Pruco Life Of New Jersey Variable Contract Real Property Acc 10-Q 2014 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2014

OR

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

Commission file number 033-20018

PRUCO LIFE INSURANCE COMPANY OF

NEW JERSEY

in respect of

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Exact name of registrant as specified in its charter)

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

213 Washington Street

Newark, New Jersey 07102

(973) 802-6000

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

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

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

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

(Check one):

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

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

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

(Registrant)

INDEX

	Page
Forward-Looking Statement Disclosure		3
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets – June 30, 2014 and December 31, 2013		4
Statements of Operations – Three and Six Months Ended June 30, 2014 and 2013		4
Statements of Changes in Net Assets – Three and Six Months Ended June 30, 2014 and 2013		4
Notes to the Financial Statements		5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Consolidated Statements of Assets and Liabilities – June 30, 2014 and December 31, 2013		14
Consolidated Statements of Operations – Three and Six Months Ended June 30, 2014 and 2013		15
Consolidated Statements of Changes in Net Assets– Six Months Ended June 30, 2014 and 2013		16
Consolidated Statements of Cash Flows – Six Months Ended June 30, 2014 and 2013		17
Consolidated Schedules of Investments – June 30, 2014 and December 31, 2013		18
Notes to Consolidated Financial Statements		20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3. Quantitative and Qualitative Disclosures About Market Risk		36
Item 4. Controls and Procedures		36
Part II - Other Information
Item 1A. Risk Factors		37
Item 6. Exhibits		37
Signatures		38

2

Forward-Looking Statement Disclosure

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company of New Jersey, or the “Company”, or Pruco Life of New Jersey Variable Contract Real Property Account, or the “Real Property Account”. There can be no assurance that future developments affecting the Company and the Real Property Account will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets; (2) interest rate fluctuations or prolonged periods of low interest rates; (3) reestimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, longevity, 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 value of business acquired; (6) changes in our financial strength or credit ratings; (7) investment losses and defaults; (8) competition in our product lines and for personnel; (9) changes in tax law; (10) regulatory or legislative changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act; (11) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities; (12) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (13) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (14) changes in statutory or accounting principles generally accepted in the United States of America, or “U.S. GAAP”, practices or policies; and (15) interruption in telecommunication, information technology or other operational systems or failure to maintain the security, confidentiality or privacy of sensitive data on such systems. The Company and the Real Property Account do not intend, and are under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2013, for discussion of certain risks relating to the operation of The Prudential Variable Contract Real Property Partnership or the “Partnership” and investment in our securities.

3

ITEM 1. Financial Statements (Unaudited)

UNAUDITED FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETS

June 30, 2014 and December 31, 2013

	June 30, 2014		December 31, 2013
ASSETS
Investment in The Prudential Variable Contract Real Property Partnership	$	8,325,325	$	8,311,766
Net Assets	$	8,325,325	$	8,311,766
NET ASSETS, representing:
Equity of contract owners	$	6,697,127	$	6,692,300
Equity of Pruco Life Insurance Company of New Jersey		1,628,198		1,619,466
	$	8,325,325	$	8,311,766
Units outstanding		2,520,964		2,574,912
Portfolio shares held		214,821		220,019
Portfolio net asset value per share	$	38.75	$	37.78

STATEMENTS OF OPERATIONS

For the three and six month periods ended June 30, 2014 and 2013

	1/1/2014-6/30/2014			1/1/2013-6/30/2013			4/1/2014-6/30/2014			4/1/2013-6/30/2013
INVESTMENT INCOME
Net investment income allocated from The Prudential Variable Contract Real Property Partnership	$	157,229		$	193,048		$	75,747		$	88,747
EXPENSES
Charges to contract owners for assuming mortality and expense risk and for administration		18,992			17,626			9,540			9,126
NET INVESTMENT INCOME		138,237			175,422			66,207			79,621
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net unrealized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		53,912			45,642			76,262			123,873
Net recognized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		—			16,652			—			2
NET GAIN (LOSS) ON INVESTMENTS		53,912			62,294			76,262			123,875
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	192,149		$	237,716		$	142,469		$	203,496
STATEMENTS OF CHANGES IN NET ASSETS For the three and six month periods ended June 30, 2014 and 2013
	1/1/2014-6/30/2014			1/1/2013-6/30/2013			4/1/2014-6/30/2014			4/1/2013-6/30/2013
OPERATIONS
Net investment income	$	138,237		$	175,422		$	66,207		$	79,621
Net unrealized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		53,912			45,642			76,262			123,873
Net recognized gain (loss) on investments allocated from The Prudential Variable Contract Real Property Partnership		—			16,652			—			2
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		192,149			237,716			142,469			203,496
CAPITAL TRANSACTIONS
Net contributions (withdrawals) by contract owners		(146,864	)		43,145			(108,828	)		6,135
Net contributions (withdrawals) by Pruco Life Insurance Company of New Jersey		(31,726	)		(226,274	)		118,368			2,991
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS		(178,590	)		(183,129	)		9,540			9,126
TOTAL INCREASE (DECREASE) IN NET ASSETS		13,559			54,587			152,009			212,622
NET ASSETS
Beginning of period		8,311,766			7,966,460			8,173,316			7,808,425
End of period	$	8,325,325		$	8,021,047		$	8,325,325		$	8,021,047

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

4

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2014

(Unaudited)

Note 1: General

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

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

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

Note 2: Summary of Significant Accounting Policies

A. Basis of Accounting

The Unaudited Interim Financial Statements as of June 30, 2014 and the statement of net assets as of December 31, 2013, which has been derived from Audited Financial Statements, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Real Property Account’s Audited Financial Statements included in the Real Property Account’s Annual Report on Form 10-K for the year ended December 31, 2013.

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

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates include valuation of investment in the Partnership.

5

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2014

(Unaudited)

Note 2: Summary of Significant Accounting Policies (continued)

B. Investment in Partnership Interest

The investment in the Partnership is based on the Real Property Account’s proportionate interest of the Partnership’s fair value. At June 30, 2014 and December 31, 2013, the Real Property Account’s interest in the General Partners Controlling Interest was 4.5% or 214,821 shares and 4.5% or 220,019 shares, respectively. Properties owned by the Partnership are illiquid and their fair value is based on estimated fair value as discussed in the notes to the unaudited consolidated financial statements of the Partnership.

C. Income Recognition

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

D. Equity of Pruco Life Insurance Company of New Jersey

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

For the period ended June 30, 2014 and the year ended December 31, 2013, there were no cash transactions at the Real Property Account level as all of the transactions are settled by Prudential on behalf of the Real Property Account through a redemption or an issuance of units. Therefore, no statement of cash flows is presented.

Note 3: Charges and Expenses

A. Mortality Risk and Expense Risk Charges

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

B. Administrative Charges

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

C. Cost of Insurance and Other Related Charges

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

6

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2014

(Unaudited)

Note 3: Charges and Expenses (continued)

D. Deferred Sales Charge

A deferred sales charge is imposed upon surrenders of certain variable life insurance contracts to compensate Pruco Life of New Jersey for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the contract was issued, but will not exceed 45% of one scheduled annual premium for VAL 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. For SPVA, there is a deferred sales charge that applies at the time of a full or partial withdrawal, and the amount of the charge (which declines over time) depends on the number of years that have elapsed since the contract was issued.

E. Partial Withdrawal Charge

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

Note 4: Taxes

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

Note 5: Net Contributions (Withdrawals) by Contract Owners

Net contributions (withdrawals) by contract owners for the Real Property Account by product for the three and six months ended June 30, 2014 and 2013 were as follows:

	Three Months Ended June 30,
	2014			2013
VAL	$	(60,359	)	$	3,269
VLI		(48,332	)		2,994
SPVA		—			—
SPVL		(137	)		(128	)
TOTAL	$	(108,828	)	$	6,135
	Six Months Ended June 30,
	2014			2013
VAL	$	(73,026	)	$	41,060
VLI		(73,566	)		2,338
SPVA		—			—
SPVL		(272	)		(253	)
TOTAL	$	(146,864	)	$	43,145

7

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2014

(Unaudited)

Note 6: Partnership Distributions

For the period ended June 30, 2014, the Partnership distributed a total of $5.0 million, which occurred on March 26, 2014. The Real Property Account’s share of this distribution was $0.2 million. During the year ended December 31, 2013, the Partnership distributed $10.0 million, which occurred on March 26, 2013 and December 30, 2013 for $5.0 million each. The Real Property Account’s share of these distributions was $0.2 million each or a total of $0.4 million.

Note 7: Unit Information

All products referred to in Note 1 for outstanding units and unit values at June 30, 2014 and December 31, 2013 were as follows:

	June 30, 2014	December 31, 2013
Units Outstanding:	2,520,964	2,574,912
Unit Value:	$2.74779 to $3.51938	$2.69505 to $3.43650

Note 8: Financial Highlights

The range of total return for the three and six months ended June 30, 2014 and 2013 were as follows:

	Three Months Ended June 30,
	2014	2013
Total Return	1.54% to 1.77%	2.40% to 2.63%
	Six Months Ended June 30,
	2014	2013
Total Return	1.96% to 2.41%	2.63% to 3.08%

8

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2014

(Unaudited)

Note 9: Fair Value Disclosure

Fair value represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative fair value guidance establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Real Property Account for identical assets or liabilities. These generally provide the most reliable evidence and should be used to measure fair value whenever available. The Real Property Account had no Level 1 assets or liabilities.

Level 2 – Fair value is based on inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. The Real Property Account had no Level 2 assets or liabilities.

Level 3 – Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the Real Property Account’s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The Real Property Account’s Level 3 assets consist of the investment in the Partnership which is based on the Real Property Account’s proportionate interest of the Partnership’s fair value, which approximates the Partnership’s net asset value. Properties owned by the Partnership are illiquid and fair value is based on estimates from property appraisal reports prepared by independent real estate appraisers as discussed in the notes to the Partnership’s unaudited consolidated financial statements. All of the Real Property Account’s assets were classified as Level 3.

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

During the six months ended June 30, 2014 and 2013, there were no transfers between Level 1 and Level 2.

9

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2014

(Unaudited)

Note 9: Fair Value Disclosure (continued)

In general, the input values in the appraisal process are unobservable, therefore unless indicated otherwise, the underlying investments in the Partnership are classified as Level 3 under the fair value hierarchy.

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

	($ in 000’s)
	Fair value measurements at June 30, 2014
	Amounts measured at fair value 6/30/2014		Level 1		Level 2		Level 3
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$	8,325	$	—	$	—	$	8,325
	($ in 000’s)
	Fair value measurements at December 31, 2013
	Amounts measured at fair value 12/31/2013		Level 1		Level 2		Level 3
Assets:
Investment in The Prudential Variable Contract Real Property Partnership	$	8,312	$	—	$	—	$	8,312

10

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2014

(Unaudited)

Note 9: Fair Value Disclosure (continued)

The table below provides a reconciliation of the beginning and ending balances for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June, 2014 and 2013.

	($ in 000’s)
	Six Months Ended June 30, 2014
Beginning balance @ 1/1/2014	$	8,312
Total gains or losses (recognized/unrealized) included in earnings (or changes in net assets) from Partnership operations		54
Net investment income from Partnership operations		157
Acquisitions, additions, and contributions		—
Equity income/(losses)		—
Dispositions/settlements		—
Distributions		(198	)
Ending balance @ 6/30/2014	$	8,325
Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	54
	($ in 000’s)
	Six Months Ended June 30, 2013
Beginning balance @ 1/1/2013	$	7,966
Total gains or losses (recognized/unrealized) included in earnings (or changes in net assets) from Partnership operations		62
Net investment income from Partnership operations		193
Acquisitions, additions, and contributions		—
Equity income/(losses)		—
Dispositions/settlements		—
Distributions		(200	)
Ending balance @ 6/30/2013	$	8,021
Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	46

11

NOTES TO THE FINANCIAL STATEMENTS OF

PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

June 30, 2014

(Unaudited)

Note 9: Fair Value Disclosure (continued)

The table below provides a reconciliation of the beginning and ending balances for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three months ended June 30, 2014 and 2013.

	($ in 000’s)
	Three Months Ended June 30, 2014
Beginning balance @ 4/1/2014	$	8,173
Total gains or losses (recognized/unrealized) included in earnings (or changes in net assets) from Partnership operations		76
Net investment income from Partnership operations		76
Acquisitions, additions, and contributions		—
Equity income/(losses)		—
Dispositions/settlements		—
Distributions		—
Ending balance @ 6/30/2014	$	8,325
Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	76
	($ in 000’s)
	Three Months Ended June 30, 2013
Beginning balance @ 4/1/2013	$	7,808
Total gains or losses (recognized/unrealized) included in earnings (or changes in net assets) from Partnership operations		124
Net investment income from Partnership operations		89
Acquisitions, additions, and contributions		—
Equity income/(losses)		—
Dispositions/settlements		—
Distributions		—
Ending balance @ 6/30/2013	$	8,021
Unrealized gains (losses) for the period relating to Level 3 assets still held at the reporting date	$	124

12

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13

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

	June 30, 2014 (Unaudited)		December 31, 2013
ASSETS
REAL ESTATE INVESTMENTS - At estimated fair value:
Real estate and improvements (cost: 6/30/2014 — $230,500,438; 12/31/2013 — $220,224,084)	$	221,860,604	$	210,100,000
CASH AND CASH EQUIVALENTS		32,481,589		43,962,922
OTHER ASSETS		3,382,239		4,315,268
Total assets	$	257,724,432	$	258,378,190
LIABILITIES & PARTNERS’ EQUITY
INVESTMENT LEVEL DEBT	$	58,722,082	$	59,223,759
ACCOUNTS PAYABLE AND ACCRUED EXPENSES		2,980,924		3,008,619
DUE TO AFFILIATES		629,346		649,925
OTHER LIABILITIES		480,142		824,064
Total liabilities		62,812,494		63,706,367
COMMITMENTS AND CONTINGENCIES (NOTE 5)
NET ASSETS, REPRESENTING PARTNERS’ EQUITY:
GENERAL PARTNERS’ CONTROLLING INTEREST		185,106,148		185,407,870
NONCONTROLLING INTEREST		9,805,790		9,263,953
		194,911,938		194,671,823
Total liabilities and partners’ equity	$	257,724,432	$	258,378,190	��
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD		4,776,348		4,907,883
SHARE VALUE AT END OF PERIOD	$	38.75	$	37.78

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

14

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2014		2013		2014		2013
INVESTMENT INCOME:
Revenue from real estate and improvements	$	12,652,718	$	14,052,550	$	6,260,029	$	6,965,746
Interest income		9,478		6,440		4,214		2,622
Total investment income		12,662,196		14,058,990		6,264,243		6,968,368
INVESTMENT EXPENSES:
Operating		2,725,805		3,239,613		1,309,117		1,563,193
Investment management fee		1,261,889		1,231,809		629,344		619,301
Real estate taxes		1,372,522		1,309,313		728,631		708,725
Administrative		2,024,587		2,282,517		1,010,911		1,226,597
Interest expense		1,454,936		1,440,743		726,834		743,523
Total investment expenses		8,839,739		9,503,995		4,404,837		4,861,339
NET INVESTMENT INCOME		3,822,457		4,554,995		1,859,406		2,107,029
RECOGNIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net proceeds from real estate investments sold		—		22,806,448		—		—
Less: Cost of real estate investments sold		—		17,139,582		—		—
Gain (loss) realized from real estate investments sold		—		5,666,866		—		—
Less: Reversal of prior periods’ unrealized gain (loss) on real estate investments sold		—		5,293,512		—		—
Net gain (loss) recognized on real estate investments sold		—		373,354		—		—
Change in unrealized gain (loss) on real estate investments held		1,484,250		1,026,009		1,851,507		2,931,536
NET RECOGNIZED AND UNREALIZED GAIN (LOSS)		1,484,250		1,399,363		1,851,507		2,931,536
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	5,306,707	$	5,954,358	$	3,710,913	$	5,038,565
Amounts attributable to noncontrolling interest:
Net investment income (loss) attributable to noncontrolling interest		320,706		226,561		172,393		117,348
Net unrealized gain (loss) attributable to noncontrolling interest		287,723		8,353		158,728		163,664
Net increase (decrease) in net assets resulting from operations attributable to noncontrolling interest	$	608,429	$	234,914	$	331,121	$	281,012
Amounts attributable to general partners’ controlling interest:
Net investment income attributable to general partners’ controlling interest		3,501,751		4,328,434		1,687,013		1,989,681
Net recognized gain (loss) attributable to general partners’ controlling interest		—		373,354		—		—
Net unrealized gain (loss) attributable to general partners’ controlling interest		1,196,527		1,017,656		1,692,779		2,767,872
Net increase (decrease) in net assets resulting from operations attributable to general partners’ controlling interest	$	4,698,278	$	5,719,444	$	3,379,792	$	4,757,553

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

15

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(Unaudited)

	For the Six Months Ended June 30,
	2014									2013
	General Partners’ Controlling Interest			Noncontrolling Interest			Total			General Partners’ Controlling Interest			Noncontrolling Interest			Total
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income (loss)	$	3,501,751		$	320,706		$	3,822,457		$	4,328,434		$	226,561		$	4,554,995
Net recognized and unrealized gain (loss) from real estate investments		1,196,527			287,723			1,484,250			1,391,010			8,353			1,399,363
Increase (decrease) in net assets resulting from operations		4,698,278			608,429			5,306,707			5,719,444			234,914			5,954,358
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:
Distributions to General Partners		(5,000,000	)		—			(5,000,000	)		(5,000,000	)		—			(5,000,000	)
Contributions from noncontrolling interest		—			—			—			—			1,113,456			1,113,456
Distributions to noncontrolling interest		—			(66,592	)		(66,592	)		—			(41,351	)		(41,351	)
Increase (decrease) in net assets resulting from capital transactions		(5,000,000	)		(66,592	)		(5,066,592	)		(5,000,000	)		1,072,105			(3,927,895	)
INCREASE (DECREASE) IN NET ASSETS		(301,722	)		541,837			240,115			719,444			1,307,019			2,026,463
NET ASSETS - Beginning of period		185,407,870			9,263,953			194,671,823			178,756,670			6,259,305			185,015,975
NET ASSETS - End of period	$	185,106,148		$	9,805,790		$	194,911,938		$	179,476,114		$	7,566,324		$	187,042,438

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

16

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended June 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase (decrease) in net assets resulting from operations	$	5,306,707		$	5,954,358
Adjustments to reconcile net increase (decrease) in net assets to net cash provided by (used in) operating activities
Net recognized and unrealized loss (gain)		(1,484,250	)		(1,399,363	)
Amortization of discount on investment level debt		—			2,273
Amortization of deferred financing costs		14,082			24,591
Bad debt expense		38,732			53,664
(Increase) decrease in:
Other assets		880,215			(667,822	)
Increase (decrease) in:
Accounts payable and accrued expenses		90,930			(222,584	)
Due to affiliates		(20,579	)		(61,807	)
Other liabilities		(343,922	)		(362	)
Net cash flows provided by (used in) operating activities		4,481,915			3,682,948
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold		—			22,806,448
Acquisition of real estate and improvements		(8,295,624	)		(20,885,407	)
Additions to real estate and improvements		(2,099,355	)		(1,591,345	)
Net cash flows provided by (used in) investing activities		(10,394,979	)		329,696
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions		(5,000,000	)		(5,000,000	)
Proceeds from investment level debt		—			12,400,000
Principal payments on investment level debt		(501,677	)		(9,470,643	)
Contributions from noncontrolling interest		—			1,113,456
Distributions to noncontrolling interest		(66,592	)		(41,351	)
Net cash flows provided by (used in) financing activities		(5,568,269	)		(998,538	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		(11,481,333	)		3,014,106
CASH AND CASH EQUIVALENTS - Beginning of period		43,962,922			18,829,641
CASH AND CASH EQUIVALENTS - End of period	$	32,481,589		$	21,843,747

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

17

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULES OF REAL ESTATE INVESTMENTS

			2014 Total Rentable Square Feet Unless Otherwise	June 30, 2014 (Unaudited)				December 31, 2013
Property Name	June 30, 2014 Ownership	City, State	Indicated (Unaudited)	Cost		Estimated Fair Value		Cost		Estimated Fair Value
OFFICES
750 Warrenville	WO	Lisle, IL	92,209	$	27,937,376	$	5,953,504	$	27,311,648	$	6,400,000
Summit @ Cornell Oaks	WO	Beaverton , OR	72,109		13,845,862		10,500,000		13,848,773		10,300,000
		Offices % as of 6/30/14	9%		41,783,238		16,453,504		41,160,421		16,700,000
APARTMENTS
700 Broadway	CJV	Seattle, WA	59 Units		22,790,539		25,100,000		22,666,478		24,800,000
Broadstone Crossing	WO	Austin, TX	225 Units		23,003,326		27,400,000		22,984,775		27,300,000
Vantage Park	CJV	Seattle, WA	91 Units		21,335,376		24,600,000		21,156,575		24,200,000
The Reserve	WO	Charlotte, NC	140 Units		14,579,857		14,300,000		14,409,301		13,700,000
		Apartments % as of 6/30/14	49%		81,709,098		91,400,000		81,217,129		90,000,000
RETAIL
Hampton Towne Center	WO	Hampton, VA	174,540		18,653,616		19,600,000		18,562,779		18,900,000
White Marlin Mall	CJV	Ocean City, MD	197,098		25,436,268		32,500,000		25,430,335		31,900,000
Westminster Crossing East	CJV	Westminster, MD	89,849		15,220,419		17,700,000		15,156,172		17,700,000
Publix at Eagle Landing	WO	North Fort Myers, FL	57,840		8,373,124		8,400,000		—		—
Harnett Crossing	WO	Dunn, NC	189,143		7,332,883		3,657,100		6,756,713		3,500,000
Village Walk	WO	Roswell, GA	88,504		20,685,362		19,300,000		20,664,003		18,900,000
		Retail % as of 6/30/14	55%		95,701,672		101,157,100		86,570,002		90,900,000
HOTEL
Portland Crown Plaza	CJV	Lake Oswego, OR	161 Rooms		11,306,430		12,850,000		11,276,532		12,500,000
		Hotel % as of 6/30/14	7%		11,306,430		12,850,000		11,276,532		12,500,000
Total Real Estate Investments at Estimated Fair Values as a Percentage of General Partners’ Controlling Interest as of 6/30/14			120%	$	230,500,438	$	221,860,604	$	220,224,084	$	210,100,000

WO - Wholly Owned Investment

CJV - Consolidated Joint Venture

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

18

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULES OF REAL ESTATE INVESTMENTS

	June 30, 2014 (Unaudited)								December 31, 2013
	Face Amount		Maturity Date	Cost		Estimated Fair Value			Cost		Estimated Fair Value
CASH AND CASH EQUIVALENTS - Percentage of General Partners’ Controlling Interest							17.5	%				23.7	%
Investments in Prudential Investment Liquidity Pool:
Federal Home Loan Bank, 0 coupon bond	$	19,000,000	September, 2014	$	18,996,622	$	18,996,622		$	18,600,000	$	18,600,000
Federal Home Loan Bank, 0 coupon bond		11,300,000	July, 2014		11,300,000		11,300,000			6,800,000		6,800,000
Federal Home Loan Bank, 0 coupon bond					—		—			9,998,911		9,998,911
Federal Home Loan Bank, 0 coupon bond					—		—			1,999,711		1,999,711
Federal Home Loan Bank, 0 coupon bond					—		—			2,699,707		2,699,707
Total Cash Equivalents					30,296,622		30,296,622			40,098,329		40,098,329
Cash					2,184,967		2,184,967			3,864,593		3,864,593
Total Cash and Cash Equivalents				$	32,481,589	$	32,481,589		$	43,962,922	$	43,962,922

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

19

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2014

(Unaudited)

Note 1: Summary of Significant Accounting Policies

A. Basis of Presentation - The accompanying consolidated financial statements of The Prudential Variable Contract Real Property Partnership (the “Partnership”) included herein have been prepared in accordance with accounting principles generally accepted in the United States of America that are applicable to investment companies. In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ended December 31, 2014. For further information, refer to the audited consolidated financial statements and notes of the Partnership for the year ended December 31, 2013. The Partnership has evaluated subsequent events through August 13, 2014, the date these financial statements were available to be issued.

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

Cash paid for interest during the six months ended June 30, 2014 and 2013 was $1,440,854 and $1,416,152, respectively.

Note 3: Fair Value Measurements

Valuation Methods:

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

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

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. In accordance with Financial Accounting Standards Board (“FASB”) authoritative guidance on fair value measurements and disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. Key inputs and assumptions include rental income and expense amounts, related rental income and expense growth rates, discount rates and capitalization rates. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to come up with the approximate value for the type of real estate in the market. The real estate investments, consisting of real estate and improvements, are therefore classified as Level 3.

Cash equivalents include short term investments. Short term investments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1.

See below for a description of the levels of fair value hierarchy.

20

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

Fair Value Measurements:

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

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

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

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

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

During the six months ended June 30, 2014 and 2013, there were no transfers between Level 1 and Level 2.

21

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

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

Table 1

			(in 000’s)
			Fair value measurements at June 30, 2014 using
Assets:	Cost at 06/30/14		Amounts measured at fair value 06/30/2014		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable (inputs (level 3)
Real estate and improvements	$	230,500	$	221,861	$	—	$	—	$	221,861
Cash equivalents		30,297		30,297		30,297		—		—
Total	$	260,797	$	252,158	$	30,297	$	—	$	221,861
			(in 000’s)
			Fair value measurements at December 31, 2013 using
Assets:	Cost at 12/31/13		Amounts measured at fair value 12/31/2013		Quoted prices in active markets for identical assets (level 1)		Significant other observable inputs (level 2)		Significant unobservable inputs (level 3)
Real estate and improvements	$	220,224	$	210,100	$	—	$	—	$	210,100
Cash equivalents		40,098		40,098		40,098		—		—
Total	$	260,322	$	250,198	$	40,098	$	—	$	210,100

22

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

Table 2 below provides a reconciliation of the beginning and ending balances for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six month periods ended June 30, 2014 and June 30, 2013.

Table 2

(in 000’s)

Fair value measurements using significant unobservable inputs

for the six months ended June 30, 2014

(Level 3)

	Real estate and improvements
Beginning balance @ 1/1/14	$	210,100
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		1,484
Acquisitions, issuances and contributions		10,277
Disposition, settlements and distributions		—
Ending balance @ 6/30/14	$	221,861
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	1,484

(in 000’s)

Fair value measurements using significant unobservable inputs

for the six months ended June 30, 2013

(Level 3)

	Real estate and improvements
Beginning balance @ 1/1/13	$	223,622
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		1,399
Acquisitions, issuances and contributions		22,585
Disposition, settlements and distributions		(22,806	)
Ending balance @ 6/30/13	$	224,800
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	1,026

23

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

Table 2

(in 000’s)

Fair value measurements using significant unobservable inputs

for the three months ended June 30, 2014

(Level 3)

	Real estate and improvements
Beginning balance @ 4/1/14	$	218,546
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		1,852
Acquisitions, issuances and contributions		1,463
Disposition, settlements and distributions		—
Ending balance @ 6/30/14	$	221,861
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	1,852

(in 000’s)

Fair value measurements using significant unobservable inputs

for the three months ended June 30, 2013

(Level 3)

	Real estate and improvements
Beginning balance @ 4/1/13	$	221,403
Net gains (losses) realized/unrealized included in earnings (or changes in net assets)		2,932
Acquisitions, issuances and contributions		465
Disposition, settlements and distributions		—
Ending balance @ 6/30/13	$	224,800
Unrealized gains (losses) for the period relating to level 3 assets still held at the reporting date	$	2,932

24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

Quantitative Information Regarding Level 3 Assets:

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

	As of June 30, 2014
	Fair Value (in 000’s)		Number of property(ies) in this property type	Valuation Techniques	Unobservable Input	Range (Weighted Average)
Real estate and improvements:
Apartment	$	91,400	4	Discounted cash flow	Exit capitalization rate	5.00%- 6.25%(5.50%)
					Discount rate	6.75% -7.75%(7.12%)
Hotel		12,850	1	Market value*
Office		16,454	2	Discounted cash flow	Exit capitalization rate	7.75% - 9.00%(8.20%)
					Discount rate	8.75% - 9.25%(8.93%)
Retail		101,157	6	Discounted cash flow	Exit capitalization rate	6.50%- 10.00%(7.44%)
					Discount rate	7.00% - 10.50%(7.95%)
		$221,861

The market value approach represents assets in which estimated fair value represents subjective estimates by management based on the investment’s specific facts and circumstances. See Note 3 for further details on valuation methodology.

25

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2014

(Unaudited)

Note 3: Fair Value Measurements (continued)

Fair Value of Financial Instruments Carried at Cost:

As of June 30, 2014 and December 31, 2013, the Partnership’s mortgages on wholly owned properties and consolidated partnerships have an estimated fair value of approximately $59.8 million and $59.4 million, respectively, and a carrying value (amortized cost) of $58.7 million and $59.2 million, respectively. The estimated fair value is based on the amount at which the Partnership would pay to transfer the debt at the reporting date taking into consideration the effect of nonperformance risk, including the Partnership’s own credit risk. The fair value of debt is determined using the discounted cash flow method, which applies certain key assumptions including the contractual terms of the agreement, market interest rates, interest spreads, credit risk, liquidity and other factors. Different assumptions or changes in future market conditions could significantly affect the estimated fair value. The input values used in determining the fair value on investment level debt are unobservable, therefore would be considered as Level 3 under the fair value hierarchy.

Note 4: Risk

A. Valuation Risk

The estimated fair value of real estate and real estate related assets is generally determined through an appraisal process. These estimated fair values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. These differences could be material to the financial statements. Although the estimated fair values represent subjective estimates, management believes that these estimated fair values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate are fairly presented as of June 30, 2014 and December 31, 2013.

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 June 30, 2014, the Partnership had no outstanding matured loans.

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

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

Note 5: Commitments and Contingencies

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

Note 6: Related Party Transactions

Pursuant to an investment management agreement, PIM charges the Partnership a daily investment management fee at an annual rate of 1.25% of the average daily gross asset valuation of the Partnership. For the six month periods ended June 30, 2014 and June 30, 2013, management fees incurred by the Partnership were $1,261,889 and $1,231,809, respectively.

26

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

June 30, 2014

(Unaudited)

Note 7: Financial Highlights

	For The Six Months Ended June 30,
	2014			2013			2012			2011			2010
Per Share(Unit) Operating Performance:
Net Asset Value attributable to general partners’ controlling interest, beginning of period	$	37.78		$	34.49		$	32.27		$	28.38		$	25.88
Income From Investment Operations:
Net investment income attributable to general partners’ controlling interest, before management fee		0.98			1.09			0.96			0.92			0.80
Investment Management fee attributable to general partners’ controlling interest		(0.26	)		(0.25	)		(0.22	)		(0.20	)		(0.17	)
Net recognized and unrealized gain (loss) on investments attributable to general partners’ controlling interest		0.25			0.28			0.03			1.29			0.06
Net Increase (decrease) in Net Assets Resulting from Operations attributable to general partners’ controlling interest		0.97			1.12			0.77			2.01			0.69
Net Asset Value attributable to general partners’ controlling interest, end of period	$	38.75		$	35.61		$	33.04		$	30.39		$	26.57
Total Return attributable to general partners’ controlling interest, before Management Fee:		3.28	%		3.99	%		3.07	%		7.78	%		3.28	%
Total Return attributable to general partners’ controlling interest, after Management Fee (a):		2.57	%		3.27	%		2.37	%		7.06	%		2.66	%
Ratios/Supplemental Data:
Net Assets attributable to general partners’ controlling interest, end of period (in millions)	$	185		$	179		$	171		$	172		$	164
Ratios to average net assets for the period ended (b):
Management fees		0.69	%		0.70	%		0.69	%		0.70	%		0.68	%
Other portfolio level expense		0.10	%		0.11	%		0.13	%		0.13	%		0.14	%
Total Portfolio Level Expenses		0.79	%		0.81	%		0.82	%		0.83	%		0.82	%
Net Investment Income, before Management Fee		2.60	%		3.16	%		2.97	%		3.16	%		3.06	%
Net Investment Income, after Management Fee		1.91	%		2.45	%		2.27	%		2.43	%		2.40	%

(a) Total Return, before/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.

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

All of the assets of the Real Property Account are invested in the Partnership. Accordingly, the liquidity and capital resources and results of operations for the Real Property Account are contingent upon those of the Partnership. Therefore, this management’s discussion and analysis addresses these items at the Partnership level. The general partners in the Partnership are 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 financial statements of the Real Property Account, the unaudited consolidated financial statements of the Partnership and the related Notes included in this filing.

(a) Liquidity and Capital Resources

As of June 30, 2014, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $32.5 million, a decrease of approximately $11.5 million from $44.0 million as of December 31, 2013. The decrease was primarily due to the following activities (a) $8.3 million for an acquisition of a grocery-anchored retail center located in North Fort Myers, Florida; (b) $5.0 million distribution to the general partners’ controlling interest; (c) $0.5 million of principal payments made on financed properties; and (d) $2.1 million paid for capital improvements. The $2.1 million payment for capital improvements included the following items: (a) $0.7 million for space renovations at the office property in Lisle, Illinois; (b) $0.6 million for space renovations at the retail property in Dunn, North Carolina; (c) $0.2 million for unit upgrades at one of the apartment properties in Seattle, Washington; and (d) $0.2 million for unit upgrades at the apartment property in Charlotte, North Carolina; and (e) $0.4 million for capital improvements and transaction costs associated with leasing expenses at various properties. Partially offsetting this decrease was an increase due to net cash flow generated from property operations of approximately $4.4 million.

Sources of liquidity included net cash flow from property operations and interest from cash equivalents. The Partnership uses cash for its real estate investment activities and for its distributions to its partners. As of June 30, 2014, approximately 12.6% of the Partnership’s total assets consisted of cash and cash equivalents.

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b) Results of Operations

The following is a comparison of the Partnership’s results of operations for the three and six month periods ended June 30, 2014 and June 30, 2013.

Net investment income overview

The Partnership’s net investment income attributable to the general partners’ controlling interest for the six month period ended June 30, 2014 was approximately $3.5 million, a decrease of approximately $0.8 million from the prior year period. The decrease in net investment income attributable to the general partners’ controlling interest was primarily due to a decrease of $1.3 million in the office sector investments’ net investment income from the prior year period. Partially offsetting this decrease was an increase of approximately $0.3 million from the prior year period in net investment income attributable to the general partners’ controlling interest from the retail sector and an increase of approximately $0.3 million from the prior year period in net investment income attributable to the general partners’ controlling interest from the apartment sector.

The Partnership’s net investment income attributable to the general partners’ controlling interest for the three month period ended June 30, 2014 was approximately $1.7 million, 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 was primarily due to a decrease of $0.7 million in the office sector investments’ net investment income from the prior year period. Partially offsetting this decrease was an increase of approximately $0.3 million from the prior year period in net investment income attributable to the general partners’ controlling interest from the retail sector.

Valuation overview

The Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.2 million for the six month period ended June 30, 2014. This is 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 gains attributable to the general partners’ controlling interest for the six month period ended June 30, 2014 were primarily due to valuation increases in the apartment, retail and hotel sector investments. Partially offsetting the unrealized gains was an unrealized loss in the office sector investments.

The Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.7 million for the three month period ended June 30, 2014. This is compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $2.8 million for the prior year period. The unrealized gains attributable to the general partners’ controlling interest for the three month period ended June 30, 2014 were primarily due to valuation increases in the apartment and retail sector investments. Partially offsetting the unrealized gains were unrealized losses in the office and hotel sector investments.

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The following table presents a comparison of the Partnership’s sources of net investment income attributable to the general partners’ controlling interest and net recognized and unrealized gains or (losses) attributable to the general partners’ controlling interest for the six and three month periods ended June 30, 2014 and 2013.

	Six Months Ended June 30,						Three Months Ended June 30,
	2014			2013			2014			2013
Net Investment Income:
Office properties	$	766,328		$	2,112,268		$	133,037		$	829,228
Apartment properties		1,691,539			1,449,199			823,510			752,415
Retail properties		2,172,862			1,857,579			1,195,721			864,404
Hotel property		309,223			329,457			266,588			249,972
Other (including interest income, investment mgt fee)		(1,438,201	)		(1,420,069	)		(731,843	)		(706,338	)
Total Net Investment Income	$	3,501,751		$	4,328,434		$	1,687,013		$	1,989,681
Net Recognized Gain (Loss) on Real Estate Investments:
Apartment Properties	$	—		$	373,354		$	—		$	—
Net Recognized Gain (Loss) on Real Estate Investments	$	—		$	373,354		$	—		$	—
Net Unrealized Gain (Loss) on Real Estate Investments:
Office properties	$	(869,312	)	$	(212,908	)	$	(190,572	)	$	393,505
Apartment properties		888,592			1,372,639			860,998			1,543,632
Retail properties		876,576			1,014,153			1,032,206			1,263,604
Hotel property		300,671			(1,156,228	)		(9,853	)		(432,869	)
Net Unrealized Gain (Loss) on Real Estate Investments	$	1,196,527		$	1,017,656		$	1,692,779		$	2,767,872
Net Recognized and Unrealized Gain (Loss) on Real Estate Investments	$	1,196,527		$	1,391,010		$	1,692,779		$	2,767,872

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OFFICE PROPERTIES

Six Months Ended June 30,	Net Investment Income/(Loss) 2014			Net Investment Income/(Loss) 2013		Unrealized Gain/(Loss) 2014			Unrealized Gain/(Loss) 2013			Occupancy 2014			Occupancy 2013
Property
Lisle, IL	$	373,791		$	505,902	$	(1,072,224	)	$	(827,590	)		38	%		57	%
Brentwood, TN #1		15,096			658,227		—			200,000			N/A			100	%
Beaverton, OR		360,419			309,603		202,912			214,682			100	%		91	%
Brentwood, TN #2		17,022			638,536		—			200,000			N/A			100	%
	$	766,328		$	2,112,268	$	(869,312	)	$	(212,908	)
Three Months Ended June 30,
Property
Lisle, IL	$	(60,879	)	$	43,672	$	(302,996	)	$	(246,335	)
Brentwood, TN #1		—			326,315		—			100,000
Beaverton, OR		193,916			167,828		112,424			239,840
Brentwood, TN #2		—			291,413		—			300,000
	$	133,037		$	829,228	$	(190,572	)	$	393,505

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s office properties was approximately $0.8 million and $0.1 million for the six and three month periods ended June 30, 2014, respectively, which represents a decrease of approximately $1.3 million and $0.7 million from the prior year periods, respectively, primarily due to the sale of the properties in Brentwood, Tennessee in December 2013. These properties’ results of operations for the six month period ended June 30, 2014 represents post-close expenses.

Unrealized gain/(loss)

The office properties owned by the Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.9 million for the six month period ended June 30, 2014, compared with a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.2 million from the prior year period. The unrealized loss attributable to the general partners’ controlling interest for the six month period ended June 30, 2014 was primarily due to lower occupancy at the property in Lisle, Illinois. Partially offsetting this loss was a valuation gain at the property in Beaverton, Oregon due to higher occupancy. The office properties owned by the Partnership recorded a net unrealized loss attributable to the general partners’ controlling interest of approximately $0.2 million for the three month period ended June 30, 2014, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.4 million from the prior year period. The unrealized loss attributable to the general partners’ controlling interest for the three month period ended June 30, 2014 was primarily due to anticipated capital expenditures at the property in Lisle, Illinois. Partially offsetting this loss was a valuation gain at the property in Beaverton, Oregon due to favorable market leasing assumptions.

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APARTMENT PROPERTIES

Six Months Ended June 30,	Net Investment Income/(Loss) 2014			Net Investment Income/(Loss) 2013			Unrealized Gain/(Loss) 2014		Recognized/ Unrealized Gain/(Loss) 2013		Occupancy 2014			Occupancy 2013
Property
Raleigh, NC(1)	$	(64,926	)	$	(5,927	)	$	—	$	373,354		N/A			N/A
Austin, TX		732,192			722,814			81,449		91,818		98	%		97	%
Charlotte, NC		421,312			377,299			429,444		241,974		99	%		99	%
Seattle, WA #1		295,819			171,517			149,372		219,712		82	%		87	%
Seattle, WA #2		307,142			183,496			228,327		819,135		81	%		95	%
	$	1,691,539		$	1,449,199		$	888,592	$	1,745,993
Three Months Ended June 30,
Property
Raleigh, NC(1)	$	(64,926	)	$	—		$	—	$	—
Austin, TX		358,625			341,647			89,951	��	295,568
Charlotte, NC		218,430			195,491			219,403		357,819
Seattle, WA #1		156,276			97,509			203,995		71,110
Seattle, WA #2		155,105			117,768			347,649		819,135
	$	823,510		$	752,415		$	860,998	$	1,543,632

⁽¹⁾ The Raleigh, North Carolina property w as sold on February 25, 2013, w hich w as reflected as a recognized gain.

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s apartment properties was approximately $1.7 million for the six month period ended June 30, 2014, which represents an increase of approximately $0.3 million from the prior year period. This increase was primarily due to increased rents from unit renovations at the properties in Seattle, Washington and Charlotte, North Carolina. Net investment income attributable to general partners’ controlling interest for the Partnership’s apartment properties was approximately $0.8 million for the three month period ended June 30, 2014, which is relatively unchanged from the prior year period.

Recognized and Unrealized gain/(loss)

The apartment properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.9 million for the six and three month periods ended June 30, 2014, compared with a net recognized and unrealized gain attributable to the general partners’ controlling interest of approximately $1.7 million and $1.5 million for the prior year periods, respectively. These gains were due to favorable market leasing assumptions at the properties in Austin, Texas, Charlotte, North Carolina and Seattle, Washington.

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RETAIL PROPERTIES

Six Months Ended June 30,	Net Investment Income/(Loss) 2014		Net Investment Income/(Loss) 2013		Unrealized Gain/(Loss) 2014			Unrealized Gain/(Loss) 2013			Occupancy 2014			Occupancy 2013
Property
Hampton, VA	$	598,440	$	559,478	$	609,162		$	(19,345	)		96	%		85	%
Ocean City, MD		430,952		394,965		345,213			(7,310	)		96	%		96	%
Westminster, MD		646,175		628,931		(64,247	)		1,182,355			100	%		100	%
Dunn, NC		68,500		125,233		(419,070	)		(6,900	)		46	%		35	%
Roswell, GA		266,709		148,972		378,642			(134,647	)		94	%		96	%
North Fort Myers, FL		162,086		—		26,876			—			88	%		N/A
	$	2,172,862	$	1,857,579	$	876,576		$	1,014,153
Three Months Ended June 30,
Property
Hampton, VA	$	330,811	$	286,070	$	596,850		$	199,129
Ocean City, MD		226,853		196,713		21,631			(86,444	)
Westminster, MD		337,555		309,721		—			1,288,353
Dunn, NC		42,766		44,546		295,349			(2,787	)
Roswell, GA		130,423		27,354		91,500			(134,647	)
North Fort Myers, FL		127,313		—		26,876			—
	$	1,195,721	$	864,404	$	1,032,206		$	1,263,604

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s retail properties was approximately $2.2 million and $1.2 million for the six and three month periods ended June 30, 2014, respectively, which represents an increase of approximately $0.3 million from the prior year periods. The increase in net investment income attributable to the general partners’ controlling interest for the six and three month periods ended June 30, 2014 was largely due to the additional income provided by the property in North Fort Myers, Florida that was acquired in March 2014. The increase was also due to lower bad debt write-offs and real estate tax expense at the property in Roswell, Georgia.

Unrealized gain/(loss)

The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $0.9 million for the six month period ended June 30, 2014, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.0 million from the prior year period. The net unrealized gain attributable to the general partners’ controlling interest for the six month period ended June 30, 2014 was primarily due to unrealized gains at the properties in Hampton, Virginia, Ocean City, Maryland and Roswell, Georgia due to lower investment rates. Investment rates include direct and terminal capitalization rates, and discount rates, which reflect investors’ yield requirements on investments. Partially offsetting the net unrealized gain was an unrealized loss at the property in Dunn, North Carolina due to an increase in anticipated required capital expenditure. The retail properties owned by the Partnership recorded a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.0 million for the three month period ended June 30, 2014, compared with a net unrealized gain attributable to the general partners’ controlling interest of approximately $1.3 million from the prior year period. The net unrealized gain attributable to the general partners’ controlling interest for the three month period ended June 30, 2014 was primarily due to lower investment rates at the property in Hampton, Virginia, an increase in the projected near-term occupancy from a recent lease execution at the property in Dunn, North Carolina and decreased real estate tax expense at the property in Roswell, Georgia.

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HOTEL PROPERTY

Six Months Ended June 30,	Net Investment Income/(Loss) 2014		Net Investment Income/(Loss) 2013		Unrealized Gain/(Loss) 2014			Unrealized Gain/(Loss) 2013			Occupancy 2014			Occupancy 2013
Property
Lake Oswego, OR	$	309,223	$	329,457	$	300,671		$	(1,156,228	)		67	%		69	%
Three Months Ended June 30,
Property
Lake Oswego, OR	$	266,588	$	249,972	$	(9,853	)	$	(432,869	)

Net investment income

Net investment income attributable to the general partners’ controlling interest for the Partnership’s hotel property was $0.3 million for the six and three month periods ended June 30, 2014, which remained relatively unchanged from the prior year periods.

Unrealized gain/(loss)

The Partnership’s hotel property recorded an unrealized gain attributable to the general partners’ controlling interest of approximately $0.3 million for the six month period ended June 30, 2014, compared with an unrealized loss attributable to the general partners’ controlling interest of approximately $1.2 million for the prior year period. The gain was primarily due to the contractually agreed upon sale price of the asset. The property is projected to be disposed of late 2014.

Other

Other net investment expense mainly includes investment management fees, other portfolio level expenses and interest income. Other net investment expense attributable to the general partners’ controlling interest was approximately $1.4 million and $0.7 million for the six and three month periods ended June 30, 2014, which remained relatively unchanged from the prior year periods.

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

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

Valuation of Investments

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

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

The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. In accordance with Financial Accounting Standards Board (“FASB”) authoritative guidance on fair value measurements and disclosures, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The estimate of fair value is based on the conventional approaches to value, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single three month period income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable real estate in the market. Key inputs and assumptions include rental income and expense amounts, related rental income and expense growth rates, discount rates and capitalization rates. In the reconciliation of these three approaches, the independent appraiser uses one or a combination of them, to determine the approximate value for the type of real estate in the market.

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

Other Estimates

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

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk – The general partners’ controlling interest exposure to market rate risk for changes in interest rates relates to approximately 48.09% of its investment portfolio as of June 30, 2014, 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, cash equivalents and short term investments at June 30, 2014:

	Maturity		Estimated Market Value (millions)		Average Interest Rate
Cash and cash equivalents		0-3 months	$	32.5		0.05	%

The table below discloses the Partnership’s investment level debt as of June 30, 2014. The fair value of the Partnership’s long-term investment level debt is affected by changes in market interest rates. The following table presents principal cash flows based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the debt.

Investment level debt (in $ thousands), including current portion	2014			2015			2016			2017			2018			Thereafter			Total			Estimated Fair Value
Weighted Average Fixed Interest Rate		5.46	%		5.46	%		5.46	%		5.46	%		5.46	%		5.46	%		5.46	%
Fixed Rate	$	515		$	1,084		$	1,153		$	1,315		$	2,380		$	39,775		$	46,222		$	47,300
Variable Rate		—			12,500			—			—			—			—			—			12,500
Total Investment Level Debt	$	515		$	13,584		$	1,153		$	1,315		$	2,380		$	39,775		$	46,222		$	59,800

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

ITEM 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Principal Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e), as amended under the Securities Exchange Act of 1934 (“the Exchange Act”), as of June 30, 2014. Based on such evaluation, the Principal Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2014, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(e) occurred during the quarter ended June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1A. Risk Factors

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013. These risks could materially affect our business, results of operations or financial condition, or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our business described elsewhere in this Quarterly Report on Form 10-Q.

Item 6. Exhibits

31.1	Section 302 Certification of the Principal Executive Officer.
31.2	Section 302 Certification of the Chief Financial Officer.
32.1	Section 906 Certification of the Principal Executive Officer.
32.2	Section 906 Certification of the Chief Financial Officer.

101.INS -XBRL Instance Document.

101.SCH -XBRL Taxonomy Extension Schema Document.

101.CAL -XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB -XBRL Taxonomy Extension Label Linkbase Document.

101.PRE -XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF-XBRL Taxonomy Extension Definition Linkbase Document.

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SIGNATURES

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

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

in respect of

Pruco Life of New Jersey Variable Contract Real Property Account

(Registrant)

Date: August 13, 2014

By:	/s/ Yanela C. Frias
Yanela C. Frias
Vice President and Chief Financial Officer
(Authorized Signatory and Principal Accounting and Financial Officer)

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