<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
For the quarterly period ended September 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- -- SECURITIES EXCHANGE ACT OF 1934
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
INDEX TO FINANCIAL STATEMENTS
Page
PART I - FINANCIAL INFORMATION ----
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - September 30, 1999 and
December 31, 1998 3
Statements of Operations and Changes In Net Assets -
Three and Nine Months Ended September 30, 1999 and 1998 3
Notes to the Financial Statements 4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities - September 30,
1999 and December 31, 1998 6
Statements of Operations - Three and Nine Months Ended
September 30, 1999 and 1998 7
Statements of Changes in Net Assets - Nine
Months Ended September 30, 1999 and 1998 8
Statements of Cash Flows - Nine Months Ended
September 30, 1999 and 1998 9
Schedule of Investments - September 30, 1999 and
December 31, 1998 10
Notes to the Financial Statements 13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risks 19
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
(UNAUDITED) DECEMBER 31, 1998
--------------------- --------------------
<S> <C> <C>
Investment in the Prudential Variable Contract
Real Property Partnership (Note 2) $ 121,689,377 $ 119,784,179
--------------------- --------------------
--------------------- --------------------
NET ASSETS, representing:
Equity of Contract Owners (Note 3) $ 80,014,963 $ 86,732,546
Equity of Pruco Life Insurance Company 41,674,414 33,051,633
--------------------- --------------------
$ 121,689,377 $ 119,784,179
--------------------- --------------------
--------------------- --------------------
<CAPTION>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
Nine Months Ended September 30, Three Months Ended September 30,
1999 1998 1999 1998
-------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 5,351,881 $ 5,510,557 $ 1,829,967 $ 1,730,855
EXPENSES:
Charges to Contract Owners for Assuming Mortality Risk and
Expense Risk and for Administration 386,878 400,533 127,592 134,374
--------------- --------------- ------------- --------------
NET INVESTMENT INCOME 4,965,003 5,110,024 1,702,375 1,596,481
--------------- --------------- ------------- --------------
Net Change in Unrealized Gain (Loss) on Investments in
Partnership (3,450,933) 807,887 (1,484,770) 915,076
Net Realized Gain (Loss) on Sale of Investments in
Partnership 4,250 45,656 (136,686) 45,656
--------------- --------------- ------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 1,518,320 5,963,567 80,919 2,557,213
--------------- --------------- ------------- --------------
CAPITAL TRANSACTIONS:
Net (Withdrawals) by Contract Owners (Note 4) (7,665,818) (5,233,958) (2,599,359) (1,832,882)
Net Contributions by Pruco Life Insurance Company 8,052,696 5,634,492 2,726,952 1,967,257
--------------- --------------- ------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 386,878 400,534 127,593 134,375
--------------- --------------- ------------- --------------
TOTAL INCREASE IN NET ASSETS 1,905,198 6,364,101 208,512 2,691,588
NET ASSETS:
Beginning of period 119,784,179 109,495,293 121,480,865 113,167,806
--------------- --------------- ------------- --------------
End of period $ 121,689,377 $ 115,859,394 $121,689,377 $ 115,859,394
--------------- --------------- ------------- --------------
--------------- --------------- ------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 4 AND 5
3
<PAGE>
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The Pruco Life Variable Contract Real Property Account ("Real Property Account")
is used to fund benefits under certain variable life insurance and variable
annuity contracts issued by Pruco Life Insurance Company. These products are
Variable Appreciable Life ("VAL"), Variable Life ("VLI"), Discovery Plus
("SPVA"), and Discovery Life Plus ("SPVL").
The accompanying unaudited financial statements have been prepared in accordance
with the requirements of Form 10-Q and generally accepted accounting principles
for interim financial information. 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, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer to
the financial statements and notes thereto included in the Real Property
Account's December 31, 1998 Annual Report on Form 10K.
NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
The investment in the Partnership is based on the Real Property Account's
proportionate interest in the Partnership's market value. At September 30, 1999
and December 31, 1998, the Real Property Account's interest in the Partnership
was 57.0% or 5,909,534 shares and 49.9% or 5,909,534 shares, respectively.
Proceeds from the sales of investments in the Partnership for the nine months
ended September 30, 1999 was $30,000,000.
The number of shares held by the Real Property Account in the Partnership, the
Partnership share value and the aggregate cost of investments in the Real
Property Accounts' shares held at September 30, 1999 and December 31, 1998 were
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31, 1998
(UNAUDITED) -----------------
-----------
<S> <C> <C>
SHARES OUTSTANDING: 5,909,534 5,909,534
SHARE VALUE: $20.59 $20.27
COST: $63,772,990 $63,772,990
</TABLE>
NOTE 3: CONTRACT OWNER EQUITY INFORMATION
Contract owner equity at September 30, 1999 and December 31, 1998 by product,
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31, 1998
(UNAUDITED) -----------------
-----------
<S> <C> <C>
VAL $70,033,379 $75,550,606
VLI 4,955,093 5,156,836
SPVA 612,469 931,425
SPVL 4,414,022 5,093,679
--------- ---------
TOTAL $80,014,963 $86,732,546
----------- -----------
----------- -----------
</TABLE>
4
<PAGE>
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 4: NET WITHDRAWALS BY CONTRACT OWNERS
Net withdrawals by contract owners for the real estate investment option in
Pruco Life Insurance Company's variable insurance and variable annuity products
for the nine months ended September 30, 1999 and 1998, were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
VAL $6,359,589 $4,277,176
VLI 269,447 129,686
SPVA 325,902 319,989
SPVL 710,880 507,107
------- -------
TOTAL $7,665,818 $5,233,958
---------- ----------
---------- ----------
</TABLE>
5
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
(UNAUDITED) DECEMBER 31, 1998
------------------------ ------------------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 9/30/99 -- $188,971,635; 12/31/98 -- $170,045,055) $171,494,304 $155,374,462
Real estate partnerships (cost: 9/30/99 -- $4,875,000; 12/31/98 --
$0) 4,875,000 0
Real estate investment trusts (cost: 9/30/99 -- $32,492,604;
12/31/98 -- $10,000,005) 28,548,030 11,554,649
------------------------ ------------------------
Total real estate investments 204,917,334 166,929,111
MARKETABLE SECURITIES - At estimated market value
(cost: 9/30/99 -- $1,825,483; 12/31/98 -- $14,967,236) $1,821,844 $14,950,525
CASH AND CASH EQUIVALENTS 18,905,590 58,578,848
DIVIDEND RECEIVABLE 0 167,275
OTHER ASSETS (net of allowance for uncollectible
accounts: 9/30/99 -- $73,300; 12/31/98 -- $66,000) 2,388,867 3,623,513
------------------------ ------------------------
Total assets 228,033,635 244,249,272
------------------------ ------------------------
LIABILITIES
MORTGAGE LOANS PAYABLE 10,200,000 0
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2,193,903 1,985,400
DUE TO AFFILIATES 1,259,317 1,598,535
OTHER LIABILITIES 545,276 504,940
MINORITY INTEREST 377,135 0
------------------------ ------------------------
Total liabilities 14,575,631 4,088,875
------------------------ ------------------------
INVESTMENT COMMITMENTS
Partners' equity 213,458,004 240,160,397
------------------------ ------------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY 228,033,635 244,249,272
------------------------ ------------------------
------------------------ ------------------------
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 10,366,043 11,848,275
------------------------ ------------------------
------------------------ ------------------------
SHARE VALUE AT END OF PERIOD $20.59 $20.27
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------- ---------------- ---------------- ----------------
1999 1998 1999 1998
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $15,707,829 $18,389,369 $5,222,918 $6,023,458
Equity in income of real estate partnerships 0 33,463 0 0
Dividend Income from real estate investment trusts 789,754 334,550 352,685 167,275
Interest on short-term investments 1,384,882 1,089,040 331,902 414,888
---------------- ---------------- ---------------- ----------------
Total investment income 17,882,465 19,846,422 5,907,505 6,605,621
---------------- ---------------- ---------------- ----------------
EXPENSES:
Investment management fee 2,027,470 2,121,474 681,807 729,999
Real estate taxes 2,133,374 1,966,995 618,014 621,679
Administrative 1,468,770 1,675,453 429,855 661,309
Operating 2,737,517 3,034,149 967,731 1,122,368
---------------- ---------------- ---------------- ----------------
Total investment expenses 8,367,131 8,798,071 2,697,407 3,135,355
---------------- ---------------- ---------------- ----------------
NET INVESTMENT INCOME 9,515,334 11,048,351 3,210,098 3,470,266
---------------- ---------------- ---------------- ----------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS
Net proceeds from real estate investments
sold or exchanged 19,668,030 0 2,468,061 0
Less: Cost of real estate investments sold
or exchanged 17,579,801 (91,538) 2,718,144 (91,538)
Realization of prior periods' unrealized
gain (loss) on real estate investments sold
or exchanged 2,080,673 0 (146,339) 0
---------------- ---------------- ---------------- ----------------
Net gain (loss) realized on real estate
investments sold 7,556 91,538 (103,744) 91,538
---------------- ---------------- ---------------- ----------------
Change in unrealized (loss) gain on real estate
investments (6,225,283) 1,619,767 (2,740,601) 1,834,675
---------------- ---------------- ---------------- ----------------
NET REALIZED AND UNREALIZED (LOSS)
GAIN ON INVESTMENTS (6,217,727) 1,711,305 (2,844,345) 1,926,213
---------------- ---------------- ---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $3,297,607 $12,759,656 $365,753 $5,396,479
---------------- ---------------- ---------------- ----------------
---------------- ---------------- ---------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
7
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------ ------------------------
<S> <C> <C>
NET INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $ 9,515,334 $ 11,048,351
Net realized gain on real estate investments sold
and REIT shares exchanged 7,556 91,538
Change in unrealized (loss) gain on real estate investments (6,225,283) 1,619,767
------------------------ ------------------------
Net increase in net assets resulting from operations 3,297,607 12,759,656
------------------------ ------------------------
NET DECREASE IN NET ASSETS
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(9/30/99 -- 1,482,233 shares; 9/30/98 -- 0 shares) (30,000,000) 0
------------------------ ------------------------
Net decrease in net assets resulting from
capital transactions (30,000,000) 0
------------------------ ------------------------
NET (DECREASE) INCREASE IN NET ASSETS (26,702,393) 12,759,656
NET ASSETS - Beginning of period 240,160,397 219,531,773
------------------------ ------------------------
NET ASSETS - End of period $ 213,458,004 $ 232,291,429
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------ ------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 3,297,607 $ 12,759,656
Adjustments to reconcile net increase in net assets resulting
from operations to net cash flows from operating activities:
Net realized and unrealized loss (gain) on investments 6,217,727 (1,711,305)
Bad debt expense 16,917 18,050
Decrease (Increase) in:
Dividend receivable 167,275 146,999
Other assets 1,217,730 (488,811)
Increase (Decrease) in:
Accounts payable and accrued expenses 208,503 105,944
Due to affiliates (339,218) (42,389)
Other liabilities 40,336 85,511
------------------------ ------------------------
Net cash flows from operating activities 10,826,877 10,873,655
------------------------ ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 8,725,464 0
Acquisition of real estate property (7,542,712) 0
Additions to real estate owned (1,138,743) (4,245,683)
Acquisition of real estate partnerships (4,875,000) 0
Distribution from interest in properties 0 91,538
Acquisitions of real estate investment trusts (29,174,960) 0
Sale of marketable securities, net 13,128,681 9,101,483
------------------------ ------------------------
Net cash flows from investing activities (20,877,270) 4,947,338
------------------------ ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals by partners (30,000,000) 0
Contributions from minority interest partners 377,135 0
------------------------ ------------------------
Net cash flows from financing activities (29,622,865) 0
------------------------ ------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (39,673,258) 15,820,993
CASH AND CASH EQUIVALENTS - Beginning of period 58,578,848 12,880,560
------------------------ ------------------------
CASH AND CASH EQUIVALENTS - End of period $ 18,905,590 $ 28,701,553
------------------------ ------------------------
------------------------ ------------------------
Non-Cash Investing Activity
Exchange of shares of Meridian real estate investment trust
for shares of ProLogis real estate investment trust shares $ 10,942,566 $ 0
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
---------------------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
------------------ ----------------- -------------------
<S> <C> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 0.9%
Ford Motor Credit Co., 7.50%, April 6, 2000 $ 150,000 151,779 $ 151,281
CIT Group Inc., 6.80%, April 17, 2000 500,000 503,765 502,765
Associates Corp. of North America, 6.71%, June 1, 2000 1,160,000 1,169,939 1,167,798
------------------ ----------------- -------------------
TOTAL MARKETABLE SECURITIES $ 1,810,000 $ 1,825,483 $ 1,821,844
------------------ ----------------- -------------------
------------------ ----------------- -------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 8.9%
Ameritech Corp., 5.60%, October 1, 1999 724,000 723,887 723,887
Ford Motor Credit Co., 5.50%, October 4, 1999 885,000 884,459 884,459
GTE Funding, Inc., 5.31% October 4, 1999 1,100,000 1,098,053 1,098,053
Lucent Technologies, 5.50% October 4, 1999 1,000,000 999,389 999,389
Potomac Electric Power Co., 5.30% October 4, 1999 1,120,000 1,117,856 1,117,856
Procter & Gamble Co., 5.29%, October 4, 1999 1,000,000 998,237 998,237
United Parcel Service, 5.30% October 4, 1999 500,000 498,528 498,528
United Parcel Service, 5.29% October 4, 1999 600,000 598,942 598,942
CIESCO L.P., 5.40%, October 5, 1999 1,000,000 999,100 999,100
Gannett Co., 5.40%, October 5, 1999 500,000 499,475 499,475
Hewlett- Packard Co., 5.35%, October 5, 1999 500,000 499,108 499,108
Merrill Lynch & Co., Inc. 5.29%, October 5, 1999 1,119,000 1,116,698 1,116,698
General Electric Cap Corp., 5.31% October 6, 1999 750,000 745,464 745,464
General Mills Inc., 5.33%, October 6, 1999 773,000 770,597 770,597
Bell Atlantic Network Funding, 5.33 %, October 7, 1999 762,000 760,421 760,421
Nat'l Rural Util Cooperative Fin Corp., 5.30% October 8, 1999 1,000,000 997,644 997,644
American Express Cr. Corp., 5.35%, October 12, 1999 400,000 398,455 398,455
Southern California Edison, 5.35%, October 13, 1999 600,000 598,038 598,038
Transamerica Finance Corp., 5.40%, October 19, 1999 500,000 498,575 498,575
First Data Corp., 5.35%, November 23, 1999 1,000,000 991,678 991,678
------------------ ----------------- -------------------
TOTAL CASH EQUIVALENTS 15,833,000 15,794,604 15,794,604
CASH 3,110,986 3,110,986 3,110,986
------------------ ----------------- -------------------
TOTAL CASH AND CASH EQUIVALENTS $18,943,986 $18,905,590 $18,905,590
------------------ ----------------- -------------------
------------------ ----------------- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
------------------ ------------------- -------------------
<S> <C> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 6.2%
General Motors Acceptance Corp., 5.26%, January 26, 1999 $830,000 $817,556 $817,556
American Express Credit Corp., 7.375%, February 1, 1999 325,000 329,342 325,418
Canadian Imperial Bank of Commerce, 5.55%, February 10, 1999 1,000,000 999,520 999,947
Federal National Mortgage Assoc., 5.33%, February 12, 1999 100,000 99,703 99,703
Salomon Smith Barney Holdings, Inc., 5.38%, February 16, 1999 1,720,000 1,695,137 1,695,397
General Motors Acceptance Corp., 5.29 %, February 17, 1999 650,000 641,501 641,501
Chrysler Financial Company LLC , 5.26%, February 22, 1999 2,400,000 2,365,700 2,365,700
International Lease Finance Corp. 7.50% March 1, 1999 500,000 508,250 501,367
Federal Home Loan Mortgage Corp., 5.505%, March 12, 1999 1,000,000 1,000,856 1,000,630
General Motors Acceptance Corp., 6.04%, March 19, 1999 1,000,000 1,003,480 1,000,707
Merrill Lynch & CO., Inc. 5.23%, March 19, 1999 1,790,000 1,758,820 1,758,820
Canadian Wheat Board, 5.14%, April 1, 1999 2,000,000 1,962,406 1,962,406
International Lease Finance Corp., 6.625%, April 1, 1999 375,000 377,419 375,721
CIT Group Holdings, Inc, 6.375%, May 21, 1999 400,000 402,120 400,873
Federal National Mortgage Assoc., 6.07%, July 1, 1999 1,000,000 1,005,426 1,004,779
------------------ ------------------- -------------------
TOTAL MARKETABLE SECURITIES $15,090,000 $14,967,236 $14,950,525
------------------ ------------------- -------------------
------------------ ------------------- -------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 24.4%
Countrywide Home Loans, 5.403%, January 4, 1999 $1,000,000 $999,400 $999,400
Fortune Brands Inc. 5.05%, January 4, 1999 3,463,000 3,461,057 3,461,057
Xerox Capital (Europe) PLC 5.303%, January 4, 1999 3,483,000 3,480,949 3,480,949
Federal National Mortgage Assoc, 5.77%, January 5, 1999 10,401,000 10,000,000 10,000,000
Ford Motor Credit Co, 5.454%, January 5, 1999 500,000 499,622 499,622
Pioneer Hi-BRED International, 5.665%, January 7, 1999 1,000,000 997,332 997,332
Ford Motor Credit Co., 6.11%, January 8, 1999 167,000 166,717 166,717
Deere & Co., 5.372 %, January 13, 1999 2,520,000 2,509,514 2,509,514
E.I. Du Pont De Nemours & Co., Inc. 5.277%, January 13, 1999 648,000 644,598 644,598
Household Finance Corp., 5.356 %, January 13, 1999 175,000 174,119 174,119
Household Finance Corp., 5.355% , January 15, 1999 2,343,000 2,331,899 2,331,899
Potomac Electric Power Co., 5.569%, January 15, 1999 3,122,000 3,110,930 3,110,930
Chrysler Financial Corp., 5.537%, January 25, 1999 1,164,000 1,158,121 1,158,121
Eastman Kodak Co., 5.232%, January 26, 1999 2,518,000 2,502,360 2,502,360
Cigna Corp., 5.559%, January 27, 1999 1,819,000 1,809,220 1,809,220
Cigna Group Holdings, Inc. 5.334%, January 27, 1999 1,851,000 1,835,496 1,835,496
Countrywide Home Loan, Inc. 5.506%, January 27, 1999 1,342,000 1,333,028 1,333,028
Countrywide Home Loan, Inc. 5.587%, January 27, 1999 1,177,000 1,169,197 1,169,197
General RE Corp., 5.187% , January 29, 1999 542,000 538,046 538,046
PNC Funding Corp. 5.728%, January 29, 1999 2,500,000 2,487,729 2,487,729
GTE Funding, Inc, Inc, 5.211%, February 1, 1999 2,526,000 2,506,048 2,506,048
Norwest Financial, Inc. 5.536%, February 3, 1999 3,563,000 3,539,593 3,539,593
CIGNA Corp., 5.233%, February 4, 1999 1,745,000 1,730,660 1,730,660
General Electric Capital Corp. 5.537%, February 4, 1999 3,563,000 3,539,049 3,539,049
Associates First Capital Corp., 5.241%, February 8, 1999 2,519,000 2,498,988 2,498,988
GTE Funding, Inc., 5.304%, February 11, 1999 1,000,000 993,413 993,413
------------------ ------------------- -------------------
TOTAL CASH EQUIVALENTS $56,651,000 $56,017,086 $56,017,086
CASH 2,561,762 2,561,762 2,561,762
------------------ ------------------- -------------------
TOTAL CASH AND CASH EQUIVALENTS $59,212,762 $58,578,848 $58,578,848
------------------ ------------------- -------------------
------------------ ------------------- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER
30,1999
-------------------------------------------
ESTIMATED
MARKET
COST VALUE
----------------------------------------------
<S> <C> <C>
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 80.3%
Location Description
- --------------------------------------------------------------------------------------------------------------
Lisle, IL Office Building $21,780,609 $13,631,195
Atlanta, GA Garden Apartments 15,642,579 15,510,365
Roswell, GA Retail Shopping Center 32,393,538 29,061,854
Morristown, NJ Office Building 19,439,196 11,520,232
Bolingbrook, IL Warehouse 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,829,305 16,804,623
Nashville, TN Office Building 8,509,908 10,312,281
Oakbrook Terrace, IL Office Complex 12,945,366 14,200,000
Beaverton, OR Office Complex 10,767,945 10,410,992
Salt Lake City, UT Industrial Building 5,604,330 5,600,050
Aurora, CO Industrial Building 9,798,291 10,200,000
Brentwood, TN Office Complex 9,569,828 9,500,000
Jacksonville, FL Garden Apartments 17,742,712 17,742,712
----------------------------------------------
$188,971,635 $171,494,304
----------------------------------------------
----------------------------------------------
REAL ESTATE PARTNERSHIPS (PERCENT OF NET ASSETS) 2.3%
Location Description
- --------------------------------------------------------------------------------------------------------------
Kansas City, KS; MO Retail Shopping Center $4,875,000 $4,875,000
---------------------- ---------------------
---------------------- ---------------------
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 13.4%
- --------------------------------------------------------------------------------------------------------------
Prologis REIT Shares (386,208 shares) $7,579,332 $7,289,676
AMB Property Corp (42,100 shares) 933,851 891,994
Alexandria Real Est Equities (30,800 shares) 874,221 906,675
Apartment Inv & Mgmt Co (16,500 shares) 672,953 631,125
Cousins Properties (24,800 shares) 890,459 841,650
Equity Office Properties Trust (32,400 shares) 901,571 753,300
Equity Residential Property Trust (13,100 shares) 623,573 555,112
Excel Legacy Corp (299,200 shares) 1,407,656 1,252,900
Franchise Finance Op Amer (22,000 shares) 539,613 514,250
General Growth Properties (13,600 shares) 512,353 428,400
Intrawest Corporation (70,800 shares) 1,165,560 1,172,625
MeriStar Hotels & Resorts Inc. (192,400 shares) 722,877 565,175
Mission West Properties (86,200 shares) 703,269 727,312
Philips International Realty (72,600 shares) 1,195,379 1,143,450
Prime Hospitality Corp. (112,500 shares) 1,320,524 900,000
Public Storage (59,600 shares) 1,725,705 1,501,175
Reckson Service Industries (32,800 shares) 398,066 518,650
Reckson Assoc Realty Corp (52,200 shares) 1,299,227 1,086,413
Starwood Hotels and Resorts (87,200 shares) 3,027,806 1,945,650
Sun Communities Inc. (16,700 shares) 606,047 552,144
Sunterra Corporation (12,700 shares) 178,562 150,813
Vornado Realty Trust (62,900 shares) 2,364,477 2,044,250
Wellsford Real Properties (40,600 shares) 440,242 385,700
Sun International Hotels Ltd (30,900 shares) 1,116,267 737,738
Boardwalk Equities, Inc. (118,900.shares) 1,293,013 1,051,854
Meridian REIT Shares (506,894 shares) 0 0
-----------------------------------------------
$32,492,604 $28,548,030
-----------------------------------------------
-----------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,1998
-------------------------------------------------
ESTIMATED
MARKET
COST VALUE
-------------------------------------------------
<S> <C> <C>
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 64.7%
Location Description
- -----------------------------------------------------------------------------------------------------------------
Lisle, IL Office Building $21,634,707 $14,123,742
Atlanta, GA Garden Apartments 15,601,495 15,651,216
Roswell, GA Retail Shopping Center 32,272,627 28,649,176
Morristown, NJ Office Building 19,409,490 11,596,138
Bolingbrook, IL Warehouse 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,822,682 16,804,570
Nashville, TN Office Building 8,448,026 10,152,399
Oakbrook Terrace, IL Office Complex 12,945,366 15,750,000
Beaverton, OR Office Complex 10,728,618 11,200,000
Salt Lake City, UT Industrial Building 5,388,134 5,450,000
Aurora, CO Industrial Building 9,304,171 9,497,221
Brentwood, TN Office Complex 9,541,711 9,500,000
Jacksonville, FL Garden Apartments 0 0
-------------------------------------------------
$170,045,055 $155,374,462
-------------------------------------------------
-------------------------------------------------
REAL ESTATE PARTNERSHIPS (PERCENT OF NET ASSETS)
Location Description
- -----------------------------------------------------------------------------------------------------------------
Kansas City, KS; MO Retail Shopping Center
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 4.8%
- -----------------------------------------------------------------------------------------------------------------
Prologis REIT Shares (386,208 shares) - -
AMB Property Corp (42,100 shares) - -
Alexandria Real Est Equities (30,800 shares) - -
Apartment Inv & Mgmt Co (16,500 shares) - -
Cousins Properties (24,800 shares) - -
Equity Office Properties Trust (32,400 shares) - -
Equity Residential Property Trust (13,100 shares) - -
Excel Legacy Corp (299,200 shares) - -
Franchise Finance Op Amer (22,000 shares) - -
General Growth Properties (13,600 shares) - -
Intrawest Corporation (70,800 shares) - -
MeriStar Hotels & Resorts Inc. (192,400 shares) - -
Mission West Properties (86,200 shares)
Philips International Realty (72,600 shares) - -
Prime Hospitality Corp. (112,500 shares) - -
Public Storage (59,600 shares) - -
Reckson Service Industries (32,800 shares) - -
Reckson Assoc Realty Corp (52,200 shares) - -
Starwood Hotels and Resorts (87,200 shares) - -
Sun Communities Inc. (16,700 shares) - -
Sunterra Corporation (12,700 shares) - -
Vornado Realty Trust (62,900 shares) - -
Wellsford Real Properties (40,600 shares) - -
Sun International Hotels Ltd (30,900 shares) - -
Boardwalk Equities, Inc. (118,900.shares)
Meridian REIT Shares (506,894 shares) 10,000,005 11,554,649
-------------------------------------------------
$10,000,005 $11,554,649
-------------------------------------------------
-------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SEPTEMBER 30, 1999
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in accordance
with the requirements of Form 10-Q and generally accepted accounting principles
for interim financial information. 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, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999. For further information, refer to
the financial statements and notes thereto included in each Partner's
December 31, 1998 Annual Report on Form 10K.
NOTE 2: COMMITMENT FROM PARTNER
In prior years, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment were utilized for property acquisitions, and returned to
Prudential on an ongoing basis from the contract owners' net contributions and
other available cash. The amount of the commitment is reduced by $10 million for
every $100 million in current value net assets of the Partnership. As of
September 30, 1999, Prudential's equity interest in the Partnership under this
commitment was $38.3 million.
On February 2, 1999, Prudential and its partners withdrew $30 million based on
the ratio of each Partners' equity in the Partnership. At the present time,
Prudential does not intend to make further contributions during the 1999 fiscal
year.
NOTE 3: RELATED PARTY TRANSACTIONS
Pursuant to an investment management agreement, 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, 1999 and 1998 management fees incurred by the Partnership
were $2,027,470 and $2,121,474 respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the nine months ended September
30, 1999 and 1998 were $87,305 and $87,096 respectively, and are classified as
administrative expenses in the statements of operations.
NOTE 4: INVESTMENT IN REAL ESTATE INVESTMENT TRUST (REIT)
On March 30, 1999, the Partnership exchanged 506,894 shares of Meridian REIT for
557,583 shares of ProLogis REIT, fair value of $10,942,566, and cash of
$1,013,796 (or total fair value of $11,956,362) as a result of ProLogis'
acquisition of Meridian. Management continued applying a 3% discount to the
market value of the ProLogis REIT shares through June 29, 1999 because of the
restriction which limits the number of shares that can be publicly traded during
any six month period to 30% of the total shares originally acquired. The
application of the 3% discount was discontinued on June 30, 1999 because this
restriction no longer applied.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of Pruco Life Variable Contract Real Property Account ("the
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 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 (collectively, "the Partners").
(A) LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Partnership's liquid assets consisting of cash,
cash equivalents and marketable securities were $20.7 million, a decrease of
$52.8 million from $73.5 million at December 31, 1998. The decrease is due
primarily to Partners' withdrawals of $30.0 million on February 2, 1999 and the
acquisition of two additional real estate investments during September 1999
which required funding amounting to approximately $12.0 million.
At the present time, Prudential has decided not to make further contributions to
the Partnership for investments in real estate. On February 2, 1999, the
Partners made a $30 million withdrawal from excess cash. Further withdrawals may
be made by the Partners during 1999 based upon the percentage of assets invested
in short-term obligations and taking into consideration anticipated cash needs
of the Partnership including potential property acquisitions and capital
expenditures. Management anticipates that it's current liquid assets and ongoing
cash flow from operations will satisfy the Partnership's needs over the next
twelve months and the foreseeable future, including anticipated withdrawals by
the Partners.
The Partnership's investment policy allows up to 30% investments in cash and
short-term obligations. At September 30, 1999, 10% of the Partnership's assets
consisted of cash, cash equivalents and marketable securities. Sources of
liquidity include net cash flow from property operations, interest from short
term investments, and dividends from Real Estate Investment Trust (REIT) shares.
Capital expenditures were approximately $1,100,000 and were of a recurring
nature.
(B) RESULTS OF OPERATIONS
The following is a brief year-to-date and quarterly comparison of the
Partnership's results of operations for the periods ended September 30, 1999 and
1998 and an explanation of REIT trading.
September 30, 1999 vs. September 30, 1998
The Partnership's net investment income for the nine months ended September 30,
1999 was $9.5 million, a decrease of $1.5 million from net investment income of
$11.0 million for the corresponding period in 1998. The Partnership's net
investment income for the quarter ended September 30, 1999 was $3.2 million, a
decrease of $0.3 million from net investment income of $3.5 million for the
corresponding period in 1998.
Revenue from real estate and improvements for the first nine months of 1999 was
$15.7 million, a decrease of $2.7 million or 14.6% from $18.4 million for the
corresponding period in 1998. Revenue from real estate and improvements
decreased $0.8 million or 13.3% to $5.2 million for the quarter ended September
30, 1999. These decreases were primarily due to the sales of the Partnership's
industrial property located in Pomona, CA and an apartment complex located in
Farmington Hills, MI during 1998.
On March 30, 1999, the Partnership exchanged 506,894 shares of Meridian REIT for
557,583 shares of ProLogis REIT, fair value of $10,942,566, and cash of
$1,013,796 (or total fair value of $11,956,362) as a result of ProLogis'
acquisition of Meridian. The exchange resulted in a realized gain of $401,713.
Dividend income from real estate investment trusts amounted to $0.8 million for
the nine months ended September 30, 1999, an increase of $0.5
14
<PAGE>
million or 136.1% compared to the corresponding period in 1998. Dividend income
from real estate investment trusts increased approximately $185,000 or 110.8% to
$352,685 for the quarter ended September 30, 1999. These increases were
primarily due to an increase in the amount invested in REIT stocks.
Interest on short-term investments increased approximately $296,000 or 27.2% for
the nine months ended September 30, 1999 due primarily to a significantly higher
average cash balance during the nine months ended September 30, 1999 compared to
the corresponding period last year. Cash and cash equivalents maintained through
the third quarter of 1999 averaged approximately $42 million when compared to
the third quarter of 1998 when average cash and cash equivalents were
approximately $30 million.
Interest on short-term investments decreased approximately $83,000 or 20.0% for
the quarter ended September 30, 1999 due primarily to a significantly lower
average cash balance during the quarter ended September 30, 1999 compared to the
corresponding period last year. Cash and cash equivalents maintained during the
third quarter of 1999 averaged approximately $25 million when compared to the
third quarter of 1998 when average cash and cash equivalents were approximately
$33 million.
Administrative expenses decreased $206,683 or 12.3% during the nine months ended
September 30, 1999. Administrative expenses decreased approximately $231,000 or
35% during the quarter ended September 30, 1999. These decreases were primarily
due to the sales of the Partnership's industrial property located in Pomona, CA
and an apartment complex located in Farmington Hills, MI during 1998.
Operating expenses decreased $154,637 or 13.8% when compared to the third
quarter of 1998 mainly as a result of the sales of the apartment complex and the
industrial property discussed previously, coupled with a decrease in operating
expenses for the office property located in Lisle, IL as the result of a
decrease in occupancy from 96% to 88% when comparing the third quarter of 1998
to the corresponding quarter in 1999.
The following is a year-to-date and quarterly comparison of the Partnership's
property results of operations and realized and unrealized gains or losses, by
investment type.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, QUARTER ENDED SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Office properties $5,404,103 $4,658,139 $1,654,448 $1,426,913
Apartment complexes 1,617,646 3,107,990 701,052 1,063,459
Retail property 2,067,724 2,233,808 692,468 752,178
Industrial properties 480,812 1,590,346 324,431 543,415
Dividend income from real
estate investment trust 789,754 334,550 352,685 167,275
Other (including interest income,
investment mgt fee, etc.) (844,705) (876,482) (514,986) (482,974)
---------- ----------- ---------- ----------
Total Net Investment Income $9,515,334 $11,048,351 $3,210,098 $3,470,266
---------- ----------- ---------- ----------
---------- ----------- ---------- ----------
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, QUARTER ENDED SEPTEMBER 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
UNREALIZED GAIN(LOSS)
ON INVESTMENTS:
Office properties ($3,052,513) $2,155,239 $867,563 ($506,998)
Apartment complexes (188,505) 1,916,826 (614,430) 1,575,564
Retail property 291,767 (1,395,791) (39,973) 275,142
Industrial properties 142,513 588,719 347,963 921,193
Real estate investment trust (3,418,545) (1,645,226) (3,301,724) (430,226)
REALIZED GAIN(LOSS) ON INVESTMENTS
Industrial properties 43,641 91,538 - 91,538
Real estate investment trust (36,085) - (103,744) -
------------ ---------- ------------ ----------
($6,217,727) $1,711,305 ($2,844,345) $1,926,213
------------ ---------- ------------ ----------
------------ ---------- ------------ ----------
</TABLE>
OFFICE PROPERTIES
Net investment income from property operations for the office sector increased
approximately $746,000 or 16% for the nine months ended September 30, 1999 when
compared to the corresponding period in 1998. This increase in net investment
income was primarily due to higher revenue levels experienced by the Oakbrook,
IL office complex as the result of a lease termination fee received from one of
the tenants, coupled with higher overall occupancy levels during 1999 at the
Lisle, IL office complex.
Net investment income from property operations for the office sector increased
approximately $228,000 or 16% during the third quarter of 1999 when compared to
the corresponding period in 1998. The increase in net investment income was
primarily due to higher revenue levels and lower expense levels experienced by
the Lisle, IL office complex, coupled with an increase in occupancy level
experienced by the Morristown, NJ office complex.
The six office properties owned by the Partnership experienced a net unrealized
loss of approximately $3.1 million during the first nine months of 1999 compared
to a net unrealized gain of $2.2 million in the corresponding period in 1998.
The largest share of this net unrealized loss or 51% was primarily due to the
office property located in Oakbrook Terrace, IL. This $1.6 million value
decrease was due to costs associated with re-leasing the facility and downtime
resulting from the upcoming vacating of the property by the two tenants who
currently occupy the entire facility. The Beaverton, OR office property also
experienced a net unrealized loss of approximately $0.8 million. This decline in
value was due to a change in discounted cash flow assumptions resulting from the
large amount of Class "A" space under construction in the local market. In
addition, a lower renewal probability in determining the valuation of the
property was utilized for Nike, a major tenant. The Lisle, IL office property
also experienced a net unrealized loss of approximately $0.6 million primarily
due to capital expenditures on the property that were not reflected as an
increase in market value.
The office properties experienced a net unrealized gain of approximately $0.9
million during the third quarter of 1999 compared to a net unrealized loss of
$0.5 million in the corresponding period in 1998. The gain was primarily the
result of the Oakbrook Terrace, IL property experiencing a $0.7 million net
unrealized gain as a result of increased market rent levels at the property.
Occupancy at the Beaverton, OR and Oakbrook Terrace, IL properties remained
unchanged from September 30, 1998 at 100%. Occupancy at the Morristown, NJ
property increased from 87% at September 30, 1998 to 97% at September 30, 1999
while occupancy at the Lisle, IL office property decreased from 96% at September
30, 1998 to 88% at September 30, 1999. Occupancy at the Brentwood, TN properties
decreased from 100% at September 30, 1998 to 95% at September 30, 1999. As of
September 30, 1999 all vacant spaces were being marketed.
16
<PAGE>
APARTMENT COMPLEXES
Net investment income from property operations for the apartment sector was
$1,617,646 for the first nine months of 1999, a decrease of $1,490,344 or 48%
compared with the corresponding period in 1998. Net investment income from
property operations for the apartment complexes was $701,052 for the third
quarter of 1999, a decrease of $362,407 or 34.1% compared with the corresponding
period in 1998. These decreases were primarily due to the sale of the apartment
complex located in Farmington Hills, MI on October 8, 1998.
The apartment complexes owned by the Partnership experienced a net unrealized
loss of $188,505 and a net unrealized gain of $1,916,826 for the nine months
ended September 30, 1999 and 1998 respectively. The net unrealized gain
experienced in 1998 was primarily due to the increased value of the Farmington
Hill, MI apartment complex which was subsequently sold on October 8, 1998. The
market value on this property was adjusted upward to reflect market data based
on offers received for the property in 1998.
The apartments experienced a net unrealized loss of $614,430 and a net
unrealized gain of $1,575,564 for the quarters ended September 30, 1999 and 1998
respectively. The majority of the unrealized loss in 1999 was experienced by the
property located in Atlanta, GA, which decreased as a result of the final real
estate tax bill received on the property which was approximately $80,000 higher
for the year than was originally anticipated. This unexpected increase in real
estate taxes affects the property's current and future cash flow and resulted in
a decrease in market value of approximately $600,000. The majority of the
unrealized gain in 1998 was attributable to the Farmington Hill, MI apartment
complex for the reasons discussed above.
On September 17, 1999, the Partnership invested in an apartment complex located
in Jacksonville, FL, This joint venture investment required the Partnership to
contribute $7.2 million and the partner to contribute $0.4 million. There is
$10.2 million in debt on this garden apartment complex.
The occupancy at the Atlanta, GA complex remained unchanged from September 30,
1998 at 98%. Occupancy at the apartment complex in Raleigh, NC decreased from
97% at September 30, 1998 to 96% at September 30, 1999. Occupancy at the
Jacksonville, FL apartment complex was 93% at September 30, 1999. As of
September 30, 1999, all vacant spaces were being marketed.
RETAIL PROPERTY
Net investment income for the first nine months of 1999 for the Partnership's
retail property located in Roswell, GA was $2,067,724, a decrease of $166,084 or
7.4% from $2,233,808 for the nine months ended September 30, 1998 due primarily
to higher expense levels at the shopping center. Net investment income for the
third quarter of 1999 was $692,468, a decrease of, $59,710 or 7.9% when compared
to the corresponding period in 1998.
The retail property experienced a net unrealized gain of $291,767 and a net
unrealized loss of $1,395,791 for the first nine months of 1999 and 1998,
respectively. The increase in value for 1999 was attributable to an adjustment
in cash flow assumptions which resulted when the market re-stabilized after a
competing retail property had been built in the same general vicinity. The
complex is currently being marketed for sale.
The retail property experienced a net unrealized loss of $39,973 and a net
unrealized gain of $275,142 for the third quarter of 1999 and 1998,
respectively. The net unrealized loss for the third quarter of 1999 was
attributable to capital expenditures on the property that were not reflected as
an increase in market value.
On September 30, 1999, the Partnership invested in a retail portfolio located in
Kansas City, MO and Kansas City, KS. This joint venture investment required the
Partnership to contribute $4.9 million to the investment and the partner to
contribute $1.6 million. There is $21.0 million in debt on this retail
portfolio.
Occupancy at the shopping center located in Roswell, GA decreased from 99% at
September 30, 1998 to 98% at September 30, 1999. The retail portfolio located in
Kansas City, MO and Kansas City, KS had an average occupancy of 88% at September
30, 1999. As of September 30, 1999, all vacant spaces were being marketed.
17
<PAGE>
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
decreased from $1,590,346 for the nine months ended September 30, 1998 to
$480,812 for the corresponding period in 1999. Net investment income from
property operations for the industrial properties decreased from $543,415 for
the quarter ended September 30, 1998 to $324,431 for the corresponding period in
1999. The majority of these decreases was a result of the sale of Pomona
Industrial Park, including the land.
The three industrial properties owned by the Partnership experienced a net
unrealized gain of approximately $143,000 and $793,000 for the nine months ended
September 30, 1999 and 1998, respectively. The properties experienced a net
unrealized gain of approximately $348,000 and $921,000 for the quarters ended
September 30, 1999 and 1998, respectively. The majority of the increases for
1999 was attributable to the Aurora, CO industrial property due to improved
market conditions as evidenced by higher market rental rates and the faster
absorption of vacant space. The majority of the increases for 1998 was
attributable to the industrial property located in Pomona, CA, which was later
sold on December 17, 1998, and the industrial property located in Aurora, CO.
The occupancy at the Bolingbrook, IL property was 100% at September 30, 1999 and
1998. The occupancy at the Salt Lake City, Utah property increased to 34% at
September 30, 1999 from 0% at September 30, 1998. The Aurora, CO property's
occupancy rate increased from 27% at September 30, 1998 to 67% at September 30,
1999. As of September 30, 1999, all vacant spaces were being marketed.
REAL ESTATE INVESTMENT TRUSTS
During the first nine months of 1999, the Partnership recognized a realized gain
of $401,713 from the exchange of 506,894 shares of Meridian REIT for 557,583
shares of REIT which was offset by a realized loss of $437,798 primarily as a
result of the sale of 171,375 ProLogis REIT shares and various investments in
REIT stocks.
The Partnership recognized a net realized loss from real estate investment
trusts of $103,744 for the third quarter of 1999 primarily as a result of the
sale of various investments in REIT stocks.
Management continued applying a 3% discount to the market value of the ProLogis
REIT shares through June 29, 1999 because of the restriction which limits the
number of shares that can be publicly traded during any six month period to 30%
of the total shares originally acquired. The application of the 3% discount was
discontinued on June 30, 1999 because this restriction no longer applied.
OTHER
Other net investment income increased $31,777 or 3.6% during the nine months
ended September 30, 1999 when compared to the corresponding period last year.
Other net investment income decreased $32,012 of 6.6% during the quarter ended
September 30, 1999 when compared to the corresponding quarter last year. Other
net investment income includes interest income from short-term investments,
investment management fees, and expenses not related to property activities.
(c) THE YEAR 2000 ISSUE
Prudential has addressed the Year 2000 issue on an enterprise-wide basis;
therefore, it is not possible to differentiate the Partnership's Year 2000 issue
from that of Prudential. Refer to management's discussion of the Year 2000 issue
in the December 31, 1998 Form 10-K for the steps taken by Prudential to mitigate
the Year 2000 risks.
The Business Application, Infrastructure and Business Partner components of
Prudential's Year 2000 project are complete. Prudential believes that it is well
positioned to lessen the impact of the Year 2000 problem. However, given the
nature of this issue, it cannot be certain of Year 2000 readiness of third
parties. As a result, we are unable to determine at this time whether the
consequences of Year 2000 failures may have a materially adverse effect on the
results of Prudential's operations, liquidity or financial condition. Prudential
will continue to review and test its contingency plans in an effort to reduce
the level of uncertainty about the effect of the Year 2000 issue and further
mitigate risk. Prudential is establishing a Year 2000 Global Control Center
("GCC") to monitor Year 2000 activity during the rollover weekend to the
Year 2000 and thereafter. The GCC will receive status information from our
applications, facilities, communication centers and business partners and serve
as a central location to manage Year 2000
18
<PAGE>
issues. Prudential believes that, with the completion of the Year 2000
project as scheduled, the possibility of significant interruptions of normal
operations will be reduced.
Prudential has investment securities that are both publicly traded and privately
placed. Prudential is exposed to the risk that issuers of these investments will
be adversely affected by Year 2000 issues. Prudential has implemented procedures
to assess the impact that Year 2000 issues may have on its investments as part
of due diligence for proposed new investments, where appropriate, as well as
their ongoing review of certain portfolio holdings. For any recommended actions
with respect to particular investments, the Company will consider the disclosed
potential impact of Year 2000 on the issuer.
There were no Year 2000 costs allocated directly to the Partnership to date and
none are anticipated. The discussion of the Year 2000 issue herein, and in
particular Prudential's plans to remediate this issue and estimated costs
thereof, are forward-looking in nature. See cautionary statement below relating
to forward-looking statements.
(d) INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects," "believes,"
"anticipates," "intends," "plans," or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Partnership. There can be no
assurance that future developments affecting the Partnership will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements including without limitation, changes in general
economic conditions, including the performance of financial markets and interest
rates; market acceptance of new products and distribution channels; competitive,
regulatory or tax changes that affect the cost or demand for the Partnership's
products; and adverse litigation results. While the Partnership reassesses
material trends and uncertainties affecting its financial position and results
of operations, it does not intend to review or revise any particular
forward-looking statement referenced in this Management's Discussion and
Analysis in light of future events. The information referred to above should be
considered by readers when reviewing any forward-looking statements contained in
this Management's Discussion and Analysis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is not subject to significant exposure to market rate risk for
changes in interest rates because the Partnership's financial instruments
consist primarily of short-term fixed rate commercial paper and does not use
derivative financial instruments. Further, by policy, the Partnership places its
investments with high quality debt security issuers, limits the amount of credit
exposure to any one issuer, limits duration by restricting the term, and holds
investments to maturity except under rare circumstances. At September 30, 1999,
90% of the Partnership's investments were in real estate.
19
<PAGE>
PART II
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Contract owners participating in the Real Property Account have
no voting rights with respect to the Real Property Account.
Item 6. Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) EXHIBITS
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
4.6 Statement No. 2-99260, filed July 29, 1985, and
incorporated herein by reference.
b) REPORT ON FORM 8-K
None
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
(Registrant)
------------------------------------------------------------
Date: November 15, 1999 By: /s/ Esther H. Milnes
------------------------------ ---------------------------
Esther H. Milnes
President and Director
Date: November 15, 1999 By: /s/ Dennis Sullivan
------------------------------ ---------------------------
Dennis Sullivan
Principal Financial Officer and
Chief Accounting Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF NET ASSETS, STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000801348
<NAME> PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 121,689,377
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 121,689,377
<TOTAL-LIABILITY-AND-EQUITY> 121,689,377
<SALES> 0
<TOTAL-REVENUES> 5,351,881
<CGS> 0
<TOTAL-COSTS> 386,878
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,518,320
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,518,320
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,518,320
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENTS OF ASSETS & LIABILITIES; STATEMENTS OF OPERATIONS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000846581
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 18,905,590
<SECURITIES> 1,821,844
<RECEIVABLES> 0
<ALLOWANCES> 73,300
<INVENTORY> 0
<CURRENT-ASSETS> 228,033,635
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 228,033,635
<CURRENT-LIABILITIES> 14,575,631
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 213,458,004
<TOTAL-LIABILITY-AND-EQUITY> 228,033,635
<SALES> 0
<TOTAL-REVENUES> 17,882,465
<CGS> 0
<TOTAL-COSTS> 8,367,131
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,297,607
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,297,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,297,607
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
