<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 September 30, 1996
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
--- ---
1
<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 - September 30, 1996 (Unaudited)
and December 31, 1995 3
Statements of Operations (Unaudited) - Nine and Three Months
Ended September 30, 1996 and 1995 3
Statements of Changes in Net Assets - Nine Months Ended
September 30, 1996 (Unaudited) and Year Ended
December 31, 1995 4
Notes to the Financial Statements (Unaudited) 5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities - September 30, 1996
(Unaudited) and December 31, 1995 7
Statements of Operations (Unaudited) - Nine and Three Months
Ended September 30, 1996 and 1995 8
Statements of Changes in Net Assets - Nine Months Ended
September 30, 1996 (Unaudited) and Year Ended
December 31, 1995 9
Statements of Cash Flows (Unaudited) - Nine Months Ended
September 30, 1996 and 1995 10
Schedule of Investments - September 30, 1996 (Unaudited)
and December 31, 1995 11
Notes to the Financial Statements (Unaudited) 14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
PART III - SIGNATURES 21
2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(UNAUDITED) DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
Investment in shares of The Prudential Variable Contract
Real Property Partnership $ 96,957,333 $ 96,064,928
------------------ ------------------
------------------ ------------------
NET ASSETS, representing:
Equity of Contract Owners $ 85,752,612 $ 88,198,777
Equity of Pruco Life Insurance Company 11,204,721 7,866,151
------------------ ------------------
$ 96,957,333 $ 96,064,928
------------------ ------------------
------------------ ------------------
Share Value at end of Period $ 16.41 $ 15.75
------------------ ------------------
------------------ ------------------
</TABLE>
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 5,764,541 $ 5,420,867 $ 1,863,538 $ 1,966,893
EXPENSES:
Asset Based Charges to Contract Owners (Note 3) 416,206 419,087 137,829 140,534
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 5,348,335 5,001,780 1,725,709 1,826,359
NET UNREALIZED (LOSS)/GAIN ON INVESTMENTS IN PARTNERSHIP (1,632,307) 1,133,498 (856,408) 1,400,322
NET REALIZED (LOSS) ON SALE OF INVESTMENTS IN PARTNERSHIP (239,828) 0 (5,564) 0
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,476,200 $ 6,135,278 $ 863,737 $ 3,226,681
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</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>
NINE MONTHS
ENDED
SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 5,348,335 $ 6,931,412
Net Unrealized (Loss)/Gain on Investments in Partnership (1,632,307) 320,146
Net Realized (Loss) on Sale of Investments in Partnership (239,828) 0
------------------ ------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 3,476,200 7,251,558
------------------ ------------------
CAPITAL TRANSACTIONS:
Net (Withdrawals) by Contract Owners (5,558,443) (5,278,643)
Net Contributions by Pruco Life
Insurance Company 2,974,648 2,840,074
------------------ ------------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (2,583,795) (2,438,569)
------------------ ------------------
TOTAL INCREASE IN NET ASSETS $ 892,405 $ 4,812,989
NET ASSETS:
Beginning of period $ 96,064,928 $ 91,251,939
------------------ ------------------
End of period $ 96,957,333 $ 96,064,928
------------------ ------------------
------------------ ------------------
</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
SEPTEMBER 30, 1996
(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. BASIS OF ACCOUNTING
The financial statements are prepared on a current value basis due to
the fact that the unit values under Contracts participating in the
Partnership are determined using the current value basis of investments
(see General Note to the Partnership financials). These unaudited
financial statements reflect all adjustments which are, in the opinion
of management, necessary to a fair statement of the results for the
interim period presented. All such adjustements are of a normal
recurring nature.
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
September 30, 1996 the Real Property Account's interest in the
Partnership, based on current value equity was 49.9% or 5,909,534
shares.
C. INCOME RECOGNITION
The Real Property Account recognizes its proportionate share of the
Partnership's net investment income on a daily basis, consistent with
the Partnership Agreement. The Net Gain/(Loss) on Investment in
Partnership reflected on the Statements of Operations represents the
Real Property Account's proportionate share of the Net Gain/(Loss) on
Investments recognized by the Partnership.
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.
Note 5: Related Party
Several actions have been brought against Pruco Life, on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by The Prudential and Pruco Life and agents appointed by The
Prudential and Pruco Life. The Prudential has agreed to indemnify Pruco Life
for any and all losses resulting from such litigation.
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(UNAUDITED) DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
ASSETS:
Properties at estimated market value
(cost $173,936,527 and $191,981,608
respectively) (Note 1) $ 146,758,519 $ 164,695,033
Interest in properties at estimated market value
(cost $6,133,157 and $6,133,157
respectively) (Note 1) 5,900,000 5,800,000
Cash and cash equivalents 26,632,940 14,223,265
Marketable securities 20,109,286 10,532,155
Other assets and accounts receivable
(net of allowance for uncollectible
amounts of $15,169 and $18,896 respectively) 1,986,573 1,743,305
------------------ ------------------
Total Assets $ 201,387,318 $ 196,993,758
------------------ ------------------
------------------ ------------------
LIABILITIES AND PARTNERS' EQUITY:
Obligation under capital lease $ 3,881,705 $ 3,882,421
Accounts payable and accrued expenses 1,870,578 2,142,614
Due to affiliates (Note 2) 684,143 682,795
Other liabilities 557,009 664,069
------------------ ------------------
Total liabilities 6,993,435 7,371,899
------------------ ------------------
Partners' Equity 194,393,883 189,621,859
------------------ ------------------
Total Liabilities and Partners' Equity $ 201,387,318 $ 196,993,758
------------------ ------------------
------------------ ------------------
Number of shares outstanding at end of period 11,848,275 12,036,684
------------------ ------------------
------------------ ------------------
Share Value at end of period $16.41 $15.75
------------------ ------------------
------------------ ------------------
</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>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Rent from properties $ 17,065,460 $ 14,031,856 5,351,519 $ 5,028,614
Income from interest in properties 456,115 472,096 128,431 161,647
Interest from short-term investments 1,469,594 2,157,742 625,313 598,780
------------- ------------- ------------ -------------
18,991,169 16,661,694 6,105,263 5,789,041
------------- ------------- ------------ -------------
EXPENSES:
Investment management fee (Note 2) 1,848,541 1,730,668 625,132 587,984
Real estate tax expense 1,749,737 1,429,863 498,357 354,233
Administrative expenses 1,462,289 1,246,642 423,564 407,094
Operating expenses 2,053,641 1,276,795 703,785 444,876
Interest expense 372,344 345,434 117,089 115,145
------------- ------------- ------------ -------------
7,486,552 6,029,402 2,367,927 1,909,332
------------- ------------- ------------ -------------
NET INVESTMENT INCOME 11,504,617 10,632,292 3,737,336 3,879,709
------------- ------------- ------------ -------------
REALIZED AND UNREALIZED LOSS/GAIN ON
INVESTMENTS:
Net proceeds from real estate investment sold 14,697,789 0 0 0
Less cost of real estate investment sold 18,638,949 0 12,195 0
Realization of prior quarters' unrealized loss on
real estate investments sold (3,462,522) 0 0 0
------------- ------------- ------------ -------------
NET LOSS REALIZED ON REAL ESTATE
INVESTMENTS SOLD (478,638) 0 (12,195) 0
NET UNREALIZED LOSS ON INVESTMENTS (3,253,955) 2,265,212 (1,717,062) 2,766,811
------------- ------------- ------------ -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 7,772,024 $ 12,897,504 2,008,079 $ 6,646,520
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
</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
NINE MONTHS
ENDED
SEPTEMBER 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
------------------ ------------------
OPERATIONS:
Net Investment Income $ 11,504,617 $ 14,720,271
Net Realized and Unrealized
Gain/(Loss) on Investments (3,732,593) 661,623
------------------ ------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 7,772,024 15,381,894
------------------ ------------------
CAPITAL TRANSACTIONS:
Withdrawals by partners
(188,409 and 204,350,
shares respectively) (3,000,000) (3,000,000)
------------------ ------------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS (3,000,000) (3,000,000)
------------------ ------------------
TOTAL INCREASE IN NET ASSETS 4,772,024 12,381,894
NET ASSETS:
Beginning of period 189,621,859 177,239,965
------------------ ------------------
End of period $ 194,393,883 $ 189,621,859
------------------ ------------------
------------------ ------------------
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>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30, 1995
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 7,772,024 $ 12,897,504
Adjustments to reconcile net increase in net assets
resulting from operations to net cash from
operating activities:
Net realized and unrealized loss (gain) on investments 3,732,593 (2,265,212)
Changes in assets and liabilities:
(Increase) Decrease in other assets
and accounts receivable (243,269) 843,917
Decrease in obligation under capital lease (716) (5,947)
(Decrease) Increase in accounts payable
and accrued expenses (272,036) 483,498
Decrease in due to affiliates 1,348 21,170
(Decrease) Increase in other liabilities (107,060) 8,335
------------------ ------------------
Net cash from operating activities 10,882,884 11,983,265
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 14,697,789 0
Acquisition of property 0 (15,758,699)
Capital improvements on real estate owned (593,866) (562,085)
Capital improvements on interest in properties 0 (24,415)
------------------ ------------------
Net cash from investing activities 14,103,923 (16,345,199)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals (3,000,000) (3,000,000)
(Purchase) Sale in marketable securities (9,577,131) 6,802,196
------------------ ------------------
Net cash from financing activities (12,577,131) 3,802,196
------------------ ------------------
Net increase in cash and cash equivalents 12,409,676 (559,738)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 14,223,265 33,093,237
------------------ ------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 26,632,941 $ 32,533,499
------------------ ------------------
------------------ ------------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 376,450 $ 376,450
------------------ ------------------
------------------ ------------------
</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>
SEPTEMBER 30, 1996
(UNAUDITED) DECEMBER 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (PERCENT OF NET ASSETS) 75.5% 86.9%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Azusa, CA Warehouse $ 0 $ 0 $ 18,546,247 $ 15,083,725
Lisle, IL Office Building 17,524,421 10,400,000 17,524,421 11,600,000
Atlanta, GA Garden Apartments 15,388,924 13,400,000 15,371,495 12,600,000
Pomona, CA (a) Warehouse 23,416,959 17,712,001 23,205,172 17,127,292
Roswell, GA Retail Shopping Center 31,720,254 29,035,206 31,688,912 32,055,216
Morristown, NJ Office Building 18,783,206 10,130,970 18,664,969 9,572,688
Bolingbrook, IL Warehouse 8,948,030 7,100,000 8,948,028 7,400,000
Farmington Hills, MI Garden Apartments 13,617,552 14,522,602 13,594,950 14,200,000
Flint, MI Office Building 7,714,484 5,807,501 7,616,842 6,539,368
Raleigh, NC Garden Apartments 15,758,699 16,850,000 15,758,699 17,200,000
Nashville, TN Office Building 8,428,890 8,800,239 8,431,680 8,686,551
Oakbrook Terrace, IL Office Complex 12,635,106 13,000,000 12,630,193 12,630,193
-------------- -------------- -------------- --------------
$ 173,936,527 $ 146,758,519 $ 191,981,608 $ 164,695,033
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
(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>
<CAPTION>
INVESTMENT IN INTEREST IN PROPERTIES (PERCENT OF NET ASSETS) 3.0% 3.1%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jacksonville, FL Warehouse/Distribution 1,317,453 1,250,000 1,317,453 1,225,000
Jacksonville, FL Warehouse/Distribution 1,002,448 1,000,000 1,002,448 975,000
Jacksonville, FL Warehouse/Distribution 1,442,894 1,300,000 1,442,894 1,300,000
Jacksonville, FL Warehouse/Distribution 2,370,362 2,350,000 2,370,362 2,300,000
-------------- -------------- -------------- --------------
$ 6,133,157 $ 5,900,000 $ 6,133,157 $ 5,800,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 13.7% 7.5%
(see pages 12 and 13 for detail) Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper and Cash $ 26,727,579 $ 26,632,940 $ 14,282,697 $ 14,223,265
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
<CAPTION>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 10.3% 5.6%
(see pages 12 and 13 for detail) Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable Securities $ 19,970,000 $ 20,109,286 $ 10,480,000 $ 10,532,155
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
OTHER ASSETS (2.5%) (3.1%)
(net of liabilities) $ (5,006,862) $ (5,628,594)
-------------- --------------
-------------- --------------
TOTAL NET ASSETS $ 194,393,883 $ 189,621,859
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
(UNAUDITED)
----------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS)
13.7%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
Citicorp, 5.95%, October 1, 1996 $ 272,000 $ 271,955
US West Communications, 5.32%, October 4, 1996 2,130,000 2,111,114
Countrywide Home Loan, 5.40%, October 7, 1996 2,200,000 2,190,760
General Electric Capital Corp, 5.32%, October 9, 1996 2,200,000 2,195,448
IBM Credit Corp. 5.31%, October 9, 1996 2,200,000 2,195,457
Coporate Asset Funding, 5.27%, October 10, 1996 1,430,000 1,419,324
Household Finance Corp, 5.32%, October 10, 1996 2,270,000 2,264,968
Riverwoods Funding Corp, 5.32%, October 10, 1996 1,700,000 1,696,232
Allied-Signal Inc, 5.32%, October 11, 1996 2,200,000 2,194,798
Cargill Inc, 5.37%, October 16, 1996 2,000,000 2,000,000
Bell Atlantic Network Funding Corp, 5.39%, October 21, 1996 2,200,000 2,200,000
Aristar Inc, 5.38%, November 11,1996 559,000 555,826
Credit Suisse First Boston Inc, 5.33%, November 4, 1996 2,270,000 2,256,557
Duracell Inc, 5.35%, November 7, 1996 715,000 710,537
First Data Corp, 5.43%, December 16, 1996 1,000,000 988,385
--------------- ---------------
TOTAL COMMERCIAL PAPER 25,346,000 25,251,361
TOTAL CASH 1,381,579 1,381,579
--------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS $ 26,727,579 $ 26,632,940
--------------- ---------------
--------------- ---------------
<CAPTION>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 10.3%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
General Motors Acceptance Corp, 5.76%, March 18, 1997 1,200,000 1,201,344
Sears Discover Credit Corp, 7.81%, March 18, 1997 1,150,000 1,185,255
Ford Motor Credit, 6.03%, May 5, 1997 1,400,000 1,405,337
Ford Motor Credit, 6.03%, May 5, 1997 350,000 354,159
Ford Motor Credit, 9.15%, May 5, 1997 500,000 515,010
Key Bank NA, 5.26%, May 14, 1997 900,000 899,130
Associates Corp of North America, 7.05%, June 30, 1997 600,000 621,099
Bank One Columbus, 5.26%, July 1, 1997 1,110,000 1,108,812
Associates Corp of North America, 5.88%, August 15, 1997 1,230,000 1,230,744
Key Bank of New York, 5.33%, September 4, 1997 1,300,000 1,298,933
AVCO Financial ServicesInc.,7.50%, November 11, 1996 850,000 858,490
PEPSICO Inc.,7.00%, November 15, 1996 500,000 508,358
American Express Centurion Bank, 5.52%, November 22, 1996 1,880,000 1,880,000
Caterpillar Financial Services, 5.72%, November 29, 1996 1,200,000 1,201,560
General Motors Acceptance Corp., 7.75% ,December 10, 1996 850,000 872,657
Chrysler Financial Copr., 5.16%, December 17, 1996 1,000,000 996,300
PNC Bank, 5.39%, January 6, 1997 2,200,000 2,206,564
Sears Roebuck Acceptance Corp, 7.48%, February 19, 1997 100,000 102,187
Sears Roebuck Acceptance Corp,7.72%, February 27, 1997 800,000 817,318
Dean Wiitter Discover & Co., 5.57%, March 6, 1997 500,000 500,387
Associates Corp of North America, 4.48%, October 15, 1996 350,000 345,642
--------------- ---------------
Total Commercial Paper $ 19,970,000 $ 20,109,286
--------------- ---------------
--------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
12
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
----------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 7.5%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
Morgan Stanley Group, Inc., 6.10%, January 2, 1996 $ 1,146,000 $ 1,146,000
Engelhard Corp., 6.25%, January 3, 1996 1,038,000 1,038,000
Finova Capital Corp., 5.95%, January 4, 1996 800,000 792,198
Philip Morris Companies Inc., 5.80%, January 5, 1996 505,000 504,430
Gannett Co. Inc., 5.85%, January 9, 1996 1,700,000 1,696,409
Hanson Finance, 5.80%, January 12, 1996 354,000 352,175
Riverwoods Funding Corp., 5.78%, January 12, 1996 1,189,000 1,183,273
Finova Capital Corp., 5.97%, January 16, 1996 780,000 771,980
Smith Barney Inc., 5.79%, January 18, 1996 1,628,000 1,618,836
Fleet Financial Group, 5.75%, January 30, 1996 1,700,000 1,689,139
Countrywide Funding Corp., 5.82%, February 14, 1996 1,500,000 1,488,128
-------------- --------------
TOTAL COMMERCIAL PAPER 12,340,000 12,280,568
TOTAL CASH 1,942,697 1,942,697
-------------- --------------
TOTAL CASH AND CASH EQUIVALENTS $ 14,282,697 $ 14,223,265
-------------- --------------
-------------- --------------
<CAPTION>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 5.6%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
Associates Corp. of North America, 8.75%, February 1, 1996 $ 410,000 $ 416,810
General Motors Acceptance Corp., 8.75%, February 1, 1996 650,000 658,860
General Motors Acceptance Corp., 8.95%, February 5, 1996 350,000 356,370
General Motors Acceptance Corp., 4.75%, February 14, 1996 430,000 426,212
General Motors Acceptance Corp., 6.01%, February 22, 1996 240,000 240,057
Household Finance Corp., 5.75%, April 19, 1996 2,000,000 1,996,520
Ford Motor Credit Corp., 6.24%, April 22, 1996 500,000 500,658
Society National Bank Cleveland, 6.00%, April 25, 1996 150,000 149,295
International Lease Finance Corp., 5.00%, May 28, 1996 1,000,000 992,120
Transamerica Financial Corp., 8.55%, June 15, 1996 400,000 409,284
John Deere Capital Corp., 6.16%, July 22, 1996 1,000,000 1,002,267
Sears Roebuck Acceptance Corp., 8.55%, August 1, 1996 1,000,000 1,039,335
Key Bank of New York, N.A., 5.43%, September 6, 1996 1,000,000 999,210
Bank One Columbus, 5.56%, September 12, 1996 1,000,000 999,297
Associates Corp. of North America, 4.48%, October 15, 1996 350,000 345,860
-------------- --------------
Total Commercial Paper $ 10,480,000 $ 10,532,155
-------------- --------------
-------------- --------------
</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
SEPTEMBER 30, 1996
(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 nine months ended September 30, 1996 are not
necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For
further information, refer to the financial statements
and notes thereto included in each Partner's December
31, 1995 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 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
14
<PAGE>
Prudential Comptroller's Department Valuation Unit and
the Chief Appraiser and adjusted if there have been any
significant changes related to the property since the
most recent independent appraisal.
The purpose of an appraisal is to estimate the market
value of a property as of a specific date. Estimated
market 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: Revenue 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 estimated market value.
E: Marketable Securities - Marketable securities are highly
liquid investments with maturities of more than three
months when purchased and are carried at estimated
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.
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 nine months ended September 30, 1996 and 1995 management fees
incurred by the Partnership were $1,848,541 and $1,730,668
respectively.
The Partnership also reimburses The Prudential for certain
administrative services rendered by The Prudential. The amounts
incurred for the nine months ended September 30, 1996 and 1995 were
$88,693 and $93,221 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. 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. The
property management fees earned by PREMISYS for the nine months ended
September 30, 1996 and 1995 were $14,965 and $14,712 respectively.
NOTE 3: 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 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 September 30, 1996 is approximately $ 50.9 million.
15
<PAGE>
NOTE 6: PER SHARE INFORMATION (FOR A SHARE OUTSTANDING THOUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
01/01/96 07/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
TO TO TO TO TO TO TO TO
09/30/96 09/30/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rent from properties $ 1.4335 $ 0.4516 $ 1.6387 $ 1.2754 $ 1.1659 $ 1.0727 $ 0.9899 $ 0.9479
Income from interest in
properties $ 0.0383 $ 0.0108 $ 0.0527 $ 0.1838 $ 0.2139 $ 0.1970 $ 0.1791 $ 0.1533
Interest on mortgage loans $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0082 $ 0.0755 $ 0.0711 $ 0.0663 $ 0.0654
Interest from short-term
investments $ 0.1235 $ 0.0527 $ 0.2199 $ 0.1226 $ 0.0549 $ 0.0653 $ 0.1151 $ 0.1202
--------- --------- --------- --------- --------- --------- --------- ---------
INVESTMENT INCOME $ 1.5953 $ 0.5151 $ 1.9113 $ 1.5900 $ 1.5102 $ 1.4061 $ 1.3504 $ 1.2868
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Investment management fee $ 0.1553 $ 0.0527 $ 0.1936 $ 0.1786 $ 0.1673 $ 0.1642 $ 0.1669 $ 0.1591
Real estate tax expense $ 0.1470 $ 0.0421 $ 0.1602 $ 0.1399 $ 0.1465 $ 0.1488 $ 0.1168 $ 0.1010
Administrative expenses $ 0.1228 $ 0.0357 $ 0.1484 $ 0.1103 $ 0.1187 $ 0.1046 $ 0.0946 $ 0.0910
Operating expenses $ 0.1725 $ 0.0594 $ 0.1546 $ 0.1332 $ 0.1209 $ 0.1241 $ 0.0948 $ 0.0776
Interest expense $ 0.0313 $ 0.0099 $ 0.0381 $ 0.0255 $ 0.0236 $ 0.0215 $ 0.0193 $ 0.0186
--------- --------- --------- --------- --------- --------- --------- ---------
EXPENSES $ 0.6289 $ 0.1998 $ 0.6949 $ 0.5875 $ 0.5770 $ 0.5632 $ 0.4924 $ 0.4473
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
NET INVESTMENT INCOME $ 0.9664 $ 0.3153 $ 1.2164 $ 1.0025 $ 0.9332 $ 0.8429 $ 0.8580 $ 0.8395
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Net realized loss on
investments sold ($ 0.0402) ($ 0.0011) $ 0.0000 $ (0.0966) $ (0.1816) $ 0.0000 $ 0.0000 $ 0.0000
Net unrealized gain/(loss)
on investments ($ 0.2729) ($ 0.1451) $ 0.0581 $ 0.2169 $ 0.0152 $ (1.1359) $ (0.7770) $ (0.1543)
--------- --------- --------- --------- --------- --------- --------- ---------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS ($ 0.3131) ($ 0.1462) $ 0.0581 $ 0.1203 $ (0.1664) $ (1.1359) $ (0.7770) $ (0.1543)
--------- --------- --------- --------- --------- --------- --------- ---------
Net increase/(decrease) in
share value $ 0.6533 $ 0.1695 $ 1.2745 $ 1.1228 $ 0.7668 $ (0.2930) $ 0.0810 $ 0.6852
Share Value at beginning
of period $ 15.7537 $ 16.2375 $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016 $ 12.1164
--------- --------- --------- --------- --------- --------- --------- ---------
Share Value at end of period $ 16.4070 $ 16.4070 $ 15.7537 $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016
--------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- ---------
Ratio of expenses to average
net assets 3.92% 1.23% 4.62% 4.27% 4.44% 4.47% 3.81% 3.58%
Ratio of net investment income
to average net assets 6.02% 1.95% 8.08% 7.29% 7.17% 6.69% 6.63% 6.72%
Number of shares outstanding
at end of period (000's) 11,848 11,848 12,037 12,241 13,031 14,189 14,993 16,175
</TABLE>
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.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of The Prudential 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 September 30, 1996, the Partnership's liquid assets consisting of cash and
cash equivalents and marketable securities totaled $46,742,226. This is an
increase of $21,986,806 from liquid assets at December 31, 1995, of $24,755,420.
The increase is primarily due to (1) $14,697,789 in cash received from the sale
of the Azusa, CA warehouse, (2) operations of the Partnership's properties, and
(3) interest income received from short-term investments. These are partially
offset by withdrawals by the partners of $3 million.
The Partnership had established a $10 million annually renewable line of credit
with First Fidelity Bank, N.A. to be drawn upon as needed for potential
liquidity needs. The line of credit had never been drawn upon. Management did
not anticipate any future needs for this credit facility and decided to
terminate the line of credit as of October 31, 1995. 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
$50.9 million as of September 30, 1996.
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 September
30, 1996, 22.56% of the Partnership's assets consisted of cash and cash
equivalents and marketable securities. This is in excess of the target range
because proceeds from the sale, mentioned above, are being retained in the
Partnership in anticipation of three potential acquisitions. The Partnership is
scheduled to close on a 77,000 square foot office building in Portland, OR, in
December 1996, for an estimated purchase price of $10.8 million. In addition,
two industrial forward commitments are scheduled to close in mid 1997, one in
Denver, CO for an estimated purchase price of $10.4 million, and the other in
Salt Lake City, UT for an estimated price of $7 million. The partners withdrew
$3 million in March, 1996. Additional withdrawals may be made during the
remainder of 1996 based upon the needs of the Partnership including potential
property acquisitions and dispositions and capital expenditures. At September
30, 1996, and currently, the Partnership has adequate liquidity. Management
anticipates that ongoing cash flow from operations will satisfy the
Partnership's needs over the next three months and the foreseeable future.
During the quarter ended September 30, 1996, the Partnership expended
approximately $264,000 in capital expenditures for tenant alterations, leasing
commissions and land improvements. The most significant of these expenses was
approximately $166,000 at the industrial property in Pomona, CA relating to a
renewal leasing commission and tenant alterations for the Treasure Chest. Other
significant capital expended included building improvements of approximately
$31,000 at the Morristown, NJ office building, tenant improvements and leasing
commissions of approximately $36,000 for Shepherd's Staff Christian Book Store,
a new tenant at the Roswell, GA retail center, and major landscaping and parking
structure improvements of approximately $23,000 at the Farmington Hills, MI
apartment complex.
Projected capital expenditures for the remainder of 1996 total approximately
$136,500, which consists of tenant alterations, leasing commissions and land
improvements. Approximately $65,000 of the tenant alterations and leasing
commissions pertain to tenant renewals at the Pomona, CA industrial property.
17
<PAGE>
Approximately $51,000 of the tenant alterations and leasing commissions are
budgeted for vacancies and approximately $10,500 of land improvements are
budgeted for the site's traffic improvements at the Roswell, GA retail center.
In addition, approximately $10,000 of the tenant alterations and leasing
commissions are budgeted for the remaining vacancies at the Morristown, NJ
office building. These projected capital expenditures are dependent upon
successfully executing new tenant leases or tenant renewals.
(b.1) Results of Operations - Portfolio
The following is a brief comparison of the Partnership's total portfolio results
of operations and realized and unrealized losses for the nine months ended
September 30, 1996 and 1995.
The Partnership's total net investment income for the first nine months of 1996
was $11,504,617, an increase of $872,325 (8.2%) from $10,632,292 for the
corresponding period of 1995. This was largely due to income of approximately
$2,381,756 from one apartment and two office building acquisitions that
occurred during the second half of 1995, and an increase of approximately
$108,000 in income from ongoing property operations. These amounts were
partially offset by a decrease of approximately $894,000 in unrelated property
activity, and discontinued income of approximately $723,000 due to the sale of
a warehouse that occurred in April, 1996.
The Partnership's income unrelated to specific properties was a loss of
$815,473, a decrease of $894,387 from income of $78,914 for the corresponding
period of 1995. Components of unrelated property activity are $1,469,594 in
interest income from short-term investments, $436,526 in administrative
expenses, and the investment management fee of $1,848,541. During the nine
months ended September 30, 1996, the Partnership experienced a decrease of
$688,148 in short-term investment income, an increase of $88,366 in
administrative expenses, and an increase of $117,873 in the investment
management fee.
During the nine months ended September 30, 1996, the Partnership experienced
realized and unrealized losses of $478,638 and $3,253,955, respectively,
totaling $3,732,593, on its real estate investments. The realized loss is
the result of the sale of the Azusa, CA warehouse. The unrealized loss is
the result of a decrease of approximately $3 million in the estimated market
value of the Roswell, GA retail center, and a decrease of approximately
$1.2 million in the estimated market value of the industrial property in
Lisle, IL. These decreases are partially offset by an increase of
approximately $800,000 in the market value of an apartment complex in
Atlanta, GA. The explanations for these changes are detailed in the
following paragraphs.
(b.2) Results of Operations - Property
The following is a brief comparison of the Partnership's property results of
operations and realized and unrealized losses, by investment type, for the nine
months ended September 30, 1996 and 1995.
Income from property operations from office buildings for the first nine months
of 1996 was $4,522,065, an increase of $1,725,118 (61.7%) from $2,796,947 for
the corresponding period in 1995. This was primarily the result of the
acquisition of two office buildings, in Nashville, TN and Oakbrook Terrace,
IL. These properties accounted for $1,694,560 (60.6%) of the increase in income
from office building property operations. Excluding the results of the acquired
properties, income from property operations increased $30,558 (1.1%). Revenue at
the properties held for the comparable period increased by $109,222, while
expenses increased for the comparable period by $78,664.
The five office buildings owned by the Partnership experienced net unrealized
losses of $1,108,100 for the first nine months of 1996. The office
buildings in Lisle, IL and Flint, MI had unrealized losses totaling
$2,029,517 for the first nine months on 1996. Their occupancy rates at
September 30, 1996 were 100% and 81% respectively, representing no change in
the Lisle, IL office building, and a decrease of 15% for the Flint, MI office
building, as compared to December 31, 1995. The Flint, MI building is
expected to be sold
18
<PAGE>
at the end of October, 1996, at an anticipated sale price of $5.5 million. The
office buildings in Morristown, NJ, Oakbrook Terrace, IL, and Nashville, TN had
unrealized gains totaling $921,417. Their occupancy rates at September 30, 1996
were 89%, 99%, and 100%, respectively, representing decreases for the
Morristown, NJ (6%), and Oakbrook, IL (1%) office buildings, and an increase
in the Nashville, TN (1%) building from December 31, 1995. All vacant office
space is being marketed as of September 30, 1996.
Income from property operations for apartment complexes for the first nine
months of 1996 was $3,016,868, an increase of $841,225 (38.7%) from $2,175,643
for the corresponding period in 1995. This was primarily the result of the
acquisition of an apartment complex in Raleigh, NC, which accounted for $687,195
(31.6%) of the increase of the total apartment complexes' property operations.
Excluding the results of the acquired property, income from property operations
increased $154,030 (7.1%). Revenue from the properties held for the comparable
period increased by $88,672. Expenses decreased for the comparable period by
$65,358.
The three apartment complexes owned by the Partnership experienced net
unrealized gains of $732,571 for the first nine months of 1996. The apartment
complexes in Atlanta, GA and Farmington Hills, MI had unrealized gains totaling
$1,082,571 for the first nine months of 1996. Their occupancy rates at
September 30, 1996 were 98% and 92%, respectively, representing an increase of
1% in the Atlanta, GA apartment complex, and a decrease of 6% in the Farmington
Hills, MI apartment complex, from December 31, 1995. The Raleigh, NC apartment
complex had an unrealized loss of $350,000. Occupancy at this property
decreased from 96% at December 31, 1995 to 95% at September 30, 1996. All
vacant apartments are being marketed as of September 30, 1996.
Income from property operations at the Roswell, GA retail center for the first
nine months of 1996 was $2,354,740, a decrease of $190,722 (7.5%) from
$2,545,462 for the corresponding period in 1995. Revenue at the properties
held for the comparable period decreased by $169,115, while expenses increased
by $21,607.
The retail center experienced an unrealized loss of $3,051,348 for the first
nine months of 1996. The occupancy rate at September 30, 1996 was 98%, a
decrease from the 100% occupancy rate at December 31, 1995. The decrease in
occupancy rates is due to a newly developed competitor entering the Roswell, GA
retail center market. This property is marketing the vacant space as of
September 30, 1996.
Income from property operations for industrial properties for the first nine
months of 1996 was $1,970,302, a decrease of $592,928 (23.1%) from $2,563,230
for the corresponding period in 1995. This was primarily the result of the
sale of a warehouse in Azusa, CA which accounted for $723,353 (28.2%) of the
decrease. Excluding the results of the property sold, income from property
operations increased by $130,425 (5.1%). Revenue at the properties held for the
comparable period increased by $160,730. Expenses increased for the comparable
period by $30,305.
The two industrial properties owned by the Partnership experienced unrealized
gains of $72,922 for the first nine months of 1996. The warehouse in Pomona,
CA had an unrealized gain of $372,922, while the Bolingbrook, IL warehouse had
an unrealized loss of $300,000. Their occupancy rates at September 30, 1996
were both 100%, unchanged from December 31, 1995. The warehouse in Azusa, CA
which was sold in April, 1996, resulted in a realized loss of $478,638. The
gross sale price of the property was $15,250,000, and net proceeds received were
$14,697,789.
Income from interest in properties relates to the Partnership's 50%
co-investment in the Jacksonville, FL unit warehouses. Income from interest in
properties decreased by $15,981 (3.4%) from $472,096 for the three quarters of
1995 to $456,115 for the corresponding period of 1996. For the first nine
months of 1996 the co-investment had unrealized gains of $100,000. The
occupancy rate for the warehouses at September 30, 1996 was 85%, representing a
decrease of 15% from December 31, 1995. This was due to the loss of a major
tenant.
19
<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.
20
<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: November 8, 1996 By: /s/ Esther H. Milnes
------------------ -----------------------
Esther H. Milnes
President
Date: November 8, 1996 By: /s/ Linda S. Dougherty
------------------ -----------------------
Linda Dougherty
Vice President, Comptroller and
Chief Accounting Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
NET ASSETS; STATEMENT OF OPERATIONS; STATEMENT OF CHANGE IN NET ASSETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000801348
<NAME> PRUCO LIFE
<SERIES>
<NUMBER> 001
<NAME> PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 5,909,534
<SHARES-COMMON-PRIOR> 6,097,943
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 96,957,333
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 416,206
<NET-INVESTMENT-INCOME> 5,348,335
<REALIZED-GAINS-CURRENT> (239,828)
<APPREC-INCREASE-CURRENT> (1,632,307)
<NET-CHANGE-FROM-OPS> 3,476,200
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 892,405
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
ASSETS & LIABILITIES; STATEMENTS OF OPERATIONS; STATEMENTS OF CHANGES IN NET
ASSETS; CASH FLOWS; PER SHARE TABLE AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000801348
<NAME> PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<SERIES>
<NUMBER> 002
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<INVESTMENTS-AT-COST> 180,069,684
<INVESTMENTS-AT-VALUE> 152,658,519
<RECEIVABLES> 1,986,573
<ASSETS-OTHER> 46,742,226
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 201,387,318
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 6,993,435
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 11,848,275
<SHARES-COMMON-PRIOR> 12,036,684
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 201,387,318
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,469,594
<OTHER-INCOME> 17,521,575
<EXPENSES-NET> 7,486,552
<NET-INVESTMENT-INCOME> 11,504,617
<REALIZED-GAINS-CURRENT> (478,638)
<APPREC-INCREASE-CURRENT> (3,253,955)
<NET-CHANGE-FROM-OPS> 7,772,024
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 188,409
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 4,772,024
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,848,541
<INTEREST-EXPENSE> 372,344
<GROSS-EXPENSE> 7,486,552
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 15.754
<PER-SHARE-NII> .966
<PER-SHARE-GAIN-APPREC> (.314)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.407
<EXPENSE-RATIO> 3.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
