<PAGE>
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 [FEE REQUIRED]
For the quarterly period ended March 31, 1995
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 (IRS Employer Identification No.)
incorporation or organization)
213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102-2992
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(800) 445-4571
----------------------------------------------------
(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 X NO
----- -----
<PAGE>
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Registrant)
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - March 31, 1995
(Unaudited) and December 31, 1994 3
Statements of Operations (Unaudited) - Three Months
Ended March 31, 1995 and 1994 3
Statements of Changes in Net Assets - Three Months
Ended March 31, 1995 (Unaudited) and Year Ended
December 31, 1994 4
Notes to the Financial Statements (Unaudited) 5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities - March 31, 1995
(Unaudited) and December 31, 1994 7
Statements of Operations (Unaudited) - Three Months Ended
March 31, 1995 and 1994 8
Statements of Changes in Net Assets - Three Months Ended
March 31, 1995 (Unaudited) and Year Ended
December 31, 1994 9
Statements of Cash Flows (Unaudited) - Three Months Ended
March 31, 1995 and 1994 10
Schedule of Investments - March 31, 1995 (Unaudited)
and December 31, 1994 11
Notes to the Financial Statements (Unaudited) 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
PART III - SIGNATURES 24
2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
MARCH 31, 1995
(UNAUDITED) DECEMBER 31, 1994
----------------- -------------------
<S> <C> <C>
Investment in shares of The Prudential Variable Contract
Real Property Partnership $ 92,100,479 $ 91,251,939
----------------- ----------------
----------------- ----------------
NET ASSETS, representing:
Equity of Contract Owners $ 86,259,827 $ 86,662,912
Equity of Pruco Life Insurance Company 5,840,652 4,589,027
----------------- -------------------
$ 92,100,479 $ 91,251,939
----------------- -------------------
----------------- -------------------
</TABLE>
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1995 MARCH 31, 1994
----------------- -------------------
<S> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 1,721,481 $ 1,686,966
EXPENSES:
Asset Based Charges to Contract Owners (Note 3) 138,985 141,544
----------------- -------------------
NET INVESTMENT INCOME 1,582,496 1,545,422
----------------- -------------------
NET UNREALIZED LOSS
ON INVESTMENTS IN PARTNERSHIP (872,941) (1,041,092)
----------------- -------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 709,555 $ 504,330
----------------- -------------------
----------------- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 5 THROUGH 6.
3
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, 1995 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1994
----------------- ------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 1,582,496 $ 6,157,628
Net Unrealized Gain/(Loss)
on Investments in Partnership (872,941) 647,693
----------------- ------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 709,555 6,805,321
----------------- ------------------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (1,072,730) (7,368,879)
Net Contributions/(Withdrawals) by Pruco Life
Insurance Company 1,211,715 (74,591)
----------------- ------------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 138,985 (7,443,470)
----------------- ------------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS $ 848,540 $ (638,149)
NET ASSETS:
Beginning of period $ 91,251,939 $ 91,890,088
----------------- ------------------
End of period $ 92,100,479 $ 91,251,939
----------------- ------------------
----------------- ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 5 THROUGH 6.
4
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
MARCH 31, 1995
(UNAUDITED)
NOTE 1: GENERAL
Pruco Life Variable Contract Real Property Account (the "Real Property
Account") was established on August 27, 1986 and commenced business
September 5, 1986. Pursuant to Arizona law, the Real Property Account
was established as a separate investment account of Pruco Life
Insurance Company ("Pruco Life"), a wholly-owned subsidiary of The
Prudential Insurance Company of America ("The Prudential"). The assets
of the Real Property Account are segregated from Pruco Life's other
assets. The Real Property Account is used to fund benefits under
certain variable life insurance and variable annuity contracts issued by
Pruco Life.
Prior to April 29, 1988, the Real Property Account invested primarily in
income-producing real properties and mortgage loans. On April 29, 1988,
The Prudential Variable Contract Real Property Partnership (the
"Partnership"), a general partnership organized under New Jersey law,
was formed. On that date all assets and liabilities of the Real
Property Account were contributed to the Partnership in exchange for
interests in the newly formed 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. GENERAL
The financial statements included herein have been prepared in
accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended
March 31, 1995 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1995. For further
information, refer to the financial statements and notes thereto
included in the Partner's December 31, 1994 Annual Report on Form
10-K.
B. INVESTMENT IN PARTNERSHIP INTEREST
The investment in the Partnership is based on the Real Property
Account's proportionate interest of the Partnership's current
value, as discussed in Note 1 to the Partnership's financial
statements. At March 31, 1995 the Real Property Account's interest
in the Partnership, based on current value equity was 51.5% or
6,302,293 shares.
C. INCOME RECOGNITION
The Real Property Account recognizes its proportionate share of the
Partnership's net investment income on a daily basis, as consistent
with the Partnership Agreement.
5
<PAGE>
NOTE 3: ASSET BASED CHARGES
Mortality risk and expense risk charges and charges for administration
are applied daily against the net assets representing equity of Contract
Owners investing in the Real Property Account, at an effective annual
rate as shown below for each of Pruco Life's separate accounts investing
in the Real Property Account:
------------------------------------------------------------------------
Variable Insurance Account 0.35%
Variable Appreciable Account 0.60%
Single Premium Variable Life Account 1.25%
Single Premium Variable Annuity Account 1.25%
------------------------------------------------------------------------
NOTE 4: TAXES
Income and capital gains and losses of the Partnership are attributed,
for federal income tax purposes, to the Partners in the Partnership,
including Pruco Life, in respect of the Real Property Account. The
operations of the Real Property Account form a part of, and are taxed
with, the operations of Pruco Life. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the Contract Owners
are not taxable to Pruco Life. As a result, the net asset values of the
Real Property Account are not affected by federal income taxes on the
ordinary income and capital gains and losses attributable to the Real
Property Account.
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
March 31, 1995
(Unaudited) December 31, 1994
------------------ -------------------
<S> <C> <C>
ASSETS:
Properties at current value
(cost $154,286,456 and $154,157,068
respectively) (Note 1) $ 124,616,863 $ 126,258,004
Interest in properties at current value
(cost $6,120,683 and $6,108,742
respectively) (Note 1) 5,813,392 5,726,451
Cash and cash equivalents 38,795,430 33,093,237
Marketable securities 13,423,973 15,824,199
Other assets and accounts receivable
(net of allowance for uncollectible
amounts of $138,876 and $128,336 respectively) 1,928,664 2,218,095
------------------ -------------------
Total Assets $ 184,578,322 $ 183,119,986
------------------ -------------------
------------------ -------------------
LIABILITIES:
Obligation under capital lease $ 3,631,825 $ 3,804,836
Accounts payable and accrued expenses 905,154 805,066
Due to affiliates (Note 2) 628,729 624,206
Other liabilities 524,520 645,913
------------------ -------------------
Total liabilities 5,690,228 5,880,021
------------------ -------------------
NET ASSETS:
Partners' Equity 178,888,094 177,239,965
------------------ -------------------
$ 184,578,322 $ 183,119,986
------------------ -------------------
------------------ -------------------
Number of shares outstanding at end of period 12,241,034 12,241,034
------------------ -------------------
------------------ -------------------
Share Value at end of period $14.61 $14.48
------------------ -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
7
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Rent from properties $ 4,472,397 $ 3,915,238
Income from interest in properties 149,408 804,871
Interest on mortgage loans 0 79,313
Interest from short-term investments 765,330 219,576
------------ ------------
5,387,135 5,018,998
------------ ------------
EXPENSES:
Investment management fee (Note 2) 569,088 561,916
Real estate tax expense 609,624 477,722
Administrative expenses 392,120 320,947
Operating expenses 357,501 381,322
Interest expense 115,144 81,750
------------ ------------
2,043,477 1,823,657
------------ ------------
NET INVESTMENT INCOME 3,343,658 3,195,341
------------ ------------
NET UNREALIZED LOSS ON INVESTMENTS (1,695,529) (1,971,973)
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,648,129 $ 1,223,368
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 1995 Year Ended
(Unaudited) December 31, 1994
--------------- -----------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 3,343,658 $ 12,848,199
Net Realized and Unrealized
Gain/(Loss) on Investments (1,695,529) 1,339,443
---------------- ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,648,129 14,187,642
---------------- ----------------
CAPITAL TRANSACTIONS:
Withdrawals by partners
(0 and 790,390,
shares respectively) 0 (11,000,000)
---------------- ----------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 0 (11,000,000)
---------------- ----------------
TOTAL INCREASE IN NET ASSETS 1,648,129 3,187,642
NET ASSETS:
Beginning of period 177,239,965 174,052,323
---------------- ----------------
End of period $ 178,888,094 $ 177,239,965
---------------- ----------------
---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1994
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 1,648,129 $ 1,223,368
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Net unrealized loss on investments 1,695,529 1,971,973
Changes in assets and liabilities:
Decrease/(Increase) in other assets
and accounts receivable 289,431 (1,892,399)
Decrease in marketable securities 2,400,226 0
Decrease in obligation under capital lease (173,011) (103,509)
Increase/(Decrease) in accounts payable
and accrued expenses 100,088 (152,761)
Increase/(Decrease) in due to affiliates 4,523 (6,667)
Decrease in other liabilities (121,393) (51,856)
------------ -----------
Net cash provided by operating activities 5,843,522 988,149
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital improvements on real estate owned (129,388) (413,444)
Capital improvements on interest in properties (11,941) 0
Principal repayments received on mortgage loans 0 26,619
------------ -----------
Net cash used in investing activities (141,329) (386,825)
------------ -----------
Net increase in cash and cash equivalents 5,702,193 601,324
CASH AND CASH EQUIVALENTS - Beginning of period 33,093,237 23,852,233
------------ -----------
CASH AND CASH EQUIVALENTS - End of period $ 38,795,430 $ 24,453,557
------------ -----------
------------ -----------
SUPPLEMENTAL INFORMATION:
Interest paid $ 376,450 $ 250,000
------------ -----------
------------ -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
March 31, 1995 December 31, 1994
(Unaudited)
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (Percent of Net Assets) 69.7% 71.2%
Current Current
Location Description Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Azusa, CA Warehouse $ 18,261,586 $ 14,900,819 $ 18,219,245 $ 15,426,651
Lisle, IL Office Building 17,524,421 13,300,000 17,524,421 12,000,000
Atlanta, GA Garden Apartments 15,309,193 12,200,000 15,309,193 11,903,533
Pomona, CA (a) Warehouse 23,115,556 14,926,000 23,115,589 16,353,556
Roswell, GA Retail Shopping Center 31,608,946 32,002,975 31,605,970 32,500,000
Morristown, NJ Office Building 18,458,859 9,315,172 18,443,689 9,825,401
Bolingbrook, IL Warehouse 8,930,578 7,115,080 8,915,498 7,009,907
Farmington Hills, MI Garden Apartments 13,563,285 13,506,200 13,560,049 13,538,956
Flint, MI Office Building 7,514,032 7,350,617 7,463,414 7,700,000
------------- ------------- ------------- -------------
$ 154,286,456 $ 124,616,863 $ 154,157,068 $ 126,258,004
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<FN>
(a) Includes land under capital lease of $3,412,636 representing the present value
of minimum future lease payments at the inception of the lease.
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT IN INTEREST IN PROPERTIES (Percent of Net Assets) 3.2% 3.2%
Current Current
Location Description Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jacksonville, FL Warehouse/Distribution 1,304,979 1,150,000 1,304,979 1,150,000
Jacksonville, FL Warehouse/Distribution 1,002,448 1,000,000 1,002,448 1,000,000
Jacksonville, FL Warehouse/Distribution 1,442,894 1,350,000 1,442,894 1,375,000
Jacksonville, FL Warehouse/Distribution 2,370,362 2,313,392 2,358,421 2,201,451
------------- ------------- ------------- -------------
$ 6,120,683 $ 5,813,392 $ 6,108,742 $ 5,726,451
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 21.7% 18.7%
(see pages 12 and 13 for detail) Face Current Face Current
Description Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper and Cash $ 39,052,615 $ 38,795,430 $ 33,456,969 $ 33,093,237
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
MARKETABLE SECURITIES (Percent of Net Assets) 7.5% 8.9%
(see pages 12 and 13 for detail) Face Current Face Current
Description Amount Value Amount Value
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable Securities $ 13,700,000 $ 13,423,973 $ 16,100,000 $ 15,824,199
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
OTHER ASSETS (Percent of Net Assets) (2.1%) (2.0%)
(net of liabilities) $ (3,761,564) $ (3,661,926)
------------- -------------
TOTAL NET ASSETS $ 178,888,094 $ 177,239,965
------------- -------------
------------- -------------
</TABLE>
11
(Continued)
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1995
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 21.7%
Face Current
Description Amount Value
- --------------------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
<S> <C> <C>
Pepsico Inc., 6.25%,April 4, 1995 $ 500,000 $ 499,653
BAT Capital Corp., 6.00%, April 5, 1995 1,000,000 995,000
Duracell Inc., 6.10%, April 5, 1995 1,300,000 1,300,000
Countrywide Funding Corp., 6.25%, April 6, 1995 2,600,000 2,597,292
Tyson Foods Inc., 6.20%, April 7, 1995 500,000 498,708
Pennsylvania Power & Light, 6.07%, April 10, 1995 1,000,000 994,604
Sonoco Prod. Co., 6.00%, April 10, 1995 2,500,000 2,488,750
Finova Capital Corp., 6.12%, April 11, 1995 2,500,000 2,487,675
Preferred Receivables Corp., 6.00%, April 11, 1995 2,100,000 2,093,700
Duracell Inc., 6.05%, April 13, 1995 1,095,000 1,090,584
NYNEX Corp.,6.05%, April 17, 1995 2,500,000 2,491,597
Bankers Trust NY Corp., 6.05%, May 1, 1995 1,000,000 992,269
ITT Corp., 6.11%, May 1, 1995 1,500,000 1,488,035
PHH Corp. , 6.02%, May 1, 1995 1,040,000 1,034,087
Whirlpool Financial Corp., 6.03% May 2, 1995 2,500,000 2,485,295
Ryder System, Inc., 6.10%, May 9, 1995 500,000 495,425
Xerox Corp., 6.02%, May 10, 1995 2,000,000 1,982,943
Engelhard Corp., 6.01%, May 15, 1995 2,500,000 2,477,463
Merrill Lynch & Co., 6.02%, May 15, 1995 2,500,000 2,474,917
Cox Enterprises, Inc., 6.05%, May 16, 1995 1,768,000 1,749,876
Dean Witter, Discover & Co., 6.02%, May 22, 1995 2,500,000 2,477,007
ITT Corp., 6.15%, June 1, 1995 1,000,000 988,042
Household Finance Corp., 6.05%, June 2, 1995 2,400,000 2,362,893
----------- ------------
TOTAL COMMERCIAL PAPER 38,803,000 38,545,815
TOTAL CASH 249,615 249,615
----------- ------------
TOTAL CASH AND CASH EQUIVALENTS $39,052,615 $38,795,430
----------- ------------
----------- ------------
</TABLE>
<TABLE>
<CAPTION>
MARKETABLE SECURITIES (Percent of Net Assets) 7.5%
Face Current
Description Amount Value
- --------------------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
<S> <C> <C>
Golden Peanut Co., 6.32%, April 5, 1995 2,000,000 1,958,218
General Electric Capital Corp., 6.45%, April 13, 1995 2,400,000 2,348,400
PNC Bank N.A., 5.92%, April 21, 1995 1,400,000 1,398,775
Nationsbank NC, 5.55%, May 19, 1995 1,500,000 1,511,807
Corporate Receivables Corp., 6.57%, May 22, 1995 2,400,000 2,332,548
Province of Quebec, 6.67%, June 1, 1995 2,000,000 1,937,005
Bank of America NT & SA, 6.57%, June 5, 1995 2,000,000 1,937,220
----------- -----------
Total Commercial Paper $13,700,000 $13,423,973
----------- -----------
----------- -----------
</TABLE>
12
(Continued)
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 18.7%
Face Current
Description Amount Value
- --------------------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
<S> <C> <C>
Chemical Bank, 6.25%, January 3, 1995 $ 90,000 $ 90,000
Amoco Corp., 5.754%, January 3, 1995 2,104,000 2,102,656
Pacificorp, 6.125%, January 12, 1995 2,000,000 1,991,867
Gateway Fuel Corp., 5.571%, January 17, 1995 1,925,000 1,900,590
Norwest Financial Inc., 5.499%, January 17, 1995 1,660,000 1,636,007
Greyhound Financial Corp., 6.215%, January 18, 1995 1,944,000 1,932,987
PHH Corp Note, 5.928%, January 19, 1995 2,400,000 2,388,593
Merrill Lynch & Company Inc., 6.056%, January 25, 1995 706,000 699,528
Associates Corp. of North Am., 5.828%, January 30, 1995 2,300,000 2,277,144
Duracell Inc., 6.310%, January 30, 1995 2,396,000 2,373,122
Ford Motor Credit Corp., 5.841%, February 1, 1995 2,300,000 2,275,997
Goldman Sachs Group, 5 .705%, February 2, 1995 1,685,000 1,654,071
Sears Roebuck Acceptance Corp., 6.120%, February 7, 1995 1,000,000 988,572
Morgan Stanley Group Inc., 6.363%, March 1, 1995 1,000,000 985,370
Beneficial Corp, 6.349%, March 14, 1995 2,400,000 2,362,500
John Deere Capital Corp., 6.349%, March 14, 1995 2,400,000 2,362,500
American General Financial Corp., 6.350%, March 15, 1995 2,400,000 2,362,084
Toronto Dominion Holdings, 6.318%, March 15, 1995 2,400,000 2,362,680
----------- -----------
TOTAL COMMERCIAL PAPER 33,110,000 32,746,268
TOTAL CASH 346,969 346,969
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS $33,456,969 $33,093,237
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
MARKETABLE SECURITIES (Percent of Net Assets) 8.9%
Face Current
Description Amount Value
- --------------------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
<S> <C> <C>
Bankers Trust NY Corp, 5.250%, January 16, 1995 $1,400,000 $ 1,401,680
Republic National Bank of NY, 4.300%, March 8, 1995 1,000,000 998,546
Golden Peanut Co., 6.455%, April 5, 1995 2,000,000 1,958,218
General Electric Capital Corp, 6.592%, April 18, 1995 2,400,000 2,348,400
PNC Bank N.A., 5.820%, April 21, 1995 1,400,000 1,398,775
Nationsbank North Carolina, 5.400%, May 19, 1995 1,500,000 1,511,807
Corporate Receivables Corp., 6.760%, May 23, 1995 2,400,000 2,332,548
Province of Quebec, 6.887%, June 1, 1995 2,000,000 1,937,005
Bank of America NT & SA, 6.783%, June 5, 1995 2,000,000 1,937,220
----------- ------------
Total Commercial Paper $16,100,000 $ 15,824,199
----------- ------------
----------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
MARCH 31, 1995
(UNAUDITED)
GENERAL
On April 29, 1988, The Prudential Variable Contract Real Property Partnership
(the "Partnership"), a general partnership organized under New Jersey law, was
formed through an agreement among The Prudential Insurance Company of America
("The Prudential"), Pruco Life Insurance Company ("Pruco Life"), and Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey"). The Partnership
was established as a means by which assets allocated to the real estate
investment option under certain variable life insurance and variable annuity
contracts issued by the respective companies could be invested in a commingled
pool. The partners in the Partnership are The Prudential Insurance Company of
America, Pruco Life and the Pruco Life of New Jersey.
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.
The Partnership's investments are valued on a daily basis, consistent with the
Partnership Agreement. On each day during which the New York Stock Exchange is
open for business, the net assets of the Partnership are valued using the
current value of its investments as described in Note 1B below, plus an
estimate of net income from operations reduced by any liabilities of the
Partnership.
The periodic adjustments to property values described in Note 1B below and the
corrections of previous estimates of net income are made on a prospective basis.
There can be no assurance that all such adjustments and estimates will be made
timely.
Shares of the Partnership are sold to The Prudential Variable Contract Real
Property Account, the Pruco Life Variable Contract Real Property Account, and
the Pruco Life of New Jersey Variable Contract Real Property Account, (the "Real
Property Accounts") at the current share value of the Partnership's net assets.
Share value is calculated by dividing the current value of net assets of the
Partnership as determined below by the number of shares outstanding. A Contract
Owner participates in the Partnership through interests in the Real Property
Accounts.
Note 1: Summary Of Significant Accounting Policies
A: General - The financial statements included herein have been
prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for
the three months ended March 31, 1995 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1995. For further information, refer to the
financial statements and notes thereto included in each Partner's
December 31, 1994 Annual Report on Form 10-K.
B: Real Estate Owned and Interest in Properties - The Partnership's
investments in real estate owned and interest in properties are
initially valued at their purchase price. Thereafter, current
values are based upon appraisal reports prepared by independent
real estate appraisers (members of the Appraisal Institute or an
equivalent organization) which are ordinarily obtained on an
annual basis.
The Chief Appraiser of the Prudential Comptroller's Department
Valuation Unit is responsible to assure that the valuation
process provides independent and accurate current value
estimates. In the interest of maintaining and monitoring the
independence and the accuracy of the appraisal process, the
Comptroller of The Prudential has appointed a third party firm to
act as the Appraisal Management Firm. The Appraisal Management
Firm, among other
14
<PAGE>
responsibilities,approves the selection and scheduling of
external appraisals; develops a standard package of information
to be supplied to the appraisers; reviews and provides comments
on all external appraisals and a sample of internal appraisals;
assists in developing policy and procedures and assists in the
evaluation of the performance and competency of external
appraisers. The property valuations are reviewed quarterly by The
Prudential Comptroller's Department Valuation Unit and the Chief
Appraiser and adjusted if there has been any significant changes
related to the property since the most recent independent
appraisal.
The purpose of an appraisal is to estimate the current value of a
property as of a specific date. Current value has been defined as
the most probable price for which the appraised property will
sell in a competitive market under all conditions requisite to
fair sale, with the buyer and seller each acting prudently,
knowledgeably, and for self interest, and assuming that neither
is under undue duress. This estimate of current value generally
is a correlation of three approaches, all of which require the
exercise of subjective judgement. The three approaches are: (1)
current cost of reproducing a property less deterioration and
functional and economic obsolescence; (2) discounting of a series
of income streams and reversion at a specified yield or by
directly capitalizing a single-year income estimate by an
appropriate factor; and (3) value indicated by recent sales of
comparable properties in the market. In the reconciliation of
these three approaches, the one most heavily relied upon is the
one most appropriate for the type of property in the market.
C: Income Recognition - Rent from properties consists of all amounts
earned under tenant operating leases including base rent,
recoveries of real estate taxes and other expenses and charges
for miscellaneous services provided to tenants. Revenue from
leases which provide for scheduled rent increases is recognized
as billed.
D: Cash Equivalents - The Partnership considers all highly liquid
investments with an original maturity of three months or less
when purchased to be cash equivalents. Cash equivalents are
carried at market value.
E: Marketable Securities - Marketable securities are highly liquid
investments with maturities of more than three months when
purchased and are carried at market value.
F: Federal Income Taxes - The Partnership is not a taxable entity
under the provisions of the Internal Revenue Code. The income
and capital gains and losses of the Partnership are attributed,
for federal income tax purposes, to the Partners in the
Partnership. The Partnership may be subject to state and local
taxes in jurisdictions in which it operates.
G: Reclassifications - Certain reclassifications have been made to
the 1994 financial statements to conform to those used in 1995.
Note 2: Transactions with affiliates
Pursuant to an investment management agreement, The Prudential 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, 1995 and 1994 management fees incurred by the Partnership were
$569,088 and $561,916, respectively.
The Partnership also reimburses The Prudential for certain administrative
services rendered by The Prudential. The amounts incurred for the three months
ended March 31, 1995 and 1994 were $32,255 and $30,425 respectively and are
classified as administrative expenses in the Statements of Operations.
The Partnership owns a 50% interest in four warehouse/distribution buildings
in Jacksonville, Florida (the Unit warehouses). The remaining 50% interest is
owned by The Prudential and one of its subsidiaries.
15
<PAGE>
The Partnership has contracted with PREMISYS Real Estate Services, Inc.
(PREMISYS), an affiliate of The Prudential to provide property management
services at the Unit warehouses and the Bolingbrook, IL warehouse. The
property management fee earned by PREMISYS for the three months ended March 31,
1995 and 1994 were $4,689 and $12,743, respectively.
Note 3: Line of Credit
The Partnership established a $10 million annually renewable unsecured revolving
line of credit with First Fidelity Bank, N.A., New Jersey which will be drawn
upon as needed for potential liquidity needs. The annual cost of maintaining
the line of credit is 0.1875% of the total line of credit. As of March 31,
1995, no drawdowns had occurred.
Note 4: Commitment from Partner
On January 9, 1990, The Prudential committed to fund up to $100 million to
enable the Partnership to take advantage of opportunities to acquire attractive
real property investments whose cost is greater than the Partnership's available
cash. Contributions to the Partnership under this commitment are utilized for
property acquisitions and returned to The Prudential on an ongoing basis from
Contract Owners' net contributions. Also, the amount of the commitment is
reduced by $10 million for every $100 million in current value net assets of the
Partnership. The amount available under this commitment as of March 31, 1995
is approximately $ 51.9 million.
Note 5: Commitment to Purchase
The Partnership has a committment to purchase a 250 - unit garden apartment
community located in Raleigh, North Carolina at a purchase price of
approximately $14 million. The apartment community which is currently under
construction is expected to be completed in June, 1995. In conjunction with the
purchase of the property, the Partnership will enter into an agreement to make a
second funding for not more than $1,950,000 should the property meet certain
income and occupancy requirements. This would increase the Partnership's total
committment to approximately $16 million.
16
<PAGE>
NOTE 6: PER SHARE INFORMATION (FOR A SHARE OUTSTANDING THOUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
to to to to to to
03/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Rent from properties $ 0.3654 $ 1.2754 $ 1.1659 $ 1.0727 $ 0.9899 $ 0.9479
Income from interest in properties $ 0.0122 $ 0.1838 $ 0.2139 $ 0.1970 $ 0.1791 $ 0.1533
Interest on mortgage loans $ 0.0000 $ 0.0082 $ 0.0755 $ 0.0711 $ 0.0663 $ 0.0654
Interest from short-term investments $ 0.0625 $ 0.1226 $ 0.0549 $ 0.0653 $ 0.1151 $ 0.1202
---------- ---------- ---------- ---------- ---------- ----------
INVESTMENT INCOME $ 0.4401 $ 1.5900 $ 1.5102 $ 1.4061 $ 1.3504 $ 1.2868
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Investment management fee $ 0.0465 $ 0.1786 $ 0.1673 $ 0.1642 $ 0.1669 $ 0.1591
Real estate tax expense $ 0.0498 $ 0.1399 $ 0.1465 $ 0.1488 $ 0.1168 $ 0.1010
Administrative expenses $ 0.0320 $ 0.1103 $ 0.1187 $ 0.1046 $ 0.0946 $ 0.0910
Operating expenses $ 0.0292 $ 0.1332 $ 0.1209 $ 0.1241 $ 0.0948 $ 0.0776
Interest expense $ 0.0094 $ 0.0255 $ 0.0236 $ 0.0215 $ 0.0193 $ 0.0186
---------- ---------- ---------- ---------- ---------- ----------
EXPENSES $ 0.1669 $ 0.5875 $ 0.5770 $ 0.5632 $ 0.4924 $ 0.4473
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME $ 0.2732 $ 1.0025 $ 0.9332 $ 0.8429 $ 0.8580 $ 0.8395
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Net realized loss on investments sold $ 0.0000 $ (0.0966) $ (0.1816) $ 0.0000 $ 0.0000 $ 0.0000
Net unrealized gain/(loss) on investments $ (0.1386) $ 0.2169 $ 0.0152 $ (1.1359) $ (0.7770) $ (0.1543)
---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS $ (0.1386) $ 0.1203 $ (0.1664) $ (1.1359) $ (0.7770) $ (0.1543)
---------- ---------- ---------- ---------- ---------- ----------
Net increase/(decrease) in share value $ 0.1346 $ 1.1228 $ 0.7668 $ (0.2930) $ 0.0810 $ 0.6852
Share Value at beginning of period $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016 $ 12.1164
---------- ---------- ---------- ---------- ---------- ----------
Share Value at end of period $ 14.6138 $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
Ratio of expenses to average net assets 1.14% 4.27% 4.44% 4.47% 3.81% 3.58%
Ratio of net investment income to
average net assets 1.87% 7.29% 7.17% 6.69% 6.63% 6.72%
Number of shares outstanding at
end of period (000's) 12,241 12,241 13,031 14,189 14,993 16,175
<FN>
ALL CALCULATIONS ARE BASED ON AVERAGE MONTH-END SHARES OUTSTANDING WHERE
APPLICABLE.
PER SHARE INFORMATION PRESENTED HEREIN IS SHOWN ON A BASIS CONSISTENT WITH THE
FINANCIAL STATEMENTS AS DISCUSSED IN NOTE 1G.
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of The Pruco Life Variable Contract Real Property Account (the
"Real Property Account") are invested in The Prudential Variable Contract Real
Property Partnership (the "Partnership"). Correspondingly, the liquidity,
capital resources and results of operations for the Real Property Account are
contingent upon those of the Partnership. Therefore, all of management's
discussion of these items is at the Partnership level. The partners in the
Partnership are The Prudential Insurance Company of America, Pruco Life
Insurance Company and Pruco Life Insurance Company of New Jersey.
(a) Liquidity and Capital Resources
At March 31, 1995, the Partnership's liquid assets consisting of cash and cash
equivalents and marketable securities totalled $52,219,403. This is an increase
of $3,301,967 from liquid assets at December 31, 1994, of $48,917,436. The
increase is due primarily to cash received from the operations of the
Partnership's properties and interest income received from short-term
investments.
The Partnership has established a $10 million annually renewable unsecured
revolving line of credit with First Fidelity Bank, N.A. to be drawn upon as
needed for potential liquidity needs. As of March 31, 1995, no drawdowns had
occurred. Management does not anticipate the need to draw upon this resource in
the near future. In addition, The Prudential has committed to fund up to $100
million to enable the Partnership to acquire real estate investments.
Contributions to the Partnership under this commitment are utilized for property
acquisitions and returned to The Prudential on an ongoing basis from Contract
owners' net contributions. The amount of the commitment is reduced by $10
million for every $100 million in current value net assets of the Partnership.
The amount available for future investments is approximately $51.9 million as of
March 31, 1995.
The Partnership will ordinarily invest 10-15% of its assets in cash and short-
term obligations to maintain liquidity, however, its investment policy allows up
to 30% investment in cash and short-term obligations. At March 31, 1995, 28.3%
of the Partnership's assets consisted of cash and cash equivalents and
marketable securities. The Partnership had retained a portion of the cash
generated by operations as well as from the sale of properties and the maturing
of the mortgage loans pending anticipated reinvestment of these funds. No
partner withdrawals were made during the first quarter of 1995. The partners
did withdraw $3 million in April 1995. Additional withdrawals may be made
during the remainder of 1995 based upon the needs of the Partnership including
potential property acquisitions and dispositions and capital expenditures. At
March 31, 1995, and currently, the Partnership has adequate liquidity.
Management anticipates that ongoing cash flow from operations will satisfy the
Partnership's needs over the next nine months and the foreseeable future. As
described below, the Partnership has entered into a commitment to acquire an
apartment complex in Raleigh, NC for approximately $14 million. This will be
funded from cash currently held by the Partnership.
During the quarter ended March 31, 1995, the Partnership expended approximately
$141,000 in capital expenditures of which approximately $123,000 were for tenant
alteration and leasing commissions. The largest of these included $50,000 at
the Flint, MI office buildings for an expansion for Olsten Kimberly, $42,000 at
the Azusa, CA warehouse for Best Buy, $15,000 at the Morristown, NJ office
building for various tenants and $12,000 at one of the Jacksonville warehouses
(the Unit warehouses) for Biaggi Brothers. Of the remaining $22,000 in capital
expenditures, approximately $15,000 related to sealing the concrete floors at
the Bolingbrook, IL warehouse.
Projected capital expenditures for the remainder of the 1995 total approximately
$1,504,000. Approximately $1,270,000 consists of tenant alterations and leasing
commissions. The largest of these are the final installments of cost related to
the Best Buy lease at the Azusa warehouse (approximately $258,000). At the
Morristown Office Centre, Kodak signed a five-year lease for which approximately
$142,000 in tenant alterations and leasing commissions is anticipated. A new
lease at one of the Unit warehouses has been negotiated for which approximately
$23,000 in tenant improvements and leasing commissions is expected. Additional
leasing costs projected for prospective leases include $268,000 at Morristown,
$254,000 at the Flint office property, $202,000 at the Pomona, CA warehouse,
$96,000 at the Unit warehouses and $27,000 at the Roswell, GA shopping center.
18
<PAGE>
The actual amount of such expenditures will depend on the number of new leases
signed, the needs of the particular tenants and the timing of lease executions.
Other major capital expenditures planned for the remainder of 1995 include
$57,000 for fencing and entrance gates at the Azusa warehouse and the Atlanta
apartments, $51,000 for sprinklers, electronic transformers and climate control
units at Morristown, $45,000 for exterior lighting at the Lisle, IL office
building, $44,000 for irrigation and drainage upgrades and landscaping at the
Farmington Hills, MI apartments, the Bolingbrook warehouse and the Unit
warehouses and $37,000 for smaller projects among the various properties
including improvements to common areas and carpet upgrades at the apartments.
The Partnership has entered into a commitment to purchase a garden apartment
complex currently under construction in Raleigh, NC. The property consists of
14 two and three-story buildings with a total of 250 units. The property is
expected to be completed in June 1995. The initial funding will be
approximately $14 million. A second funding will be made during 1995 based upon
the property's achieving certain income and occupancy levels. The maximum
amount of the second funding is $1,950,000. This investment will be funded from
cash held by the Partnership.
(b) Results of Operations
The following is a brief discussion of a comparison of the results of operations
for the three months ended March 31, 1995 and 1994.
The Partnership's net investment income for the first three months of 1995 was
$3,343,658, an increase of $148,317 (4.6%) from $3,195,341 for the corresponding
period of 1994. This was primarily the result of an increase in interest income
from short-term investments (approximately $546,000) partially offset by lower
income from property operations (approximately $287,000), lower interest income
from mortgage loans (approximately $79,000) and higher interest expense
(approximately $33,000).
Income from property operations, including income from investment in properties
was $3,319,425 for the first three months of 1995. This was a decrease of
$286,631 (7.9%) from $3,606,056 for the same period of 1994. This was primarily
the result of lower income from interest in properties due to the sale of the
seven Unit warehouses in October 1994 (approximately $655,000) and higher real
estate taxes (approximately $132,000) and administrative expenses (approximately
$80,000), partially offset by an increase in rent from properties (approximately
$557,000) and lower operating expenses (approximately $24,000).
Income from interest in properties relates to the Partnership's 50% co-
investment in the Unit warehouses. On October 7, 1994, the Partnership sold its
interest in seven of the eleven warehouses. This was the major reason that
income from interest in properties decreased $655,463 (81.4%) from $804,871 for
the first quarter of 1994 to $149,408 for the first quarter of 1995.
Rent from properties increased by $557,159 (14.2%) from $3,915,238 for the first
quarter of 1994 to $4,472,397 for the corresponding period of 1995. This was
primarily the result of the acquisition, through foreclosure in July 1994, of
the Flint office property. In the first quarter of 1994, this investment was
reported as a mortgage loan. In 1995, its operating results are included with
income from property operations. This increased rent from properties by
approximately $287,000 for the first quarter of 1995. Rental income also
increased approximately $122,000 at the Azusa warehouse and the Atlanta, GA
apartments due to higher occupancy in 1995. Rental income at the Bolingbrook
warehouse was about $71,000 higher for the first three months of 1995 as a
result of the expiration of a free rent period granted to the tenant in the
first quarter of 1994. Revenue at the Pomona warehouse were almost $77,000
higher in the first quarter of 1995 compared to the corresponding period of last
year primarily due to increased expense recoveries.
Real estate taxes for the first three months of 1995 increased $131,902 (27.6%),
to $609,624 from $477,722 for the first quarter of 1994. This was the result of
the inclusion of the Flint office buildings in property operations.
19
<PAGE>
Property operating expenses for the first quarter of 1995 were $357,501, a
decrease of $23,821 (6.2%) from $381,322 for the corresponding period of last
year. The Flint property had operating expenses for the first quarter of 1995
of approximately $36,000. This increase was offset by lower utility costs among
all properties and lower maintenance costs, particularly at Azusa, where
building exteriors were painted in the first quarter of 1994. No similar large
expenses were incurred this year.
Administrative expense on the statement of operations includes both property and
Partnership administrative expenses. Property administrative expenses totalled
$335,255 for the quarter ended March 31, 1995. This is an increase of $80,246
(31.5%) from $255,009 for the same period last year. This was primarily the
result of the inclusion of the Flint property (approximately ($29,000), higher
insurance premiums (almost $27,000) primarily at the two California properties,
and an increase in bad debt expense (approximately $19,000). The last item was
the result of a credit to bad debt expense at the Azusa warehouse in the first
quarter of 1994 arising from the application of a security deposit to amounts
owed by a vacated tenant. Partnership administrative expenses for the first
quarter of 1995 decreased by $9,073 (13.8%) to $56,865 from $65,938 for the
first quarter of 1994. This was primarily due to lower appraisal fees for 1995.
Interest expense relates to the capitalized ground leased at the Pomona
warehouse. Interest expense increased by $33,394 (40.8%) to $115,144 for the
first three months of 1995 from $81,750 for the first quarter of 1994. This was
due to a scheduled increase in the lease payment, effective in November 1994.
The annual ground lease payments after November 1994, and for each ten year
increment thereafter, are subject to increase by 50% of the increase in the
Consumer Price Index during the previous period. For 1995, the payment
increased by $126,450 to $376,450. The Partnership has the option to purchase
the land for $4,000,000 from November 1994 to November 1997. Management will
continue to evaluate the relevant factors during the option period before
deciding whether to exercise the option.
Investment management expense increased by $7,172 (1.3%) for the first three
months of 1995 to $569,088 from $561,916 for the first quarter of 1994. This
fee is computed as 1.25% of gross assets. During the first quarter of 1995,
gross assets were slightly higher than in 1994.
Interest income from short-term investments increased by $545,754 (248.5%) to
765,330 for the first quarter of 1995 from $219,576 for the first quarter of
1994. This is the result of increased amounts invested and higher interest
rates in 1995. As noted above, the Partnership is retaining increased cash
balances in anticipation of acquiring properties in 1995.
Since both of the Partnership's investments in mortgage loans matured in 1994,
there was no interest income from this source in the first quarter of 1995.
MARKET VALUES OF INVESTED ASSETS: QUARTER ENDED MARCH 31, 1995
During the first quarter of 1995, the Partnership experienced an unrealized loss
of $1,695,529 on its real estate investments. These consisted of unrealized
losses of $1,830,603 on the warehouse properties and $500,001 on the retail
property. These were partially offset by unrealized gains on the office
properties and apartments of $374,600 and $260,475, respectively.
The Partnership's two California warehouse properties experienced the largest
unrealized loss for the quarter. The Pomona property decreased in value by
$1,427,523 (8.7% of the property's December 31, 1994 value). This was due to
lower market rental rates and the expectations that it will take longer than
previously anticipated to lease the vacant space at the property. In addition,
the discount rate used in the appraisal was increased, reflecting the higher
yields demanded by investors in real estate in the soft southern California
market. The Azusa warehouse declined $568,173 (3.7% of the property's year-end
1994 value) in value during the first quarter of 1995 due to the necessity of a
roof replacement program which was not included in the prior appraisal.
20
<PAGE>
The Bolingbrook warehouse increased by $90,093 (1.3% of the property's December
31, 1994 value) for the first quarter of 1995 due to lower estimates of
operating and capital expenditures. The Unit warehouses also increased in value
by $75,000 (1.3% of the property's December 31, 1994 value) as a result of the
Biaggi Brothers lease increasing occupancy to 100% and expectations that the
only lease expiring in 1995 will be renewed.
The Partnership's sole retail property, the King's Market Shopping Center in
Roswell, GA, decreased in value by $500,001 (1.5% of the property's December 31,
1994 value) for the quarter ended March 31, 1995. The decrease was due to
increased competition in the local market due the construction of a regional
mall which is expected to exert a downward pressure on rental rates.
The office building in Lisle, IL increased in value by $1,300,000 for the first
quarter of 1995 (10.8% of the property's year-end 1994 value). The increase
was the result of an improvement in current rental rates and expectations of
future rates. In addition, the discount rate used in the appraisal was reduced
reflecting the improved conditions in the local market.
The value of the Partnership's office property in Morristown decreased $525,399
(5.3% of its December 31, 1994 value) while the office property in Flint
decreased $400,001 (5.2% of its year-end 1994 value). The decrease was
primarily attributable to increases in the discount rates, reflecting the soft
market conditions in the local areas and the expectations that potential buyers
are requiring higher returns on such investments.
Collectively, the Partnership's two apartment properties increased approximately
$260,000 in value during the first quarter of 1995. Brookwood Apartments in
Atlanta increased $296,467 (2.5% of its December 31, 1994 value) due to higher
rental rates. The market value of the apartments in Farmington Hills, MI
decreased $35,992 (less than 1% of its December 31, 1994 value), primarily as a
result of capital expenditures which did not add to value.
PROPERTY LEASING ACTIVITY
Occupancy among the Partnership's properties increased slightly during the first
quarter of 1995 as a result of activity at the Unit warehouses and the Flint
office buildings.
Biaggi Brothers signed a two-year lease covering 90,000 square feet at one of
the Unit warehouses (18% of the four buildings) effective February 1, 1995.
This brings occupancy at the four buildings to 100%. One lease covering 102,000
square feet (20% of the warehouses) is scheduled to expire on April 30, 1995. A
new two-year lease has been negotiated with the tenant. The new rent rate is
approximately 10% higher than that on the expiring lease. No other leases are
scheduled to expire at the Unit warehouses during the remainder of 1995.
Occupancy at the Flint property increased from 89% at December 31, 1994 to 92%
at March 31, 1995 as a current tenant expanded its space by 3,900 square feet
(3% of the property). The new lease expires June 30, 2000. During the
remainder of 1995, leases totalling approximately 14,600 square feet (13% of the
property) are scheduled to expire. In addition, leases totalling approximately
17,000 square feet (15% of the property) are on a month-to-month basis.
Management is focusing its efforts on these tenants as well as working to lease
the currently vacant space at the property.
Occupancy at the Morristown office building at March 31, 1995 remained at 93% as
it was at the end of 1994. During the first quarter of 1995, Kodak signed a new
lease covering the 6,600 square feet (8% of the property) which they had been
occupying on a month-to-month basis. The new lease expires in December 31,
1999. Two leases totalling 5,800 square feet (7% of the property) are scheduled
to expire during 1995. The Partnership is discussing renewal terms with the
current tenants, but it is not certain whether they will renew.
At the shopping center in Roswell, occupancy decreased from 99% at December 31,
1994 to 98% at March 31, 1995 as one tenant who occupied 1,950 square feet (0.6%
of the property) vacated at the expiration of their lease. Another tenant
renewed its lease which covers 1,190 square feet (0.4%) of the property for
three years. Leases covering approximately 5,600 square feet (2% of the
property) are scheduled to expire in 1995.
21
<PAGE>
The Partnership's California warehouses in Azusa and Pomona remained 100% and
83% leased, respectively, at March 31, 1995. No leases are scheduled to expire
during the remainder of 1995.
The Bolingbrook warehouse and the Lisle office building remain fully leased to
Gillette and R. R. Donnelley, respectively. Neither lease is scheduled to
expire in 1995.
The Partnership's residential properties remain approximately 98% occupied at
March 31, 1995 as they were at the end of 1994. Rental rates are expected to
rise slightly in 1995 in the residential markets in which the Partnership's
apartments are located. Occupancy at these properties is not expected to change
significantly during the remainder of 1995.
22
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
4.1 Variable Life Insurance Contract, filed as Exhibit 1.A.(5)(a) to
Pre-Effective Amendment No. 1 to Form S-6, Registration Statement
No. 2-80513, filed February 17, 1983, and incorporated herein by
reference.
4.2 Revised Variable Appreciable Life Insurance Contract with fixed
death benefit, filed as Exhibit 1.A.(5)(f) to Post-Effective
Amendment No. 5 to Form S-6, Registration Statement No. 2-89558,
filed July 10, 1986, and incorporated herein by reference.
4.3 Revised Variable Appreciable Life Insurance Contract with
variable death benefit, filed as Exhibit 1.A.(5)(g) to Post-
Effective Amendment No. 5 to Form S-6, Registration Statement No.
2-89558, filed July 10, 1986, and incorporated herein by
reference.
4.4 Single Premium Variable Annuity Contract, filed as Exhibit 4(i)
to Form N-4, Registration Statement No. 2-99616, filed August 13,
1985, and incorporated herein by reference.
4.5 Flexible Premium Variable Life Contract, filed as Exhibit 1.A.(5)
to Form S-6, Registration Statement No. 2-99260, filed July 29,
1985, and incorporated herein by reference.
23
<PAGE>
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
------------------------------------------------------------
Date: May 12, 1995 By: /s/ Esther H. Milnes
---------------------------- -------------------------------
Esther H. Milnes
President
Date: May 12, 1995 By: /s/ Stephen P. Tooley
---------------------------- -------------------------------
Stephen P. Tooley
Vice President, Comptroller and
Chief Accounting Officer
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<S> <C>
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<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
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