<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-86780
PRUCO LIFE INSURANCE COMPANY
in respect of
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
--------------------------------------------------
(Exact name of Registrant as specified in its charter)
Arizona 22-1944557
------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
213 Washington Street, Newark, New Jersey 07102-2992
----------------------------------------------------
(Address of principal executive offices) (Zip Code)
(800) 778-2255
----------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
<PAGE>
PRUCO LIFE VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(REGISTRANT)
INDEX
-----
<TABLE>
<CAPTION>
Cover Page Page No.
--------
<S> <C>
Index 2
PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - September 30, 2000 and December 31, 1999 3
Statements of Operations - Nine and Three Months Ended September 30, 2000 and 1999 3
Statements of Changes in Net Assets - Nine and Three Months Ended September 30, 2000 and 1999 3
Notes to the Financial Statements of the Account 4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Consolidated Statements of Assets and Liabilities - September 30, 2000 and December 31, 1999 6
Consolidated Statements of Operations - Nine and Three Months Ended September 30, 2000 and 1999 7
Consolidated Statements of Changes in Net Assets - Nine Months Ended September 30, 2000 and 1999 8
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 9
Consolidated Schedules of Investments - September 30, 2000 and December 31, 1999 10
Notes to the Financial Statements of the Partnership 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risks 22
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
</TABLE>
2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
September 30, 2000 and December 31, 1999
SEPTEMBER 30, 2000
(UNAUDITED) DECEMBER 31, 1999
---------------------------- ------------------------------
<S> <C> <C>
ASSETS
Investment in The Prudential Variable Contract
Real Property Partnership (Note 2) $ 115,615,633 $ 117,725,227
---------------------------- ------------------------------
Net Assets $ 115,615,633 $ 117,725,227
============================ ==============================
NET ASSETS, REPRESENTING:
Equity of contract owners (Note 3) $ 77,217,095 $ 79,329,065
Equity of Pruco Life Insurance Company 38,398,538 38,396,162
---------------------------- ------------------------------
$ 115,615,633 $ 117,725,227
============================ ==============================
STATEMENTS OF OPERATIONS (UNAUDITED)
For the nine and three months ended September 30, 2000 and 1999 NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---------------------------- ------------------------------
INVESTMENT INCOME
Net investment income from Partnership operations $ 5,629,511 $ 5,351,881
---------------------------- ------------------------------
EXPENSES
Charges to contract owners for assuming mortality risk and
expense risk and for administration 361,628 386,878
---------------------------- ------------------------------
NET INVESTMENT INCOME 5,267,883 4,965,003
---------------------------- ------------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net change in unrealized loss on investments in Partnership (1,181,141) (3,450,933)
Realized gain (loss) on sale of investments in Partnership 1,442,036 4,250
---------------------------- ------------------------------
NET GAIN (LOSS) ON INVESTMENTS 260,895 (3,446,683)
---------------------------- ------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,528,778 $ 1,518,320
============================ ==============================
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
For the nine and three months ended September 30, 2000 and 1999 NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---------------------------- ------------------------------
OPERATIONS
Net investment income $ 5,267,883 4,965,003
Net change in unrealized loss on investments in Partnership (1,181,141) (3,450,933)
Realized gain (loss) on sale of investments in Partnership 1,442,036 4,250
---------------------------- ------------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 5,528,778 1,518,320
---------------------------- ------------------------------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners (Note 4) (5,660,346) (7,665,818)
Net contributions (withdrawals) by Pruco Life Insurance Company (1,978,026) 8,052,696
---------------------------- ------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (7,638,372) 386,878
---------------------------- ------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (2,109,594) 1,905,198
NET ASSETS
Beginning of period 117,725,227 119,784,179
---------------------------- ------------------------------
End of period $ 115,615,633 $ 121,689,377
============================ ==============================
<CAPTION>
STATEMENTS OF OPERATIONS (UNAUDITED)
For the nine and three months ended September 30, 2000 and 1999 THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
---------------------- ---------------------
<S> <C> <C>
INVESTMENT INCOME
Net investment income from Partnership operations $ 1,861,594 $ 1,829,967
---------------------- ---------------------
EXPENSES
Charges to contract owners for assuming mortality risk and
expense risk and for administration 119,708 127,592
---------------------- ---------------------
NET INVESTMENT INCOME 1,741,886 1,702,375
---------------------- ---------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net change in unrealized loss on investments in Partnership (65,637) (1,484,770)
Realized gain (loss) on sale of investments in Partnership 567,364 (136,686)
---------------------- ---------------------
NET GAIN (LOSS) ON INVESTMENTS 501,727 (1,621,456)
---------------------- ---------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,243,613 $ 80,919
====================== =====================
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
For the nine and three months ended September 30, 2000 and 1999 THREE MONTHS ENDED SEPTEMBER 30,
2000 1999
---------------------- ---------------------
OPERATIONS
Net investment income $ 1,741,886 1,702,375
Net change in unrealized loss on investments in Partnership (65,637) (1,484,770)
Realized gain (loss) on sale of investments in Partnership 567,364 (136,686)
---------------------- ---------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 2,243,613 80,919
---------------------- ---------------------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners (Note 4) (2,343,780) (2,599,359)
Net contributions (withdrawals) by Pruco Life Insurance Company 2,463,488 2,726,952
---------------------- ---------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 119,708 127,593
---------------------- ---------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 2,363,321 208,512
NET ASSETS
Beginning of period 113,252,312 121,480,865
---------------------- ---------------------
End of period $ 115,615,633 $ 121,689,377
====================== =====================
</TABLE>
3
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The Pruco Life Variable Contract Real Property Account ("Real Property Account")
is used to fund benefits under certain variable life insurance and variable
annuity contracts issued by Pruco Life Insurance Company. These products are
Variable Appreciable Life ("VAL"), Variable Life ("VLI"), Discovery Plus
("SPVA"), and Discovery Life Plus ("SPVL").
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and accounting
principles generally accepted in the United States for interim financial
information. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the financial statements
and notes thereto included in the Real Property Account's December 31, 1999
Annual Report on Form 10K.
NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
The investment in The Prudential Variable Contract Real Property Partnership
(the "Partnership") is based on the Real Property Account's proportionate
interest of the Partnership's market value. At September 30, 2000 and December
31, 1999, the Real Property Account's interest in the Partnership was 54.3% or
5,271,578 shares and 56.0% or 5,644,214 shares respectively.
The number of shares (rounded) held by the Real Property Account in the
Partnership, the Partnership net asset value per share (rounded) and the
aggregate cost of investments in the Real Property Account's shares held at
September 30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
(UNAUDITED) DECEMBER 31, 1999
----------- -----------------
<S> <C> <C>
NUMBER OF SHARES (ROUNDED): 5,271,578 5,644,214
NET ASSET VALUE PER SHARE (ROUNDED): $21.93 $20.86
COST: $56,926,672 $60,925,820
</TABLE>
NOTE 3: CONTRACT OWNER EQUITY INFORMATION
Contract owner equity at September 30, 2000 and December 31, 1999 by product,
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
VAL $67,573,617 $69,589,863
VLI 5,029,434 4,928,611
SPVA 485,095 538,545
SPVL 4,128,949 4,272,046
--------- ---------
TOTAL $77,217,095 $79,329,065
=========== ===========
</TABLE>
4
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 4: NET WITHDRAWALS BY CONTRACT OWNERS
Net withdrawals by contract owners for the real estate investment option in
Pruco Life Insurance Company's variable insurance and variable annuity products
for the nine months ended September 30, 2000 and 1999, were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 1999
---- (UNAUDITED) ----
<S> <C> <C>
VAL $5,135,076 $6,359,589
VLI 138,337 269,447
SPVA 74,141 325,902
SPVL 312,792 710,880
------- -------
TOTAL $5,660,346 $7,665,818
========== ==========
</TABLE>
5
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------------------- -------------------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 9/30/2000 -- $193,351,211; 12/31/1999 -- $190,007,568) $171,076,665 $171,154,516
Real estate partnership (cost: 9/30/2000 -- $5,853,092;
12/31/1999 -- $5,187,126) 5,335,089 4,506,257
Real estate investment trusts (cost: 9/30/2000 -- $23,808,197;
12/31/1999 -- $32,535,158) 25,739,425 29,727,085
------------------------- -------------------------
Total real estate investments 202,151,179 205,387,858
MARKETABLE SECURITIES - At estimated market value
(cost: 9/30/2000 -- $2,702,030; 12/31/1999 -- $2,805,493) 2,702,084 $2,797,008
CASH AND CASH EQUIVALENTS 20,267,642 13,972,669
DIVIDEND RECEIVABLE 175,545 131,542
OTHER ASSETS (net of allowance for uncollectible
accounts: 9/30/2000 -- $11,200; 12/31/1999 -- $179,000) 3,115,957 2,853,576
------------------------- -------------------------
Total assets 228,412,407 225,142,653
------------------------- -------------------------
LIABILITIES
MORTGAGE LOAN PAYABLE 10,114,333 10,184,662
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,182,708 2,967,614
DUE TO AFFILIATES 859,047 869,477
OTHER LIABILITIES 772,564 525,892
MINORITY INTEREST 606,631 372,068
------------------------- -------------------------
Total liabilities 15,535,283 14,919,713
------------------------- -------------------------
INVESTMENT COMMITMENTS
Partners' equity 212,877,124 210,222,940
------------------------- -------------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $228,412,407 $225,142,653
========================= =========================
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 9,706,284 10,078,921
========================= =========================
SHARE VALUE AT END OF PERIOD $21.93 $20.86
========================= =========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- ------------------------------------
2000 1999 2000 1999
----------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $17,089,509 $15,707,829 $5,623,942 $5,222,918
Equity in income of real estate partnership 658,905 0 338,729 0
Dividend Income from real estate investment trusts 1,162,185 789,754 382,270 352,685
Interest on short-term investments 874,294 1,384,882 342,764 331,902
----------------- ------------------ ----------------- -----------------
Total investment income 19,784,893 17,882,465 6,687,705 5,907,505
----------------- ------------------ ----------------- -----------------
EXPENSES:
Investment management fee 2,020,562 2,027,470 672,389 681,807
Real estate taxes 1,973,769 2,133,374 671,532 618,014
Administrative 1,837,556 1,468,770 545,583 429,855
Operating 3,249,334 2,737,517 1,149,241 967,731
Interest 530,893 0 177,186 0
Minority interest 11,785 0 45,531 0
----------------- ------------------ ----------------- -----------------
Total investment expenses 9,623,899 8,367,131 3,261,462 2,697,407
----------------- ------------------ ----------------- -----------------
NET INVESTMENT INCOME 10,160,994 9,515,334 3,426,243 3,210,098
----------------- ------------------ ----------------- -----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net proceeds from real estate investments
sold or converted 28,516,320 19,668,030 9,781,665 2,468,061
Less: Cost of real estate investments sold or
converted 29,436,095 17,579,801 9,775,154 2,718,144
Realization of prior periods' unrealized
(loss) gain on real estate investments sold
or converted (3,522,580) 2,080,673 (431,983) (146,339)
----------------- ------------------ ----------------- -----------------
Net gain (loss) realized on real estate investments
sold or converted 2,602,805 7,556 438,494 (103,744)
----------------- ------------------ ----------------- -----------------
Change in unrealized (loss) gain on real estate
investments (2,041,907) (6,225,283) 427,552 (2,740,601)
Minority interest in unrealized (loss) gain on
investments (67,708) 0 59,167 0
----------------- ------------------ ----------------- -----------------
Net unrealized (loss) gain on real estate
investments (2,109,615) (6,225,283) 486,719 (2,740,601)
----------------- ------------------ ----------------- -----------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 493,190 (6,217,727) 925,213 (2,844,345)
----------------- ------------------ ----------------- -----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $10,654,184 $3,297,607 $4,351,456 $365,753
================= ================== ================= =================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------ ------------------------
<S> <C> <C>
NET INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $10,160,994 $9,515,334
Net realized gain on real estate investments sold
or converted 2,602,805 7,556
Change in unrealized loss on real estate investments (2,109,615) (6,225,283)
------------------------ ------------------------
Net increase in net assets resulting from operations 10,654,184 3,297,607
------------------------ ------------------------
NET DECREASE IN NET ASSETS
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(9/30/2000 -- 372,636 shares; 9/30/1999 -- 1,482,233 shares) (8,000,000) (30,000,000)
------------------------ ------------------------
Net decrease in net assets resulting from
capital transactions (8,000,000) (30,000,000)
------------------------ ------------------------
NET INCREASE (DECREASE) IN NET ASSETS 2,654,184 (26,702,393)
NET ASSETS - Beginning of period 210,222,940 240,160,397
------------------------ ------------------------
NET ASSETS - End of period $212,877,124 $213,458,004
======================== ========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------------ ------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $10,654,184 $3,297,607
Adjustments to reconcile net increase in net assets resulting
from operations to net cash flows from operating activities:
Net realized and unrealized (gain) loss on investments (493,190) 6,217,727
Distributions from real estate partnership less than
equity in income (658,905) 0
Minority interest from operating activities 11,785 0
Bad debt expense 7,589 16,917
(Increase) Decrease in:
Dividend receivable (44,003) 167,275
Other assets (269,970) 1,217,730
Increase (Decrease) in:
Accounts payable and accrued expenses 215,094 208,503
Due to affiliates (10,430) (339,218)
Other liabilities 246,672 40,336
------------------------ ------------------------
Net cash flows from operating activities 9,658,826 10,826,877
------------------------ ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additional costs on prior purchases:
Net proceeds from real estate investments sold 28,516,320 8,725,464
Acquisition of real estate property 0 (7,542,712)
Additions to real estate property (3,343,643) (1,138,743)
Acquisition of real estate partnership 0 (4,875,000)
Additions to real estate partnership (7,061) 0
Acquisition of real estate investment trust (20,709,134) (29,174,960)
Sale of marketable securities, net 94,924 13,128,681
------------------------ ------------------------
Net cash flows from investing activities 4,551,406 (20,877,270)
------------------------ ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loan payable (70,329) 0
Withdrawals by partners (8,000,000) (30,000,000)
Contributions from minority interest partners 155,070 377,135
------------------------ ------------------------
Net cash flows from financing activities (7,915,259) (29,622,865)
------------------------ ------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,294,973 (39,673,258)
CASH AND CASH EQUIVALENTS - Beginning of period 13,972,669 58,578,848
------------------------ ------------------------
CASH AND CASH EQUIVALENTS - End of period $20,267,642 $18,905,590
======================== ========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the nine months for interest $530,893 $0
======================== ========================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Exchange of shares of Meridian real estate investment trust
for shares of ProLogis real estate investment trust shares $0 $10,942,566
======================== ========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------------------ ------------------------------------
ESTIMATED ESTIMATED
MARKET MARKET
COST VALUE COST VALUE
-----------------------------------------------------------------------------
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 80.4% 81.4%
Location Description
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lisle, IL Office Building $22,132,688 $13,930,205 $22,075,782 $13,895,122
Atlanta, GA Garden Apartments 15,666,454 16,400,002 15,646,846 16,104,268
Roswell, GA Retail Shopping Center 32,458,175 26,800,871 32,394,853 27,000,939
Morristown, NJ Office Building 20,320,495 12,300,000 20,116,694 12,337,499
Bolingbrook, IL Warehouse 8,948,028 6,400,000 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,846,639 17,200,000 15,833,928 17,004,623
Brentwood, TN Office Building 9,561,222 10,543,906 8,509,908 10,000,000
Oakbrook Terrace, IL Office Complex 13,004,341 13,000,000 12,945,366 14,200,000
Beaverton, OR Office Complex 11,201,230 10,300,001 10,768,811 10,400,866
Salt Lake City, UT Industrial Building 5,640,709 5,700,050 5,640,709 5,703,419
Aurora, CO Industrial Building 10,130,644 9,800,000 10,119,072 10,520,780
Brentwood, TN Office Complex 9,608,460 9,601,630 9,606,828 9,537,000
Jacksonville, FL Garden Apartments 18,832,126 19,100,000 17,400,743 17,450,000 *
-----------------------------------------------------------------------------
$193,351,211 $171,076,665 $190,007,568 $171,154,516
=============================================================================
REAL ESTATE PARTNERSHIP (PERCENT OF NET ASSETS) 2.5% 2.1%
Location Description
---------------------------------------------------------------------------------------------------------------------------------
=============================================================================
Kansas City, KS; MO Retail Shopping Center $5,853,092 $5,335,089 $5,187,126 $4,506,257
=============================================================================
</TABLE>
* Real estate partnership accounted for by the consolidated method.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-------------------------------------------
ESTIMATED
MARKET
COST VALUE
-------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 12.1%
-----------------------------------------------------------------------------------------------------------
AMLI Residential Properties (30,000 shares) $706,800 $720,000
Apartment Inv & Mgmt Co., Class A (33,900 shares) 1,422,878 1,561,518
Brandywine Realty Trust (15,000 shares) 321,338 303,750
CBL & Associates Prop (15,800 shares) 396,088 395,988
Cabot Industrial Trust (40,000 shares) 820,726 797,500
Camden Property Trust (25,000 shares) 780,125 775,000
Centerpoint Properties Corp. (18,600 shares) 632,302 856,762
Equity Office Properties Trust (52,400 shares) 1,463,396 1,627,675
Essex Property Trust, Inc. (15,000 shares) 593,700 830,625
Felcor Lodging Trust (25,000 shares) 545,920 578,125
First Industrial Realty Trust (25,000 shares) 781,100 768,750
Franchise Finance Cp Amer (46,300 shares) 1,118,418 1,041,750
Gables Residential Trust (25,000 shares) 632,750 679,688
Great Lakes Reit (30,000 shares) 554,775 521,250
Highwoods Properties Inc. (20,000 shares) 541,982 472,500
Host Marriot Corp. (80,000 shares) 824,800 900,000
IRT Property (45,000 shares) 406,395 393,750
Kilroy Realty Corp. (30,000 shares) 746,886 800,625
Liberty Property LP. (35,000 shares) 899,562 962,500
Macerich Co. (30,000 shares) 670,489 637,500
MeriStar Hospitality Corp. (32,500 shares) 538,813 658,125
Mission West Properties (108,200 shares) 862,224 1,501,275
Parkway Properties Inc. (25,000 shares) 782,750 762,500
Philips International Realty (68,500 shares) 1,129,948 1,181,625
Public Storage Inc. (23,700 shares) 611,872 567,319
Reckson Assoc Realty Corp. (32,500 shares) 805,150 828,750
Regency Realty Corp. (25,000 shares) 576,600 573,437
Spieker Properties (17,000 shares) 665,228 978,563
Taubeau Centers Inc.(50,000 shares) 556,625 578,125
United Dominion Realty Trust (70,000 shares) 811,068 761,250
Vornado Realty Trust (24,800 shares) 848,269 920,700
Washington Reit (40,000 shares) 759,220 802,500
---------------------------------------------
$23,808,197 $25,739,425
=============================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------
ESTIMATED
MARKET
COST VALUE
--------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 14.1%
----------------------------------------------------------------------------------------------------------------------
Prologis REIT Shares (386,208 shares) $7,579,332 $7,434,504
AMB Property Corp (42,100 shares) 933,851 839,369
Alexandria Real Est Equities (30,800 shares) 874,221 979,825
Apartment Inv & Mgmt Co - Class A (16,500 shares) 672,953 656,906
Centerpoint Properties Corp (16,200 shares) 544,308 581,175
Cousins Properties (24,800 shares) 890,459 841,650
Equity Office Properties Trust (32,400 shares) 901,571 797,850
Equity Residential Property Trust (13,100 shares) 623,573 559,206
Excel Legacy Corp (322,300 shares) 1,479,431 1,067,619
Franchise Finance Cp Amer (25,500 shares) 620,027 610,406
General Growth Properties (13,600 shares) 512,353 380,800
Intrawest Corporation (76,100 shares) 1,258,575 1,317,481
MeriStar Hotels & Resorts Inc. (239,100 shares) 875,818 851,794
Mission West Properties (116,800 shares) 938,124 905,200
Philips International Realty (63,700 shares) 1,052,331 1,047,069
Prime Hospitality Corp. (112,500 shares) 1,320,524 991,406
Public Storage (45,100 shares) 1,269,884 1,023,206
Reckson Service Industries (18,200 shares) 221,041 1,135,225
Reckson Assoc Realty Corp (52,200 shares) 1,299,227 1,070,100
Spieker Properties (12,000 shares) 426,078 437,250
Starwood Hotels and Resorts (87,200 shares) 3,027,806 2,049,200
Sun Communities Inc. (16,700 shares) 606,047 537,531
Vornado Realty Trust (51,800 shares) 1,930,911 1,683,500
Sun International Hotels Ltd (30,900 shares) 1,116,266 598,688
Boardwalk Equities, Inc. (146,800 shares) 1,560,447 1,330,125
--------------------------------------------
$32,535,158 $29,727,085
============================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
--------------- -------------- ---------------
<S> <C> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.3%
Merrill Lynch & Co., Inc. 6.51%, October 27, 2000 $ 725,000 $ 711,234 $ 711,234
Campbell Soup Co., 6.53% October 30, 2000 717,000 704,775 704,775
E.I. Du Pont de Nemours & Co. Inc., 6.53%, December 18, 2000 225,000 219,613 219,613
E.I. Du Pont de Nemours & Co. Inc., 6.55%, December 18, 2000 100,000 97,616 97,616
Lasalle National Bank, 6.71%, February 1, 2001 969,000 968,792 968,846
--------------- -------------- ---------------
TOTAL MARKETABLE SECURITIES $ 2,736,000 $ 2,702,030 $ 2,702,084
=============== ============== ===============
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 9.5%
Lucent Technologies, 6.80%, October 2, 2000 $ 1,000,000 $ 999,433 $ 999,433
First Data Corp., 6.50%, October 3, 2000 1,000,000 994,944 994,944
J.P. Morgan and Co., Inc., 6.50%, October 5, 2000 1,000,000 994,583 994,583
Household Finance Corp., 6.50%, October 10, 2000 577,000 574,708 574,708
Target Corp., 6.55%, October 10, 2000 616,000 614,543 614,543
Ciesco L.P., 6.50%, October 11, 2000 979,000 963,268 963,268
New Center Asset Trust, 6.50%, October 11, 2000 976,000 970,713 970,713
Homeside Lending Inc., 6.50%, October 16, 2000 975,000 964,614 964,614
Ford Motor Credit Corp Co., 6.50%, October 18, 2000 388,000 384,988 384,988
Equitable Life Assur Society U.S., 6.51%, October 20, 2000 641,000 637,523 637,523
Paccar Financial Corp., 6.50%, October 20, 2000 959,000 949,303 949,303
Textron Financial Corp., 6.51%, October 20, 2000 947,000 938,438 938,438
Bank of Montreal, 6.62%, November 2, 2000 900,000 900,000 900,000
B-One Australia LTD., 6.53%, November 3, 2000 925,000 917,282 917,282
Verizon Global Funding Corp., 6.50%, November 3, 2000 975,000 962,325 962,325
AON Corp., 6.53%, November 14, 2000 1,000,000 991,112 991,112
General Motors Acceptance Corp., Inc., 6.49%, November 15, 2000 950,000 940,238 940,238
Salomon Smith Barney Hldgs Inc., 6.50%, November 20, 2000 1,000,000 990,069 990,069
AT&T Corp., 6.48%, November 29, 2000 591,000 583,660 583,660
Nike Inc., 6.48%, November 29, 2000 727,000 718,494 718,494
Eastman Kodak Co., 6.49%, December 4, 2000 900,000 887,994 887,994
Alcoa Inc., 6.48%, December 6, 2000 524,000 516,926 516,926
--------------- -------------- ---------------
TOTAL CASH EQUIVALENTS 18,550,000 18,395,158 18,395,158
CASH 1,872,484 1,872,484 1,872,484
--------------- -------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS $ 20,422,484 $ 20,267,642 $ 20,267,642
=============== ============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
--------------- -------------- ---------------
<S> <C> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.3%
J.P. Morgan and Co., Inc., 5.96%, March 13, 2000 $ 995,000 $ 980,010 $ 980,010
Ford Motor Credit Co., 7.50%, April 6, 2000 150,000 151,779 150,653
CIT Group Inc., 6.80%, April 17, 2000 500,000 503,765 501,487
Associates Corp of North America, 6.71%, June 1, 2000 1,160,000 1,169,939 1,164,858
--------------- -------------- ---------------
TOTAL MARKETABLE SECURITIES $ 2,805,000 $ 2,805,493 $ 2,797,008
=============== ============== ===============
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 6.6%
Duke Energy Corp., 5.00%, January 3, 2000 $ 550,000 $ 549,771 $ 549,771
Bell Atlantic Financial Services, 5.20%, January 7, 2000 672,000 671,321 671,321
Household Finance Corp, 5.93%, January 18, 2000 990,000 983,314 983,314
Ford Motor Credit Co., 6.00%, January 21, 2000 847,000 840,789 840,789
American Express Cr. Corp., 6.02%, January 26, 2000 999,000 990,981 990,981
Procter & Gamble Co., 6.00%, January 26, 2000 200,000 197,867 197,867
Goldman Sachs Group L.P., 6.43%, January 31, 2000 1,000,000 991,963 991,963
Countrywide Home Loans, 6.00%, February 3, 2000 990,000 980,595 980,595
Merrill Lynch & Co., Inc., 5.98%, February 3, 2000 990,000 980,626 980,626
Unifunding Inc., 6.05%, February 3, 2000 900,000 892,135 892,135
Metlife Funding Inc., 5.90%, February 4, 2000 841,000 832,730 832,730
General Electric Cap Corp., 5.95%, February 10, 2000 350,000 346,182 346,182
GTE Funding, Inc., 6.10%, February 10, 2000 1,000,000 990,681 990,681
E.I. Du Pont De Nemours & Co. Inc., 6.00%, February 11, 2000 250,000 246,667 246,667
General Electric Capital Corp., 5.92% March 1, 2000 406,000 400,258 400,258
--------------- -------------- ---------------
TOTAL CASH EQUIVALENTS 10,985,000 10,895,880 10,895,880
CASH 3,076,789 3,076,789 3,076,789
--------------- -------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS $ 14,061,789 $ 13,972,669 $ 13,972,669
=============== ============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and accounting
principles generally accepted in the United States for interim financial
information. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000. For further information, refer to the financial
statements and notes thereto included in each Partner's December 31, 1999
Annual Report on Form 10K.
NOTE 2: COMMITMENT FROM PARTNER
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment were utilized for property acquisitions, and returned to
Prudential on an ongoing basis from the contract owners' net contributions and
other available cash. The amount of the commitment is reduced by $10 million for
every $100 million in current value net assets of the Partnership. Thus, with
$213 million in net assets, the commitment has been automatically reduced to $80
million. As of September 30, 2000, Prudential's equity interest in the
Partnership, on a cost basis, under this commitment was $44 million. Prudential
does not intend to make contributions during the 2000 fiscal year and will begin
to phase out this commitment over the next several years.
NOTE 3: RELATED PARTY TRANSACTIONS
Pursuant to an investment management agreement, Prudential charges the
Partnership a daily investment management fee at an annual rate of 1.25% of the
average daily gross asset valuation of the Partnership. For the nine months
ended September 30, 2000 and 1999 management fees incurred by the Partnership
were $2,020,562 and $2,027,470 respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the nine months ended September
30, 2000 and 1999 were $87,472 and $87,305 respectively, and are classified as
administrative expenses in the consolidated statements of operations.
NOTE 4: INVESTMENT IN REAL ESTATE INVESTMENT TRUST (REIT)
On March 30, 1999, the Partnership exchanged 506,894 shares of Meridian REIT for
557,583 shares of ProLogis REIT, fair value of $10,942,566, and receivable of
$1,013,796 (or total fair value of $11,956,362) as a result of ProLogis'
acquisition of Meridian. Management continued applying a 3% discount to the
market value of the ProLogis REIT shares through June 29, 1999 because of the
restriction which limits the number of shares that can be publicly traded during
any six month period to 30% of the total shares originally acquired. The
application of the 3% discount was discontinued on June 30, 1999 because this
restriction no longer applied.
NOTE 5: SUBSEQUENT EVENTS
On October 26, 2000, the Partnership sold the office complex located in
Morristown, New Jersey. The total proceeds received were approximately $12.9
million, resulting in a realized gain for the current year of approximately $0.2
million.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-------------------------------------------------------------------------------
OF OPERATIONS
-------------
All of the assets of the 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 Financial
Statements and the related Notes to the Financial Statements included elsewhere
herein.
(a) LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Partnership's liquid assets consisting of cash,
cash equivalents and marketable securities were $23.0 million, an increase of
$6.2 million from December 31, 1999. This increase was primarily due to the sale
of REIT shares and operations of the Partnership's properties which were offset
by a distribution to a Partner of $8.0 million on June 28, 2000. Sources of
liquidity include net cash flow from property operations, interest from
short-term investments, and dividends from REIT shares.
The Partnership's investment policy allows up to 30% investment in cash and
short-term obligations, although the Partnership generally holds approximately
10% of its assets in cash or liquid instruments. At September 30, 2000, 10% of
the Partnership's assets consisted of cash and cash equivalents and marketable
securities.
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment have been 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. Thus, with
$213 million in net assets, the commitment has been automatically reduced to $80
million. As of September 30, 2000, Prudential's equity interest in the
Partnership, on a cost basis, under this commitment was $44 million. Prudential
does not intend to make any contributions during the 2000 fiscal year and will
begin to phase out this commitment over the next several years.
On June 28, 2000, the Partnership made an $8 million distribution to the
Partners, while on February 2, 1999 a distribution of $30 million was made to
the Partners. Additional distributions may be made to the Partners during 2000,
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 the first nine months of 2000, the Partnership spent approximately $3.3
million in capital expenditures. Approximately $1.4 million was associated with
the renovation of the apartment complex located in Jacksonville, FL. The
remaining $1.9 million balance was primarily associated with capital
expenditures in relation to leasing activity at one of the office properties
located in Brentwood, TN as well as the offices located in Morristown, NJ and
Beaverton, OR.
(b) RESULTS OF OPERATIONS
The following is a brief year-to-date and quarterly comparison of the
Partnership's results of operations for the periods ended September 30, 2000 and
1999.
16
<PAGE>
SEPTEMBER 30, 2000 VS. SEPTEMBER 30, 1999
The following table presents a year-to-date and quarterly comparison of the
Partnership's sources of net investment income, and realized and unrealized
gains or losses by investment type.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, THREE MONTHS ENDED SEPTEMBER 30
2000 1999 2000 1999
-------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Office properties $ 4,174,180 $ 5,404,103 $ 1,261,021 $ 1,654,448
Apartment complexes 2,545,173 1,617,646 845,424 701,052
Retail property 2,129,555 2,067,724 701,637 692,468
Industrial properties 1,056,304 480,812 286,091 324,431
Equity in income of real estate partnership 658,905 - 338,729 -
Dividend income from real
estate investment trust 1,162,185 789,754 382,270 352,685
Other (including interest income,
investment mgt fee, etc.) (1,565,308) (844,705) (388,929) (514,986)
-------------- -------------- -------------- -------------
TOTAL NET INVESTMENT INCOME $ 10,160,994 $ 9,515,334 $ 3,426,243 $ 3,210,098
-------------- -------------- -------------- -------------
UNREALIZED (LOSS) GAIN ON INVESTMENTS:
Office properties ($2,499,791) ($3,052,513) ($189,271) $867,563
Apartment complexes 609,699 (188,505) 91,624 (614,430)
Retail property (263,389) 291,767 (217,769) (39,973)
Industrial properties (1,335,721) 142,513 (200,000) 347,963
Interest in properties 162,866 - (102,912) -
Real estate investment trusts 1,216,721 (3,418,545) 1,105,047 (3,301,724)
-------------- -------------- -------------- -------------
$ (2,109,615) $ (6,225,283) $ 486,719 $ (2,740,601)
-------------- -------------- -------------- -------------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Apartment complexes - - - -
Industrial properties - 43,641 - -
Interest in properties - - - -
Real estate investment trust 2,602,805 (36,085) 438,494 (103,744)
-------------- -------------- -------------- -------------
2,602,805 7,556 438,494 (103,744)
-------------- -------------- -------------- -------------
TOTAL REALIZED AND UNREALIZED GAIN (LOSS)
-------------- -------------- -------------- -------------
ON INVESTMENTS $ 493,190 $ (6,217,727) $ 925,213 $ (2,844,345)
-------------- -------------- -------------- -------------
</TABLE>
The Partnership's net investment income for the nine months ended September 30,
2000 was $10.2 million, an increase of $0.7 million from net investment income
of $9.5 million in the corresponding period in 1999. The Partnership's net
investment income for the quarter ended September 30, 2000 was $3.4 million,
an increase of $0.2 million from net investment income of $3.2 million in the
corresponding period in 1999.
Revenue from real estate properties was $17.1 million for the nine months
ended September, 30 2000, an increase of $1.4 million, or 8.8%, from $15.7
million in the corresponding period in 1999. This increase was primarily due
to the Partnership's acquisition of a controlling interest in an apartment
complex located in Jacksonville, FL. Revenue from real estate properties was
$5.6 million for the third quarter of 2000, an increase of $0.4 million, or
7.7%, from $5.2 million in the corresponding quarter in 1999.
Equity in income of real estate partnership increased $0.7 million during the
first nine months of 2000, and $0.3 million during the third quarter of 2000, as
a result of the acquisition of the Partnership's equity investment interest in
the retail portfolio located in the Kansas City, MO area. This interest was not
acquired until September 30, 1999.
17
<PAGE>
Dividend income from real estate investment trusts was $1.2 million for the
first nine months of 2000, an increase of $0.4 million or 47.2% from the
corresponding period in 1999. This increase was primarily due to higher amounts
invested in real estate investment trusts. A significant increase in the
Partnership's investment in REIT shares took place in the latter part of the
second quarter 1999. Therefore, dividend income for the first nine months of
2000 represents a full nine months of dividend income activity on the increased
investment, while the first nine months of 1999 only include approximately 4 1/2
months dividend income from the increased investment.
Interest on short-term investments decreased approximately $0.5 million or 36.9%
for the nine months ended September 30, 2000 due primarily to a significantly
lower average cash balance. Cash and cash equivalents during the first nine
months of 2000 averaged approximately $18.2 million compared to approximately
$36.5 million for the first nine months of 1999.
Administrative expenses increased $0.4 million, or 25.1%, to $1.8 million during
the first nine months of 2000 when compared to the corresponding period in 1999.
Administrative expenses for the third quarter of 2000 increased $0.1 million or
26.9% to $0.5 million when compared to the third quarter of 1999. These
increases were primarily due to the acquisition of a controlling interest in an
apartment complex located in Jacksonville, FL.
Operating expenses increased $0.5 million or 18.7% to $3.2 million during the
first nine months of 2000 when compared to the corresponding period in 1999.
Operating expenses increased $0.2 million or 18.8% to $1.1 million when compared
to the third quarter of 1999. These increases were primarily a result of the
Partnership's acquisition of a controlling interest in the apartment complex
located in Jacksonville, FL.
Interest expense increased $0.5 million during the first nine months of 2000,
and $0.2 million during the third quarter of 2000, when compared to the
corresponding periods in 1999. These increases were a result of the
Partnership's acquisition of a controlling interest in the apartment complex
located in Jacksonville, FL, which was acquired subject to $10.2 million in
debt.
Minority interest in consolidated partnership increased $11,785 during the first
nine months of 2000, and $45,531 during the third quarter of 2000. These
increases were a result of the Partnership's controlling joint venture
investment in the apartment complex located in Jacksonville, FL.
OFFICE PROPERTIES
Net investment income from property operations for the office sector decreased
approximately $1.2 million or 22.8% for the nine months ended September 30, 2000
when compared to the corresponding period in 1999. Net investment income from
property operations for the office sector decreased approximately $0.4 million
or 23.8% during the third quarter of 2000 when compared to the corresponding
period in 1999. These decreases were primarily due to lower revenue levels
experienced by the Oakbrook Terrace, IL office complex during 2000 as a result
of the lease termination fee received from one of the tenants during 1999
coupled with a corresponding decrease in occupancy at this same office property.
A 36% decrease in occupancy at one of the Brentwood, TN office properties also
contributed to the decrease.
The six office properties owned by the Partnership experienced a net unrealized
loss of approximately $2.5 million during the first nine months of 2000 compared
to a net unrealized loss of $3.1 million in the corresponding period in 1999.
The largest share (52%) of the net unrealized loss experienced during the first
nine months of 2000 was primarily due to the office property located in Oakbrook
Terrace, IL. This approximate $1.3 million value decrease was due to a lease
termination associated with 45% of the space and weaker market conditions. The
Beaverton, OR and Brentwood, TN office properties also experienced net
unrealized losses of approximately $0.5 million each primarily due to capital
expenditures on the properties that were not reflected as an increase in market
value.
The majority of the $3.1 million net unrealized loss during the first nine
months of 1999 was attributable to the
18
<PAGE>
office complex located in Oakbrook Terrace, IL. This $1.6 million value decrease
was due to costs associated with re-leasing and expected vacancy resulting from
the upcoming lease termination exercised by a tenant. The Beaverton, OR office
property also experienced a net unrealized loss of approximately $0.8 million.
This decline in value is partially attributable to reduced investor demand for
suburban office. The Lisle, IL office property also experienced a net unrealized
loss of approximately $0.6 million primarily due to capital expenditures on the
property that were not reflected as an increase in market value.
The office properties experienced a net unrealized loss of approximately $0.2
million during the third quarter of 2000 compared to a net unrealized gain of
$0.9 million in the corresponding period in 1999. The loss for the third quarter
of 2000 consisted of $0.4 million at the Beaverton, OR property and $0.4 million
at the Brentwood, TN office complexes for the reasons discussed above.
Offsetting these net unrealized losses was a net unrealized gain of $0.6 million
experienced by the office complex located in Morristown, NJ which was under
contract to sell. The majority of the $0.9 million unrealized gain experienced
in 1999 was primarily the result of the Oakbrook Terrace, IL property
experiencing a $0.7 million net unrealized gain as a result of increased market
rent levels at the property.
Occupancy at the Morristown, NJ property increased from 97% at September 30,
1999 to 100% at September 30, 2000, while occupancy at the Lisle, IL office
property decreased from 88% at September 30, 1999 to 87% at September 30, 2000.
Occupancy at one of the Brentwood, TN office complexes decreased from 95% to 59%
from September 30, 1999 to September 30, 2000, while occupancy at the other
Brentwood, TN office property increased from 95% to 100%. Occupancy at the
Oakbrook Terrace, IL office complex decreased from 100% at September 30, 1999 to
55% at September 30, 2000, while occupancy at the Beaverton, OR office complex
decreased from 100% at September 30, 1999 to 95% at September 30, 2000. As of
September 30, 2000 all vacant spaces were being marketed.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment sector was $2.5
million for the first nine months of 2000, an increase of $0.9 million or 57.3%
compared with the corresponding period in 1999. Net investment income from
property operations for the apartment complexes was $0.8 million for the third
quarter of 2000, an increase of $0.1 million or 20.6% compared with the
corresponding period in 1999. These increases were primarily due to the
acquisition of the controlling interest in the apartment complex located in
Jacksonville, FL.
The apartment complexes owned by the Partnership experienced a net unrealized
gain of $0.6 million and a net unrealized loss of $0.2 million for the nine
months ended September 30, 2000 and 1999 respectively. The largest share of the
unrealized gain for 2000 or $0.3 million was experienced by the apartment
complex located in Atlanta, GA primarily due to increases in rental rates and
stabilized occupancy. The apartment complex located in Raleigh, NC also
experienced a net unrealized gain of $0.2 million due to increases in rental
rates. The net unrealized loss of $0.2 million during the first nine months of
1999 was experienced by the Atlanta, GA apartment complex which decreased in
value as a result of the final real estate tax bill being approximately $80,000
higher for the year than was originally anticipated. This unexpected increase in
real estate taxes affects the property's current and future cash flow and
resulted in a decrease in market value.
The apartments experienced a net unrealized gain of $0.1 million and a net
unrealized loss of $0.6 million for the quarters ended September 30, 2000 and
1999 respectively. The majority of the unrealized gain in 2000 was experienced
by the Raleigh, NC property due to increases in rental rates as discussed
previously. The majority of the net unrealized loss in 1999 was experienced by
the property located in Atlanta, GA which decreased in value approximately $0.6
million due to higher than anticipated real estate taxes as discussed
previously.
The occupancy at the Atlanta, GA complex remained unchanged at 98% as of
September 30, 1999 and September 30, 2000. Occupancy at the apartment complex in
Raleigh, NC also remained unchanged at 96% as of September 30, 1999 and
September 30, 2000. Occupancy at the Jacksonville, FL apartment complex
decreased from 93% as of September 30, 1999 to 92% as of September 30, 2000.
This vacancy is largely a result of renovations at the project.
19
<PAGE>
As apartments are renovated, they are then re-leased at higher rates. As of
September 30, 2000, all available vacant units were being marketed.
RETAIL PROPERTIES
Net investment income for the nine months ended September 30, 2000 and 1999 for
the Partnership's retail property located in Roswell, GA was approximately $2.1
million for both periods. Net investment income for the third quarter of 2000
and 1999 was approximately $0.7 million for both periods.
The retail property experienced a net unrealized loss of $0.3 million and a net
unrealized gain of $0.3 million for the first nine months of 2000 and 1999,
respectively. The unrealized loss experienced by the property in 2000 was due to
lower income projections, resulting primarily from lower income growth rate
projections, coupled with capital expenditures which did not increase the market
value of the property. The increase in value for 1999 was attributable to
improved market conditions.
The retail property experienced a net unrealized loss of $0.2 million and $0.1
million for the third quarter of 2000 and 1999, respectively. The net unrealized
loss for the third quarter 2000 was attributable to the lower income projections
and growth rate projections discussed previously. The net unrealized loss for
the third quarter 1999 was attributable to capital expenditures on the property
that were not reflected as an increase in market value.
On September 30, 1999, the Partnership invested in an equity joint venture of
retail centers located in the Kansas City, MO area. During the nine months ended
September 30, 2000, income from this investment amounted to $0.7 million, while
income for the quarter ended September 30, 2000 was $0.3 million. This
investment experienced a net unrealized gain during the first nine months of
2000 of $0.2 million, and a net unrealized loss for the third quarter 2000 of
$0.1 million, primarily due to capital expenditures on the properties that were
not reflected as an increase in market value.
Occupancy at the shopping center located in Roswell, GA decreased from 100% as
of September 30, 1999 to 96% as of September 30, 2000. The retail portfolio
located in the Kansas City, MO area had an average occupancy of 95% as of
September 30, 2000 compared to an average occupancy of 88% as of September 30,
1999. As of September 30, 2000, all vacant spaces were being marketed.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
increased from $0.5 million for the nine months ended September 30, 1999 to $1.1
million for the corresponding period in 2000. The majority of the increase was a
result of increased occupancy at the property located in Aurora, CO. Net
investment income from property operations for the industrial properties
remained unchanged at $0.3 million for the quarter ended September 30, 1999 and
September 30, 2000.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $1.3 million and a net unrealized gain of $0.1
million for the nine months ended September 30, 2000 and 1999, respectively. The
majority of the decrease for 2000 was attributable to the Aurora, CO industrial
property, which had a loss of approximately $0.7 million due to more
conservative assumptions regarding rental rates, lease-up time and terminal
capitalization rates used by the appraiser. In addition, capital expenditures
were incurred at the property which were not reflected as an increase in market
value. The industrial property located in Bolingbrook, IL experienced an
unrealized loss of $0.6 million during the first nine months of 2000. This loss
was due to the expiration of the single tenant lease with no replacement tenant
being signed as of yet. The majority of the $0.1 million unrealized gain for
1999 was attributable to the Aurora, CO industrial property due to improved
market conditions as evidence by higher market rental rates and the faster
absorption of vacant space.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $0.2 million and a net unrealized gain of $0.3
million for the quarters ended September 30, 2000 and 1999, respectively.
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The decrease in unrealized appreciation for the third quarter 2000 is
attributable to the Bolingbrook, IL property for the reasons discussed
previously. The increase in unrealized appreciation for the third quarter 1999
is also attributable to the Aurora, CO property for the reasons previously
discussed.
The occupancy at the Bolingbrook, IL property decreased from 100% as of
September 30, 1999 to 0% as of September 30, 2000. The occupancy at the Salt
Lake City, Utah property remained unchanged at 34% from September 30, 1999 to
September 30, 2000. The current tenant at the property is experiencing financial
difficulty, and their continued operations are questionable at this time. The
Aurora, CO property's occupancy rate increased to 75% as of September 30, 2000
from 67% as of September 30, 1999. As of September 30, 2000, all vacant spaces
were being marketed.
REAL ESTATE INVESTMENT TRUSTS
The Partnership recognized a net realized gain from real estate investment
trusts of $2.6 million for the nine months ended September 30, 2000 primarily as
a result of the sale of the Partnership's remaining investment in 386,208
ProLogis REIT shares and sales of shares within the Partnership's investment in
a REIT fund. The Partnership recognized a net realized gain from real estate
investment trusts of $0.4 million for the quarter ended September 30, 2000
primarily as a result of the sales of shares within the Partnership's investment
in a REIT fund.
The Partnership's investment in REIT shares experienced an unrealized gain of
$1.2 million and an unrealized loss of $3.4 million for the nine months ended
September 30, 2000 and 1999, respectively. During the quarters ended September
30, 2000 and September 30, 1999, the Partnership's investment in REIT shares
experienced an unrealized gain of $1.1 million and an unrealized loss of $3.3
million, respectively. These changes in unrealized gain and loss reflect changes
in the market value of REIT shares held by the Partnership.
Management applied a 3% discount to the market value of the ProLogis REIT shares
through June 29, 1999 because of a restriction which limited the number of
shares that could be publicly traded during any six month period. This discount
was discontinued on June 30, 1999 because this restriction no longer applied.
OTHER
Other net investment income decreased $0.7 million during the nine months ended
September 30, 2000 compared to the corresponding period last year. Other net
investment income includes interest income from short-term investments,
investment management fees, and expenses not related to property activities. The
decrease in other net investment income during the first nine months of 2000 was
primarily due to a decrease in interest income on short-term investments
primarily as a result of the Partnership maintaining a significantly lower cash
balance when compared to the corresponding period last year.
Other net investment income increased $0.1 million during the third quarter of
2000 compared to the corresponding quarter last year primarily because expenses
not related to property activities decreased when compared to the same period
last year.
(c) INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects", "believes",
"anticipates", "intends", "plans", or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Partnership. There can be no
assurance that future developments affecting the Partnership will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements including without limitation, changes in general
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economic conditions, including the performance of financial markets and interest
rates; market acceptance of new products and distribution channels; competitive,
regulatory or tax changes that affect the cost or demand for the Partnership's
products; and adverse litigation results. While the Partnership reassesses
material trends and uncertainties affecting its financial position and results
of operations, it does not intend to review or revise any particular
forward-looking statement referenced in this Management's Discussion and
Analysis in light of future events. The information referred to above should be
considered by readers when reviewing any forward-looking statements contained in
this Management's Discussion and Analysis.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
-------------------------------------------------------------------
The 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.
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PART II
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------- ---------------------------------------------------
Contract owners participating in the Real Property Account have no
voting rights with respect to the Real Property Account.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------- --------------------------------
(a) EXHIBITS
4.1 Variable Life Insurance Contract, filed as Exhibit
1.A.(5)(a) to Pre-Effective Amendment No. 1 to Form S-6,
Registration Statement No. 2-80513, filed February 17,
1983, and incorporated herein by reference.
4.2 Revised Variable Appreciable Life Insurance Contract with
fixed death benefit, filed as Exhibit 1.A.(5)(f) to
Post-Effective Amendment No. 5 to Form S-6, Registration
Statement No. 2-89558, filed July 10, 1986, and
incorporated herein by reference.
4.3 Revised Variable Appreciable Life Insurance Contract with
variable death benefit, filed as Exhibit 1.A.(5)(g) to
Post-Effective Amendment No. 5 to Form S-6, Registration
Statement No. 2-89558, filed July 10, 1986, and
incorporated herein by reference.
4.4 Single Premium Variable Annuity Contract, filed as Exhibit
4(i) to Form N-4, Registration Statement No. 2-99616, filed
August 13, 1985, and incorporated herein by reference.
4.5 Flexible Premium Variable Life 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.
b) REPORT ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY
in respect of
Pruco Life Variable
Contract Real Property Account
(Registrant)
------------------------------------------------------------
Date: November 14, 2000 By: /s/
--------------------------- -------------------------------
Esther H. Milnes
President and Director
Date: November 14, 2000 By: /s/
--------------------------- -------------------------------
William J. Eckert
Vice President and Chief Accounting
Officer
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