<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]-
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 33-86780
PRUCO LIFE INSURANCE COMPANY
IN RESPECT OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ARIZONA 22-1944557
- ------------------------------- --------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102-2992
-----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 445-4571
-----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER
PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS
BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
<PAGE>
PRUCO LIFE VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(REGISTRANT)
<TABLE>
<CAPTION>
INDEX
ITEM ----- PAGE
NO. NO.
- ---- ----
<S> <C> <C>
COVER PAGE
INDEX 2
PART I
1. BUSINESS 3
2. PROPERTIES 4
3. LEGAL PROCEEDINGS 4
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 4
PART II
5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY HOLDER MATTERS 5
6. SELECTED FINANCIAL DATA 5
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 16
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 16
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 17
11. EXECUTIVE COMPENSATION 18
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 18
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 18
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 19
EXHIBIT INDEX 19
SIGNATURES 21
</TABLE>
2
<PAGE>
PART I
------
ITEM 1. BUSINESS
- ----------------
Pruco Life Variable Contract Real Property Account (the "Real Property
Account"), the Registrant, 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"). The Real Property Account was established
to provide a real estate investment option offered in connection with the
funding of benefits under certain variable life insurance and variable
annuity contracts (the "Contracts") issued by Pruco Life.
The assets of the Real Property Account are invested in The Prudential
Variable Contract Real Property Partnership (the "Partnership"). The
Partnership, a general partnership organized under New Jersey law on April
29, 1988, was formed through agreement among The Prudential Insurance Company
of America, Pruco Life Insurance Company, and Pruco Life Insurance Company of
New Jersey, to provide a means for assets allocated to the real estate
investment option under certain variable life insurance and variable annuity
contracts issued by the respective companies to be invested in a commingled
pool.
The Partnership has an investment policy of investing at least 65% of its
assets in direct ownership interests in income-producing real estate and
participating mortgage loans. The largest portion of these real estate
investments are direct ownership interests in income-producing real estate,
such as office buildings, agricultural land, shopping centers, hotels,
apartments, or industrial properties. Approximately 10% of the Partnership's
assets are generally held in cash or invested in liquid instruments and
securities, although the Partners reserve discretion to increase this amount
to meet partnership liquidity requirements. The remainder of the
Partnership's assets are invested in other types of real estate-related
investments, including conventional, non participating mortgage loans or real
estate investment trusts.
Office Properties - The Partnership owns office properties in Lisle and
Oakbrook Terrace, IL; Morristown, NJ; Nashville and Brentwood, TN; and
Beaverton, OR. Total square footage owned is approximately 567,000 of
which 97% or 549,000 square feet are leased between 1 and 10 years.
Apartment Complexes - The Partnership owns apartment complexes in
Atlanta, GA and Raleigh, NC. There are a total of 490 apartment units
available of which 95% or 463 units are leased. Lease agreements range
from month to month to one year.
Retail Property - The Partnership owns a shopping center in Roswell,
GA. The property is located approximately 22 miles north of downtown
Atlanta on a 30 acre site. The square footage is approximately 297,000
of which 98% or 289,000 square feet is leased between 1 and 11 years.
Industrial Properties - The Partnership owns warehouses and
distribution centers in Bolingbrook, IL; Aurora, CO; and Salt Lake
City, UT. Total square footage owned is approximately 685,000 of which
60% or 413,719 square feet are leased between 2 and 6 years.
Investment in Real Estate Trust - The Partnership owns 506,894 shares
of Meridian Industrial Trust, Inc. Meridian is a self-administered and
self-managed equity real estate investment trust (REIT) engaged in
owning, operating, and leasing high quality, modern industrial
properties nationwide.
The Partnership's investments are maintained so as to meet the
diversification requirements set forth in Treasury Regulations issued
pursuant to Section 817(h) of the Internal Revenue Code relating to the
investments of variable life insurance and variable annuity separate
accounts. Section 817(h), requires among other things that the partnership
will have no more than 55% of the assets invested in any one investment, no
more than 70% of the assets will be invested in any two investments, no more
than 80% of the assets will be invested in any three investments, and no more
than 90% of the assets will be invested in any four investments. To comply
with requirements of the State of Arizona, the Partnership will limit
additional investments in any one parcel or related parcels to an amount not
exceeding 10% of the Partnership gross assets as of the prior fiscal year.
For information regarding the Partnership's investments, operations, and
other significant events, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Item 8, Financial
Statements and Supplementary Data.
3
<PAGE>
ITEM 2. PROPERTIES
Not Applicable.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Contract owners participating in the Real Property Account have no voting rights
with respect to the Real Property Account.
4
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY
HOLDER MATTERS
Owners of the Contracts may participate by allocating all or part of the net
premiums or purchase payments to the Real Property Account. Contract values
will vary with the performance of the Real Property Account's investments
through the Partnership. Participating interests in the Real Property Account
are not traded in any public market, thus a discussion of market information
is not relevant.
As of March 9, 1999, there were approximately 42,402 contract owners of
record investing in the Real Property Account.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net investment income $ 15,833,513 $ 13,789,747 $ 15,419,518 $ 14,720,271 $ 12,848,199
Net realized and unrealized gain
(loss) on investment in Partnership 4,795,111 8,485,232 (4,784,583) 661,623 1,339,443
----------------- ---------------- ---------------- ---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 20,628,624 $ 22,274,979 $ 10,634,935 $ 15,381,894 $ 14,187,642
----------------- ---------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL POSITION:
December 31,
--------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Total Assets $244,249,272 $222,745,135 $204,156,040 $196,993,758 $183,119,986
----------------- ---------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ---------------- ----------------
Long-Term Lease Obligation $ 0 $ 0 $ 4,072,677 $ 3,882,421 $ 3,804,836
----------------- ---------------- ---------------- ---------------- ----------------
----------------- ---------------- ---------------- ---------------- ----------------
</TABLE>
5
<PAGE>
ITEM 7. 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").
The following analysis of the liquidity and capital resources and results of
operations of the Partnership should be read in conjunction with the audited
financial statements and the accompanying footnotes and other financial
information included elsewhere herein.
(a) LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Partnership's liquid assets consisting of cash,
cash equivalents and marketable securities were $73.5 million, an increase of
$46.7 million from December 31, 1997. This increase was due to net proceeds
from the sales of the Partnership's industrial property located in Pomona, CA
and an apartment complex located in Farmington Hills, MI. In addition,
continuing operations from the Partnership's investment properties
contributed $20.6 million to cash during 1998. Sources of liquidity include
net cash flow from property operations, interest from short-term investments,
and dividends from REIT shares.
The Partnership generally holds approximately 10% of its assets in cash or
invested in liquid instruments and securities, however, its investment policy
allows up to 30% investment in cash and short-term obligations. At December
31, 1998, 30% of the Partnership's assets consisted of cash, cash equivalents
and marketable securities.
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
Prudential on an ongoing basis from 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
December 31, 1998, Prudential's equity interest in the Partnership under this
commitment was $51 million. At the present time, Prudential does not intend
to make further contributions during the 1999 fiscal year.
The Partners made no withdrawals during 1998; however, on February 1, 1999,
the Partners made a $30 million withdrawal from excess cash. Additional
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, property dispositions and capital expenditures. Management
anticipates that its current liquid assets and ongoing cash flow from
operations will satisfy the Partnership's needs over the next twelve months
and the foreseeable future.
During 1998, the Partnership spent $5.7 million in capital expenditures for
tenant alterations, and improvements in land and buildings. The majority of
the capital expenditures were made to reconfigure the Lisle, IL office
building for multi-tenant capability as it was previously occupied by a
single tenant.
6
<PAGE>
(b) RESULTS OF OPERATIONS
The following is a brief discussion of the Partnership's results of
operations for the years ended December 31, 1998, 1997 and 1996.
1998 VS. 1997
The following table presents a comparison of the Partnership's property
results of operations, and realized and unrealized gains or losses by
investment type, for the twelve months ended December 31, 1998 and December
31, 1997.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
------------------ -----------------
<S> <C> <C>
NET INVESTMENT INCOME:
Office properties $ 7,269,613 $ 5,499,107
Apartment complexes 4,493,384 3,891,465
Retail property 2,702,234 2,856,357
Industrial properties 1,325,320 2,138,111
Income from interest in properties 33,462 435,296
Dividend income from real
estate investment trust 669,100 158,184
Other (including interest income,
investment management fee, etc.) (659,600) (1,188,773)
------------------ -----------------
TOTAL NET INVESTMENT INCOME $ 15,833,513 $ 13,789,747
------------------ -----------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997
------------------ -----------------
<S> <C> <C>
REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS:
Office properties $ 3,034,542 $1,897,749
Apartment complexes 2,387,054 1,053,061
Retail property (1,312,296) 1,109,099
Industrial properties 1,563,429 1,616,942
Interest in properties 91,538 284,581
Real estate investment trust (969,156) 2,523,800
------------------ -----------------
TOTAL NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ 4,795,111 $8,485,232
------------------ -----------------
</TABLE>
The Partnership's net investment income for 1998 was $15.8 million, an
increase of $2.0 million from the prior year. This increase was primarily
the result of increased revenues from real estate and improvements partially
offset by increased operating expenses.
7
<PAGE>
Revenue from real estate and improvements was $24.6 million in 1998, an
increase of $3.0 million, or 13.9%, from 1997. This increase was primarily
due to higher occupancy at the Lisle, IL office building and the Aurora, CO
distribution center coupled with increased rental rates on other properties.
Interest on short-term investments decreased $0.4 million from 1997. This was
primarily due to lower average cash and cash equivalent balances during 1998
compared to the prior year. Cash and cash equivalents through the third
quarter of 1998 averaged approximately $30.0 million, but increased
significantly in the last quarter of 1998 due to the sale of two properties
in Pomona, CA and Farmington Hills, MI.
Property operating expenses increased $0.8 million, or 23.5%, from 1997. This
increase was due primarily to a full year's operating costs (i.e.
electricity, repair and maintenance, water, etc.) for one of the Brentwood,
TN properties which was acquired in late 1997, in addition to operating
expenses incurred by the Partnership on vacant properties.
Administrative expenses decreased $0.3 million or 16.1%. This decrease was
due primarily to a reduction in legal expenses.
There was no interest expense during 1998 due to the Partnership's exercise
of its purchase option under the capital lease obligation.
OFFICE PROPERTIES
In 1998, net investment income from property operations for the office
properties increased $1.8 million, or 32.2%, from prior year. This increase
was primarily due to a full year's net investment income for one of the
Brentwood, TN properties which was acquired in late 1997, as well as the
leasing of vacant space in the Lisle, IL office property.
Office properties experienced a net unrealized gain of $3.0 million in 1998
due to improving office market conditions in most of the geographical areas
where the Partnership has office properties, particularly, the Oakbrook
Terrace, IL office property in suburban Chicago.
Occupancy at the Beaverton, OR; Oakbrook Terrace, IL; and Brentwood, TN
properties remained at 100% as of December 31, 1997 while occupancy at the
Lisle, IL office property increased from 37% to 96% at December 31, 1998.
Occupancy at the Morristown, NJ property decreased from 99% to 86%.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment complexes
increased $0.6 million, or 15.5%, from 1997. The majority of this increase
was due to increased rental rates at the Atlanta, GA apartment complex.
Holdings in the Partnership's two apartment complexes experienced a net
unrealized gain of $0.6 million during 1998. The Atlanta, GA property was the
largest contributor to the gain as it appreciated $0.4 million. The gain was
attributable to increased rental rates at the property. The Raleigh, NC
property experienced a net unrealized gain of $0.2 million due to increased
occupancy rates. The Farmington Hills, MI property was sold on October 7,
1998 for a price of $16.9 million, which resulted in a realized gain of $1.7
million.
At the end of December 31, 1998, occupancy at the Atlanta, GA and Raleigh, NC
apartment complex was 96% and 93%, respectively.
RETAIL PROPERTIES
In 1998, the retail center experienced a net unrealized loss of $1.3 million,
which is a reflection of lower rents. Occupancy at the shopping center was
98% at December 31, 1998, which was an increase of 2% from the prior year.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
decreased $0.8 million, or 38.0%, from 1997. The decrease was attributable to
the sale of Pomona Industrial Park, which accounted for 82% of the decrease.
8
<PAGE>
The three industrial properties experienced a net unrealized gain of $0.3
million during 1998. The Pomona, CA property was sold on December 17, 1998
for $21.4 million, which resulted in a realized gain of $1.2 million.
Occupancy at the Bolingbrook, IL property remained unchanged at 100%.
Occupancy at the Salt Lake City, UT and Aurora, CO property increased to
33.6% and 46%, respectively from prior year.
REAL ESTATE INVESTMENT TRUST
On September 24, 1997 the Partnership acquired 506,894 shares of Meridian
Industrial REIT. Dividend income from the REIT increased $0.5 million from
1997.
The Partnership held 506,894 shares of Meridian Industrial REIT throughout
1998. As of December 31, 1998, the REIT shares experienced an unrealized loss
of $1.0 million. The Valuation Unit of Prudential applies a 3% discount to
the market value of the REIT shares. This discount is applied 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.
OTHER
Other net investment loss, which includes interest income from short-term
investments, investment management fees, and expenses not related to property
activities, narrowed by $0.5 million. The improved result was due to
increased investment management fee in addition to a reduction in
administrative expenses.
1997 VS. 1996
The following table presents a comparison of the Partnership's property
results of operations, and realized and unrealized gains or losses by
investment type, for the twelve months ended December 31, 1997 and December
31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
------------------ ------------------
<S> <C> <C>
NET INVESTMENT INCOME:
Office properties $ 5,499,107 $ 5,817,497
Apartment complexes 3,891,465 3,925,750
Retail property 2,856,357 3,129,390
Industrial properties 2,138,111 3,188,769
Income from interest in properties 435,296 606,558
Dividend income from real
estate investment trust 158,184 -
Other (including interest income,
investment management fee, etc.) (1,188,773) (1,248,446)
------------------ ------------------
TOTAL NET INVESTMENT INCOME $ 13,789,747 $ 15,419,518
------------------ ------------------
9
<PAGE>
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS:
Office properties $1,897,749 ($1,654,344)
Apartment complexes 1,053,061 1,209,970
Retail property 1,109,099 (3,786,554)
Industrial properties 1,616,942 (553,655)
Interest in properties 284,581 -
Real estate investment trust 2,523,800 -
------------------ ------------------
TOTAL NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS $ 8,485,232 ($4,784,583)
------------------ ------------------
</TABLE>
The Partnership's net investment income for 1997 was $13.8 million, a
decrease of $1.6 million from 1996. This decrease was primarily the result of
market conditions in the industrial properties.
Income from interest in properties relates to the Partnership's 50%
co-investment in several warehouse properties (the unit warehouses). Income
from this source was $0.4 million in 1997, a decrease of 28.2% from 1996.
This decrease was attributable to the sale of the Partnership's interest in
these properties on September 30, 1997.
Administrative expenses on the Statement of Operations include both those
related to property operations and the administration of the Partnership.
Property administrative expenses in 1997 were $2.0 million, an increase of
$0.4 million, or 21.5%, from 1996. This increase was primarily due to the
acquisition of three new properties as well as a full year of administrative
expenses for a property acquired at the end of 1996. Administrative expenses
related to the Partnership were $0.3 million in 1997, an increase of $0.1
million, or 49.7%, from 1996. Increased legal reserves relating to potential
litigation contributed to the majority of the variance.
Property operating expenses for 1997 were $3.3 million, an increase of $0.4
million, or 13.5%, from 1996. This increase was primarily due to a full year
of ownership in 1997 of the office property in Beaverton, OR, and expenses
incurred in 1997 for new acquisitions, such as, the industrial buildings in
Salt Lake City, UT and Aurora, CO. Together these three properties
contributed $0.3 million to the increased operating expenses. The acquisition
of the office building in Brentwood, TN contributed $0.1 million to the
increase.
OFFICE PROPERTIES
Net investment income from property operations for the office properties in
1997 was $5.5 million. This was a decrease of $0.3 million or 5.5% from 1996.
The office properties experienced a net unrealized gain of $1.9 million in
1997. The office property in Oakbrook Terrace, IL experienced the largest
unrealized gain that was attributable to the improving office market
conditions in suburban Chicago. In addition, the Morristown, NJ and
Brentwood, TN office properties also experienced net unrealized gains of $0.5
million and $0.6 million, respectively.
The Partnership acquired a second office property in Brentwood, TN. The
97,378 square foot suburban office building was acquired on September 15,
1997 for $9.5 million. Occupancy at the time of acquisition, was at maximum
capacity.
Occupancy at the Beaverton, OR; Oakbrook Terrace, IL; and Brentwood, TN
properties remained unchanged from December 31, 1996 at 100%. Occupancy at
the Morristown, NJ property increased from 93% to 100% while occupancy at the
Lisle, IL office property dropped from 100% to 37% in 1997.
APARTMENT COMPLEXES
In 1997, net investment income from apartment property operations was $3.9
million which was unchanged from the prior year.
10
<PAGE>
The three apartment communities experienced a net unrealized gain of $1.0
million during 1997. The Atlanta, GA property was the largest contributor to
the gain as it appreciated $1.3 million. This gain was attributable to
increased rental rates and occupancy at the property. The Raleigh, NC
community had a net unrealized loss of $0.4 million due to the appraisal
assumptions concerning above market rentals expiring and subsequently
renewing at lower market rates.
Weighted average occupancy at the Partnership's residential communities
increased from 93.1% to 94.3% from December 31, 1996. Occupancy at the
Atlanta, GA and Farmington Hills, MI communities improved from 93% and 89%,
respectively, as of December 31, 1996 to 99% and 93%, respectively, at year
end 1997. Occupancy at the Raleigh, NC community decreased from 97% to 91% in
1997.
RETAIL PROPERTIES
Net investment income for the Partnership's retail property decreased by $0.3
million, or 8.7%, to $2.9 million in 1997. This decrease was primarily the
result of decreased occupancy at the shopping center earlier in the year. The
shopping center was 96% occupied as of December 31, 1997, unchanged from the
prior year.
The retail center experienced an unrealized gain of $1.1 million. This was a
result of changes in the assumed capital needs of the property and the
leasing of vacant spaces in the third and fourth quarters which stabilized
future cash flows and brought occupancy back up to 96%.
INDUSTRIAL PROPERTIES
In 1997, net investment income from industrial property operations was $2.1
million, a decrease of $1.0 million, or 32.9%, in 1996. The decline was
attributable to the sale of the industrial complex in Azusa, CA, in April
1996, which accounted for $0.6 million of the decrease. The sale of the
Partnership's investment in the Jacksonville, FL industrial properties, in
September 1997, also contributed to the decline in net investment income. For
properties held for comparable periods in 1997 and 1996, net investment
income was $2.0 million and $1.9 million, respectively.
The Partnership acquired three industrial properties in 1997. The first
acquisition was a 182,500 square foot building in Salt Lake City, UT for $5.4
million. The second acquisition was a two building 277,500 square foot
facility in Aurora, CO for $8.5 million. As of December 31, 1997, both
properties were vacant. The third acquisition was the land under the
Partnership's existing Pomona CA, industrial complex. The Partnership
acquired the land under a purchase option for $3.5 million.
The industrial properties (including the recently purchased land) had $1.9
million of net unrealized appreciation in 1997. The largest single gain of
$1.7 million was attributable to the purchase of the land under the Pomona,
CA property. The Salt Lake City, UT and Aurora, CO properties experienced
negative net appreciation as a result of softer market conditions.
As of December 31, 1997 occupancy at the Partnership's Pomona, CA and
Bolingbrook, IL industrial properties remained unchanged from December
31,1996 at 100%. As of December 31, 1997, both the Salt Lake City, UT and
Aurora, CO properties were 100% vacant.
The partnership sold its interest in the Jacksonville, FL warehouses for net
sales proceeds of $6.3 million, resulting in a gain of $0.3 million.
REAL ESTATE INVESTMENT TRUST
Dividend income from REITs totaled $0.1 million in 1997. The Partnership
acquired 506,894 shares Meridian for $10.0 million on September 24, 1997.
Meridian is a self-administered and self-managed equity real estate
investment trust engaged in owning, operating, and leasing high quality,
modern industrial properties nationwide. As of December 31, 1997, these
shares experienced a $2.5 million net unrealized gain.
11
<PAGE>
(c) PER SHARE INFORMATION
Following is an analysis of the Partnership's net investment income and net
realized and unrealized gain (loss) on investments, presented on a per share
basis:
<TABLE>
<CAPTION>
01/01/98 01/01/97 01/01/96
TO TO TO
12/31/98 12/31/97 12/31/96
-------- -------- --------
<S> <C> <C> <C>
Revenue from real estate and improvements $ 2.0739 $ 1.8216 $ 1.9173
Income from interest in properties $ 0.0028 $ 0.0367 $ 0.0510
Dividend income from real estate investment
trusts $ 0.0565 $ 0.0134 $ 0.0000
Interest on short-term investments $ 0.1594 $ 0.1946 $ 0.1795
-------- -------- --------
TOTAL INVESTMENT INCOME $ 2.2926 $ 2.0663 $ 2.1478
-------- -------- --------
Investment management fee $ 0.2448 $ 0.2229 $ 0.2097
Real estate taxes $ 0.2031 $ 0.1864 $ 0.1991
Administrative expense $ 0.1647 $ 0.1963 $ 0.1569
Operating expense $ 0.3437 $ 0.2782 $ 0.2442
Interest expense $ 0.0000 $ 0.0186 $ 0.0412
-------- -------- --------
TOTAL INVESTMENT EXPENSES $ 0.9563 $ 0.9024 $ 0.8511
-------- -------- --------
NET INVESTMENT INCOME $ 1.3363 $ 1.1639 $ 1.2967
-------- -------- --------
Net gain (loss) realized on real estate
investments sold $ 0.2575 $ 0.0258 $(0.1323)
Change in unrealized gain (loss) on real
estate investments sold $ 0.1472 $ 0.6903 $(0.2695)
-------- -------- --------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS $ 0.4047 $ 0.7162 $(0.4018)
-------- -------- --------
-------- -------- --------
Net change in share value $ 1.7410 $ 1.8800 $ 0.8949
Share value at beginning of period $18.5286 $16.6486 $15.7537
-------- -------- --------
Share value at end of period $20.2696 $18.5286 $16.6486
-------- -------- --------
-------- -------- --------
Ratio of expenses to average net assets 4.99% 5.16% 5.26%
Ratio of net investment income to
average net assets 6.97% 6.66% 8.01%
Number of shares outstanding at
end of period (000's) 11,848 11,848 11,848
</TABLE>
ALL CALCULATIONS ARE BASED ON AVERAGE MONTH-END SHARES OUTSTANDING WHERE
APPLICABLE.
12
<PAGE>
(d) THE YEAR 2000 ISSUE
The Partnership utilizes many of the same business applications,
infrastructure and business partners as Prudential. 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. The accompanying discussion of the Year 2000 issue reflects steps
taken by Prudential to mitigate the Year 2000 risks.
Many computer systems are programmed to recognize only the last two digits in
a date. As a result, any computer system that has date-sensitive programming
may recognize a date using "00" as the year 1900 rather than the year 2000.
This problem can affect non-information technology systems that include
embedded technology, such as microprocessors included in "infrastructure"
equipment used for telecommunications and other services as well as computer
systems. If this anomaly is not corrected, the year "00" could cause systems
to perform date comparisons and calculations incorrectly, which could in turn
affect the accuracy and compromise the integrity of business records.
Business operations could be interrupted when companies are unable to process
transactions, send invoices, or engage in similar normal business activities.
Prudential established a Company-wide Program Office (CPO) to develop and
coordinate an operating framework for the Year 2000 compliance activities.
Prudential's CPO structured the Year 2000 program into three major
components: Business Applications, Infrastructure and Business Partners. The
CPO also established quality assurance procedures including a certification
process to monitor and evaluate enterprise-wide progress of each component of
Prudential's program for conversion and upgrading of systems for Year 2000
compliance.
BUSINESS APPLICATIONS
The scope of the Business Applications component includes a wide range of
computer systems that directly support Prudential's business operations and
accounting systems. The entire application portfolio was analyzed in 1996 to
determine appropriate Year 2000 readiness strategies (i.e., renovate, replace
or retire). Rigorous testing standards have been employed for all
applications that will not be retired, including those that are newly
developed or purchased. Application replacement and renovation projects
follow a similar path toward Year 2000 compliance. The key project phases
include Year 2000 analysis and design, programming activities, testing, and
implementation. Replacement projects are also tracked until the existing
applications are removed from production.
Of Prudential's total application portfolio, approximately 70% of the
applications are being renovated, 13% are being replaced by Year 2000
compliant systems, and the remaining 17% are being retired from production.
At December 31, 1998, the percentage of business applications (based on
application count) in the implementation phase for Year 2000 compliance for
renovation, replacement and retirement are 99%, 96% and 99%, respectively.
The overall completion date for Business Applications is June 1999.
INFRASTRUCTURE
The scope of Prudential's Year 2000 Infrastructure initiatives include
mainframe computer system hardware and operating system software, mid-range
systems and servers, telecommunications equipment, buildings and facilities
systems, personal computers, and vendor hardware and software.
Although there are minor differences among these various components, the
approach to Year 2000 readiness for Infrastructure generally involves phases
identified as inventory, assessment, remediation activities (e.g., upgrading
hardware or software), testing and implementation. The overall completion
date for Infrastructure is June 1999.
BUSINESS PARTNERS
Prudential's approach to business partner readiness includes classification
of each partner's status as "highly critical" or "less critical" and the
development of contingency plans to address the potential that a business
partner could experience a Year 2000 failure. Approximately 30% of our
business partners have been identified as highly critical and the remaining
70% as less critical. Project phases include inventory, risk assessment, and
contingency planning
13
<PAGE>
activities. All project phases for highly critical business partner readiness
were achieved in December 1998; we have an overall completion date for less
critical business partner readiness of June 1999.
The Cost of Year 2000 Readiness
Prudential is funding the Year 2000 program from operating cash flows. Some
of the expenses of Prudential's Year 2000 readiness are allocated across its
various businesses and subsidiaries, including the Partnership. Expenses
related to the Year 2000 initiatives allocated to the Partnership are part of
systems overhead costs and are included in the Partnership's general and
administrative expenses. The Year 2000 costs allocated to the Partnership to
date are not material to its operations and financial conditions. Moreover,
the forecasted allocated Year 2000 costs are not expected to have a material
impact on the Partnership's ability to meet its contractual commitments.
Year 2000 Risks and Contingency Planning
The major portion of Prudential's transactions are of such volume that they
can only be effectively processed through the use of automated systems.
Therefore, substantially all of Prudential's contingency plans include the
ultimate resolution of any causative technology failures that may be
encountered.
Prudential believes that the Business Application, Infrastructure and
Business Partners components of the Year 2000 project are substantially on
schedule. While management expects a small number of the projects may not
meet their targeted completion date, it is anticipated that these projects
will be completed by September 1999 so that any delays, if experienced, would
not have a significant impact on the timing of the project as a whole. During
the course of the Year 2000 program, some discretionary technology projects
have been delayed in favor of the completion of Year 2000 projects. However,
this impact has been minimized by Prudential's strategic decision to
outsource most of the Year 2000 renovation work.
While Prudential and its subsidiaries believe that they are well positioned
to mitigate its Year 2000 issue, this issue, by its nature contains inherent
uncertainties, including the uncertainty of Year 2000 readiness of third
parties. Consequently, the Partnership is unable to determine at this time
whether the consequences of Year 2000 failures will have a material adverse
effect on the Partnership's results of operations, liquidity or financial
condition. In the worst case, it is possible that any technology failure,
including an internal or external Year 2000 failure, could have a material
impact on the Partnership results of operations, liquidity, or financial
position.
Prudential is enhancing existing business contingency plans to mitigate Year
2000 risk. Current contingency plans include planned responses to the failure
of specific business applications or infrastructure components. These
responses are being reviewed and expected to be finalized by June 1999 to
ensure that they are workable under the special conditions of a Year 2000
failure. The plans are also being updated to reduce the level of uncertainty
about the Year 2000 problem including readiness of Prudential's Business
Partners.
The discussion of the Year 2000 Issue herein, and in particular Prudential's
plans to remediate this issue and the estimated costs thereof, are
forward-looking in nature. See cautionary statement below relating to
forward-looking statements.
(e) 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 Company. There can
be no assurance that future developments affecting the Company 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;
14
<PAGE>
competitive, regulatory or tax changes that affect the
cost or demand for the Company's products; and adverse litigation results.
While the Company reassesses material trends and uncertainties affecting its
financial condition 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Account and the Partnership are 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 neither the Account nor the Partnership 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.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed in the
accompanying Index to the Financial Statements and Supplementary Data on F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
Name Position Age
- ---- -------- ---
<S> <C> <C>
James J. Avery, Jr. Chairman of the Board and Director 47
I. Edward Price Vice Chairman of the Board and Director 56
Esther H. Milnes President and Director 48
James C. Drozanowski Senior Vice President 56
Frank P. Marino Senior Vice President 54
Edward A. Minogue Senior Vice President 56
Hwei-Chung Shao Senior Vice President and Chief Actuary 44
Dennis G. Sullivan Principal Financial Officer and
Chief Accounting Officer 43
David A. Nachman Vice President and Comptroller 51
Imants Saksons Vice President 48
William M. Bethke Director 51
Ira J. Kleinman Director 51
Mendel A. Melzer Director 38
Kiyofumi Sakaguchi Director 55
- ----------------------------------------------------------------------------------------------
</TABLE>
James J. Avery, Jr., age 47 was elected Chairman of the Board of Directors of
the Company on June 27, 1997. Mr. Avery joined The Prudential Insurance
Company of America in 1988 and has served as the Senior Vice President, CFO
and Chief Actuary for The Prudential Individual Insurance Group since 1997.
I. Edward Price, age 56, has been Senior Vice President and Actuary of
Prudential Individual Insurance since 1995. From 1994 to 1995, he was Chief
Executive Officer of Prudential International Insurance. From 1993 to 1994,
he was President of Prudential International Insurance. Prior to 1993, he was
Senior Vice President and Company Actuary of Prudential.
Esther H. Milnes, age 48, has been Vice President and Actuary of Prudential
Individual Insurance Group since 1996. From 1993 to 1995, she was Senior Vice
President and Chief Actuary of Prudential Insurance and Financial Services.
Prior to 1993, she was Vice President and Associate Actuary of Prudential.
James C. Drozanowski, age 56, has been Vice President and Operations
Executive, Prudential Individual Insurance Group since 1996. From 1995 to
1996, he was President and Chief Executive Officer of Chase Manhattan Bank.
From 1993 to 1995, he was Vice President of North America Customer Services,
Chase Manhattan Bank. Prior to 1993, he was Operations Executive of Global
Securities Services, Chase Manhattan Bank.
Frank P. Marino, age 54, has been Vice President of Policyowner Relations
Department, Prudential Individual Insurance Group since 1996. Prior to 1996,
he was Senior Vice President of Prudential Mutual Fund Services.
17
<PAGE>
Edward A. Minogue, age 56, was elected a Senior Vice President of the Company
on September 1, 1997. Mr. Minogue has been a Vice President of The Prudential
Insurance Company of America since July, 1997. Prior to 1997, Mr. Minogue was
a director of Merrill Lynch, Pierce & Smith, Inc.
Hwei-Chung Shao, age 44, is Vice President and Associate Actuary, Prudential.
Dennis G. Sullivan, age 43, was elected Principal Financial Officer and Chief
Accounting Officer of the Company in March, 1999. Mr. Sullivan has been Vice
President and Deputy Controller of Prudential since November, 1998. Prior
thereto, from January 1998, Mr. Sullivan was Vice President and Controller of
ContiFinancial Corporation. From 1997 to 1998, Mr. Sullivan was Deputy
Corporate Controller of Salomon Brothers, Inc. Prior to 1997, he was a
director at Salomon Brothers, Inc.
David A. Nachman, age 51, was elected Vice President and Comptroller of the
Company in March, 1999. Mr. Nachman joined The Prudential Insurance Company
of America in 1973, and has served as Vice President, Accounting of Prudential
since 1992.
Imants Saksons, age 48, was elected a Vice President of the Company in
January 1, 1999. Mr. Saksons has been a Vice President, Compliance of
Prudential Individual Financial Services since 1998. Prior to 1998, he was
Vice President of Market Conduct, U.S. Operations of Manulife Financial.
William M. Bethke, age 51, has been President, Prudential Capital Markets
Group since 1992.
Ira J. Kleinman, age 51, has been Chief Marketing and Product Development
Officer of Prudential Individual Insurance Group since 1995. From 1993 to
1995, he was President of Prudential Select. From 1992 to 1993, he was Senior
Vice President of Prudential. Prior to 1992, he was Vice President of
Prudential.
Mendel A. Melzer, age 38, has been Chief Investment Officer of Mutual Funds
and Annuities, Prudential Investments since 1996. From 1995 to 1996, he was
Chief Financial Officer of the Money Management Group of Prudential. From
1993 to 1995, he was Senior Vice President and Chief Financial Officer of
Prudential Preferred Financial Services. Prior to 1993, he was Managing
Director, Prudential Investment Corporation.
Kiyofumi Sakaguchi, age 55, has been President, Prudential International
Insurance Group since 1995. From 1994 to 1995, he was Chairman and Chief
Executive Officer of The Prudential Life Insurance Co., Ltd. Prior to 1994,
he was President and Chief Executive Officer of Asia Pacific
Region-Prudential International Insurance, and President of The Prudential
Life Insurance Co., Ltd.
ITEM 11. EXECUTIVE COMPENSATION
The Real Property Account does not pay any fees, compensation or
reimbursement to any Director or Officer of the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Related Party Transactions in Note 5 of Notes to Financial Statements on
page F - 18.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
See the Index to Financial Statements and Supplementary Data on
page F-1.
2. Financial Statement Schedules
The following financial statement schedules of The Prudential
Variable Contract Real Property Partnership should be read in
conjunction with the financial statements in Item 8 of this
Annual Report on Form 10-K:
Schedule III. Real Estate Owned: Properties
Schedule III. Real Estate Owned: Interest in Properties
See the Index to Financial Statements and Supplementary Data on
page F-1.
3. Documents Incorporated by Reference
See the following list of exhibits.
4. Exhibits
See the following list of exhibits.
(b) None.
(c) The following is a list of Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998. The Registrant
will furnish a copy of any Exhibit listed below to any security holder
of the Registrant who requests it upon payment of a fee of 15 cents per
page. All Exhibits are either contained in this Annual Report on Form
10-K or are incorporated by reference as indicated below.
3.1 Amended Articles of Incorporation of Pruco Life Insurance Company
filed as Exhibit 1.A.(6)(a) to Form N-8B-2, File No. 2-80513,
filed November 22, 1982, and incorporated herein by reference.
3.2 Amended By-Laws of Pruco Life Insurance Company, filed as Exhibit
1.A.(6)(b) to Post-Effective Amendment No. 13 to Form S-6, File
No. 2-89558, filed March 2, 1989, and incorporated herein by
reference.
3.3 Resolution of the Board of Directors establishing the Pruco Life
Variable Contract Real Property Account, filed as Exhibit (3C) to
Form S-1, Registration Statement No. 33-8698, filed September 12,
1986, and incorporated herein by reference.
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-
19
<PAGE>
99616, filed August 13, 1985, and incorporated herein by
reference.
4.5 Flexible Premium Variable Life Insurance 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.
9. None.
10.1 Investment Management Agreement between The Prudential Insurance
Company of America and The Prudential Variable Contract Real
Property Partnership filed as Exhibit (10A) to Post- Effective
Amendment No. 4 to Form S-1, Registration Statement No. 33-8698,
filed May 2, 1988, and incorporated herein by reference.
10.2 Service Agreement between The Prudential Insurance Company of
America and The Prudential Investment Corporation, filed as
Exhibit (10B) to Form S-1, Registration Statement No. 33-8698,
filed September 12, 1986, and incorporated herein by reference.
10.3 Partnership Agreement of The Prudential Variable Contract Real
Property Partnership filed as Exhibit (10C) to Post-Effective
Amendment No. 4 to Form S-1, Registration Statement No. 33-8698,
filed May 2, 1988, and incorporated herein by reference.
11. Not applicable.
12. Not applicable.
13. None.
18. None.
21. Not applicable.
22. Not applicable.
23. None.
24. Powers of Attorney: W. Bethke, I. Kleinman, M. Melzer and I.
Price incorporated by reference to Form 10-K, Registration No.
33-86780, filed March 27, 1996 on behalf of the Pruco Life
Variable Contract Real Property Account. J. Avery incorporated by
reference to Post-Effective Amendment No. 2 to Form S-6,
Registration No. 333-07451, filed June 25, 1997 on behalf of
the Pruco Life Variable Appreciable Account. K. Sakaguchi
incorporated by reference to Pre-Effective Amendment No. 1 to
Form N-4, Registration No. 333-06701, filed September 12, 1996
on behalf of the Pruco Life Flexible Premium Variable Annuity
Account.
27. Not applicable.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 29, 1999 By: /s/ Esther H. Milnes
------------------ ----------------------
Esther H. Milnes
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
* Chairman of the Board March 29, 1999
----------------------- and Director
James J. Avery, Jr.
* Vice Chairman of the Board March 29, 1999
----------------------- and Director
I. Edward Price
/s/ Esther H. Milnes President and Director March 29, 1999
-----------------------
Esther H. Milnes
/s/ Dennis G. Sullivan Principal Financial Officer March 29, 1999
----------------------- and Chief Accounting Officer
Dennis G. Sullivan
* Director March 29, 1999
-----------------------
William Bethke
* Director March 29, 1999
-----------------------
Ira J. Kleinman
* Director March 29, 1999
-----------------------
Mendel A. Melzer
* Director March 29, 1999
-----------------------
Kiyofumi Sakaguchi
*By: /s/ Thomas C. Castano
-----------------------
Thomas C. Castano
(Attorney-in-Fact)
21
<PAGE>
<TABLE>
<CAPTION>
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(REGISTRANT)
INDEX
PAGE
----
<S> <C>
A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Financial Statements:
Reports of Independent Accountants F-2
Statement of Net Assets - December 31, 1998 and 1997 F-3
Statement of Operations and Changes in Net Assets -
Years Ended December 31, 1998, 1997 and 1996 F-3
Notes to Financial Statements F-4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Financial Statements:
Reports of Independent Accountants F-8
Statements of Assets and Liabilities - December 31, 1998 and 1997 F-9
Statements of Operations - Years Ended December 31, 1998, 1997 and 1996 F-10
Statements of Changes in Net Assets - Years Ended December 31, 1998, 1997 and 1996 F-11
Statements of Cash Flows - Years Ended December 31, 1998, 1997 and 1996 F-12
Schedule of Investments - December 31, 1998 and 1997 F-13
Notes to Financial Statements F-16
Financial Statement Schedules:
For the period ended December 31, 1998
Schedule III - Real Estate Owned: Properties F-19
Schedule III - Real Estate Owned: Interest in Properties F-20
All other schedules are omitted because they are not applicable, or because the required information is
included in the financial statements or notes thereto.
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Pruco Life Variable Contract Real Property Account
and the Board of Directors of
Pruco Life Insurance Company
In our opinion, the accompanying statements of net assets and the related
statements of operations and changes in net assets present fairly, in all
material respects, the financial position of Pruco Life Variable Contract
Real Property Account at December 31, 1998 and 1997, and the results of its
operations and the changes in its net assets for the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Pruco Life Insurance Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of shares owned in The
Prudential Variable Contract Real Property Partnership at December 31, 1998
and 1997, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 19, 1999
F-2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
DECEMBER 31,
-----------------------------------------
1998 1997
------------------- ----------------
<S> <C> <C>
Investment in The Prudential Variable Contract
Real Property Partnership (Note 3) $ 119,784,179 $ 109,495,293
------------------- ----------------
------------------- ----------------
NET ASSETS, representing:
Equity of Contract Owners (Note 4) $ 86,732,546 $ 86,228,329
Equity of Pruco Life Insurance Company (Note 2D) 33,051,633 23,266,964
------------------- ----------------
$ 119,784,179 $ 109,495,293
------------------- ----------------
------------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997 1996
------------------ ------------------ ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 7,897,240 $ 6,877,876 $ 7,717,055
EXPENSES:
Charges to Contract Owners for Assuming Mortality Risk and
Expense Risk and for Administration (Note 5) 540,830 542,738 555,553
------------------ ------------------ ---------------
NET INVESTMENT INCOME 7,356,410 6,335,138 7,161,502
------------------ ------------------ ---------------
Net Change in Unrealized Gain (Loss) on Investments in Partnership 869,718 4,079,515 (1,609,406)
Net Realized Gain (Loss) on Sale of Investments in Partnership 1,521,928 152,643 (787,318)
------------------ ------------------ ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 9,748,056 10,567,296 4,764,778
------------------ ------------------ ---------------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (Note 7) (6,634,732) (8,564,665) (6,242,414)
Net Contributions by Pruco Life Insurance Company 7,175,562 9,107,403 3,797,967
------------------ ------------------ ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 540,830 542,738 (2,444,447)
------------------ ------------------ ---------------
TOTAL INCREASE IN NET ASSETS 10,288,886 11,110,034 2,320,331
NET ASSETS:
Beginning of period 109,495,293 98,385,259 96,064,928
------------------ ------------------ ---------------
End of period $ 119,784,179 $ 109,495,293 $ 98,385,259
------------------ ------------------ ---------------
------------------ ------------------ ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-4 THROUGH F-7
F-3
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
DECEMBER 31, 1998
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 ("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. These products are Appreciable Life ("VAL"),
Variable Life ("VLI"), Discovery Plus ("SPVA"), and Discovery Life Plus
("SPVL").
The assets of the Real Property Account are invested in The Prudential
Variable Contract Real Property Partnership (the "Partnership"). The
Partnership is organized under New Jersey law and is registered under the
Securities Act of 1933. The Partnership is the investment vehicle for assets
allocated to the real estate investment option under certain variable life
insurance and annuity contracts. The Real Property Account, along with The
Prudential Variable Contract Real Property Account and the Pruco Life of New
Jersey Variable Contract Real Property Account, are the sole investors in the
Partnership.
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.
New sales of the VAL, VLI and SPVA products have been discontinued.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF ACCOUNTING
The accompanying financial statements are prepared in conformity with
generally accepted accounting principles ("GAAP"). The preparation of the
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts and disclosures.
Actual results could differ from those estimates.
B. INVESTMENT IN PARTNERSHIP INTEREST
The investment in the Partnership is based on the Real Property Account's
proportionate interest of the Partnership's market value. At December 31,
1998 and 1997 the Real Property Account's interest in the Partnership was
49.9% or 5,909,534 shares.
C. INCOME RECOGNITION
Net investment income and realized and unrealized gains and losses are
recognized daily. Amounts are based upon the Real Property Account's
proportionate interest in the Partnership.
D. EQUITY OF PRUCO LIFE INSURANCE COMPANY
Pruco Life maintains a position in the Real Property Account for property
acquisitions and capital expenditure funding needs. The position is also
utilized for liquidity purposes including unit purchases and redemptions,
Partnership share transactions, and expense processing. The position does not
have an effect on the contract owner's account or the related unit value.
F-4
<PAGE>
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
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 December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----- ----
<S> <C> <C>
SHARES OUTSTANDING: 5,909,534 5,909,534
SHARE VALUE: $20.27 $18.53
COST: $63,772,990 $63,772,990
</TABLE>
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of contract
owner equity at December 31, 1998 and 1997, by product, were as follows:
<TABLE>
<CAPTION>
1998:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER UNITS OUTSTANDING: 40,077,133 2,653,867 534,598 2,923,554
UNIT VALUE: $ 1.88513 $ 1.94314 $ 1.74229 $ 1.74229
------------ ----------- ---------- -----------
TOTAL CONTRACT OWNER EQUITY: $ 75,550,606 $ 5,156,836 $ 931,425 $ 5,093,679 $ 86,732,546
------------ ----------- ---------- ----------- ------------
------------ ----------- ---------- ----------- ------------
<CAPTION>
1997:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER UNITS OUTSTANDING: 43,201,206 2,762,300 744,092 3,231,823
UNIT VALUE: $ 1.73358 $ 1.78248 $ 1.61267 $ 1.61267
------------ ----------- ---------- -----------
TOTAL CONTRACT OWNER EQUITY: $ 74,892,746 $ 4,923,744 $ 1,199,975 $ 5,211,864 $ 86,228,329
------------ ----------- ---------- ----------- ------------
------------ ----------- ---------- ----------- ------------
</TABLE>
NOTE 5: CHARGES AND EXPENSES
A. MORTALITY RISK AND EXPENSE RISK CHARGES
Mortality risk and expense risk charges are determined daily using an
effective annual rate of 0.6%, 0.35%, 0.9% and 0.9% for VAL, VLI, SPVA and
SPVL, respectively. Mortality risk is that life insurance and annuity
contract owners may not live as long as estimated or annuitants may live
longer than estimated and expense risk is that the cost of issuing and
administering the policies may exceed related charges by Pruco Life.
B. ADMINISTRATIVE CHARGES
Administrative charges are determined daily using an effective annual rate of
0.35% applied daily against the net assets representing equity of contract
owners held in each subaccount for SPVA and SPVL. Administrative charges
include costs associated with issuing the contract, establishing and
maintaining records, and providing reports to contract owners.
C. COST OF INSURANCE CHARGES
Contract owner contributions are subject to certain deductions prior to being
invested in the Real Property Account. The deductions for VAL and VLI are (1)
state premium taxes; (2) sales charges which are deducted in order to
compensate Pruco Life for the cost of selling the contract and (3)
transaction costs, applicable to VAL, are deducted from each premium payment
to cover premium collection and processing costs. Contracts are also subject
to monthly charges for the costs of administering the contract and to
compensate Pruco Life for the guaranteed minimum death benefit risk.
F-5
<PAGE>
D. DEFERRED SALES CHARGE
A deferred sales charge is imposed upon the surrender of certain variable
life insurance contracts to compensate Pruco Life for sales and other
marketing expenses. The amount of any sales charge will depend on the number
of years that have elapsed since the contract was issued. No sales charge
will be imposed after the sixth and tenth year of the contract for SPVL and
VAL, respectively. No sales charge will be imposed on death benefits.
E. PARTIAL WITHDRAWAL CHARGE
A charge is imposed by Pruco Life on partial withdrawals of the cash
surrender value for VAL. A charge equal to the lesser of $15 or 2% will be
made in connection with each partial withdrawal of the cash surrender value
of a contract.
NOTE 6: TAXES
Pruco Life is taxed as a "life insurance company" as defined by the Internal
Revenue Code and the results of operations of the Real Property Account form
a part of Prudential's consolidated federal tax return. Under current federal
law, no federal income taxes are payable by the Real Property Account. As
such, no provision for the tax liability has been recorded in these financial
statements.
NOTE 7: NET WITHDRAWALS BY CONTRACT OWNERS
Contract owner activity for the real estate investment option in Pruco Life's
variable insurance and variable annuity products for the years ended
December 31, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
1998:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER NET PAYMENTS: $ 5,904,685 $ 480,512 $ 0 $ 0 $ 6,385,197
POLICY LOANS: (2,370,550) (105,592) 0 (188,675) (2,664,817)
POLICY LOAN REPAYMENTS AND INTEREST: 1,807,322 81,893 0 219,707 2,108,922
SURRENDERS, WITHDRAWALS, AND DEATH BENEFITS: (4,498,494) (335,108) (350,787) (391,714) (5,576,103)
NET TRANSFERS FROM (TO) OTHER SUBACCOUNTS
OR FIXED RATE OPTIONS: (2,987,279) (130,821) 7,921 (106,815) (3,216,994)
ADMINISTRATIVE AND OTHER CHARGES: (3,441,506) (191,621) (383) (37,427) (3,670,937)
---------------- ------------- -------------- -------------- ---------------
NET WITHDRAWALS BY CONTRACT OWNERS $ (5,585,822) $ (200,737) $(343,249) $(504,924) $(6,634,732)
---------------- ------------- -------------- -------------- ---------------
---------------- ------------- -------------- -------------- ---------------
<CAPTION>
1997:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER NET PAYMENTS: $ 7,135,438 $ 547,314 $ (363) $ 2,354 $ 7,684,743
POLICY LOANS: (2,744,920) (127,090) 0 (133,268) (3,005,278)
POLICY LOAN REPAYMENTS AND INTEREST: 2,059,190 78,708 0 120,176 2,258,074
SURRENDERS, WITHDRAWALS, AND DEATH BENEFITS: (4,877,439) (403,603) (563,563) (345,999) (6,190,604)
NET TRANSFERS FROM (TO) OTHER SUBACCOUNTS
OR FIXED RATE OPTIONS: (4,465,593) (170,032) (73,121) (184,688) (4,893,434)
ADMINISTRATIVE AND OTHER CHARGES: (4,187,469) (195,020) 0 (35,677) (4,418,166)
---------------- ------------- -------------- -------------- ---------------
NET WITHDRAWALS BY CONTRACT OWNERS $ (7,080,793) $ (269,723) $(637,047) $(577,102) $(8,564,665)
---------------- ------------- -------------- -------------- ---------------
---------------- ------------- -------------- -------------- ---------------
</TABLE>
F-6
<PAGE>
NOTE 8: UNIT ACTIVITY
Transactions in units for the years ended December 31, 1998, 1997 and 1996 were
as follows:
<TABLE>
<CAPTION>
1998:
- -----
VAL VLI SPVA SPVL
--- --- ---- ----
<S> <C> <C> <C> <C>
CONTRACT OWNER CONTRIBUTIONS: 4,541,673 315,299 13,026 154,339
CONTRACT OWNER REDEMPTIONS: (7,665,746) (423,732) (222,520) (462,608)
<CAPTION>
1997:
- -----
VAL VLI SPVA SPVL
--- --- ---- ----
<S> <C> <C> <C> <C>
CONTRACT OWNER CONTRIBUTIONS: 5,838,667 382,652 3,449 109,432
CONTRACT OWNER REDEMPTIONS: (10,155,002) (542,173) (415,989) (490,928)
<CAPTION>
1996:
- -----
VAL VLI SPVA SPVL
--- --- ---- ----
<S> <C> <C> <C> <C>
CONTRACT OWNER CONTRIBUTIONS: 8,645,307 458,123 39 206,239
CONTRACT OWNER REDEMPTIONS: (12,105,073) (505,822) (242,466) (596,341)
</TABLE>
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
There were no purchases or sales of investments in the Partnership for the year
ended December 31, 1998.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Prudential
Variable Contract Real Property Partnership
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of
Prudential Variable Contract Real Property Partnership (the "Partnership") at
December 31, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the management of Prudential Insurance
Company of America; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audits to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 22, 1999
F-8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ------------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 12/31/98 -- $170,045,055; 12/31/97 -- $201,670,248) $ 155,374,462 $ 181,317,624
Real estate investment trust (cost: 12/31/98 -- $10,000,005;
12/31/97 -- $10,000,005) 11,554,649 12,523,805
------------------ ------------------
Total real estate investments 166,929,111 193,841,429
MARKETABLE SECURITIES - At estimated market value
(cost: 12/31/98 -- $14,967,236; 12/31/97 -- $13,971,421) 14,950,525 13,929,296
CASH AND CASH EQUIVALENTS 58,578,848 12,880,560
DIVIDEND RECEIVABLE 167,275 146,999
OTHER ASSETS (net of allowance for uncollectible
accounts: 12/31/98 -- $66,000; 12/31/97 -- $68,000) 3,623,513 1,946,851
------------------ ------------------
Total assets $ 244,249,272 $ 222,745,135
------------------ ------------------
------------------ ------------------
LIABILITIES AND PARTNERS' EQUITY
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 1,985,400 $ 1,842,027
DUE TO AFFILIATES 1,598,535 832,922
OTHER LIABILITIES 504,940 538,413
------------------ ------------------
Total liabilities 4,088,875 3,213,362
COMMITMENTS
PARTNERS' EQUITY 240,160,397 219,531,773
------------------ ------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 244,249,272 $ 222,745,135
------------------ ------------------
------------------ ------------------
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 11,848,275 11,848,275
------------------ ------------------
------------------ ------------------
SHARE VALUE AT END OF PERIOD $ 20.27 $ 18.53
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE F-16
F-9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $ 24,572,642 $ 21,582,968 $ 22,799,694
Income from interest in properties 33,462 435,296 606,558
Dividend income from real estate investment trust 669,100 158,184 0
Interest on short-term investments 1,888,348 2,305,364 2,134,386
--------------------- --------------------- ---------------------
Total investment income 27,163,552 24,481,812 25,540,638
--------------------- --------------------- ---------------------
EXPENSES:
Investment management fee 2,900,445 2,640,470 2,494,229
Real estate taxes 2,406,624 2,208,972 2,367,404
Administrative expense 1,951,235 2,326,155 1,865,433
Operating expense 4,071,735 3,296,350 2,904,620
Interest expense 0 220,118 489,434
--------------------- --------------------- ---------------------
Total investment expenses 11,330,039 10,692,065 10,121,120
--------------------- --------------------- ---------------------
NET INVESTMENT INCOME 15,833,513 13,789,747 15,419,518
--------------------- --------------------- ---------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net proceeds from real estate investments sold 37,443,762 6,297,422 20,497,789
Less: Cost of real estate investments sold 37,361,533 6,274,539 26,610,932
Realization of prior years' unrealized
gain on real estate investments sold (2,969,150) (283,157) (4,539,996)
--------------------- --------------------- ---------------------
Net gain (loss) realized on real estate
investments sold 3,051,379 306,040 (1,573,147)
--------------------- --------------------- ---------------------
Change in unrealized gain (loss) on real estate
investments 1,743,732 8,179,192 (3,211,436)
--------------------- --------------------- ---------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 4,795,111 8,485,232 (4,784,583)
--------------------- --------------------- ---------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 20,628,624 $ 22,274,979 $ 10,634,935
--------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE F-16
F-10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income $ 15,833,513 $ 13,789,747 $ 15,419,518
Net gain (loss) realized on real estate
investments sold 3,051,379 306,040 (1,573,147)
Net unrealized gain (loss) from real estate
investments 1,743,732 8,179,192 (3,211,436)
--------------------- --------------------- ---------------------
Net increase in net assets resulting from
operations 20,628,624 22,274,979 10,634,935
--------------------- --------------------- ---------------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(Shares: 1998 -- 0; 1997 -- 0; 1996 -- 188,409 shares,
respectively) 0 0 (3,000,000)
--------------------- --------------------- ---------------------
Net decrease in net assets resulting from
capital transactions 0 0 (3,000,000)
--------------------- --------------------- ---------------------
NET INCREASE IN NET ASSETS 20,628,624 22,274,979 7,634,935
NET ASSETS - Beginning of year 219,531,773 197,256,794 189,621,859
--------------------- --------------------- ---------------------
NET ASSETS - End of year $ 240,160,397 $ 219,531,773 $ 197,256,794
--------------------- --------------------- ---------------------
--------------------- --------------------- ---------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE F-16
F-11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 20,628,624 $ 22,274,979 $ 10,634,935
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Net realized and unrealized (gain) loss on
investments (4,795,111) (8,485,232) 4,784,583
Bad Debt Expense 28,264 99,929 14,201
(Increase) decrease in:
Dividend receivable (20,276) (146,999) 0
Other assets (1,704,926) 20,136 (337,812)
(Decrease) increase in:
Obligation under capital lease 0 (72,677) 190,256
Accounts payable and accrued expenses 143,373 201,667 (502,254)
Due to affiliates 765,613 113,722 36,405
Other liabilities (33,473) 71,404 (197,060)
------------------- ------------------- -------------------
Net cash flows from operating activities 15,012,088 14,076,929 14,623,254
------------------- ------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments
sold 37,443,762 6,297,422 20,497,789
Acquisition of real estate property 0 (23,417,474) (10,713,722)
Acquisition of real estate investment trust 0 (10,000,005) 0
Improvements and additional costs on prior purchases:
Additions to real estate owned (5,736,333) (1,311,864) (997,893)
Additions to real estate partnerships 0 0 0
Sale (purchase) of marketable securities, net (1,021,229) 10,497,348 (13,894,489)
------------------- ------------------- -------------------
Net cash flows from investing activities 30,686,200 (17,934,573) (5,108,315)
------------------- ------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals by partners 0 0 (3,000,000)
Principal payments on capital lease obligation 0 (4,000,000) 0
------------------- ------------------- -------------------
Net cash flows from financing activities 0 (4,000,000) (3,000,000)
------------------- ------------------- -------------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS 45,698,288 (7,857,644) 6,514,939
CASH AND CASH EQUIVALENTS - Beginning of year 12,880,560 20,738,204 14,223,265
------------------- ------------------- -------------------
CASH AND CASH EQUIVALENTS - End of year $ 58,578,848 $ 12,880,560 $ 20,738,204
------------------- ------------------- -------------------
------------------- ------------------- -------------------
SUPPLEMENTAL INFORMATION:
Cash paid during the year for interest $ 0 $ 220,118 $ 376,450
------------------- ------------------- -------------------
------------------- ------------------- -------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE F-16
F-12
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------ --------------------------------
ESTIMATED ESTIMATED
MARKET MARKET
COST VALUE COST VALUE
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 64.7% 82.6%
Location Description
- --------------------------------------------------------------------------------------------------------------------------------
Lisle, IL Office Building $ 21,634,707 $ 14,123,742 $ 17,916,983 $ 10,278,959
Atlanta, GA Garden Apartments 15,601,495 15,651,216 15,446,293 15,100,000
Roswell, GA Retail Shopping Center 32,272,627 28,649,176 31,858,198 29,547,042
Pomona, CA Warehouse 0 0 23,637,049 19,504,612
Morristown, NJ Office Building 19,409,490 11,596,138 18,931,914 10,805,918
Bolingbrook, IL Warehouse 8,948,028 7,000,000 8,948,028 7,100,000
Farmington Hills, MI Garden Apartments 0 0 13,641,971 14,805,258
Raleigh, NC Garden Apartments 15,822,682 16,804,570 15,804,860 16,525,751
Nashville, TN Office Building 8,448,026 10,152,399 8,613,828 9,611,329
Oakbrook Terrace, IL Office Complex 12,945,366 15,750,000 12,725,366 14,100,000
Beaverton, OR Office Complex 10,728,618 11,200,000 10,728,285 10,700,000
Salt Lake City, UT Industrial Building 5,388,134 5,450,000 5,388,134 5,350,000
Aurora, CO Industrial Building 9,304,171 9,497,221 8,540,585 8,400,000
Brentwood, TN Office Complex 9,541,711 9,500,000 9,488,754 9,488,755
--------------------------------------------------------------------------
$ 170,045,055 $ 155,374,462 $ 201,670,248 $ 181,317,624
--------------------------------------------------------------------------
--------------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUST (Percent of Net Assets) 4.8% 5.7%
- --------------------------------------------------------------------------------------------------------------------------------
Meridian REIT Shares (506,894 shares) $ 10,000,005 $ 11,554,649 $ 10,000,005 $ 12,523,805
--------------------------------------------------------------------------
--------------------------------------------------------------------------
<CAPTION>
DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------ --------------------------------
ESTIMATED ESTIMATED
MARKET MARKET
COST VALUE COST VALUE
--------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 6.2% 6.3%
(See pages F-14 to F-15 for details)
Description
- --------------------------------------------------------------------------------------------------------------------------------
Marketable Securities $ 14,967,236 $ 14,950,525 $ 13,971,421 $ 13,929,296
--------------------------------------------------------------------------
--------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 24.4% 5.9%
(See pages F-14 to F-15 for details)
Description
- --------------------------------------------------------------------------------------------------------------------------------
Commercial Paper and Cash $ 58,578,848 $ 58,578,848 $ 12,880,560 $ 12,880,560
--------------------------------------------------------------------------
--------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE F-16
F-13
<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., 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 ON PAGE F-16
F-14
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------
FACE NET ESTIMATED
AMOUNT COST MARKET VALUE
------------------ ------------------ ------------------
<S> <C> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 6.3%
International Lease Finance Corp., 5.92%, January 15, 1998 $ 500,000 $ 499,083 $ 499,956
Smith Barney Holding Inc., 5.70%, January 28, 1998 1,304,000 1,285,475 1,285,475
Suntrust Banks, 8.875%, February 1, 1998 1,500,000 1,517,880 1,503,553
Chase Manhattan Bank, 5.75%, February 10, 1998 2,000,000 2,000,000 2,000,000
Beneficial Corp., 9.125%, February 15, 1998 700,000 705,948 702,456
Citicorp, 10.15%, February 15, 1998 200,000 207,324 200,969
General Motors Acceptance Corp., 5.9%, February 19, 1998 985,000 994,545 986,218
General Motors Acceptance Corp., 5.9875%, February 23, 1998 1,300,000 1,299,363 1,299,894
American General Finance Corp., 7.25%, March 1, 1998 500,000 507,880 501,217
Commercial Credit Co., 5.7%, March 1, 1998 375,000 375,199 375,031
Associates Corp. of North America, 7.3%, March 15, 1998 400,000 406,635 401,242
International Lease Finance Corp., 5.75%, March 15, 1998 400,000 399,940 399,988
Morgan Guaranty Trust Co., 5.85%, March 16, 1998 500,000 499,855 499,971
Royal Bank of Canada, 5.91%, June 17, 1998 2,000,000 1,998,853 1,999,475
FCC National Bank, 5.75281%, July 2, 1998 1,025,000 1,024,202 1,024,602
General Mills Inc., 5.38%, July 8, 1998 250,000 249,238 249,249
------------------ ------------------ ------------------
TOTAL MARKETABLE SECURITIES $ 13,939,000 $ 13,971,421 $ 13,929,296
------------------ ------------------ ------------------
------------------ ------------------ ------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 5.9%
Barnett Bank, Inc., 6.70%, January 2, 1998 $ 1,235,000 $ 1,234,540 $ 1,234,540
American Greetings Corp., 6.26%, January 5, 1998 1,250,000 1,247,179 1,247,179
Xerox Capital, 5.85%, January 6, 1998 1,000,000 995,775 995,775
Nike Inc., 6.10%, January 8, 1998 1,215,000 1,213,353 1,213,353
Paccar Financial Corp., 5.85%, January 9, 1998 1,000,000 996,100 996,100
Pitney Bowes Credit Corp., 6.00%, January 13, 1998 750,000 747,375 747,375
Merrill Lynch & Co., Inc. 5.85%, January 15, 1998 1,000,000 994,313 994,313
Bank of Montreal, 5.90%, January 16, 1998 1,000,000 1,000,000 1,000,000
Countrywide Home Loan, Inc., 5.85%, January 22, 1998 1,000,000 993,175 993,175
General Electric Capital Corp., 5.74%, February 9, 1998 1,000,000 990,593 990,593
------------------ ----------------------------------------
TOTAL CASH EQUIVALENTS 10,450,000 10,412,402 10,412,402
CASH 2,468,158 2,468,158 2,468,158
------------------ ------------------ ------------------
TOTAL CASH AND CASH EQUIVALENTS $ 12,918,158 $ 12,880,560 $ 12,880,560
------------------ ------------------ ------------------
------------------ ------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGE F-16
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 1: ORGANIZATION
On April 29, 1988, 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 ("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 Prudential, Pruco Life
and Pruco Life of New Jersey.
The Partnership's policy is to invest at least 65% of its assets in direct
ownership interests in income-producing real estate and participating
mortgage loans. Although it is the Partnership's policy to adhere to the
aforementioned percentage, at December 31, 1998, the Partnership's direct
investment in real estate, as described above, temporarily fell to 64.7%. On
February 1, 1999, a distribution of cash brought the Partnership back into
compliance with the 65% policy by increasing the Partnership's direct
investment in real estate to 79.2%. (See Note 6: Subsequent Events). The
estimated market value of the Partnership's shares is determined daily,
consistent with the Partnership Agreement. On each day during which the New
York Stock Exchange is open for business, the net asset value of the
Partnership is estimated using the estimated market value of its assets, as
described in Notes 2A and 2B, reduced by any liabilities of the Partnership.
The periodic adjustments to property values described in Notes 2A and 2B and
other adjustments to previous estimates are made on a prospective basis.
There can be no assurance that all such adjustments to estimates will be made
timely.
Shares of the Partnership are held by Prudential Variable Contract Real
Property Account, Pruco Life Variable Contract Real Property Account and
Pruco Life of New Jersey Variable Contract Real Property Account (the "Real
Property Accounts") and may be purchased and sold at the then current share
value of the Partnership's net assets. Share value is calculated by dividing
the estimated market value of net assets of the Partnership as determined
above by the number of shares outstanding. A contract owner participates in
the Partnership through interests in the Real Property Accounts.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A: REAL ESTATE OWNED AND INTEREST IN PROPERTIES - The
Partnership's investments in real estate owned and interests
in properties are initially valued at their purchase price.
Real estate investments are reported at their estimated market
values based upon appraisal reports prepared by independent
real estate appraisers (members of the Appraisal Institute or
an equivalent organization), within a reasonable amount of
time following acquisition of the real estate and no less
frequently than annually thereafter. The Chief Appraiser of
Prudential Comptroller's Department Valuation Unit (Valuation
Unit) is responsible to assure that the valuation process
provides independent and accurate market value estimates. In
the interest of maintaining and monitoring the independence and
accuracy of the appraisal process, the Comptroller of
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; engages all external
appraisers; reviews and provides comments on all external
appraisals; prepares all quarterly update appraisals; assists
in developing policies and procedures and assists in the
evaluation of the performance and competency of external
appraisers.
The purpose of an appraisal is to estimate the market value of
real estate as of a specific date. Market value has been
defined as the most probable price for which the appraised real
estate 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.
The estimate of market value generally is a correlation of
three approaches, all of which require the exercise of
subjective judgment. The three approaches are: (1) current cost
of reproducing the real estate less
F-16
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
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 place. In the reconciliation of these three approaches,
the one most heavily relied upon is the one then recognized as
the most appropriate by the independent appraiser for the type
of real estate in the market.
As described above, the estimated market value of real estate
and real estate related assets is determined through an
appraisal process. These estimated market values may vary
significantly from the prices at which the real estate
investments would sell since market prices of real estate
investments can only be determined by negotiation between a
willing buyer and seller. Although the estimated market values
represent subjective estimates, management believes these
estimated market values are reasonable approximations of market
prices and the aggregate value of investments in real estate is
fairly presented as of December 31, 1998 and 1997.
B: INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS (REITS) - Shares
of REITs are generally valued at their quoted market price.
These values may be adjusted for discounts resulting from
restrictions, if any, on the future sale of these shares, such
as lockout periods or limitations on the number of shares which
may be sold in a given time period. Any such discounts are
determined by the Valuation Unit. The Valuation Unit of
Prudential applied a 3% discount to the market value of the
REIT shares at December 31, 1998. This discount is being
applied 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.
C: REVENUE RECOGNITION - Rent from real estate is recognized when
billed. Revenue from certain real estate investments is net of
all or a portion of related real estate expenses and taxes.
Since real estate is stated at estimated market value, net
income is not reduced by depreciation and amortization expense.
Dividend income is accrued at the ex-dividend date.
D: CASH AND CASH EQUIVALENTS - For purposes of the Statement of
Cash Flows, all short-term investments with an original
maturity of three months or less are considered to be cash
equivalents.
Cash of $114,745 and $128,089 at December 31, 1998 and 1997,
respectively, was maintained by the properties for tenant
security deposits and is included in Other Assets on the
Statements of Assets and Liabilities.
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.
G: MANAGEMENT'S USE OF ESTIMATES IN THE FINANCIAL STATEMENTS -The
preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
H: RECLASSIFICATIONS - Certain 1997 amounts in the financial
statements have been reclassified to conform with the 1998
presentation.
F-17
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
NOTE 3: LEASING ACTIVITY
The Partnership leases space to tenants under various operating lease
agreements. These agreements, without giving effect to renewal options, have
expiration dates ranging from 1999 to 2009. At December 31, 1998, the
aggregate future minimum base rental payments under non-cancelable operating
leases by year are:
<TABLE>
<CAPTION>
Year Ending
December 31, (000's)
------------ --------
<S> <C>
1999 $ 11,037
2000 9,907
2001 9,104
2002 7,576
2003 4,573
Thereafter 10,753
--------
Total $ 52,950
--------
--------
</TABLE>
NOTE 4: COMMITMENT FROM PARTNER
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
Prudential on an ongoing basis from 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
December 31, 1998, Prudential's equity interest in the Partnership under this
commitment was $51 million. At the present time, Prudential does not intend
to make further contributions during the 1999 fiscal year.
NOTE 5: 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 years
ended December 31, 1998, 1997 and 1996 management fees incurred by the
Partnership were $2.9 million; $2.6 million; and $2.5 million, respectively.
The Partnership also reimburses Prudential for certain administrative
services rendered by Prudential. The amounts incurred for the years ended
December 31, 1998, 1997 and 1996 were $116,128; $115,346; and $116,818,
respectively, and are classified as administrative expenses in the Statements
of Operations.
The Partnership owned a 50% interest in four warehouse/distribution buildings
in Jacksonville, FL (the unit warehouses). The remaining 50% interest was
owned by Prudential and one of its subsidiaries. In September 1997, the unit
warehouses were sold as part of an industrial package for cash of $12.5
million. The Partnership's share of the proceeds was $6.3 million.
NOTE 6: SUBSEQUENT EVENTS
On February 1, 1999, $30 million was distributed to the Real Property
Accounts.
F-18
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: PROPERTIES
DECEMBER 31, 1998
INTIAL COSTS TO THE PARTNERSHIP
---------------------------------------------------------------------- COSTS
CAPITALIZED
BUILDING & SUBSEQUENT TO
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION
- ---------------------------- --------------------- ------------------- -------------------- ----------------------
<S> <C> <C> <C> <C>
Properties:
Office Building
Lisle, IL None 1,780,000 15,743,881 4,110,826
Garden Apartments
Atlanta, GA None 3,631,212 11,168,904 801,379
Warehouse
Pomono, CA None 3,412,636 19,091,210 1,133,203
Retail Shopping Center
Roswell, GA None 9,454,622 21,513,677 1,304,328
Office Building
Morristown, NJ None 2,868,660 12,958,451 3,582,379
Office/Warehouse
Bolingbrook, IL None 1,373,199 7,302,518 272,311
Garden Apartments
Farmington Hills, MI None 1,550,000 11,744,571 347,400
Garden Apartments
Raleigh, NC None 1,623,146 14,135,553 63,983
Office Building
Nashville, TN None 1,797,000 6,588,451 62,575
Office Park
Oakbrook Terrace, IL None 1,313,310 11,316,883 315,173
Office Building
Beaverton, OR None 816,415 9,897,307 14,896
Industrial Building
Salt Lake City, UT None 582,457 4,805,676 0
Industrial Building
Aurora, CO None 1,338,175 7,202,411 0
Office Complex
Brentwood, TN None 2,425,000 7,063,755 0
------------------- -------------------- ----------------------
33,965,832 160,533,248 12,008,454
------------------- -------------------- ----------------------
------------------- -------------------- ----------------------
<CAPTION>
GROSS AMOUNT AT WHICH
CARRIED AT CLOSE OF YEAR
---------------------------------------------------------------------------------------------------------
BUILDING & 1998 YEAR OF DATE
DESCRIPTION LAND IMPROVEMENTS SALES TOTAL CONSTRUCTION ACQUIRED
- ------------------------ ------------- ---------------- ----------------- ---------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Properties:
Office Building
Lisle, IL 1,780,000 19,854,707 21,634,707 1985 Apr., 1988
Garden Apartments
Atlanta, GA 3,631,212 11,970,283 15,601,495 1987 Apr., 1988
Warehouse
Pomono, CA 4,545,839 19,248,659 (23,794,498) 0 1987 Apr., 1988
Retail Shopping Center
Roswell, GA 9,479,089 22,793,538 32,272,627 1988 Jan., 1989
Office Building
Morristown, NJ 2,868,660 16,540,830 19,409,490 1981 Aug., 1988
Office/Warehouse
Bolingbrook, IL 1,373,199 7,574,829 8,948,028 1989 Feb., 1990
Garden Apartments
Farmington Hills, MI 1,897,400 11,761,183 (13,658,583) 0 1989 Feb., 1990
Garden Apartments
Raleigh, NC 1,623,146 14,199,536 15,822,682 1995 Jun., 1995
Office Building
Nashville, TN 1,797,327 6,650,699 8,448,026 1982 Oct., 1995
Office Park
Oakbrook Terrace, IL 1,313,821 11,631,545 12,945,366 1988 Dec., 1995
Office Building
Beaverton, OR 816,415 9,912,203 10,728,618 1995 Dec., 1996
Industrial Building
Salt Lake City, UT 582,457 4,805,676 5,388,133 1997 Jul., 1997
Industrial Building
Aurora, CO 1,338,175 7,965,996 9,304,171 1997 Sep., 1997
Office Complex
Brentwood, TN 2,425,000 7,116,711 9,541,711 1987 Oct., 1997
------------- -------------- --------------- --------------
35,471,740 172,026,396 (37,453,081) 170,045,055
------------- -------------- --------------- --------------
------------- -------------- --------------- --------------
<CAPTION>
1998 1997 1996
-------------------- ---------------------- -------------------
<S> <C> <C> <C>
(a) Balance at beginning of year 201,670,248 177,082,291 191,981,608
Additions:
Acquistions 0 23,417,474 10,713,722
Improvements, etc. 5,827,888 1,170,483 550,050
Deletions:
Sale (37,453,081) 0 (26,163,089)
-------------------- ---------------------- -------------------
-------------------- ---------------------- -------------------
Balance at end of year 170,045,055 201,670,248 177,082,291
-------------------- ---------------------- -------------------
-------------------- ---------------------- -------------------
(b) Net of $1,000,000 settlement received from lawsuit.
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: INTEREST IN PROPERTIES
DECEMBER 31, 1998
-------------------------------------------------------------------------
1998 1997 1996
--------------- --------------- --------------
<S> <C> <C> <C>
Balance at beginning of year $0 $6,133,157 $6,133,157
Additions:
Acquistions 0 0 0
Improvements, etc. 0 0 0
Deletions:
Sale 0 (6,133,157) 0
--------------- --------------- --------------
--------------- --------------- --------------
Balance at end of year $0 $0 $6,133,157
--------------- --------------- --------------
--------------- --------------- --------------
</TABLE>
F-20
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM PRUCO LIFE
VARIABLE CONTRACT REAL PROPERTY ACCOUNT STATEMENTS OF NET ASSETS; STATEMENTS OF
OPERATIONS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN IT'S ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000801348
<NAME> PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 119,784,179
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 7,897,240
<CGS> 0
<TOTAL-COSTS> 540,830
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,356,410
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS
OF ASSETS & LIABILITES; STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000801348
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 58,578,848
<SECURITIES> 14,950,525
<RECEIVABLES> 167,275
<ALLOWANCES> 66,000
<INVENTORY> 0
<CURRENT-ASSETS> 170,552,624
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 244,249,272
<CURRENT-LIABILITIES> 4,088,875
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 240,160,397
<TOTAL-LIABILITY-AND-EQUITY> 244,249,272
<SALES> 0
<TOTAL-REVENUES> 27,163,552
<CGS> 0
<TOTAL-COSTS> 11,330,039
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,833,513
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
