquired in December, 2014.

Unrealized gain/(loss)

The retail properties owned by the Partnership recorded a net unrealized gain attributable to the General Partners’ controlling interest of approximately $1.2 million for the six month period ended June 30, 2015, compared with a net unrealized gain attributable to the General Partners’ controlling interest of approximately $0.9 million from the prior year period. The net unrealized gain attributable to the General Partners’ controlling interest for the six month period ended June 30, 2015 was primarily due to favorable market leasing assumptions at the property in Hampton, Virginia and decreased operating expenses at the property in North Fort Myers, Florida. Partially offsetting the net unrealized gain was an unrealized loss at the property in Dunn, North Carolina due to lower occupancy. The retail properties owned by the Partnership recorded a net unrealized loss attributable to the General Partners’ controlling interest of approximately $0.5 million for the three month period ended June 30, 2015, compared with a net unrealized gain attributable to the General Partners’ controlling interest of approximately $1.0 million from the prior year period. The net unrealized loss attributable to the General Partners’ controlling interest for the three month period ended June 30, 2015 was primarily due to higher investment rates from a national tenant store closing at the property in Hampton, Virginia. Investment rates include direct and terminal capitalization rates, and discount rates, which reflect investors’ yield requirements on investments. Partially offsetting this loss was a net unrealized gain at the property in Roswell, Georgia from increased rents and a decrease in real estate tax expense at the property in North Fort Myers, Florida.

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HOTEL PROPERTY



Six Months Ended June 30,	Net Investment Income/(Loss) 2015			Net Investment Income/(Loss) 2014		Unrealized Gain/(Loss) 2015	Unrealized Gain/(Loss) 2014		Occupancy 2015	Occupancy 2014
Property
Lake Oswego, OR ⁽¹⁾	$	(54,857	)	$	309,223	$ -	$	300,671	N/A	67	%



Three Months Ended June 30,
Property
Lake Oswego, OR ⁽¹⁾	$	(29,273	)	$	266,588	$ -	$	(9,853	)
⁽¹⁾ The Lake Oswego, Oregon property was sold on October 29, 2014. 2015 net investment loss represents post closing expenses.

Net investment income/(loss)

Net investment loss attributable to the General Partners’ controlling interest for the Partnership’s hotel property was less than $0.1 million for the six and three month periods ended June 30, 2015, respectively, which represents a decrease of approximately $0.4 million and $0.3 million from the prior year periods, respectively. The decrease was a result of the property in Lake Oswego, Oregon being sold on October 29, 2014.

Recognized and Unrealized gain/(loss)

The Partnership sold the hotel property on October 29, 2014 and did not record a net unrealized or recognized gain/loss attributable to the General Partners’ controlling interest for the six and three month periods ended June 30, 2015, respectively, compared with an unrealized gain attributable to the General Partners’ controlling interest of approximately $0.3 million and less than $0.1 million unrealized loss for the prior year periods, respectively.

Other

Other net investment expense mainly includes investment management fees, other portfolio level expenses and interest income. Other net investment expense attributable to the General Partners’ controlling interest was approximately $1.7 million and $0.8 million for the six and three month periods ended June 30, 2015, which remained relatively unchanged from the prior year periods.

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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 financial statements of the Real Property Account and the unaudited consolidated financial statements of the Partnership may change significantly.

The following sections discuss those critical accounting policies applied in preparing the unaudited financial statements of the Real Property Account and the unaudited consolidated financial statements of the Partnership that are most dependent on the application of estimates and assumptions.

Valuation of 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.

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. is responsible for assuring 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 Financial Accounting Standards Board (“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 period income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. Key inputs and assumptions include rental income and expense amounts, related rental income and expense growth rates, discount rates and capitalization rates. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to determine the approximate value for the type of real estate in the market.

Cash equivalents include short-term investments with maturities of three months or less when purchased.

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 financial statements of the Real Property Account and the unaudited consolidated financial statements of the Partnership and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk – The General Partners’ controlling interest exposure to market rate risk for changes in interest rates relates to approximately 57.10% of its investment portfolio as of June 30, 2015, which 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 and cash equivalents at June 30, 2015:



	Maturity	Estimated Market Value (millions)		Average Interest Rate
Cash and cash equivalents	0-3 months	$	31.5	0.05	%

The table below discloses the Partnership’s investment level debt as of June 30, 2015. The fair value of the Partnership’s long-term investment level 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 $ 000s), including current portion	2015			2016			2017			2018			2019			Thereafter			Total			Estimated Fair Value
Weighted Average Fixed Interest Rate	4.98		%	4.15		%	4.09		%	4.02		%	3.97		%	4.53		%	4.29		%
Future Annual Principal Payment	$	13,049		$	1,153		$	1,327		$	2,408		$	1,680		$	60,030		$	79,647		$79,875

Credit Risk – 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, tenant delinquencies could increase and result in losses to the Partnership and the Real Property 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 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), as amended under the Securities Exchange Act of 1934 (“Exchange Act”), as of June 30, 2015. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2015, 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(f), occurred during the quarter ended June 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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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, 2014. 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.

101.INS -XBRL Instance Document.

101.SCH -XBRL Taxonomy Extension Schema Document.

101.CAL -XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB -XBRL Taxonomy Extension Label Linkbase Document.

101.PRE -XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF-XBRL Taxonomy Extension Definition Linkbase Document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PRUCO LIFE INSURANCE COMPANY

in respect of

Pruco Life Variable Contract Real Property Account

(Registrant)




Date: August 13, 2015	By:	/s/ Yanela C. Frias
	Yanela C. Frias Vice President and Chief Financial Officer (Authorized Signatory and Principal Financial Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT 10-Q