10-Q 1 ten_q.htm FORM 10-Q Prepared and filed by St Ives Financial

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the quarterly period ended March 31, 2006

OR

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

Commission file number 33-86780

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     NO

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act (check one).      

Large accelerated filer        Accelerated filer        Non-accelerated filer  

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

Back to Contents

PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Registrant)

INDEX

        Page  
Forward – Looking Statement Disclosure   3  
           
Part I – Financial Information        
           
Item 1. Financial Statements (Unaudited)      
           
A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT      
           
    Statement of Net Assets – March 31, 2006 and December 31, 2005   4  
           
    Statement of Operations – Three Months Ended March 31, 2006 and 2005   4  
           
    Statement of Changes in Net Assets – Three Months Ended March 31, 2006 and 2005   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, 2006 and December 31, 2005   8  
           
    Consolidated Statements of Operations – Three Months Ended March 31, 2006 and 2005   9  
         
    Consolidated Statements of Changes in Net Assets – Three Months Ended March 31, 2006 and 2005   10  
           
    Consolidated Statements of Cash Flows – Three Months Ended March 31, 2006 and 2005   11  
           
    Consolidated Schedules of Investments – March 31, 2006 and December 31, 2005   12  
           
    Notes to the Financial Statements of the Partnership   14  
           
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations    16  
           
Item 3. Quantitative and Qualitative Disclosures About Market Risk    23  
           
Item 4. Controls and Procedures    25  
           
Part II – Other Information        
           
Item 1A. Risk Factors   25  
           
Item 4. Submission of Matters to a Vote of Security Holders    25  
           
Item 6. Exhibits     25  
           
Signatures       26  

2

Back to Contents

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 The Prudential Insurance Company of America (“the Company”) or the Prudential Variable Contract Real Property Account (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 stock, real estate and other financial markets; (2) interest rate fluctuations; (3) re-estimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates, or market returns and the assumption we use in pricing our products, establishing liabilities and reserves or for other purposes or goodwill; (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) economic, political, currency and other risks relating to our international operations; (11) fluctuations in foreign currency exchange rates and foreign securities markets; (12) regulatory or legislative changes; (13) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities, including in connection with our divestiture or winding down of businesses; (14) 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; (15) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (16) effects of acquisitions, divestitures and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions; (17) changes in statutory or U.S. GAAP accounting principles, practices or policies; (18) changes in assumptions for retirement expense; (19) Prudential Financial, Inc.’s primary reliance, as a holding company, on dividends or distributions from its subsidiaries to meet debt payment obligations and continue share repurchase, and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends or distributions; and (20) risks due to the lack of legal separation between our Financial Services Businesses and our Closed Block Business. 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” for discussion of certain risks relating to the operation of the Partnership.

3

Back to Contents

FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENT OF NET ASSETS
March 31, 2006 and December 31, 2005

  March 31, 2006
(unaudited)		   December 31, 2005  
ASSETS
 
 
Investment in The Prudential Variable Contract          
      Real Property Partnership $ 118,332,528   $ 113,200,507  
 
 
 
Net Assets $ 118,332,528   $ 113,200,507  
 
 
 
             
NET ASSETS, representing:            
Equity of contract owners $ 84,907,761   $ 81,885,275  
Equity of Pruco Life Insurance Company   33,424,767     31,315,232  
 
 
 
  $ 118,332,528   $ 113,200,507  
 
 
 
             
Units outstanding   43,265,033     43,195,848  
 
 
 
             
Portfolio shares held   3,825,616     3,825,616  
Portfolio net asset value per share $ 30.93   $ 29.59  
             
STATEMENT OF OPERATIONS            
For the three months ended March 31, 2006 and 2005          
   1/1/2006-3/31/2006
(unaudited)		    1/1/2005-3/31/2005
(unaudited)		  
 
 
 
INVESTMENT INCOME            
Net investment income from Partnership operations $ 1,488,804   $ 1,095,982  
 
 
 
EXPENSES            
Charges to contract owners for assuming mortality risk and            
     expense risk and for administration   125,253     113,448  
 
 
 
NET INVESTMENT INCOME   1,363,551     982,534  
 
 
 
NET REALIZED AND UNREALIZED GAIN            
     (LOSS) ON INVESTMENTS            
Net change in unrealized gain (loss) on investments from Partnership   3,644,825     1,510,205  
Net realized gain (loss) on sale of investments from Partnership   (1,609 )   (109,300 )
 
 
 
NET GAIN (LOSS) ON INVESTMENTS   3,643,216     1,400,905  
 
 
 
NET INCREASE (DECREASE) IN NET ASSETS            
     RESULTING FROM OPERATIONS $ 5,006,767   $ 2,383,439  
 
 
 
             
STATEMENT OF CHANGES IN NET ASSETS            
For the three months ended March 31, 2006 and 2005          
   1/1/2006-3/31/2006
(unaudited)		    1/1/2005-3/31/2005
(unaudited)		  
 
 
 
OPERATIONS            
Net investment income $ 1,363,551   $ 982,534  
Net change in unrealized gain (loss) on investments in Partnership   3,644,825     1,510,205  
Net realized gain (loss) on sale of investments in Partnership   (1,609 )   (109,300 )
 
 
 
NET INCREASE (DECREASE) IN NET ASSETS            
     RESULTING FROM OPERATIONS   5,006,767     2,383,439  
 
 
 
CAPITAL TRANSACTIONS            
Net withdrawals by contract owners   (546,439 )   (554,710 )
Net contributions (withdrawals) by Pruco Life Insurance Company   671,693     668,158  
 
 
 
NET INCREASE (DECREASE) IN NET ASSETS            
      RESULTING FROM CAPITAL TRANSACTIONS   125,254     113,448  
 
 
 
TOTAL INCREASE (DECREASE) IN NET ASSETS   5,132,021     2,496,887  
     NET ASSETS            
Beginning of period   113,200,507     102,950,783  
 
 
 
End of period $ 118,332,528   $ 105,447,670  
 
 
 

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

4

Back to Contents

NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
March 31, 2006
(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”), a wholly-owned subsidiary of Prudential Financial, Inc. (“PFI”) and is registered under the Securities Act of 1933. 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 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 accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“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, 2006 and for the three months ended March 31, 2006 and 2005 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.

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, 2006 and December 31, 2005 the Account’s interest in the Partnership was 55.1% or 3,825,616 shares.

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 affect contract owners’ accounts or the related unit values.      

Note 3: Charges and Expenses

A.      Mortality Risk and Expense Risk Charges

Mortality risk and expense risk charges are determined daily using an effective annual rate of 0.6%, 0.35%, 0.9% and 0.9% for VAL, VLI, SPVA, SPVL, respectively. Mortality risk is that life insurance contract owners may not live as long as estimated or annuitants may live longer than estimated and expense risk is 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.

5

Back to Contents

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 also subject to monthly charges for the costs of administering the contract to compensate Pruco Life the guaranteed minimum death benefit risk. 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 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. A 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. A 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.

6

Back to Contents

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, 2006 and 2005, were as follows:

  March 31,    
 
 
  2006 2005  
 
 
 
 
(Unaudited)  
  
VAL $ 423,698   $ 352,062  
VLI   40,620     6,413  
SPVA   20,853     0  
SPVL   61,268     196,235  
 
 
 
TOTAL     $ 546,439   $ 554,710  
 
 
 

Note 6:  Partnership Distributions

As of March 31, 2006, the Partnership had made no current year distributions. For the year ended December 31, 2005, the Partnership made distributions of $6 million. The Pruco Life Account’s share of these distributions was $3.4 million.

Note 7:  Unit Information

Outstanding units and unit values at March 31, 2006 and December 31, 2005 were as follows:

  March 31, 2006   December 31, 2005  
 
 
 
 
(Unaudited)  
      
Units Outstanding: 43,265,033   43,195,848  
Unit Value: 2.42996 to 2.89112   2.33181 to 2.76817  

Note 8:  Financial Highlights

The range of total return for the three months ended March 31, 2006 and 2005 was as follows:

  Three months ended
March 31, 		 
 
 
    2006     2005  
 
 
 
 
(Unaudited)  
  
Total Return    4.21% to 4.44%   2.11% to 2.34%  

7

Back to Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

  March 31, 2006
(Unaudited)		   December 31, 2005  
 
 
 
ASSETS            
             
REAL ESTATE INVESTMENTS - At estimated market value:                    
Real estate and improvements                    
      (cost: 03/31/2006 - $183,929,849; 12/31/2005 - $183,767,148) $ 186,913,113   $ 178,628,645  
Real estate partnerships and preferred equity investments (cost:                    
      03/31/2006 - $26,135,424; 12/31/2005 - $18,578,394)       21,850,185         14,348,816  
Mortgage and other loans receivable (cost: 03/31/2006 - $0;                    
      12/31/2005 - $4,277,769)       —         4,277,769  
 
 
 
                     
         Total real estate investments   208,763,298     197,255,230  
                     
CASH AND CASH EQUIVALENTS       45,001,015         45,467,485  
                     
OTHER ASSETS, NET       2,851,582         3,292,400  
 
 
 
                     
         Total assets $ 256,615,895   $ 246,015,115  
 
 
 
                     
LIABILITIES & PARTNERS' EQUITY                    
                     
INVESTMENT LEVEL DEBT $     33,060,157   $     33,195,607  
                     
ACCOUNTS PAYABLE AND ACCRUED EXPENSES       2,384,991         2,545,052  
                     
DUE TO AFFILIATES       753,224         760,926  
                     
OTHER LIABILITIES       607,360         472,336  
                     
MINORITY INTEREST       5,095,238         3,638,343  
 
 
 
                     
         Total liabilities       41,900,970         40,612,264  
 
 
 
COMMITMENTS AND CONTINGENCIES                    
                     
PARTNERS' EQUITY   214,714,925     205,402,851  
 
 
 
                     
         Total liabilities and partners' equity $ 256,615,895   $ 246,015,115  
 
 
 
                     
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD       6,941,631         6,941,631  
 
 
 
                     
SHARE VALUE AT END OF PERIOD $     30.93   $     29.59  
 
 
 

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

8

Back to Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

  For the Three Months Ended March 31,
 
 
  2006   2005
 
 
 
INVESTMENT INCOME:            
   Revenue from real estate and improvements $ 5,858,589   $ 6,739,666  
   Equity in income of real estate partnerships   391,255     122,750  
   Interest and equity income on mortgage            
         and other loans receivable   125,510     59,170  
   Interest on short-term investments   463,767     99,222  
 
 
 
             
            Total investment income   6,839,121     7,020,808  
 
 
 
INVESTMENT EXPENSES:            
   Operating   1,485,963     1,941,949  
   Investment management fee   739,816     673,537  
   Real estate taxes   526,103     650,195  
   Administrative   932,771     1,177,736  
   Interest expense   448,686     586,024  
   Minority interest   4,340     3,573  
 
 
 
             
            Total investment expenses   4,137,679     5,033,014  
 
 
 
             
NET INVESTMENT INCOME   2,701,442     1,987,794  
 
 
 
             
REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE            
      INVESTMENTS:            
   Net proceeds from real estate investments sold   (2,919 )   4,550,103  
   Less: Cost of real estate investments sold   —     4,101,778  
               Realization of prior years' unrealized            
               gain (loss) on real estate investments sold   —     646,563  
 
 
 
             
NET GAIN (LOSS) REALIZED ON REAL ESTATE INVESTMENTS SOLD   (2,919 )   (198,238 )
 
 
 
             
   Change in unrealized gain (loss) on real estate investments   8,066,106     3,100,426  
   Less: Minority interest in unrealized gain (loss) on real estate investments   1,452,555     361,348  
 
 
 
             
   Net unrealized gain (loss) on real estate investments   6,613,551     2,739,078  
 
 
 
NET REALIZED AND UNREALIZED GAIN (LOSS)            
   ON REAL ESTATE INVESTMENTS   6,610,632     2,540,840  
 
 
 
INCREASE (DECREASE) IN NET ASSETS RESULTING            
   FROM OPERATIONS $ 9,312,074   $ 4,528,634  
 
 
 

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

9

Back to Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)

  For the Three Months Ended March 31,
 
 
  2006   2005
 
 
 
INCREASE (DECREASE) IN NET ASSETS                
   RESULTING FROM OPERATIONS:                
   Net investment income $   2,701,442   $   1,987,794  
   Net gain (loss) realized on real estate                
      investments sold     (2,919 )     (198,238 )
   Net unrealized gain (loss) from real estate                
      investments     6,613,551       2,739,078  
 
 
 
         Increase (decrease) in net assets                
            resulting from operations     9,312,074       4,528,634  
 
 
 
                 
NET ASSETS - Beginning of period   205,402,851     186,723,061  
 
 
 
                 
NET ASSETS - End of period $ 214,714,925   $ 191,251,695  
 
 
 

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

10

Back to Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

  For the Three Months Ended March 31,  
 
  2006   2005  
 
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:                    
Net increase in net assets from operations $     9,312,074   $     4,528,634  
Adjustments to reconcile net increase in net assets                    
         to net cash from operating activities                    
            Net realized and unrealized loss (gain)     (6,610,632 )     (2,540,840 )
            Distributions in excess of (less than) equity in income                    
                     of real estate partnerships' operations       (267,543 )       (18,798 )
            Minority interest in consolidated partnerships       4,340         3,573  
            Bad debt expense       52,358         30,775  
            (Increase) Decrease in accrued interest included in                    
                     mortgage and other loans receivable       —         (59,170 )
               (Increase) decrease in:                    
                  Other assets       388,460         1,539,998  
               Increase (decrease) in:                    
                  Accounts payable and accrued expenses       (160,061 )       (3,293 )
                  Due to affiliates       (7,702 )       (34,475 )
                  Other liabilities       135,024         135,222  
 
 
 
                     
      Net cash flows from (used in) operating activities       2,846,318         3,581,626  
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:                    
      Net proceeds from real estate investments sold       (2,919 )       4,550,103  
      Additions to real estate and improvements       (162,701 )       (979,382 )
      Contributions to real estate partnerships     (7,289,487 )       —  
      Origination of mortgage loan receivable       —       (1,192,011 )
      Collection of other real estate investments       4,277,769         —  
 
 
 
                     
      Net cash flows from (used in) investing activities     (3,177,338 )       2,378,710  
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:                    
   Principal payments on investment level debt       (135,450 )       (125,781 )
   Contributions from minority interest partners       —         220,006  
   Distributions to minority interest partners       —       (1,974,692 )
 
 
 
                     
      Net cash flows from (used in) financing activities       (135,450 )     (1,880,467 )
 
 
 
                     
NET CHANGE IN CASH AND CASH                    
      EQUIVALENTS       (466,470 )       4,079,869  
                     
CASH AND CASH EQUIVALENTS - Beginning of period     45,467,485       17,557,182  
 
 
 
                     
CASH AND CASH EQUIVALENTS - End of period $   45,001,015   $   21,637,051  
 
 
 
                     
DISCLOSURE OF SUPPLEMENTAL CASH FLOW                    
            INFORMATION                    
                     
Cash paid during the quarter for interest $     438,372   $     650,306  
 
 
 

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

11

Back to Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

         March 31, 2006
(Unaudited)		   December 31, 2005  
 
 
Property Name   March 31, 2006
Ownership		   City, State   March 31, 2006
Total Rentable
Square Feet
Unless Otherwise
Indicated
(Unaudited)		   Cost   Estimated
Market
Value		   Cost   Estimated
Market
Value		  
 
 
 
 
 
 
REAL ESTATE INVESTMENTS                     
                       
OFFICES                            
750 Warrenville WO Lisle, IL 103,193   $ 23,173,035   $ 10,600,000   $ 23,173,035   $ 10,000,000  
Summit @ Cornell Oaks WO Beaverton , OR 72,109     12,058,049     11,710,731     12,046,574     10,566,213  
Westpark WO Nashville, TN 97,199     10,913,142     12,498,600     10,903,925     12,600,290  
Financial Plaza WO Brentwood, TN 98,049     12,333,152     12,800,000     12,333,151     12,300,000  
 
      Offices % as of 03/31/2006 22%     58,477,378     47,609,331     58,456,685     45,466,503  
APARTMENTS                               
Brookwood Apartments WO Atlanta, GA 240 Units     18,499,722     17,103,782     18,481,376     17,155,625  
Dunhill Trace Apartments WO Raleigh, NC 250 Units     16,170,782     19,200,000     16,170,782     19,202,057  
 
      Apartments % as of 03/31/2006 17%     34,670,504     36,303,782     34,652,158     36,357,682  
RETAIL                                  
King's Market WO Rosewell, GA 314,358     37,672,353     27,900,000     37,646,731     27,199,960  
Hampton Towne Center WO Hampton, VA 174,540     18,035,334     26,000,000     18,035,334     26,100,000  
White Marlin Mall   CJV Ocean City, MD   186,016     15,346,524     21,500,000     15,328,836     21,500,000  
Kansas City Portfolio EJV Kansas City, KS;MO 487,660     11,617,132     7,331,893     11,413,171     7,183,593  
CARS Preferred Equity PE Various N/A     14,518,292     14,518,292     7,165,223     7,165,223  
 
      Retail % as of 03/31/2006 45%     97,189,635     97,250,185     89,589,295     89,148,776  
INDUSTRIAL                                  
Smith Road WO Aurora, CO 277,930     10,875,286     12,500,000     10,823,619     11,704,500  
 
      Industrial % as of 03/31/2006 6%     10,875,286     12,500,000     10,823,619     11,704,500  
                                   
HOTEL                                  
Portland Crown Plaza CJV Portland, OR 161 Rooms     8,852,470     15,100,000     8,823,785     10,300,000  
 
      Hotel % as of 03/31/2006 7%     8,852,470     15,100,000     8,823,785     10,300,000  
MORTGAGE AND OTHER LOANS RECEIVABLE                              
Westminster West Eloan Westminster, MD       —     —     4,277,769     4,277,769  
 
         Mortgage and Other Loans Receivable
% as of 03/31/2006		 0%     —     —     4,277,769     4,277,769  
                                   
Total Real Estate Investments as a Percentage of Net Assets as of 03/31/2006 97%   210,065,273   208,763,298   206,623,311   197,255,230  
 

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

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

12

Back to Contents

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED SCHEDULE OF INVESTMENTS

      March 31, 2006
(Unaudited)		     December 31, 2005 
     
 
  Face
Amount		   Cost   Estimated
Market Value		   Cost     Estimated
Market Value
 
 
 
 
   
 
CASH AND CASH EQUIVALENTS - Percentage of Net Assets       21.0 %         22.1 %
               
Federal Home Loan Bank, 1.75%, January 3, 2006 $ 488,000     —     —     $ 487,908     $ 487,908  
Federal Home Loan Bank, 0 coupon bond, January 30, 2006 44,184,000     —     —     44,033,621       44,033,621  
Federal Home Loan Bank, 0 coupon bond, April 28, 2006 40,000,000     39,859,900     39,859,900       —       —  
Federal Home Loan Bank, 0 coupon bond, April 6, 2006 4,091,000     4,089,939     4,089,939       —       —  
       
 
 
   
 
                                   
Total Cash Equivalents         43,949,839     43,949,839     44,521,529       44,521,529  
                                   
Cash         1,051,176     1,051,176       945,956       945,956  
       
 
 
   
 
                                   
Total Cash and Cash Equivalents       $ 45,001,015   $ 45,001,015   $ 45,467,485     $ 45,467,485  
       
 
 
   
 

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

13

Back to Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
March 31, 2006
(Unaudited)

Note 1:   Summary Of Significant Accounting Policies

The accompanying unaudited financial statements 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, 2006 are not necessarily indicative of the results that may be expected for the year ended December 31, 2006. For further information, refer to the financial statements and notes thereto included in each partner’s Annual Report on Form 10-K for the Year Ended December 31, 2005.

Real estate investments are reported at their estimated fair market values.

FASB Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), was issued in January 2003. In December 2003, FASB issued a revised interpretation of FIN 46 (“FIN 46-R”), that supersedes FIN 46. FIN 46-R defers the effective date for applying the provisions of FIN 46 for those companies currently accounting for their investments in accordance with the AICPA Audit and Accounting Guide, “Audits of Investment Companies” (the “Audit Guide”). The FASB is currently considering modifying FIN 46-R to provide an exception for companies that apply the Audit Guide. The Prudential Variable Contract Real Property Partnership (the “Partnership”) is awaiting the final determination from the FASB in order to evaluate the extent in which, if any, its equity investments may need to be consolidated as a result of this FIN 46-R.

Note 2:   Related Party Transactions

Pursuant to an investment management agreement, Prudential Investment Management (“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, 2006 and 2005 investment management fees incurred by the Partnership were $739,816 and $673,537, respectively.

The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the three months ended March 31, 2006 and 2005 were $36,732 and $53,907 respectively, and are classified as administrative expense in the Consolidated Statements of Operations.

Note 3:   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 Prudential's management, the outcome of such matters will not have a material effect on the Partnership.

Purchase commitments include forward commitments without conditions waived, commitments to purchase real estate and/or fund additional expenditures on previously acquired properties and loan take out agreements. Certain purchases of real estate are contingent on a developer building the real estate according to plans and specifications outlined in the pre-sale agreement or the property achieving a certain level of leasing. It is anticipated that funding will be provided by operating cash flow, real estate investment sales and deposits from the Partnership.

14

Back to Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
March 31, 2006
(Unaudited)

Note 3:   Commitments and Contingencies, (continued)

As of March 31, 2006, the Partnership had the following outstanding purchase commitments:

Property Type   Commitments
(000's)
Retail   $ 15,187
Other     20,805
 
Total   $ 35,992
 

Note 4: Financial Highlights

  For The Three Months Ended March 31,  
 
 
  2006   2005   2004   2003   2002  
 
 
 
 
 
 
Per Share(Unit) Operating Performance:                              
Net Asset Value, beginning of period $ 29.59   $ 26.15   $ 24.66   $ 24.11   $ 23.82  
Income From Investment Operations:                              
Investment income, before management fee   0.50     0.36     0.35     0.39     0.42  
Management fee   (0.11 )   (0.09 )   (0.09 )   (0.08 )   (0.07 )
Net realized and unrealized gain (loss) on investments   0.95     0.36     (0.08 )   (0.49 )   (0.45 )
 
 
 
 
 
 
Net Increase in Net Assets Resulting from Operations   1.34     0.63     0.18     (0.18 )   (0.10 )
 
 
 
 
 
 
                               
                               
Net Asset Value, end of period $ 30.93   $ 26.78   $ 24.84   $ 23.93   $ 23.72  
 
 
 
 
 
 
                               
                               
Total Return, before Management Fee (a):   4.89 %   2.79 %   1.10 %   (.45 %)   (.12 %)
Ratios/Supplemental Data:                              
Net Assets, end of period (in millions) $ 215   $ 191   $ 183   $ 183   $ 197  
Ratios to average net assets (b):                              
   Total Portfolio Level Expenses   0.36 %   0.36 %   0.35 %   0.31 %   0.31 %
   Net Investment Income   1.68 %   1.43 %   1.41 %   1.60 %   1.80 %

(a) Total Return, before 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 V alue + Time Weighted Contributions - Time Weighted Distributions
   
(b) Average net assets are based on beginning of quarter net assets.

15

Back to Contents

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, 2006, the Partnership’s liquid assets, consisting of cash and cash equivalents, were approximately $45.0 million, a decrease of approximately $0.5 million from $45.5 million at December 31, 2005. The decrease was primarily due to the funding of an additional $7.3 million of preferred equity, as discussed below. Partially offsetting the decrease were proceeds received in connection with a loan payoff, as described below, and the cash flows from the Account's operating activities. Sources of liquidity include net cash flow from property operations, sales, financings and interest from short-term investments. The Partnership uses cash for its real estate investment activities and for distribution to its partners. As of March 31, 2006, approximately 17.5% of the Partnership’s total assets consisted of cash and cash equivalents.

During the first three months of 2006, the Partnership completed the second funding of its preferred equity investment in the existing private REIT, Capital Automotive, or “CARS”, for $7.3 million. CARS owns approximately 364 properties, which are leased to sixty automobile dealership operators throughout the United States. This investment pays to investors an annual preferred return of 7.5% for years one through five, 8.75% during years six and seven, and 12% for all subsequent years.

The Partnership’s Leasehold Mortgage Loan that was originated in January 2004 for the borrower’s acquisition and redevelopment of a retail center in Westminster, Maryland was paid in full by the borrower in March 2006, resulting in proceeds of approximately $4.4 million.

During the first three months of 2006, the Partnership spent approximately $0.2 million on capital improvements to various existing properties.

(b) Results of Operations

The following is a comparison of the Partnership’s results of operations for the periods ended March 31, 2006 and 2005.

Net Investment Income Overview

The Partnership’s net investment income for the three months ended March 31, 2006 was approximately $2.7 million, an increase of $0.7 million from $2.0 million for the prior year period. The office, retail, industrial and hotel sector investments posted increases of approximately $0.1 million, $0.4 million, $0.1 million and $0.1 million, respectively, from the prior year period. Partially offsetting this increase for the three months ended March 31, 2006 was a decrease in net investment income in the apartment sector, which posted a decrease of $0.3 million from the prior year period. Other net investment income increased $0.4 million during the three months ended March 31, 2006 from the prior year period. Detail on the components of this net investment income are discussed below by property type sector.

16

Back to Contents

Valuation Overview

The Partnership recorded an aggregate net realized and unrealized gain of $6.6 million for the three months ended March 31, 2006, compared to an aggregate net realized and unrealized gain of $2.5 million for the prior year period.

The Partnership recorded a slight aggregate net realized loss for the three months ended March 31, 2006, compared to an aggregate net realized loss of $0.2 million for the prior year period. The realized loss for three months ended March 31, 2006 was recorded in the land sector.

The Partnership recorded an aggregate net unrealized gain of $6.6 million for the three months ended March 31, 2006, compared to an aggregate net unrealized gain of $2.7 million for the prior year period. The unrealized gain for the three months ended March 31, 2006 was attributable to valuation gains in the office, retail, industrial and hotel property sectors. Partially offsetting this gain was an unrealized loss of approximately $0.1 million recorded in the apartment sector. Details on the components of these valuation gains and/or losses are discussed below by property type sector.

17

Back to Contents

The following table presents a comparison of the Partnership’s sources of net investment income, and realized and unrealized gains or losses by investment type for the three months ended March 31, 2006 and 2005.

  Three Months Ended March 31,  
  2006   2005  
Net Investment Income:
 
 
             
Office properties $ 823,847   $ 670,163  
Apartment complexes   261,496     639,230  
Retail properties   1,484,989     1,055,401  
Industrial properties   195,933     119,965  
Hotel property   278,301     169,536  
Land   (43,508 )   —  
Other (including interest income,            
     investment mgt fee, etc.)   (299,616 )   (666,501 )
 
 
 
Total Net Investment Income $ 2,701,442   $ 1,987,794  
 
 
 
Net Realized Gain (Loss) on Real Estate Investments:            
             
Apartment Complex   —     (198,238 )
Office Building   —     —  
Land   (2,919 )   —  
 
 
 
Total Net Realized Gain (Loss) on Real Estate Investments   (2,919 )   (198,238 )
 
 
 
Net Unrealized Gain (Loss) on Real Estate Investments:            
             
Office properties   2,122,136     (61,306 )
Apartment complexes   (72,246 )   163,700  
Retail properties   18,996     1,191,835  
Industrial properties   743,833     995,932  
Hotel property   3,800,832     448,917  
 
 
 
Total Net Unrealized Gain (Loss) on Real Estate Investments   6,613,551     2,739,078  
 
 
 
             
Net Realized and Unrealized Gain (Loss) on Real Estate Investments $ 6,610,632   $ 2,540,840  
 
 
 

18

Back to Contents

OFFICE PORTFOLIO

Three Months Ended
March 31, 		  Net Investment
Income/(Loss)
2006		     Net Investment
Income/(Loss)
2005		     Unrealized
Gain/(Loss)
2006		     Unrealized
Gain/(Loss)
2005		     Occupancy
2006		     Occupancy
2005		  
Property                                    
Lisle, IL $ 98,403   $ 101,432   $ 600,000   $ (398,854 )   38 %   43 %
Brentwood, TN   227,999     225,685     (110,907 )   148,673     93 %   97 %
Oakbrook Terrace, IL (1)   1,323     66,220     —     101,266     N/A     41 %
Beaverton, OR   229,068     218,008     1,133,043     (46,200 )   78 %   72 %
Brentwood, TN (2)   267,054     58,818     500,000     133,809     100 %   100 %
 
             
  $ 823,847   $ 670,163   $ 2,122,136   $ (61,306 )            
 
             
   
(1) The Oakbrook Terrace, Illinois office property was sold on June 8, 2005 but certain post-closing adjustments were recognized in 2006.
   
(2) Net Investment Income for the three months ended March 31, 2005 reflects partial period rental concessions.

Net Investment Income

Net investment income for the Partnership’s office properties was approximately $0.8 million for the three months ended March 31, 2006, an increase of approximately $0.1 million from the prior year period. The increase was primarily due to stabilized occupancy and increased market rents at the Partnership’s office asset in Brentwood, Tennessee. Partially offsetting this increase was the loss of rent at the Oakbrook Terrace, Illinois office property that was sold on June 8, 2005.

Unrealized Gain/(Loss)

The office properties owned by the Partnership recorded an aggregate net unrealized gain of approximately $2.1 million during the first three months of 2006, compared to an aggregate net unrealized loss of $0.1 million for the prior year period. The gain was primarily due to improved market fundamentals at the office properties located in Lisle, Illinois, Beaverton, Oregon and Brentwood, Tennessee. Partially offsetting this gain was a net unrealized loss of approximately $0.1 million recorded at the office property located in Brentwood, Tennessee.

APARTMENT COMPLEXES

Three Months Ended
March 31, 		  Net Investment
Income/(Loss)
2006		     Net Investment
Income/(Loss)
2005		     Unrealized
Gain/(Loss)
2006		     Realized /
Unrealized
Gain/(Loss)
2005		     Occupancy
2006		     Occupancy
2005		  
Property                                    
Atlanta, GA $ 114,338   $ 71,206   $ (70,189 ) $ (205,698 )   91 %   92 %
Raleigh, NC   147,158     144,916     (2,057 )   (661 )   93 %   92 %
Jacksonville, FL (1)   —     218,880     —     316,991     N/A     92 %
Salem/Gresham, OR (1)   —     204,228     —     53,068     N/A     92 %
 
             
  $ 261,496   $ 639,230   $ (72,246 ) $ 163,700              
 
             
   
(1) The Salem, Oregon, Gresham, Oregon and Jacksonville, Florida apartment properties were sold on March 10, 2005, August 10, 2005 and November 30, 2005, respectively.

19

Back to Contents

Net Investment Income

Net investment income for the Partnership’s apartment properties was $0.3 million for the three months ended March 31, 2006, a decrease of $0.3 million from the prior year period. The decrease was primarily due to the loss of rent at the Salem, Oregon, Gresham, Oregon and Jacksonville, Florida apartment properties that were sold on March 10, 2005, August 10, 2005 and November 30, 2005, respectively.

Total Realized and Unrealized Gain/(Loss)

The Partnership recorded an aggregate net unrealized loss of $0.1 million for the three months ended March 31, 2006, compared to an aggregate net realized and unrealized gain of $0.2 million for the prior year period. The net unrealized loss for the three months ended March 31, 2006 resulted from a slight valuation change for the apartment property in Atlanta, Georgia.

RETAIL PROPERTIES

Three Months Ended
March 31, 		  Net Investment
Income/(Loss)
2006		     Net Investment
Income/(Loss)
2005		     Unrealized
Gain/(Loss)
2006		     Unrealized
Gain/(Loss)
2005		     Occupancy
2006		     Occupancy
2005		  
Property                                    
Roswell, GA $ 531,549   $ 448,122   $ 674,414   $ (422,646 )   94 %   74 %
Kansas City, KS; Kansas City, MO   196,561     122,748     (55,660 )   86,677     81 %   82 %
Hampton, VA   318,723     307,708     (100,000 )   1,200,000     100 %   100 %
Ocean City, MD   126,501     117,981     (499,758 )   327,804     84 %   90 %
Westminster, MD (1)   124,362     58,842     —     —     N/A     N/A  
CARS Preferred Equity (2)   187,293     —     —     —     N/A     N/A  
 
             
  $ 1,484,989   $ 1,055,401   $ 18,996   $ 1,191,835              
 
             
   
(1) Leasehold Mortgage Loan Receivable (mortgage paid in full March 3, 2006).
(2) Net investment income for the three months ended March 31, 2006 reflects partial period results for second funding, which occurred February 14, 2006.

Net Investment Income

Net investment income for the Partnership’s retail properties was $1.5 million for the three months ended March 31, 2006, an increase of $0.4 million from the prior year period. The increase in net investment income was primarily due to (a) increased rents and reduced expenses at the retail centers in Kansas City, Kansas and Kansas City, Missouri, (b) increased occupancy at the retail center in Roswell, Georgia and (c) income received from the preferred equity investments made by the Partnership on December 16, 2005 and February 14, 2006, respectively.

Unrealized Gain/(Loss)

The retail properties recorded a slight aggregate net unrealized gain for the three months ended March 31, 2006, compared to a net unrealized gain of $1.2 million for the prior year period. The unrealized gain of approximately $0.7 million recorded at the retail center in Roswell, Georgia during the first three months of 2006 was due to continued investor demand and improved property fundamentals. This gain was offset by unrealized losses of approximately (a) $0.1 million recorded at the retail centers in Kansas City, Kansas and Kansas City, Missouri, (b) $0.1 million recorded at the retail center in Hampton, Virginia, and (c) $0.5 million recorded at the retail center in Ocean City, Maryland.

20

Back to Contents

INDUSTRIAL PROPERTIES

Three Months Ended
March 31, 		  Net Investment
Income/(Loss)
2006		     Net Investment
Income/(Loss)
2005		     Unrealized
Gain/(Loss)
2006		     Unrealized
Gain/(Loss)
2005		     Occupancy
2006		     Occupancy
2005		  
Property                                    
Aurora, CO $ 195,933   $ 119,965   $ 743,833   $ 995,932     78 %   78 %

Net Investment Income

Net investment income for the Partnership’s industrial property was $0.2 million for the three months ended March 31, 2006, an increase of $0.1 million from the prior year period. The increase was primarily due to increased rents and reduced operating and administrative expenses at the Aurora, Colorado industrial property compared to the prior year period.

Unrealized Gain/(Loss)

The Aurora, Colorado industrial property owned by the Partnership recorded a net unrealized gain of approximately $0.7 million for the three months ended March 31, 2006, compared to a net unrealized gain of $1.0 million for the prior year period. The net unrealized gain for the three months ended March 31, 2006 was primarily due to improved market fundamentals and continuing investor demand for this product type.

HOTEL PROPERTY

Three Months Ended
March 31, 		  Net Investment
Income/(Loss)
2006		     Net Investment
Income/(Loss)
2005		     Unrealized
Gain/(Loss)
2006		     Unrealized
Gain/(Loss)
2005		     Occupancy
2006		     Occupancy
2005		  
Property                                    
Lake Oswego, OR $ 278,301   $ 169,536   $ 3,800,832   $ 448,917     72 %   62 %

Net Investment Income

Net investment income for the Partnership’s hotel property was $0.3 million for the three months ended March 31, 2006, an increase of $0.1 million from the prior year period. The increase was primarily due to increased occupancy and higher average daily rates generated at the property compared to the prior year period.

Unrealized Gain/(Loss)

The Lake Oswego, Oregon hotel property owned by the Partnership recorded a net unrealized gain of $3.8 million for the three months ended March 31, 2006. The net unrealized gain for the three months ended March 31, 2006 reflected both the strengthening of market fundamentals and the completion of a renovation program.

21

Back to Contents

Other

Other net investment income increased $0.4 million during the three months ended March 31, 2006 from the prior year period. Other net investment income includes interest income from short-term investments, investment management fees, and portfolio level expenses.

(c) Inflation

The Partnership’s leases with a majority of 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.

Valuation of Investments

Real Estate Investments– Real estate investments are shown at estimated market value in accordance with the terms of the Partnership’s contracts. 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. Market 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, “PIM”, is responsible for assuring that the valuation process provides independent and reasonable property market value estimates. American Appraisal Associates, or the “Appraisal Management Firm”, an entity not affiliated with PIM, 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. Unless a property is currently held for sale, the market value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments.

22

Back to Contents

Unconsolidated real estate partnerships are valued at the Partnership’s equity in net assets as reflected in the partnership’s financial statements with properties valued as described above. Under the equity method, the investment is initially recorded at the original investment amount, plus or minus additional amounts invested or distributed, and is subsequently adjusted for the Partnership’s share of undistributed earnings or losses, including unrealized appreciation and depreciation, from the underlying entity.

Land and redevelopment properties held for future development via a forward contract are carried at cost plus cost incurred to hold the land and redevelopment properties as stated in the take out provisions of the contract.

As described above, the estimated market value of real estate and real estate related assets is determined through an appraisal process. These estimated market values may vary significantly from the prices at which the real estate investments would sell, since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller and could be material to the consolidated financial statements. Although the estimated market values represent subjective estimates, management believes these estimated market values are reasonable approximations of market prices and the aggregate estimated value of investments in real estate is fairly presented as of March 31, 2006, and 2005.

Other Estimates

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk – The Partnership’s exposure to market rate risk for changes in interest rates relates to approximately 36.36% (as of March 31, 2006) of its investment portfolio, which consists primarily of short-term fixed rate commercial paper and fixed and variable interest rate debt. The Partnership does not use derivative financial instruments. By 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, 2006:

Maturity     Estimated Market Value
(in $ millions)		     Average
Interest Rate		  
 
 
Cash and Cash equivalents 0-3 months   $ 45.0     3.49%  
                 

23

Back to Contents

The table below discloses the Partnership’s debt as of March 31, 2006. 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 (in thousands) based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt.

                                               
Debt (in $ thousands),
including current portion		   2006     2007     2008     2009     2010     Thereafter     Total     Estimated
Fair Value
                                                     
Average Fixed Interest Rate   5.40 %   5.35 %   5.74 %   6.75 %   6.75 %   6.75 %   6.50 %    
Fixed Rate       $ 414   $ 588   $ 16,026   $ 9,276   $ 565   $ 6,191   $ 33,060   $ 33,313
Variable Rate         —     —     —     —     —     —     —     —
 
Total Mortgage Loans Payable $ 414   $ 588   $ 16,026   $ 9,276   $ 565   $ 6,191   $ 33,060   $ 33,313
 

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 would adversely affect its operating results and liquidity.

24

Back to Contents

Item 4. Controls and Procedures

In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of March 31, 2006. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2006, 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 during the quarter ended March 31, 2006, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1A. Risk Factors

You should carefully consider the risks described under “–Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2005. 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 our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q

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

               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

25

Back to Contents

SIGNATURES

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

PRUCO LIFE INSURANCE COMPANY
in respect of
Pruco Life Variable
Contract Real Property Account
(Registrant)
____________________________________________________________

Date: May 12, 2006 By: /s/ /s/ Bernard J. Jacob
     
      Bernard J. Jacob
      Chief Executive Officer

 

26