Pruco Life Variable Contract Real Property Account 10-Q 2009 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2009

OR

    ¨ 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 07102-2992

(Address of principal executive offices) (Zip Code)

(973) 802-6000

(Registrant’s telephone number, including area code)

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

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

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

(Check one):

Large accelerated filer  ¨	Accelerated filer  ¨	Non-accelerated filer  þ	Smaller reporting company  ¨
	(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  ¨    NO  þ

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 – March 31, 2009 and December 31, 2008	4
Statements of Operations – Three Months Ended March 31, 2009 and 2008	4
Statements of Changes in Net Assets – Three Months Ended March 31, 2009 and 2008	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, 2009 and December 31, 2008	10
Consolidated Statements of Operations �� Three Months Ended March  31, 2009 and 2008	11
Consolidated Statements of Changes in Net Assets–Three Months Ended March  31, 2009 and 2008	12
Consolidated Statements of Cash Flows – Three Months Ended March  31, 2009 and 2008	13
Consolidated Schedules of Investments – March 31, 2009 and December  31, 2008	14
Notes to Consolidated Financial Statements of the Partnership	16
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3. Quantitative and Qualitative Disclosures About Market Risk	31
Item 4. Controls and Procedures	32
Part II — Other Information
Item 1A. Risk Factors	32
Item 4. Submission of Matters to a Vote of Security Holders	35
Item 6. Exhibits	35
Signatures	36

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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 the 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, particularly in light of ongoing severe economic conditions and the severe stress experienced by the financial markets that began in the second half of 2007 and has continued and substantially increased since then; (2) interest rate fluctuations; (3) re-estimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (5) changes in our assumptions related to deferred policy acquisition costs and valuation of business acquired; (6) changes in our claims-paying or credit ratings; (7) investment losses and defaults; (8) competition in our product lines and for personnel; (9) changes in tax law; (10) regulatory or legislative changes, including government actions in response to the stress experienced by the financial markets; (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; and (14) changes in statutory or “U.S. GAAP” accounting principles, practices or policies. As noted above, the adverse market and economic conditions that began in the second half of 2007 have continued and substantially worsened since then. The forgoing risks are even more pronounced in these unprecedented market and economic conditions. 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 Quarterly Report on Form 10-Q for discussion of certain risks relating to the operation of the Partnership and investment in our securities.

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FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENT OF NET ASSETS

March 31, 2009 and December 31, 2008

	March 31, 2009
	(unaudited)			December 31, 2008
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	105,057,994		$	117,828,835
Net Assets	$	105,057,994		$	117,828,835
NET ASSETS,representing:
Equity of contract owners	$	68,564,453		$	78,360,805
Equity of Pruco Life Insurance Company		36,493,541			39,468,030
	$	105,057,994		$	117,828,835
Units outstanding		42,895,929			42,828,105
Portfolio shares held		3,722,570			3,722,570
Portfolio net asset value per share	$	28.22		$	31.65
STATEMENT OF OPERATIONS
For the three months ended March 31, 2009 and 2008
	1/1/2009-3/31/2009			1/1/2008-3/31/2008
	(unaudited)			(unaudited)
INVESTMENT INCOME
Net investment income from Partnership operations	$	1,148,789		$	1,784,282
EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		111,750			140,496
NET INVESTMENT INCOME		1,037,039			1,643,786
Net change in unrealized gain (loss) on investments in Partnership		(13,919,630	)		(380,387	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	(12,882,591	)	$	1,263,399
STATEMENT OF CHANGES IN NET ASSETS
For the three months ended March 31, 2009 and 2008
	1/1/2009-3/31/2009			1/1/2008-3/31/2008
	(unaudited)			(unaudited)
OPERATIONS
Net investment income	$	1,037,039		$	1,643,786
Net change in unrealized gain (loss) on investments in Partnership		(13,919,630	)		(380,387	)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		(12,882,591	)		1,263,399
CAPITAL TRANSACTIONS
Net withdrawals by contract owners		(1,309,905	)		(674,092	)
Net contributions by Pruco Life Insurance Company		1,421,655			814,588
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS		111,750			140,496
TOTAL INCREASE (DECREASE) IN NET ASSETS		(12,770,841	)		1,403,895
NET ASSETS
Beginning of period		117,828,835			136,056,513
End of period	$	105,057,994		$	137,460,408

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

4

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

March 31, 2009

(Unaudited)

Note 1: General

Pruco Life Variable Contract Real Property Account (the “Account”) was established on August 27, 1986 and commenced business September 5, 1986. Pursuant to Arizona law, the Account was established as a separate investment account of Pruco Life Insurance Company (“Pruco Life”), a wholly-owned subsidiary of the Prudential Insurance Company of America (“Prudential”), an indirect wholly-owned subsidiary of Prudential Financial, Inc. (“PFI”) and is registered under the Securities Act of 1933, as amended. The assets of the Account are segregated from Pruco Life’s other assets. The Account is used to fund benefits under certain variable life insurance and variable annuity contracts issued by Pruco Life. 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 Prudential Variable Contract Real Property Account and the Pruco Life of New Jersey Variable Contract Real Property Account, are the sole investors in the Partnership. These financial statements should be read in conjunction with the unaudited interim financial statements of the Partnership.

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

Note 2: Summary of Significant Accounting Policies and Pronouncements

A. Basis of Accounting

The accompanying financial statements are prepared in conformity with 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, 2009 and for the three months ended March 31, 2009 and 2008 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 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 adoption of SFAS No. 159 has no effect on the Account’s financial position and results of operations.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” This statement, which addresses the accounting for business acquisitions, is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited, and generally applies to business acquisitions completed after December 31, 2008. Among other things, the new standard requires that all acquisition-related costs be expensed as incurred, and that all restructuring costs related to acquired operations be expensed as incurred. This new standard also addresses the current and subsequent accounting for assets and liabilities arising from contingencies acquired or assumed and, for acquisitions both prior and subsequent to December 31, 2008, requires the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. The Account adopted this guidance effective January 1, 2009. The adoption of SFAS No. 141R has no effect on the Account’s financial position and results of operations, but may have an effect on the accounting for future business combinations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 will change the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. This statement is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. Upon adoption, SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. The adoption of SFAS No. 160 has no effect on the Account’s financial position and results of operations.

5

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP amends the other-than-temporary impairment guidance for debt securities and expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP also requires that the required annual disclosures for debt and equity securities be made for interim reporting periods. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Account’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Account’s financial position or results of operations.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP also amends the disclosure requirements in interim and annual periods. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Account’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Account’s financial position or results of operations.

In April 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This FSP requires an asset acquired or liability assumed in a business combination that arises from a contingency to be recognized at fair value at the acquisition date, if the acquisition date fair value of that asset or liability can be determined during the measurement period. If the acquisition date fair value of an asset acquired or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or liability shall be recognized at the acquisition date using the guidance in SFAS No. 5, “Accounting for Contingencies.” This FSP also amends disclosure requirements. This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after January 1, 2009. The Account’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Account’s financial position or results of operations.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends the disclosure requirements. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted. The Account will adopt this guidance beginning with the interim period ending June 30, 2009. The Account’s adoption of this guidance is not expected to have a material effect on the Account’s financial position or results of operations, but will affect interim disclosures.

B. Investment in Partnership Interest

The investment in the Partnership is based on the Account’s proportionate interest of the Partnership’s market value. At March 31, 2009 and December 31, 2008 the Account’s interest in the Partnership was 55.1% or 3,722,570 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

Pruco Life maintains a position in the Account for liquidity purposes, including unit purchases and redemptions, Partnership share transactions, and expense processing. The position does not have an effect on the 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. The mortality risk and expense risk charges are assessed through reduction in unit values.

6

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 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

A deferred sales charge is imposed upon the surrender of certain variable life insurance contracts to compensate Pruco Life 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 contracts 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 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 Account form a part of PFI’s consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Account. As such, no provision for the tax liability has been recorded in these financial statements.

Note 5: Net Withdrawals by Contract Owners

Net contract owner withdrawals for the real estate investment option in Pruco Life’s variable insurance and variable annuity products for the three months ended March 31, 2009 and 2008, were as follows:

	Three Months Ended March 31,
	(Unaudited)
	2009			2008
VAL	$	(1,175,059	)	$	(527,649	)
VLI		(79,547	)		(58,089	)
SPVA		(222	)		(40,967	)
SPVL		(55,077	)		(47,387	)
TOTAL	$	(1,309,905	)	$	(674,092	)

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Note 6: Partnership Distributions

As of March 31, 2009, the Partnership has made no current year distributions. For the year ended December 31, 2008, the Partnership made no distributions.

Note 7: Unit Information

Outstanding units and unit values at March 31, 2009 and December 31, 2008 were as follows:

	March 31, 2009	December 31, 2008
	(Unaudited)
Units Outstanding:	42,895,929	42,828,105
Unit Value:	2.13603 to 2.61030	2.40304 to 2.93018

Note 8: Financial Highlights

The range of total return for the three months ended March 31, 2009 and 2008 was as follows:

	Three Months Ended March 31, (Unaudited)
	2009	2008
Total Return	-11.11% to -10.92%	0.72% to 0.94%

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 that market participants would use in pricing the asset or liability.

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

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In general, the input values used in the appraisal process are unobservable, therefore unless indicated otherwise; real estate investments and debt 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.

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

Table 1:

	($ in 000’s)
	Amounts Measured at Fair Value 03/31/2009	Quoted Prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$105,058	$—	$—	$105,058
Total Assets	$105,058	$—	$—	$105,058

As required under SFAS 157, table 2 below present 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 period ended March 31, 2009 and December 31, 2008.

Table 2:

	($ in 000’s) Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Beginning balance @ 12/31/08	$	117,829
Total gains or losses (realized/unrealized) included in earnings (or changes in net assets) from Partnership operations	$	(13,920	)
Net Investment Income from Partnership operations	$	1,149
Acquisition/Additions		—
Equity Income		—
Contributions		—
Disposition/Settlements		—
Equity losses		—
Distributions		—
Ending balance @ 03/31/09	$	105,058
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 relating to assets still held at the reporting date	$	(13,920	)

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THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	March 31, 2009
	(Unaudited)		December 31, 2008
ASSETS
REAL ESTATE INVESTMENTS – At estimated fair value:
Real estate and improvements (cost: 03/31/2009 - $246,249,789; 12/31/2008 -$245,808,214)	$	196,500,000	$	221,196,000
Real estate partnerships and preferred equity investments (cost: 03/31/2009 - $14,328,997; 12/31/2008 - $14,324,204)		10,611,010		11,796,716
Total real estate investments		207,111,010		232,992,716
CASH AND CASH EQUIVALENTS		29,406,689		27,736,520
OTHER ASSETS, NET		2,501,420		2,936,037
Total assets	$	239,019,119	$	263,665,273
LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT (net of unamortized discount: 3/31/09 $25,008; 12/31/08 $26,480)	$	39,947,138	$	40,047,827
ACCOUNTS PAYABLE AND ACCRUED EXPENSES		2,785,963		2,924,938
DUE TO AFFILIATES		739,345		851,595
OTHER LIABILITIES		917,603		978,342
Total liabilities		44,390,049		44,802,702
COMMITMENTS AND CONTINGENCIES
NET ASSETS, REPRESENTING PARTNERS’ EQUITY:
GENERAL PARTNERS’ CONTROLLING INTEREST		190,750,672		213,938,308
NONCONTROLLING INTEREST		3,878,398		4,924,263
		194,629,070		218,862,571
Total liabilities and partners’ equity	$	239,019,119	$	263,665,273
GENERAL PARTNERS’ NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		6,758,960		6,758,960
GENERAL PARTNERS’ SHARE VALUE AT END OF PERIOD	$	28.22	$	31.65

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 Three Months Ended March 31,
	2009			2008
INVESTMENT INCOME:
Revenue from real estate and improvements	$	6,852,896		$	7,708,026
Equity in income of real estate partnerships		271,443			300,449
Interest on short-term investments		10,747			124,243
Total investment income		7,135,086			8,132,718
INVESTMENT EXPENSES:
Operating		1,763,751			1,723,610
Investment management fee		725,937			861,522
Real estate taxes		755,705			734,846
Administrative		1,230,684			1,111,128
Interest expense		460,734			442,153
Total investment expenses		4,936,811			4,873,259
NET INVESTMENT INCOME		2,198,275			3,259,459
Change in unrealized gain (loss) on real estate investments		(26,328,074	)		(616,077	)
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	($	24,129,799	)	$	2,643,382
Amounts attributable to noncontrolling interest:
Net investment income attributable to noncontrolling interest	$	112,453		$	19,791
Net unrealized gain (loss) attributable to noncontrolling interest		(1,054,616	)		74,581
Net increase (decrease) in net assets resulting from operations attributable to the noncontrolling interest	($	942,163	)	$	94,372
Amounts attributable to general partners’ controlling interest:
Net investment income attributable to general partners’ controlling interest	$	2,085,822		$	3,239,668
Net unrealized gain (loss) attributable to general partners’ controlling interest		(25,273,458	)		(690,658	)
Net increase (decrease) in net assets resulting from operations attributable to general partners’ controlling interest	($	23,187,636	)	$	2,549,010

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

11

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

	For the Three Months Ended March 31,
	2009									2008
	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	$	2,085,822		$	112,453		$	2,198,275		$	3,239,668		$	19,791	$	3,259,459
Net unrealized gain (loss) from real estate investments		(25,273,458	)		(1,054,616	)		(26,328,074	)		(690,658	)		74,581		(616,077	)
Increase (decrease) in net assets resulting from operations		(23,187,636	)		(942,163	)		(24,129,799	)		2,549,010			94,372		2,643,382
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Distributions to noncontrolling interest		—			(103,702	)		(103,702	)		—			—		—
Increase (decrease) in net assets resulting from capital transactions		—			(103,702	)		(103,702	)		—			—		—
INCREASE (DECREASE) IN NET ASSETS		(23,187,636	)		(1,045,865	)		(24,233,501	)		2,549,010			94,372		2,643,382
NET ASSETS — Beginning of period		213,938,308			4,924,263			218,862,571			247,033,759			7,004,790		254,038,549
NET ASSETS — End of period	$	190,750,672		$	3,878,398		$	194,629,070		$	249,582,769		$	7,099,162	$	256,681,931

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

12

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

	For the Three Months Ended March 31,
	2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets from operations		($24,129,799	)	$	2,643,382
Adjustments to reconcile net increase in net assets to net cash from operating activities
Net realized and unrealized loss (gain)		26,328,074			616,077
Amortization of discount on investment level debt		1,472			—
Amortization of deferred financing costs		27,680			11,704
Distributions in excess of (less than) equity in income of real estate partnerships’ operations		(4,793	)		(31,066	)
Bad debt expense		18,585			18,600
(Increase) decrease in:
Other assets		388,352			(967,217	)
Increase (decrease) in:
Accounts payable and accrued expenses		(138,975	)		163,752
Due to affiliates		(112,250	)		(26,444	)
Other liabilities		(60,739	)		(37,090	)
Net cash flows provided for (used in) operating activities		2,317,607			2,391,698
CASH FLOWS PROVIDED FOR INVESTING ACTIVITIES:
Additions to real estate and improvements		(441,575	)		(3,209,443	)
Net cash flows provided for (used in) investing activities		(441,575	)		(3,209,443	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on investment level debt		(102,161	)		(153,664	)
Distributions to noncontrolling interest		(103,702	)		—
Net cash flows provided for (used in) financing activities		(205,863	)		(153,664	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		1,670,169			(971,409	)
CASH AND CASH EQUIVALENTS — Beginning of period		27,736,520			18,215,871
CASH AND CASH EQUIVALENTS — End of period	$	29,406,689		$	17,244,462

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

13

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

			2009 Total Rentable
			Square Feet	March 31, 2009
			Unless Otherwise	(unaudited)				December 31, 2008
	March 31, 2009		Indicated			Estimated Fair				Estimated Fair
Property Name	Ownership	City, State	(Unaudited)	Cost		Value		Cost		Value
OFFICES
750 Warrenville	WO	Lisle, IL	103,193	$	25,230,346	$	8,500,000	$	25,218,777	$	9,542,046
Summit @ Cornell Oaks	WO	Beaverton , OR	72,109		12,512,985		9,600,000		12,512,985		11,000,000
Westpark	WO	Brentwood, TN	97,199		12,248,338		11,300,000		12,060,981		13,753,954
Financial Plaza	WO	Brentwood, TN	98,049		12,390,130		11,600,000		12,389,207		12,700,000
		Offices % as of 3/31/09	22%		62,381,799		41,000,000		62,181,950		46,996,000
APARTMENTS
Brookwood Apartments	WO	Atlanta, GA	240 Units		19,879,495		14,400,000		19,810,918		16,100,000
Dunhill Trace Apartments	WO	Raleigh, NC	250 Units		16,454,642		15,000,000		16,433,544		16,600,000
Broadstone Crossing	WO	Austin, TX	225 Units		22,735,992		20,800,000		22,732,363		25,000,000
The Reserve At Waterford Lakes	WO	Charlotte, NC	140 Units		13,679,067		10,200,000		13,649,938		11,000,000
		Apartments % as of 3/31/09	32%		72,749,196		60,400,000		72,626,763		68,700,000
RETAIL
King’s Market	WO	Roswell, GA	314,358		37,901,326		10,000,000		37,893,595		14,100,000
Hampton Towne Center	WO	Hampton, VA	174,540		18,115,561		22,000,000		18,110,816		23,400,000
White Marlin Mall	CJV	Ocean City, MD	186,016		23,297,178		27,200,000		23,271,014		28,600,000
Westminster Crossing East, LLC	CJV	Westminster, MD	89,890		15,044,721		16,000,000		15,044,721		17,700,000
Kansas City Portfolio	EJV	Kansas City, KS;MO	487,660		35,929		35,929		13,595		13,595
CARS Preferred Equity	PE	Various	N/A		14,293,068		10,575,081		14,310,609		11,783,121
Harnett Crossing	CJV	Dunn, NC	193,235		6,377,981		3,900,000		6,366,767		3,900,000
		Retail % as of 3/31/09	47%		115,065,764		89,711,010		115,011,117		99,496,716
HOTEL
Portland Crown Plaza	CJV	Portland, OR	161 Rooms		10,382,027		16,000,000		10,312,588		17,800,000
		Hotel % as of 3/31/09	8%		10,382,027		16,000,000		10,312,588		17,800,000
Total Real Estate Investments as a Percentage of General Partners’ Controlling Interest as of 3/31/09			109%
Total Investments				$	260,578,786	$	207,111,010	$	260,132,418	$	232,992,716

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

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

14

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

			March 31, 2009
			(unaudited)					December 31, 2008
					Estimated					Estimated
	Face Amount		Cost		Fair Value			Cost		Fair Value
CASH AND CASH EQUIVALENTS — Percentage of General Partners’ Controlling Interest						15.4	%				13.0	%
Federal Home Loan Bank, 0 coupon bond, April , 2009	$	16,818,000	$	16,818,000	$	16,818,000		$	1,000,000	$	1,000,000
Federal Home Loan Bank, 0 coupon bond, April , 2009		9,999,694		9,999,694		9,999,694			4,446,932		4,446,932
Federal Home Loan Bank, 0 coupon bond		—		—		—			1,999,985		1,999,985
Federal Home Loan Bank, 0 coupon bond		—		—		—			18,831,977		18,831,977
Total Cash Equivalents				26,817,694		26,817,694			26,278,894		26,278,894
Cash				2,588,995		2,588,995			1,457,626		1,457,626
Total Cash and Cash Equivalents			$	29,406,689	$	29,406,689		$	27,736,520	$	27,736,520

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

15

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2009 and December 31, 2008

Note 1: Summary of Significant Accounting Policies

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, 2009 are not necessarily indicative of the results that may be expected for the year ended December 31, 2009. 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, 2008.

B. Accounting Pronouncements Adopted — 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.

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 4 for details.

In December 2007, FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations”. SFAS 141R expands the definition of a business and redefines the acquisition date in a merger and acquisition transaction. It significantly modifies the existing SFAS 141, including changes to acquisition related contingent consideration, preacquisition contingencies, non controlling interest, restructuring costs, in-process R&D, goodwill and partial acquisition. SFAS 141R is effective for acquisitions closing after the first annual reporting period beginning after December 15, 2008. The Partnership’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations, but may have an effect on the accounting for future business combinations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 changes the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. Upon adoption, SFAS No. 160 requires retrospectively adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. The Partnership’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations, but did affect financial statement presentation and disclosure. Noncontrolling interests, previously reported as a liability, are now required to be reported as a separate component of equity on the balance sheet, and totaled $4.9 million December 31, 2008. In addition, income attributable to the noncontrolling interest, which was previously reported as an expense and reflected within Net Investment Income is now reported as a separate amount below “Increase (decrease) in Net Assets Resulting from Operations”, and totaled $0.1 million for the three months ended March 31, 2008.

16

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2009 and December 31, 2008

Note 1: Summary of Significant Accounting Policies (continued)

B. Accounting Pronouncements Adopted-(continued)

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP amends the other-than-temporary impairment guidance for debt securities and expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP also requires that the required annual disclosures for debt and equity securities be made for interim reporting periods. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Partnership’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP also amends the disclosure requirements in interim and annual periods. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Partnership’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

In April 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This FSP requires an asset acquired or liability assumed in a business combination that arises from a contingency to be recognized at fair value at the acquisition date, if the acquisition date fair value of that asset or liability can be determined during the measurement period. If the acquisition date fair value of an asset acquired or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or liability shall be recognized at the acquisition date using the guidance in SFAS No. 5, “Accounting for Contingencies.” This FSP also amends disclosure requirements. This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after January 1, 2009. The Partnership’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

C. New Accounting Pronouncements - In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends the disclosure requirements. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted. The Partnership will adopt this guidance beginning with the interim period ending June 30, 2009. The Partnership’s adoption of this guidance is not expected to have a material effect on the Partnership’s consolidated financial position or results of operations, but will affect interim disclosures.

Note 2: Reclassification

Certain prior period balances have been reclassified to conform with current period presentation. Such reclassifications had no effect on previously reported net assets.

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

Cash paid for interest during the three months ended March 31, 2009, and 2008, was $433,054 and $430,449, respectively.

17

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2009 and December 31, 2008

Note 4: Fair Value Measurements

Valuation Methods:

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

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. In accordance with SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to come up with the approximated value for the type of real estate in the market.

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 inputs used in the valuation process. The level in the fair values hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows;

Level 1- Fair value is based on unadjusted quoted prices inactive 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 the assumptions that market participants would use in pricing the asset or liability.

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

18

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2009 and December 31, 2008

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

Table 1

(in 000’s)
Fair value measurements at March 31, 2009 using
	Amounts measured at fair value 3/31/09		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Assets:
Real estate and improvements	$	196,500	$	—	$	—	$	196,500
Real estate partnerships and preferred equity investments		10,611		—		—		10,611
Total	$	207,111	$	—	$	—	$	207,111
(in 000’s)
Fair value measurements at December 31, 2008 using
	Amounts measured at fair value 12/31/2008		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Assets:
Real estate and improvements	$	221,196	$	—	$	—	$	221,196
Real estate partnerships and preferred equity investments		11,797		—		—		11,797
Total	$	232,993	$	—	$	—	$	232,993

19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2009 and December 31, 2008

Note 4: Fair Value Measurements (continued)

As required under SFAS 157, 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 period ended March 31, 2009 and December 31, 2008.

Table 2

(in 000’s)

Fair value measurements using significant unobservable inputs

(Level 3)

	Real estate and improvements			Real estate and partnerships and preferred equity investments			Total
Beginning balance @ 1/1/09	$	221,196		$	11,797		$	232,993
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		(25,138	)		(1,190	)		(26,328	)
Equity income (losses)/interest income		—			271			271
Purchases, issuances and settlements		442			(267	)		175
Ending balance @ 3/31/09	$	196,500		$	10,611		$	207,111
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	(25,138	)	$	(1,190	)	$	(26,328	)
(in 000’s) Fair value measurements using significant unobservable inputs (Level 3)
	Real estate and improvements			Real estate and partnerships and preferred equity investments			Total
Beginning balance @ 1/1/08	$	254,394		$	14,524		$	268,918
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		(43,134	)		(2,527	)		(45,661	)
Equity income (losses)/interest income		—			994			994
Purchases, issuances and settlements		9,936			(1,194	)		8,742
Ending balance @ 12/31/08	$	221,196		$	11,797		$	232,993
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	(43,134	)	$	(2,527	)	$	(45,661	)

20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2009 and December 31, 2008

Note 5: Risk

A. Valuation Risk

There continues to be significant disruptions in the global capital, credit and real estate markets. These disruptions have led to, among other things, a significant decline in the volume of transaction activity, in the fair value of many real estate and real estate related investments, and a significant contraction in short-term and long-term debt and equity funding sources. The decline in liquidity and prices of real estate and real estate related investments, as well as the availability of observable transaction data and inputs, may have made it more difficult to determine the fair value of such investments. As a result, these estimated fair values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller and these differences could be material to the financial statements. Although the estimated fair values represent subjective estimates, management believes that these estimated fair values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate are fairly presented as of March 31, 2009 and December 31, 2008.

B. Financing, Covenant, and Repayment Risks

In the normal course of business, the Partnership enters into loan agreements with certain lenders to finance its real estate investment transactions. Unfavorable economic conditions could increase related borrowing costs, limit access to the capital markets or result in a decision by lenders not to extend credit to the Partnership. There is no guarantee that the Partnership’s borrowing arrangements or ability to obtain leverage will continue to be available, or if available, will be available on terms and conditions acceptable to the Partnership. Further, these loan agreements contain, among other conditions, events of default and various covenants and representations. In the normal course of business, the Partnership may be in the process of renegotiating terms for loans outstanding that have passed their maturity dates. At March 31, 2009 the Partnership had no outstanding matured loans.

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

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

Note 6: Commitments and Contingencies

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

Note 7: Related Party Transactions

Pursuant to an investment management agreement, PIM charges the Partnership a daily investment management fee at an annual rate of 1.25% of the average daily gross asset valuation of the Partnership. For the three months ended March 31, 2009 and 2008, management fees incurred by the Partnership were $725,937 and $861,522, respectively.

The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for each of the three months ended March 31, 2009 and 2008 were $13,407 and are classified as administrative expenses in the Consolidated Statements of Operations.

21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

March 31, 2009 and December 31, 2008

Note 8: Financial Highlights

	For The Three Months Ended March 31,
	2009			2008			2007			2006			2005
Per Share(Unit) Operating Performance:
Net Asset Value attributable to general partners’ controlling interest, beginning of period	$	31.65		$	36.55		$	33.87		$	29.59		$	26.15
Income From Investment Operations:
Net investment income attributable to general partners’ controlling interest, before management fee		0.42			0.61			0.52			0.50			0.36
Investment Management fee		(0.11	)		(0.13	)		(0.12	)		(0.11	)		(0.09	)
Net realized and unrealized gain (loss) on investments attributable to general partners’ controlling interest		(3.74	)		(0.10	)		0.33			0.95			0.36
Net Increase in Net Assets Resulting from Operations		(3.43	)		0.38			0.73			1.34			0.63
Net Asset Value attributable to general partners’ controlling interest, end of period	$	28.22		$	36.93		$	34.60		$	30.93		$	26.78
Total Return, before Management Fee:		-10.50	%		1.38	%		2.53	%		4.89	%		2.79	%
Total Return, after Management Fee (a):		-10.83	%		1.03	%		2.17	%		4.53	%		2.42	%
Ratios/Supplemental Data:
Net Assets, end of period (in millions)	$	191		$	250		$	234		$	215		$	191
Ratios to average net assets for the year ended (b):
Total Portfolio Level Expenses		0.32	%		0.35	%		0.38	%		0.36	%		0.36	%
Net Investment Income, before Management Fee		1.25	%		1.66	%		1.53	%		1.68	%		1.43	%

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

Net Investment Income + Net Realized and Unrealized Gains/(Losses)

Beg. Net Asset Value + Time Weighted Contributions - Time Weighted Distributions

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

Note 9: Subsequent Event

On May 1, 2009, the Partnership sold Kings Market, a wholly owned asset located in Roswell, GA for $10,000,000. The Partnership realized a loss of $4.5 million as a result of this sale.

22

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, 2009, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $29.4 million, an increase of approximately $1.7 million from $27.7 million at December 31, 2008. The increase was primarily due to cash flows received from the Partnership’s operating activities. Partially offsetting this increase were capital expenditures to existing properties, as detailed below. Sources of liquidity included net cash flow from property operations, financings, and interest from short-term investments. The Partnership uses cash for its real estate investment activities and for its distributions to its partners. As of March 31, 2009, approximately 12.3% of the Partnership’s total assets consisted of cash and cash equivalents.

The Partnership did not have any dispositions or acquisitions for the quarter ended March 31, 2009.

During the quarter ended March 31, 2009, the Partnership spent approximately $0.4 million on capital improvements to various existing properties. Approximately $0.2 million was associated with upgrades at one of the office properties in Brentwood, Tennessee. The remaining $0.2 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, 2009, and 2008.

Net Investment Income Overview

The Partnership’s net investment income attributable to the general partners’ controlling interest for the quarter ended March 31, 2009 was approximately $2.1 million, a decrease of approximately $1.2 million from the prior year period. The decrease in net investment income attributable to the general partners’ controlling interest was primarily attributable to declines from the prior year period in the retail, apartment, hotel, and office sector investments of $0.6 million, $0.3 million, $0.2 million, and $0.1 million, respectively. Other net investment income attributable to the general partners’ controlling interest remained relatively unchanged. The components of this are discussed below by property type.

Valuation Overview

The Partnership did not record any realized gains for the three-month period ended March 31, 2009, unchanged from the prior year period.

The Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $25.3 million for the quarter ended March 31, 2009, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.7 million for the prior year period. The net unrealized loss attributable to the general partners’ controlling interest for the quarter ended March 31, 2009 was attributable to property valuation declines in the retail, apartment, office, and hotel sector investments of approximately $9.2 million, $8.4 million, $6.2 million, and $1.5 million, respectively. The net unrealized loss attributable to the general partners’ controlling interest of approximately $25.3 million for the quarter ended March 31, 2009 was attributable to valuation declines in every sector primarily due to increased investment rates suggesting an industry-wide repricing. Investment rates include direct and terminal capitalization rates (average increases of 41 and 29 basis points over prior quarter, respectively), and discount rates (average increase of 31 basis points over prior quarter), which reflect investors’ yield requirements on investments. The increase in investment rates was caused by the national economic downturn, frozen credit markets, weakening market fundamentals, and deteriorated demand for commercial real estate. The components of these valuation losses are discussed below by investment type.

Subsequent Event

On May 1, 2009, the Partnership sold the wholly owned retail asset located in Roswell, GA for $10.0 million. The Partnership realized a loss of $4.5 million as a result of this sale.

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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 unrealized gains or losses attributable to the general partners’ controlling interest by investment type for the three-month periods ended March 31, 2009 and 2008.

	Three Months Ended March 31,
	2009			2008
Net Investment Income:
Office properties	$	826,250		$	971,415
Apartment properties		599,924			849,245
Retail properties		1,346,827			1,900,128
Hotel property		63,705			248,858
Other (including interest income, investment mgt fee, etc.)		(750,884	)		(729,978	)
Total Net Investment Income	$	2,085,822		$	3,239,668
Net Unrealized Gain (Loss) on Real Estate Investments:
Office properties	$	(6,195,849	)	$	(2,132,116	)
Apartment properties		(8,422,433	)		800,147
Retail properties		(9,159,625	)		973,371
Hotel property		(1,495,551	)		(332,060	)
Net Unrealized Gain (Loss) on Real Estate Investments	$	(25,273,458	)	$	(690,658	)

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OFFICE PROPERTIES

Three Months Ended March 31,	Net Investment Income/(Loss) 2009		Net Investment Income/(Loss) 2008		Unrealized Gain/(Loss) 2009			Unrealized Gain/(Loss) 2008			Occupancy 2009		Occupancy 2008
Property
Lisle, IL	$	69,384	$	123,390	$	(1,053,615	)	$	(1,034,274	)	32	%	61	%
Brentwood, TN		177,435		264,129		(2,641,311	)		—		78	%	89	%
Beaverton, OR		297,485		283,672		(1,400,000	)		(1,097,842	)	88	%	88	%
Brentwood, TN		281,946		300,224		(1,100,923	)		—		100	%	100	%
	$	826,250	$	971,415	$	(6,195,849	)	$	(2,132,116	)

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s office properties was approximately $0.8 million for the quarter ended March 31, 2009, a decrease of approximately $0.2 million from the prior year period. The decrease was primarily due to decreased occupancy at the office properties in Lisle, Illinois and Brentwood, Tennessee.

Unrealized Gain/(Loss)

The office properties owned by the Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $6.2 million during the quarter ended March 31, 2009, compared with a net unrealized loss attributable to the general partners’ controlling interest of $2.1 million for the prior year period. The net unrealized loss attributable to the general partners’ controlling interest of approximately $6.2 million for the quarter ended March 31, 2009 was primarily due to valuation declines caused by increased investment rates and implementation of more conservative growth projections reflecting the market downturn across the office sector.

Since March 31, 2009 and for the period from April 1, 2009 to April 30, 2009, the two properties in Brentwood, Tennessee; and the property in Lisle, Illinois have experienced aggregate net unrealized losses attributable to the general partners’ controlling interest of approximately $1.7 million, $1.6 million, and $1.2 million, respectively. The aggregate net unrealized losses attributable to the general partners’ controlling interest are attributable to increased investment rates resulting from decreased investor demand caused by diminished liquidity and credit access, sustained pricing uncertainty, and deteriorating market fundamentals.

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APARTMENT PROPERTIES

Three Months Ended March 31,	Net Investment Income/(Loss) 2009		Net Investment Income/(Loss) 2008		Unrealized Gain/(Loss) 2009			Unrealized Gain/(Loss) 2008			Occupancy 2009		Occupancy 2008
Property
Atlanta, GA	$	116,017	$	163,136	$	(1,768,577	)	$	42,477		92	%	93	%
Raleigh, NC		989		163,376		(1,621,098	)		280,265		90	%	88	%
Austin, TX		341,989		391,451		(4,203,628	)		500,000		90	%	94	%
Charlotte, NC		140,929		131,282		(829,130	)		(22,595	)	91	%	89	%
	$	599,924	$	849,245	$	(8,422,433	)	$	800,147

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s apartment properties was approximately $0.6 million for the quarter ended March 31, 2009, a decrease of approximately $0.3 million from the prior year period. The decrease in net investment income attributable to the general partners’ controlling interest for quarter ended March 31, 2009 was primarily due to the write-off of previous years’ accounts receivable at the property in Raleigh, North Carolina; and decreased occupancy at the property in Austin, Texas.

Unrealized Gain/(Loss)

The apartment properties owned by the Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $8.4 million for the quarter ended March 31, 2009, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.8 million for the prior year period. The net unrealized loss attributable to the general partners’ controlling interest for the quarter ended March 31, 2009 was primarily due to valuation declines caused by increased investment rates and implementation of more conservative growth and market projections reflecting the market downturn across the apartment sector.

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RETAIL PROPERTIES

Three Months Ended March 31,	Net Investment Income/(Loss) 2009		Net Investment Income/(Loss) 2008		Unrealized Gain/(Loss) 2009			Unrealized Gain/(Loss) 2008			Occupancy 2009		Occupancy 2008
Property
Roswell, GA	$	209,258	$	453,329	$	(4,107,732	)	$	(700	)	38	%	82	%
Kansas City, KS(1)		22,334		48,571		—			—		N/A		N/A
Hampton, VA		262,751		335,405		(1,404,744	)		696,665		89	%	99	%
Ocean City, MD		280,981		140,246		(738,746	)		243,234		95	%	68	%
Westminster, MD		293,815		383,562		(1,700,000	)		100,000		100	%	100	%
Dunn, NC		30,989		287,236		(17,903	)		(65,828	)	35	%	35	%
CARS Preferred Equity		246,699		251,779		(1,190,500	)		—		N/A		N/A
	$	1,346,827	$	1,900,128	$	(9,159,625	)	$	973,371

⁽¹⁾ The Kansas City, Kansas retail property was sold on June 29, 2007 but certain post-closing adjustments were recognized during the quarters ended March 31, 2009 and 2008.

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s retail properties was approximately $1.3 million for the quarter ended March 31, 2009, 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 largely due to (a) the lease expiration of a 119,420 square foot tenant (40% of gross leasable area) on January 31, 2009 at the retail property in Roswell, Georgia; (b) increased vacancy at the property in Hampton, Virginia after an anchor tenant vacated; (c) a one-time termination fee of approximately $0.2 million received in the first quarter of 2008 at the center in Dunn, North Carolina; and (d) lost rental income related to rent relief given to tenants at several retail properties. This loss was partially offset by an increase in net investment income attributable to the general partners’ controlling interest generated by lease-up of the center in Ocean City, Maryland.

Unrealized Gain/(Loss)

The retail properties owned by the Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $9.2 million for the quarter ended March 31, 2009, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.0 million for the prior year period. The unrealized loss for the quarter ended March 31, 2009 was primarily due to (a) deteriorating retail fundamentals resulting in increased vacancy and rent relief across the retail sector investments; (b) increased investment rates and implementation of more conservative growth and market projections reflecting the market downturn across the retail sector; and (c) reduced purchase offers in connection with the sale of the property in Roswell, Georgia.

Subsequent Event

On May 1, 2009, the Partnership sold the wholly owned asset located in Roswell, GA for $10.0 million. The Partnership realized a loss of $4.5 million as a result of this sale.

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HOTEL PROPERTY

Three Months Ended March 31,	Net Investment Income/(Loss) 2009		Net Investment Income/(Loss) 2008		Unrealized Gain/(Loss) 2009			Unrealized Gain/(Loss) 2008			Occupancy 2009		Occupancy 2008
Property
Lake Oswego, OR	$	63,705	$	248,858	$	(1,495,551	)	$	(332,060	)	54	%	67	%

Net Investment Income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s hotel property was approximately $0.1 million for the quarter ended March 31, 2009, 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 is partially attributable to decreased occupancy and average daily rate at the property as a result of the weakening hospitality market.

Unrealized Gain/(Loss)

The Partnership’s hotel property recorded an unrealized loss attributable to the general partners’ controlling interest of approximately $1.5 million for the quarter ended March 31, 2009, compared with an unrealized loss of approximately $0.3 million for the prior year period. The unrealized losses attributable to the general partners’ controlling interest for the quarter ended March 31, 2009 were due to valuation declines caused by decreased occupancy, increased investment rates, and implementation of more conservative growth and market projections reflecting the market downturn across the hotel sector.

Other

Other net investment loss attributable to the general partners’ controlling interest remained relatively unchanged for the quarter ended March 31, 2009 from the prior year period. Other net investment loss attributable to the general partners’ controlling interest includes interest income from short-term investments, investment management fees, and portfolio level expenses.

(c) Inflation

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

Critical Accounting Policies

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

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

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Accounting Pronouncements Adopted

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.

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 Note 4 in the Partnership’s unaudited Consolidated Financial Statements for details.

In December 2007, FASB issued SFAS No. 141 (revised 2007) (“SFAS 141R”), “Business Combinations”. SFAS 141R expands the definition of a business and redefines the acquisition date in a merger and acquisition transaction. It significantly modifies the existing SFAS 141, including changes to acquisition related contingent consideration, preacquisition contingencies, non controlling interest, restructuring costs, in-process R&D, goodwill and partial acquisition. SFAS 141R is effective for acquisitions closing after the first annual reporting period beginning after December 15, 2008. The Partnership’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations, but may have an effect on the accounting for future business combinations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 changes the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. Upon adoption, SFAS No. 160 requires retrospectively adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. The Partnership’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations, but did affect financial statement presentation and disclosure. Noncontrolling interests, previously reported as a liability, are now required to be reported as a separate component of equity on the balance sheet, and totaled $4.9 million December 31, 2008. In addition, income attributable to the noncontrolling interest, which was previously reported as an expense and reflected within Net Investment Income is now reported as a separate amount below “Increase (decrease) in Net Assets Resulting from Operations”, and totaled $0.1 million for the three months ended March 31, 2008.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments.” This FSP amends the other-than-temporary impairment guidance for debt securities and expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP also requires that the required annual disclosures for debt and equity securities be made for interim reporting periods. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Partnership’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, “Fair Value Measurements,” when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP also amends the disclosure requirements in interim and annual periods. This FSP is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Partnership’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

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In April 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies.” This FSP requires an asset acquired or liability assumed in a business combination that arises from a contingency to be recognized at fair value at the acquisition date, if the acquisition date fair value of that asset or liability can be determined during the measurement period. If the acquisition date fair value of an asset acquired or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or liability shall be recognized at the acquisition date using the guidance in SFAS No. 5, “Accounting for Contingencies.” This FSP also amends disclosure requirements. This FSP is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after January 1, 2009. The Partnership’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Partnership’s consolidated financial position or results of operations.

New Accounting Pronouncements

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments.” This FSP requires disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends the disclosure requirements. This FSP is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted. The Partnership will adopt this guidance beginning with the interim period ending June 30, 2009. The Partnership’s adoption of this guidance is not expected to have a material effect on the Partnership’s consolidated financial position or results of operations, but will affect interim disclosures.

Valuation of Investments

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

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. In accordance with SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to come up with the approximated value for the type of real estate in the market.

Other Estimates

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

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk – The Partnership’s exposure to market rate risk for changes in interest rates relates to approximately 36.36% of its investment portfolio as of March 31, 2009, 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 equivalents and short-term investments at March 31, 2009:

	Maturity	Estimated Market Value (millions)	Average Interest Rate
Cash and Cash equivalents	0-3 months	$29.4	1.12%

The table below discloses the Partnership’s debt as of March 31, 2009. All of the Partnership’s long-term debt bears interest at fixed rates and therefore the fair value of these instruments is affected by changes in market interest rates. The following table presents principal cash flows based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt.

Investment level debt (in $ thousands), including current portion	2009			2010			2011			2012			2013			Thereafter			Total			Estimated Fair Value
Average Fixed Interest Rate		6.75	%		6.75	%		6.75	%		6.75	%		6.75	%		6.75	%		6.75	%
Fixed Rate	$	9,148		$	566		$	604		$	646		$	463		$	4,475		$	15,902		$	15,916
Variable Rate		—		$	15,071			—			—		$	9,000		$	—		$	24,071		$	23,975
Premium/(Discount) on Investment Level Debt		—			—			—			—			—		($	26	)	($	26	)		—
Total Investment Level Debt	$	9,148		$	15,637		$	604		$	646		$	9,463		$	4,449		$	39,947		$	39,891

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

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Item 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission, or “SEC”, is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), under the Securities Exchange Act of 1934, as amended as of March 31, 2009. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2009, our disclosure controls and procedures were effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings. There has been no change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), during the quarter ended March 31, 2009, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

You should carefully consider the following risks. These risks could materially affect our business, results of operations or financial condition, or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our businesses described elsewhere in this Quarterly Report on Form 10-Q and in our 2008 Annual Report on Form 10-K.

Current difficult conditions in the global financial markets and the economy generally may materially adversely affect our business and results of operations.

Our results of operations have been materially adversely affected by conditions in the global financial markets and the economy generally, both in the U.S. and elsewhere around the world. The stress experienced by global financial markets that began in the second half of 2007 has continued and substantially increased since then. The volatility disruption in the global financial markets has reached unprecedented levels. The availability and cost of credit has been materially affected. These factors, combined with economic conditions in the U.S. including depressed home and commercial real estate prices and increasing foreclosures, falling equity market values, declining business and consumer confidence and rising unemployment, have precipitated a severe economic recession and fears of even more severe and prolonged adverse economic conditions.

The global fixed-income markets are experiencing a period of both extreme volatility and limited market liquidity, which has affected a broad range of asset classes and sectors. As a result, the market for fixed income instruments has experienced decreased liquidity, increased price volatility, credit downgrade events, and increased probability of default. Global equity markets have also been experiencing heightened volatility. These events and the continuing market upheavals have had and may continue to have an adverse effect on our business. Our revenues are likely to decline in such circumstances, the cost of meeting our obligations to our customers may increase, and our profit margins could erode. In addition, in the event of a prolonged or severe economic downturn, we could incur significant losses in our investment portfolio.

The demand for our products could be adversely affected in an economic downturn characterized by higher unemployment, lower family income, lower consumer spending, lower corporate earnings and lower business investment. We also may experience a higher incidence of claims and lapses or surrenders of policies. Our policyholders may choose to defer or stop paying insurance premiums. We cannot predict definitively whether or when such actions, which could impact our business, results of operations, cash flows and financial condition, may occur.

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In response to the market dislocation affecting the banking system and financial markets, on October 3, 2008, President Bush signed the Emergency Economic Stabilization Act of 2008, or EESA, into law. Pursuant to the EESA, the U.S. Treasury has the authority to, among other things, purchase up to $700 billion of mortgage-backed and other securities from financial institutions for the purpose of stabilizing the financial markets. On October 14, 2008, the U.S. Treasury announced that it would use EESA authority to invest an aggregate of $250 billion (of the first $350 billion released under EESA) in capital issued by qualifying U.S. financial institutions under the U.S. Treasury’s Capital Purchase Program, which is part of the Troubled Asset Relief Program, or TARP. The TARP Capital Purchase Program involves the issuance by qualifying institutions of preferred stock and warrants to purchase common stock to the U.S. Treasury. Concurrently, in coordination with the U.S. Treasury, the FDIC announced the Temporary Liquidity Guarantee Program, through which it guarantees certain newly issued senior unsecured debt issued by FDIC insured institutions and their qualifying holding companies, as well as funds over $250,000 in non-interest-bearing transaction deposit accounts. In addition, since March 2008, the Federal Reserve has created several lending facilities to stabilize financial markets including the Term Asset-Backed Securities Loan Facility, or TALF. The TALF is designed to provide secured financing for newly issued asset-backed securities backed by certain types of consumer and small business loans.

On February 10, 2009, the U.S. Treasury announced a Financial Stability Plan to build upon existing programs and earmark the second $350 billion of funds that were authorized under the EESA and released in January 2009. The elements of the Financial Stability Plan, as described by the U.S. Treasury, are a Capital Assistance Program and Financial Stability Trust to make capital available to financial institutions through additional purchases of preferred stock, a Public-Private Investment Program, or RPPIP, to buy legacy loans and assets from financial institutions, a Consumer and Business Lending Initiative to restart securitization markets for loans to consumers and businesses by expanding upon TALF, and a comprehensive housing program to, among other things, help reduce mortgage payments and interest rates. The U.S. Treasury has stated that the Financial Stability Plan will require high levels of transparency and accountability standards and dividend, acquisition and executive compensation restrictions for financial institutions that receive government assistance going forward.

In the first quarter of 2009, the U.S. Treasury, in conjunction with the FDIC and the Federal Reserve, announced details regarding the PPIP. The PPIP has two separate parts to address the problem of “legacy assets” — real estate loans held directly on the books of banks (“legacy loans”) and securities backed by loan portfolios (“legacy securities”). Under the Legacy Loans Program portion of the PPIP, the U.S. Treasury will invest alongside private investors in individual investment funds referred to as Public-Private Investment Funds, which will purchase eligible asset pools from depository institutions on a discrete basis. The FDIC will provide a guarantee for the debt financing issued by the Public-Private Investment Funds to fund the asset purchases. Under the Legacy Securities Program, the Federal Reserve will (i) expand TALF to cover additional eligible assets, including certain non-agency residential mortgage backed securities that were originally rated AAA and outstanding commercial mortgage backed securities and asset backed securities that are rated AAA and (ii) the U.S. Treasury will also co-invest with, and provide leverage to, up to five approved assets managers to support the market for legacy securities originated prior to 2009 with a rating of AAA at the time of origination.

Pruco Life Insurance Company’s ultimate parent, Prudential Financial, has applied to participate in the Capital Purchase Program, although no determination with respect to its participation has been made. If Prudential Financial does participate, it will become subject to additional requirements and restrictions on its business. Issuing preferred shares and warrants to the U.S. Treasury pursuant to this program could dilute the ownership interests of shareholders and could affect its ability to raise capital through other means. It would also become subject to restrictions on the compensation we can offer or pay. These and other applicable restrictions, as well as possible negative market perceptions of its financial strength and capital position arising from its participation, could harm its competitive position, including but not limited to its ability to market products to customers and retain key employees, and could restrict its flexibility to respond to changing market conditions. Prudential Financial also continues to evaluate other government sponsored programs for which it may be eligible.

In the first quarter, Prudential Financial participated in TALF as an eligible borrower. As of March 31, 2009, it had $786 million of asset-backed securities purchased under TALF and received secured financing from the Federal Reserve of $736 million related to the purchase of these securities.Prudential Financial also continues to evaluate other government sponsored programs for which it may be eligible

The U.S. federal government has taken or is considering taking other actions to address the financial crisis that could further impact our business. We cannot predict with any certainty whether these actions will be effective or the effect they may have on the financial markets or on our business, results of operations, cash flows and financial condition.

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Continuing adverse financial market conditions may significantly affect our ability to meet liquidity needs, our access to capital and our cost of capital, including capital that may be required by our subsidiaries.

Adverse capital market conditions have affected and may continue to affect the availability and cost of borrowed funds and could impact our ability to refinance existing borrowings, thereby ultimately impacting our profitability and ability to support or grow our businesses. We need liquidity to pay our operating expenses, interest on our debt and replace certain maturing debt obligations. Without sufficient liquidity, we could be forced to curtail certain of our operations, and our business could suffer. The principal sources of our liquidity are insurance premiums, annuity considerations, deposit funds and cash flow from our investment portfolio and assets, consisting mainly of cash or assets that are readily convertible into cash.

In the normal course of business, the Partnership enters into loan agreements with certain lenders to finance its real estate investment transactions. Unfavorable economic conditions could increase related borrowing costs, limit access to the capital markets or result in a decision by lenders not to extend credit to the Partnership. There is no guarantee that the Partnership’s borrowing arrangements or ability to obtain leverage will continue to be available, or if available, will be available on terms and conditions acceptable to the Partnership. Further, these loan agreements contain, among other conditions, events of default and various covenants and representations. In the normal course of business, the Partnership may be in the process of renegotiating terms for loans outstanding that have passed their maturity dates. At March 31, 2009, 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 investment obligations are not refinanced or extended when they become due and/or the Partnership is required to repay such borrowings and obligations, management anticipates that the repayment of these obligations, will be provided by operating cash flow, new debt refinancing, and real estate investment sales.

Market fluctuations and general economic, market and political conditions may adversely affect our business and profitability.

Even under relatively more favorable market conditions (such as those prevailing before the second half of 2007), our insurance products and certain of our investment products, as well as our investment returns and our access to and cost of financing, are sensitive to fixed income, equity, real estate and other market fluctuations and general economic, market and political conditions. These fluctuations and conditions could adversely affect our results of operations, financial position and liquidity, including in the following respects:

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

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

The dramatic deterioration in the capital markets and increasing weakness in the overall economy may adversely affect all sectors of the real estate market and may lead to declines in property values. Adverse capital market conditions could impact the liquidity of our investments, affecting their value and potentially resulting in higher realized and/or unrealized losses. These events may have an adverse affect on our investment results.

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• The estimated fair value of real estate and real estate related assets is determined through an appraisal process. There continues to be significant disruptions in the global capital, credit and real estate markets. These disruptions have led to, among other things, a significant decline in the volume of transaction activity, in the fair value of many real estate and real estate related investments, and a significant contraction in short-term and long-term debt and equity funding sources. The decline in liquidity and prices of real estate and real estate related investments, as well as the availability of observable transaction data and inputs, may have made it more difficult to determine the fair value of such investments. As a result, these estimated fair values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller and could be material to the financial statements.

Regardless of market conditions, certain investments we hold, including the properties in the Account, are relatively illiquid. If we needed to sell these investments, we may have difficulty in selling them for acceptable prices.

• Disruptions, uncertainty or volatility in the financial markets may limit our access to capital required to operate our business. These market conditions may limit our ability to replace, in a timely manner, maturing obligations and access the capital necessary to replace assets withdrawn by customers.

• Market conditions could also impact our ability to fund foreseen and unforeseen cash and collateral requirements, potentially inhibiting our ability to perform under our counterparty obligations, support business initiatives and increasing realized losses.

A change in market conditions, including prolonged periods of high inflation, could cause a change in consumer sentiment adversely affecting persistency of our life insurance and annuity products, including those offering the Account as an investment option.

The occurrence of natural or man-made disasters could adversely affect our results of operations and financial condition.

The occurrence of natural disasters, including hurricanes, floods, earthquakes, tornadoes, fires, explosions, pandemic disease and man-made disasters, including acts of terrorism and military actions, could adversely affect our results of operations or financial condition, including in the following respects:

• A natural or man-made disaster could result in losses in our investment portfolio or the failure of our counterparties to perform, or cause significant volatility in global financial markets.

• Catastrophic loss of life due to natural or man-made disasters could cause us to pay benefits at higher levels and/or materially earlier than anticipated

• Pandemic disease, caused by a virus such as H5N1, the “avian flu” virus, or the “swine flu” virus, could have a severe adverse effect on Prudential Financial’s business. The potential impact of such a pandemic on Prudential Financial’s results of operations and financial position is highly speculative, and would depend on numerous factors, including: in the case of the avian flu virus, the probability of the virus mutating to a form that can be passed from human to human; the rate of contagion if and when that occurs; the regions of the world most affected; the effectiveness of treatment for the infected population; the rates of mortality and morbidity among various segments of the population that are insured under the products that offered the Account versus the population not so insured; the possible macroeconomic effects of a pandemic on the Partnership’s asset portfolio; the effect of lapses and surrenders of existing products, and many other variables.

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

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

Item 6. Exhibits

31.1 Section 302 Certification of the Chief Executive Officer.

31.2 Section 302 Certification of the Chief Financial Officer.

32.1 Section 906 Certification of the Chief Executive Officer.

32.2 Section 906 Certification of the Chief Financial Officer.

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SIGNATURES

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

PRUCO LIFE INSURANCE COMPANY

in respect of

Pruco Life Variable

Contract Real Property Account

(Registrant)

Date: May 13, 2009

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

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