<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended September 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 33-20018
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
in respect of
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT
-------------------------------------------
REAL PROPERTY ACCOUNT
----------------------
(Exact name of Registrant as specified in its charter)
NEW JERSEY 22-2426091
- ------------------------------- ---------------------------------
(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 OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Registrant)
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - September 30, 1997
(Unaudited) and December 31, 1996 3
Statements of Operations and Changes In Net Assets
(Unaudited) - Nine Months Ended September 30, 1997
and 1996 3
Notes to the Financial Statements (Unaudited) 4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities -
September 30, 1997 (Unaudited) and
December 31, 1996 7
Statements of Operations (Unaudited) -
Nine and Three Months Ended September 30, 1997
and 1996 8
Statements of Changes in Net Assets - Nine
Months Ended September 30, 1997 (Unaudited)
and Year Ended December 31, 1996 9
Statements of Cash Flows (Unaudited) -
Nine Months Ended September 30, 1997 and 1996 10
Schedule of Investments - September 30, 1997
(Unaudited) and December 31, 1996 11
Notes to the Financial Statements (Unaudited) 14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote of
Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
PART III - SIGNATURES 22
2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(UNAUDITED) DECEMBER 31, 1996
------------------- -------------------
<S> <C> <C>
Investment in shares of The Prudential Variable Contract
Real Property Partnership (Note 3) $ 8,562,020 $ 7,878,541
------------------- -------------------
------------------- -------------------
NET ASSETS, representing:
Equity of Contract Owners $ 6,616,333 $ 6,505,842
Equity of Pruco Life Insurance Company of New Jersey 1,945,687 1,372,699
------------------- -------------------
$ 8,562,020 $ 7,878,541
------------------- -------------------
------------------- -------------------
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------- ------------------
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 454,171 $ 457,396
EXPENSES:
Asset Based Charges to Contract Owners (Note 5) 28,726 29,223
------------------- ------------------
NET INVESTMENT INCOME 425,445 428,173
------------------- ------------------
Net Unrealized Gain/(Loss) on Investments in Partnership 240,054 (129,221)
Net Realized Loss on Sale of Investments in Partnership (10,746) (19,029)
------------------- ------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 654,753 $ 279,923
------------------- ------------------
------------------- ------------------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (Note 7) (404,315) (286,316)
Net Contributions by Pruco Life Insurance Company of New Jersey 433,040 315,539
------------------- ------------------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 28,726 29,223
------------------- ------------------
TOTAL INCREASE IN NET ASSETS $ 683,479 $ 309,146
NET ASSETS:
Beginning of period $ 7,878,541 $ 7,455,048
------------------- ------------------
End of period $ 8,562,020 $ 7,764,194
------------------- ------------------
------------------- ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 4 THROUGH 6.
3
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
FOR THE PERIOD ENDED SEPTEMBER 30, 1997
(UNAUDITED)
NOTE 1: GENERAL
Pruco Life of New Jersey Variable Contract Real Property Account (the "Real
Property Account") was established on October 30, 1987 by resolution of the
Board of Directors of Pruco Life Insurance Company of New Jersey ("Pruco Life of
New Jersey"), an indirect wholly-owned subsidiary of The Prudential Insurance
Company of America ("Prudential"), as a separate investment account pursuant to
New Jersey law. The assets of the Real Property Account are segregated from
Pruco Life of New Jersey'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 of New Jersey. These products are Variable
Appreciable Life Insurance ("VAL"), Variable Life Insurance ("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 property option under certain variable life insurance and annuity
contracts. The Real Property Account, along with the Pruco Life Variable
Contract Real Property Account and The Prudential 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.
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 September 30,
1997, the Real Property Account's interest in the Partnership, based on market
value equity was 4.0% or 473,226 shares.
C. INCOME RECOGNITION
Net investment income, realized and unrealized gains and losses are recognized
daily. Amounts are based upon the Real Property Account's proportionate
interest in the Partnership.
4
<PAGE>
D. EQUITY OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Pruco Life of New Jersey maintains a position in the Account representing
anticipated property acquisition and capital expenditure funding needs. The
position is also utilized for the purpose of administering activity in the
Account. The activity includes unit transactions, Partnership share
transactions, and expense processing. The position does not have an effect on
the Contract owner's account or the related unit value.
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
As of September 30, 1997, the investment in the Real Property Account of
$8,562,031 was derived from the share value of $18.092886 and 473,226 shares
outstanding. The related historical cost of the investment in the Real Property
Account was $5,503,605.
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of Contract owner
equity for the period ended September 30, 1997 were as follows:
<TABLE>
<CAPTION>
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER
UNITS OUTSTANDING: 3,242,665 493,547 81,395 82,463 3,900,070
UNIT VALUE: $ 1.69541 $1.74214 $1.57977 $1.57977 N/A
CONTRACT OWNER EQUITY: $5,497,647 $859,828 $128,585 $130,273 $6,616,333
</TABLE>
NOTE 5: CHARGES AND EXPENSES
A. MORTALITY RISK AND EXPENSE RISK CHARGES
Mortality risk and expense 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 contract holders 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 the estimated expenses. As of September 30, 1997, the amount of these
charges paid to Pruco Life Insurance Company of New Jersey was $28,061.
B. ADMINISTRATIVE CHARGES
Administrative charges are determined daily using an effective annual rate of
0.35% for SPVA and SPVL. Administrative charges include costs associated with
issuing the Contract, establishing and maintaining records, and providing
reports to Contract owners. As of September 30, 1997, the amount of these
charges paid to Pruco Life Insurance Company of New Jersey was $664.
NOTE 6: TAXES
Pruco Life Insurance Company of New Jersey is taxed as a "life insurance
company" under the Internal Revenue Code and the operations of the Real Property
Account form a part of and are taxed with those of Pruco Life Insurance Company
of New Jersey. Under current federal law, no federal income taxes are payable
by the Real Property Account. As such, no provision for tax liability has been
recorded.
5
<PAGE>
NOTE 7: NET WITHDRAWALS BY CONTRACT OWNERS
Contract owner activity for the Pruco Life of New Jersey products for the period
ended September 30, 1997, was as follows:
<TABLE>
<CAPTION>
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER CONTRIBUTIONS: $ 626,968 $ 84,911 $ 0 $ 888 $ 712,766
CONTRACT OWNER REDEMPTIONS: (980,892) (111,258) (5,399) (19,532) (1,117,081)
NET TRANSFERS FROM (TO) OTHER
SUBACCOUNTS OR FIXED RATE OPTION: (244,981) (5,668) 0 (17,463) (268,112)
--------- --------- ------- -------- ----------
NET DECREASE $(598,905) $(32,015) $(5,399) $(36,106) $ (672,427)
--------- --------- ------- -------- ----------
--------- --------- ------- -------- ----------
</TABLE>
Note 8: Unit Activity
Transactions in units for the period ended September 30, 1997 were as follows:
<TABLE>
<CAPTION>
VAL VLI SPVA SPVL
--- --- ---- ----
<S> <C> <C> <C> <C>
CONTRACT OWNER CONTRIBUTIONS: 386,517.215 51,144.682 0 591.009
CONTRACT OWNER REDEMPTIONS: (604,723.694) (66,941.730) (3,635.257) (13,050.825)
</TABLE>
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
There have been no purchases or sales of Investments in 1997.
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(UNAUDITED) DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 9/30/97 -- $191,660,405; 12/31/96 -- $177,082,291) $ 168,809,357 $ 151,074,276
Interest in properties (cost: 9/30/97 -- $0; 12/31/96 --
$6,133,157) 0 5,850,000
Real estate trusts (cost: 9/30/97 -- $10,000,005;
12/31/96 -- $0) 12,853,344 0
----------------- -----------------
Total real estate investments 181,662,701 156,924,276
MARKETABLE SECURITIES - At estimated market value
(cost: 9/30/97 -- $14,985,000; 12/31/96 -- $24,345,000) 15,034,239 24,426,644
CASH AND CASH EQUIVALENTS 18,536,060 20,738,204
OTHER ASSETS (net of allowance for uncollectible
accounts: 9/30/97 -- $40,000; 12/31/96 -- $56,000) 2,732,930 2,066,916
----------------- -----------------
Total assets $ 217,965,930 $ 204,156,040
----------------- -----------------
----------------- -----------------
LIABILITIES AND PARTNERS' EQUITY
OBLIGATION UNDER CAPITAL LEASE $ 0 $ 4,072,677
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,626,160 1,640,360
DUE TO AFFILIATES 1,428,134 719,200
OTHER LIABILITIES 542,417 467,009
----------------- -----------------
Total liabilities 3,596,711 6,899,246
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
Partners' equity 214,369,219 197,256,794
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 217,965,930 $ 204,156,040
----------------- -----------------
----------------- -----------------
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 11,848,275 11,848,275
----------------- -----------------
----------------- -----------------
SHARE VALUE AT END OF PERIOD $ 18.09 $ 16.65
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
7
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------- ----------- ----------- -----------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $17,128,834 $17,065,460 $ 6,030,739 $ 5,351,519
Equity in income of real estate partnerships 435,296 456,115 132,272 128,431
Interest on short-term investments 1,905,560 1,469,594 637,655 625,313
----------- ----------- ----------- -----------
Total investment income 19,469,690 18,991,169 6,800,666 6,105,263
----------- ----------- ----------- -----------
EXPENSES:
Investment managment fee 1,944,966 1,848,541 665,169 625,132
Real estate taxes 1,637,441 1,749,737 544,674 498,358
Administrative 1,968,776 1,462,289 1,051,041 423,564
Operating 2,327,218 2,053,641 839,290 703,784
Interest 220,118 372,344 31,892 117,089
----------- ----------- ----------- -----------
Total investment expenses 8,098,519 7,486,552 3,132,066 2,367,927
----------- ----------- ----------- -----------
NET INVESTMENT INCOME 11,371,171 11,504,617 3,668,600 3,737,336
----------- ----------- ----------- -----------
REALIZED AND UNREALIZED (LOSS) GAIN ON
INVESTMENTS
Net proceeds from real estate investments
sold 6,272,330 14,697,789 6,272,330 0
Less: Cost of real estate investments sold 6,824,539 18,638,949 6,820,907 12,195
Realization of prior periods' unrealized
gain on real estate investments sold (283,157) (3,462,522) 79,343 0
----------- ----------- ----------- -----------
Net loss realized on real estate
investments sold (269,052) (478,638) (627,920) (12,195)
----------- ----------- ----------- -----------
Change in unrealized gain (loss) on real estate
investments 6,010,306 (3,253,955) 5,196,196 (1,717,062)
----------- ----------- ----------- -----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 5,741,254 (3,732,593) 4,568,276 (1,729,257)
----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $17,112,425 $ 7,772,024 $ 8,236,876 $ 2,008,079
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income $ 11,371,171 $ 15,419,518
Net loss realized on real estate investments sold (269,052) (1,573,147)
Net unrealized gain (loss) from real estate investments 6,010,306 (3,211,436)
------------------ -----------------
Net increase in net assets resulting from operations 17,112,425 10,634,935
------------------ -----------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(9/30/97 -- 0 shares; 12/31/96 -- 188,409 shares) 0 (3,000,000)
------------------ -----------------
Net decrease in net assets resulting from
capital transactions 0 (3,000,000)
------------------ -----------------
NET INCREASE IN NET ASSETS 17,112,425 7,634,935
NET ASSETS - Beginning of period 197,256,794 189,621,859
------------------ -----------------
NET ASSETS - End of period $ 214,369,219 $ 197,256,794
------------------ -----------------
------------------ -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 17,112,425 $ 7,772,024
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 (5,741,254) 3,732,593
Increase in:
Other assets (666,014) (243,268)
(Decrease) Increase in:
Obligations under capital lease (197,677) (716)
Accounts payable and accrued expenses (14,200) (272,036)
Due to affiliates 708,934 1,348
Other liabilities 75,408 (107,060)
------------------ ------------------
Net cash flows from operating activities 11,277,622 10,882,885
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 6,272,330 14,697,789
Acquisition of real estate (13,958,719) (593,866)
Acquisition of real estate trust (10,000,005) 0
Improvements and additional costs on prior purchases:
Additions to real estate (615,763) 0
Contributions to real estate partnerships (695,014) 0
Sale (purchase) of marketable securities 9,392,405 (9,577,131)
------------------ ------------------
Net cash flows from investing activities (9,604,766) 4,526,792
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of capital lease (3,875,000) 0
Withdrawals by partners 0 (3,000,000)
------------------ ------------------
Net cash flows from financing activities (3,875,000) (3,000,000)
------------------ ------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (2,202,144) 12,409,677
CASH AND CASH EQUIVALENTS - Beginning of period 20,738,204 14,223,263
------------------ ------------------
CASH AND CASH EQUIVALENTS - End of period $ 18,536,060 $ 26,632,940
------------------ ------------------
------------------ ------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
September 30,1997 December 31, 1996
- --------------------------------------------------------------------------------------------------------------------------
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 78.7% 76.6%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Lisle, IL Office $ 17,538,024 $ 9,786,398 $ 17,524,421 $ 9,900,000
Atlanta, GA Garden Apartments 15,446,293 13,200,000 15,396,738 13,707,814
Pomona, CA Warehouse 20,168,503 14,348,991 23,456,751 17,553,849
Roswell, GA Retail Shopping 31,799,312 29,031,666 31,754,073 28,333,818
Morristown, NJ Office 18,909,984 10,716,254 18,797,224 10,113,986
Bolingbrook, IL Warehouse 8,948,028 7,100,000 8,948,028 7,100,000
Farmington Hills, MI Garden Apartments 13,636,714 14,707,350 13,623,952 14,706,400
Raleigh, NC Garden Apartments 15,779,108 16,601,560 15,762,951 16,854,252
Nashville, TN Office 8,602,497 9,417,138 8,379,326 8,800,436
Oakbrook Terrace, IL Office 12,712,495 13,900,000 12,725,105 13,290,000
Beaverton, OR Office 10,728,286 10,700,000 10,713,722 10,713,721
Salt Lake City, UT Industrial Building 5,388,134 5,500,000 0 0
Aurora, CO Industrial Building 8,570,585 8,600,000 0 0
Pomona, CA Land 3,432,442 5,200,000 0 0
------------ ------------ ------------ ------------
$191,660,405 $168,809,357 $177,082,291 $151,074,276
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST IN PROPERTIES (PERCENT OF NET ASSETS) 0.0% 3.0%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Jacksonville, FL Warehouse/Distribution $ 0 $ 0 $ 1,317,453 $ 1,225,000
Jacksonville, FL Warehouse/Distribution 0 0 1,002,448 1,000,000
Jacksonville, FL Warehouse/Distribution 0 0 1,442,894 1,325,000
Jacksonville, FL Warehouse/Distribution 0 0 2,370,362 2,300,000
----------- ----------- ----------- -----------
$ 0 $ 0 $ 6,133,157 $ 5,850,000
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
REAL ESTATE TRUSTS (PERCENT OF NET ASSETS) 6.0% 0%
Estimated Estimated
Market Market
Cost Value Cost Value
------------------------------------------------------------------------
Meridian REIT Shares (506,894shrs) $10,000,005 $12,853,344 $ 0 $ 0
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 7.0% 12.4%
(See pages 12 to 13 for details) Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------------------------
Marketable Securities $14,985,000 $15,034,239 $24,345,000 $24,426,644
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 8.7% 10.5%
(See pages 12 to 13 for details) Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------------------------
Commercial Paper and Cash $19,195,148 $18,536,060 $20,804,826 $20,738,204
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1.3% 1.0%
OTHER ASSETS $ 2,732,930 $ 2,066,916
------------ ------------
-1.7% -3.5%
TOTAL LIABILITIES ($3,596,711) ($6,899,246)
------------ ------------
TOTAL NET ASSETS $214,369,219 $197,256,794
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
FACE ESTIMATED
AMOUNT MARKET VALUE
-------------- --------------
<S> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 7.0%
Morgan Guaranty Trust Co., 5.625%, November 14, 1997 $ 1,000,000 $ 999,271
Norwest Financial Inc., 6.5% November 15, 1997 300,000 302,286
Norwest Corportation, 5.77%, November 21, 1997 2,000,000 2,001,922
International Lease Finance Corp., 5.92%, January 15, 1998 500,000 499,083
Suntrust Banks, 8.875%, February 1, 1998 1,500,000 1,517,880
Chase Manhattan Bank, 5.75%, February 10, 1998 2,000,000 2,000,000
Citicorp, 10.15%, February 15, 1998 200,000 207,324
General Motors Acceptance Corp., 5.9%, February 19, 1998 985,000 994,545
General Motors Acceptance Corp., 5.9875%, February 23, 1998 1,300,000 1,299,363
American General Finance Corp., 7.25%, March 1, 1998 500,000 507,880
Commercial Credit Co., 5.7%, March 1, 1998 375,000 375,199
Associates Corp. of North America, 7.3%, March 15, 1998 400,000 406,635
International Lease Finance Corp., 5.75%, March 15, 1998 400,000 399,940
Morgan Guaranty Trust Co., 5.85%, March 16, 1998 500,000 499,855
Royal Bank of Canada, 5.91%, June 17, 1998 2,000,000 1,998,853
FCC National Bank, 5.75281%, July 2, 1998 1,025,000 1,024,202
-------------- --------------
TOTAL MARKETABLE SECURITIES $ 14,985,000 $ 15,034,239
-------------- --------------
-------------- --------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 8.7%
Dillard Investment Co., 6.35%, October 1, 1997 $ 1,000,000 $ 999,824
Federal Home Loan Mortgage Corp., 7%, October 1, 1997 8,639,000 $ 8,007,000
Sonoco Prod Cd Note, 6.4%, October 1, 1997 1,000,000 $ 999,822
Pepsico Inc., 5.8%, October 3, 1997 1,200,000 $ 1,199,420
International Lease Finance Corp., 5.52%, October 6, 1997 750,000 $ 747,815
Schering Corp., 5.65%, October 6, 1997 1,200,000 $ 1,198,870
General Electric Capital Corp., 5.52%, October 9, 1997 1,200,000 $ 1,195,952
Canadian Imperial Bank of Commerce, 5.55%, October 20, 1997 531,000 $ 530,994
Commercial Credit Co., 5.53%, October 23, 1997 1,747,000 $ 1,728,215
TOTAL CASH EQUIVALENTS 17,267,000 16,607,912
CASH 1,928,148 1,928,148
-------------- --------------
TOTAL CASH AND CASH EQUIVALENTS $ 19,195,148 $ 18,536,060
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
12
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
FACE ESTIMATED
AMOUNT MARKET VALUE
-------------- --------------
<S> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 12.4%
PNC Bank, 5.48%, January 6, 1997 $ 2,200,000 $ 2,199,643
Wells Fargo, 5.54%, January 28, 1997 2,300,000 2,300,446
Sears Roebuck Acceptance Corp, 7.48%, February 19, 1997 100,000 102,187
General Motors Acceptance Corp, 5.88%, February 27, 1997 105,000 107,143
Sears Roebuck Acceptance Corp,7.72%, February 27, 1997 800,000 812,000
Dean Witter Discover & Co., 5.75%, March 6,1997 500,000 500,387
General Motors Acceptance Corp, 5.74%, March 18, 1997 1,200,000 1,201,344
Sears Discover Credit Corp, 7.81%, March 18, 1997 1,150,000 1,164,548
American Home Products, 6.88%, April 15, 1997 2,000,000 2,019,323
Ford Motor Credit, 5.90%, May 5, 1997 1,400,000 1,405,337
Ford Motor Credit, 5.90%, May 5, 1997 350,000 350,875
Ford Motor Credit, 9.15%, May 7, 1997 500,000 515,010
Key Bank NA, 5.58%, May 14, 1997 900,000 899,130
American Express Centurion Bank, 5.58%, June 10, 1997 2,300,000 2,299,862
Associates Corp of North America, 7.05%, June 30, 1997 600,000 604,766
Bank One Columbus, 5.58%, July 1, 1997 1,110,000 1,108,812
Associates Corp of North America, 5.88%, August 15, 1997 1,230,000 1,230,744
Key Bank of New York, 4.82%, September 4, 1997 1,300,000 1,298,740
Bank One Milwaukee, NA, 5.26%, October 8, 1997 1,000,000 1,002,870
Morgan Guaranty Trust Co., 5.38%, November 14, 1997 1,000,000 999,271
Norwest Financial Inc., 6.50%, November 15, 1997 300,000 302,286
Norwest Corp., 5.55%, November 21, 1997 2,000,000 2,001,922
-------------- --------------
TOTAL MARKETABLE SECURITIES $ 24,345,000 $ 24,426,644
-------------- --------------
-------------- --------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 10.5%
Gateway Fuel Corp, 7.15%, January 2, 1997 $ 2,177,000 $ 2,176,135
Bell Atlantic Financial Services, 5.50%, January 14, 1997 2,650,000 2,638,664
Pioneer Hi-Bred Intl., 5.47%, January 15, 1997 1,200,000 1,194,712
Bank of Montreal, 5.43%, January 27, 1997 2,300,000 2,300,000
Canadian Imperial Bank, 5.39%, January 27, 1997 2,400,000 2,400,000
HJ Heinz Co., 5.46%, January 29, 1997 2,370,000 2,354,184
General Electric Capital Corp, 5.34%, February 3, 1997 2,300,000 2,279,871
Bankers Trust Co., 5.35%, February 20, 1997 2,000,000 2,007,723
Colonial PL Co Note, 5.60%, February 21, 1997 800,000 792,658
Colonial PL Co Note, 5.35%, March 4, 1997 783,000 773,109
General Electric Capital Corp., 5.45%, March 14, 1997 300,000 296,321
-------------- --------------
TOTAL CASH EQUIVALENTS 19,280,000 19,213,378
CASH 1,524,826 1,524,826
-------------- --------------
TOTAL CASH AND CASH EQUIVALENTS $ 20,804,826 $ 20,738,204
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SEPTEMBER 30, 1997
(UNAUDITED)
GENERAL
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 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 Insurance Company of
America, Pruco Life and Pruco Life of New Jersey.
The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.
The Partnership's investments are valued on a daily basis, consistent with the
Partnership Agreement. On each day during which the New York Stock Exchange is
open for business, the net assets of the Partnership are valued using the
current value of its investments as described in Note 1B & 1C below, plus an
estimate of net income from operations reduced by any liabilities of the
Partnership.
The periodic adjustments to property values described in Note 1B & 1C below and
the corrections of previous estimates of net income are made on a prospective
basis. There can be no assurance that all such adjustments and estimates will be
made timely.
Shares of the Partnership are sold to Prudential Variable Contract Real Property
Account, the Pruco Life Variable Contract Real Property Account, and the Pruco
Life of New Jersey Variable Contract Real Property Account, (the "Real Property
Accounts") at the current share value of the Partnership's net assets. Share
value is calculated by dividing the current value of net assets of the
Partnership as determined below by the number of shares outstanding. A Contract
owner participates in the Partnership through interests in the Real Property
Accounts.
Note 1: Summary Of Significant Accounting Policies
A: General - The financial statements included herein have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine months ended September 30,
1997, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1997. For further
information, refer to the financial statements and notes thereto
included in each Partner's December 31, 1996, Annual Report on Form
10-K.
B: 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. Thereafter, 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)
which are ordinarily obtained on an annual basis.
The Chief Appraiser of Prudential Comptroller's Department Valuation
Unit is responsible to assure that the valuation process provides
independent and accurate estimated market value estimates. In the
interest of maintaining and monitoring the independence and the
accuracy of the appraisal process, the Comptroller of Prudential has
appointed a third party firm to act as the Appraisal Management Firm.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SEPTEMBER 30, 1997
(UNAUDITED)
The Appraisal Management Firm, among other responsibilities, approves
the selection and scheduling of external appraisals; develops a
standard package of information to be supplied to the appraisers;
reviews and provides comments on all external appraisals and a sample
of internal appraisals; assists in developing policy and procedures;
and assists in the evaluation of the performance and competency of
external appraisers. The property valuations are reviewed quarterly by
Prudential Comptroller's Department Valuation Unit and the Chief
Appraiser and adjusted if there has been any significant changes
related to the property since the most recent independent appraisal.
The purpose of an appraisal is to estimate the market value of a
property as of a specific date. Estimated market value has been
defined as the most probable price for which the appraised property
will sell in a competitive market under all conditions requisite to
fair sale, with the buyer and seller each acting prudently,
knowledgeably, and for self interest, and assuming that neither is
under undue duress. This estimate of 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 a property less deterioration and functional and economic
obsolescence; (2) discounting of a series of income streams and
reversion at a specified yield or by directly capitalizing a single -
year income estimate by an appropriate factor; and (3) value
indicated by recent sales of comparable properties in the market. In
the reconciliation of these three approaches, the one most heavily
relied upon is the one then recognized as the most appropriate by the
independent appraiser for the type of property in the market.
As described above, the estimated market value of real estate 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 that estimated market values are
reasonable approximations of market prices and the aggregate value of
investments in real estate fairly represents their estimated market
values as of September 30, 1997 and December 31, 1996.
C: Real Estate Investment Trusts (REIT) - On September 24, 1997, the Partnership
purchased 506,894 shares of Meridian Industrial Trust (Meridian)
common stock. The valuation at 9/30/97 is based on the last reported
price at which a security was sold on an exchange, adjusted for a
prorated amount due back to Meridian for dividends declared but not
earned.
D: Revenue Recognition - Rent from properties consists of all amounts earned
under tenant operating leases including base rent, recoveries of real
estate taxes and other expenses and charges for miscellaneous services
provided to tenants. Revenue from leases that provide for scheduled
rent increases is recognized as billed. Dividend income is accrued at
the ex-dividend date.
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: Cash Equivalents - The Partnership considers all highly liquid investments
with an original maturity of three months or less when purchased to be
cash equivalents. Cash equivalents are carried at estimated market
value.
G: 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.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SEPTEMBER 30, 1997
(UNAUDITED)
H: Use of Estimates - 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.
Note 2: Commitment from Partner
On January 9, 1990, Prudential committed to fund up to $100 million to enable
the Partnership to take advantage of opportunities to acquire attractive real
property investments whose cost is greater than the Partnership's available
cash. Contributions to the Partnership under this commitment are utilized for
property acquisitions and returned to Prudential on an ongoing basis from
contract owners' net contributions. Also, the amount of the commitment is
reduced by $10 million for every $100 million in current value net assets of the
Partnership. The amount available under this commitment as of September 30,
1997 is approximately $47.8 million.
Note 3: Transactions with affiliates
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, 1997, and 1996 management fees incurred by the Partnership
were $1,944,966 and $1,848,541, respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the nine months ended
September 30, 1997 and 1996 were $86,313 and $88,693 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, Florida (the Unit warehouses). The remaining 50% interest was
owned by Prudential and one of its subsidiaries. The Partnership had contracted
with PREMISYS Real Estate Services, Inc. (PREMISYS), an affiliate of Prudential,
to provide property management services at the Unit warehouses. The property
management fees earned by PREMISYS, incurred by the Partnership and Prudential
for the nine months ended September 30, 1997 and 1996 were $16,088 and $14,965,
respectively.
Note 4: Commitment and Contingencies
As of September 30, 1997, the Partnership had an outstanding commitment to
acquire an office building of approximately $9.5 million. Funding will be
provided by existing cash. The purchase of this real estate investment is
contingent on the developer's building the real estate according to the plans
and specifications outlined in the pre-sale agreement.
16
<PAGE>
PER SHARE INFORMATION (FOR A SHARE OUTSTANDING THOUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
01/01/97 07/31/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO TO
09/30/97 09/30/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Rent from properties $ 1.4457 $ 0.5090 $ 1.9173 $ 1.6387 $ 1.2754 $ 1.1659 $ 1.0727
Income from interest in properties $ 0.0367 $ 0.0111 $ 0.0510 $ 0.0527 $ 0.1838 $ 0.2139 $ 0.1970
Interest on mortgage loans $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0082 $ 0.0755 $ 0.0711
Interest from short-term investments $ 0.1608 $ 0.0538 $ 0.1795 $ 0.2199 $ 0.1226 $ 0.0549 $ 0.0653
---------- ---------- ---------- ---------- ---------- ---------- ----------
INVESTMENT INCOME $ 1.6433 $ .5739 $ 2.1478 $ 1.9113 $ 1.5900 $ 1.5102 $ 1.4061
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment management fee $ 0.1642 $ 0.0562 $ 0.2097 $ 0.1936 $ 0.1786 $ 0.1673 $ 0.1642
Real estate tax expense $ 0.1382 $ 0.0460 $ 0.1991 $ 0.1602 $ 0.1399 $ 0.1465 $ 0.1488
Administrative expenses $ 0.1662 $ 0.0887 $ 0.1569 $ 0.1484 $ 0.1103 $ 0.1187 $ 0.1046
Operating expenses $ 0.1964 $ 0.0708 $ 0.2442 $ 0.1546 $ 0.1332 $ 0.1209 $ 0.1241
Interest expense $ 0.0186 $ 0.0027 $ 0.0412 $ 0.0381 $ 0.0255 $ 0.0236 $ 0.0215
---------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES $ 0.6835 $ 0.2643 $ 0.8511 $ 0.6949 $ 0.5875 $ 0.5770 $ 0.5632
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME $ .9597 $ .3096 $ 1.2967 $ 1.2164 $ 1.0025 $ 0.9332 $ 0.8429
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized loss on investments sold $ (0.0227) $ (0.0224) $ (0.1323) $ 0.0000 $ (0.0966) $ (0.1816) $ 0.0000
Net unrealized gain/(loss) on investments $ 0.5073 $ 0.0408 $ (0.2695) $ 0.0581 $ 0.2169 $ 0.0152 $ (1.1359)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS $ 0.4846 $ 0.3856 $ (0.4018) $ 0.0581 $ 0.1203 $ (0.1664) $ (1.1359)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase/(decrease) in share value $ 1.4443 $ 0.6952 $ 0.8949 $ 1.2745 $ 1.1228 $ 0.7668 $ (0.2930)
Share Value at beginning of period $ 16.6486 $ 17.3977 $ 15.7537 $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826
---------- ---------- ---------- ---------- ---------- ---------- ----------
Share Value at end of period $ 18.0929 $ 18.0929 $ 16.6486 $ 15.7537 $ 14.4792 $ 13.3564 $ 12.5896
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of expenses to average net assets 3.98% 1.49% 5.26% 4.62% 4.27% 4.44% 4.47%
Ratio of net investment income to
average net assets 5.59% 1.74% 8.01% 8.08% 7.29% 7.17% 6.69%
Number of shares outstanding at
end of period (000's) 11,848 11,848 11,848 12,037 12,241 13,031 14,189
</TABLE>
ALL CALCULATIONS ARE BASED ON AVERAGE MONTH-END SHARES OUTSTANDING WHERE
APPLICABLE.
PER SHARE INFORMATION PRESENTED HEREIN IS SHOWN ON A BASIS CONSISTENT WITH THE
FINANCIAL STATEMENTS AS DISCUSSED IN NOTE 1G.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of Pruco Life of New Jersey Variable Contract Real Property
Account (the "Real Property Account") are invested in Prudential Variable
Contract Real Property Partnership (the "Partnership"). Correspondingly, the
liquidity, capital resources and results of operations for the Real Property
Account are contingent upon those of the Partnership. Therefore, all of
management's discussion of these items is at the Partnership level. The
partners in the Partnership are Prudential Insurance Company of America, Pruco
Life Insurance Company and Pruco Life Insurance Company of New Jersey.
(a) Liquidity and Capital Resources
At September 30, 1997, the Partnership's liquid assets consisting of cash, cash
equivalents and marketable securities totaled $33,570,299, a decrease of
$11,594,549 from liquid assets at December 31, 1996, which totaled $45,164,848.
The decrease is due to property and REIT share acquisitions offset by cash
received from property operations and interest income from short-term
investments.
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. The amount of the
commitment is reduced by $10 million for every $100 million in current value net
assets of the Partnership. The amount available for future investments is
approximately $47.8 million as of September 30, 1997.
The Partnership will ordinarily invest 10-15% of its assets in cash and
short-term obligations to maintain liquidity; however, its investment policy
allows up to 30% investment in cash and short-term obligations. At September
30, 1997, 15.40% of the Partnership's assets consisted of cash and cash
equivalents and marketable securities. This is in excess of the target range
because the Partnership anticipates the acquisition of one additional property
in 1997 and cash is being retained for that purpose. The Partnership expects to
close on a suburban office building in Nashville, TN in the fourth quarter, for
an estimated price of $9.5 million.
Withdrawals from cash may be made during the remainder of 1997 based upon the
needs of the Partnership including potential property acquisitions and
dispositions and capital expenditures. As of September 30, 1997, and currently,
the Partnership has adequate liquidity. Management anticipates that ongoing
cash flow from operations and proceeds from the sale of properties will satisfy
the Partnership's needs over the next three months and the immediate future.
During the quarter ended September 30, 1997, capital expenditures were
approximately $244,000 if which $159,000 were for tenant alterations and leasing
commissions. The majority of the capital expenditures were at the Pomona, CA
warehouse ($93,000), the Morristown, NJ office building ($31,000), and the
Roswell, GA retail complex ($38,000).
Projected capital expenditures for the remainder of 1997 total approximately
$3.4 million, almost all of which are allocated for tenant alterations and
leasing commissions. The Partnership is expecting to pay approximately $2.3
million in tenant improvements and $0.8 million in lease commissions. A major
portion of this amount is budgeted for the Lisle, IL office building and is
related to the re-leasing of the property. The actual amount of such
expenditures will depend on the number of new leases signed, the timing of these
lease executions, and the construction projects negotiated.
(b.1) Results of Operations - Portfolio
The following is a brief comparison of the Partnership's results of operations
for the nine months ended September 30, 1997 and September 30, 1996.
The Partnership's net investment income for the first nine months of 1997 was
$11,371,171, a decrease of $133,450 (1.2%) from $11,504,617 for the
corresponding period of 1996. This was largely due to the loss of approximately
$1.2 million in income from the sale of two properties held in 1996, offset by
an increase of approximately $0.6 million in income from an acquisition that
occurred in the fourth quarter of 1996. Income from properties held for the
first nine months of both 1996 and 1997 increased by approximately $0.4 million.
18
<PAGE>
The Partnership's results of operations unrelated to real estate investments for
the period ended September 30, 1997 was a loss of $82,125, an increase of
$733,348 (89.93%) from the $815,473 loss reported for the corresponding period
of 1996. This increase was mainly due to increased interest income earned on a
larger cash balance as discussed earlier. Components of income unrelated to
specific real estate investments are $1,905,560 in interest income from
short-term investments offset by $1,944,966 in investment management fee and
$42,723 in administrative expense.
During the nine months ended September 30, 1997, the Partnership experienced a
realized loss of $269,052 and a net unrealized gain of $6,010,306 on its real
estate investments. The realized loss is the result of selling expenses related
to the prior quarter sale of the Flint, MI office building and the current
quarter sale of the Partnership's interest in the six Jacksonville, FL
properties. The net unrealized gain is the result of market value increases in
9 properties held, totaling approximately $7 million, partially offset by market
value decreases in 5 properties held, totaling approximately $1 million. The
explanation for these changes are detailed in the following paragraphs.
(b.2) Results of Operations - Real Estate Investments
The following is a brief comparison of the Partnership's property results of
operations and realized loss and net unrealized gains, by investment type, for
the nine months ended September 30, 1997 and September 30, 1996.
OFFICE BUILDINGS
Income from property operations for the office buildings for the first nine
months of 1997 was $4,360,103, a decrease of $161,962 (3.5%), from $4,522,065
for the corresponding period in 1996. This was primarily the result of the sale
of the Flint, MI office building which resulted in a reduction of income of
approximately $770,000 offset in part by the acquisition of the Beaverton, OR
office building which provided an increase in income of approximately $640,000.
Excluding the results of acquired and sold properties, income from property
operations for the office buildings decreased by $30,882. For office properties
held for the comparable period, revenue and expenses increased $162,363 and
$193,245 respectively.
The five office buildings currently owned by the Partnership experienced a net
unrealized gain of $1,350,148 for the first nine months of 1997. The office
building in Oakbrook Terrace, IL had the largest unrealized gain of $622,610 due
to the improving office market in suburban Chicago. The office buildings in
Morristown, NJ and Nashville, TN also experienced unrealized gains of $489,508
and $393,520 respectively due to improving market conditions. Unrealized losses
of $28,285 at the Beaverton, OR building and $127,205 at the Lisle, IL building
offset the unrealized gains at the other office properties. Occupancy at three
of the office buildings remained unchanged from December 31, 1996 while two
office buildings increased in occupancy by 1%. Except for the office building
in Morristown, NJ, all office buildings were 100% occupied at September 30,
1997. Occupancy at the Morristown, NJ office building as of September 30, 1997
was 93%. At the Lisle, IL office building the sole tenant, RR Donnelley,
vacated at the end of its lease on September 30, 1997. This space is currently
being marketed to prospective tenants expressing interest in leasing all or part
of the building. As of September 30, 1997, all other vacant spaces are being
marketed.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment complexes for
the first nine months of 1997 was $2,892,473, a decrease of $124,395 (4.12%),
from $3,016,868 for the corresponding period in 1996. The Farmington Hill, MI,
the Raleigh, NC and the Atlanta, GA apartment complexes had decreases in net
investment income of $51,009, $2,565 and $70,821, respectively.
The three apartment complexes owned by the Partnership experienced net
unrealized losses of $838,029 for the first nine months of 1997. The apartment
complex in Atlanta, GA experienced the largest unrealized loss of $557,369 due
to increased competition in the market. Despite an increase in occupancy of 5%
from December 31, 1996, this apartment complex experienced a significant
unrealized loss. The Raleigh, NC apartment complex also experienced an
unrealized loss of $268,849. This was due to higher than market leases expiring
and renewing at lower market rates. Increased competition within the market
also had a significant impact. This complex's occupancy rate has risen to 97%
as of September 30, 1997, reestablishing its original December 31, 1996 rate of
97%. The Farmington Hills, MI apartment complex experienced an unrealized loss
of $11,811 due to capital expenditures at the property. Occupancy at this
19
<PAGE>
property was 92% as of September 30 1997, an increase of 4% from the December
31, 1996 occupancy of 88%.
RETAIL
Net investment income from property operations from the retail center for the
first nine months of 1997 was $2,199,448, a decrease of $155,291 (6.5%), from
$2,354,739 for the corresponding period in 1996. This was mainly the result of
decreased occupancy at the Partnership's sole retail center, Roswell, GA. For
the comparable period, revenues decreased by approximately $115,818 while
expenses increased by approximately $39,472.
The retail center experienced an unrealized gain of $652,609 for the first nine
months of 1997, although the property experienced a 3% decrease in occupancy
from 96% at December 31, 1996 to 93% at September 30, 1997. The unrealized gain
in value was due to a change in the appraiser's assumptions regarding base
building capital requirements. Three tenants agreed to renew their leases
during the nine months ended September 30, 1997. As of September 30, 1997, all
other vacant spaces are being marketed.
INDUSTRIALS
Net investment income from property operations for the industrial properties for
the first nine months of 1997 was $1,565,976, a decrease of $404,327 (20.5%),
from $1,970,303 for the corresponding period in 1996. This was primarily the
result of the sale of the Azusa, CA warehouse facility that accounted for
$411,698 of the decrease. Excluding this sold property, income from property
operations increased by $7,373. For properties held for the comparable period,
revenue and expenses decreased approximately $145,000 and $151,000, respectively
The Partnership acquired two industrial buildings containing a total of
approximately 277,000 square feet in Aurora, CO for approximately $8.6 million.
The Partnership also acquired the existing land under the Pomona, CA warehouse
for approximately $4 million during the third quarter.
The five industrial properties (including the land recently purchased in Pomona,
CA) owned by the Partnership experienced a net unrealized gain of $1,992,239 for
the first nine months of 1997. The largest single value gain was attributable to
the purchase of the land under the Pomona CA, property. The land was acquired
at a fixed below market option and was subsequently appraised producing an
unrealized gain of $1,767,568. The Salt Lake City, UT and Aurora, CO properties
experienced $111,868 and $29,414 in appreciation respectively due to completion
of the construction. The Pomona, CA warehouse contributed $83,389 to the total
net unrealized gain. Occupancy at both the Pomona, CA and Bolingbrook IL,
warehouses remained unchanged at 100% for the period ending September 30, 1997.
The recently acquired properties in Aurora, CO and Salt Lake City, UT were 100%
vacant as of September 30, 1997. These spaces are currently being marketed to
prospective tenants.
Income from interest in real estate properties relates to the Partnership's 50%
co-investment in the Jacksonville, FL unit warehouses. The net investment
income on this investment decreased by $20,819 (4.5%), from $456,115 for the
first nine months of 1996 to $435,296 for the first nine months of 1997. A loss
of $265,419 was realized upon the sale of this asset. The Partnership sold these
properties to Meridian Industrial Trust (MDN) during the third quarter for net
proceeds of $6.3 million.
The partnership also acquired 506,894 shares of Meridian Industrial Trust
(Meridian) for $10,000,005 on September 24, 1997. 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. As of September 30, 1997, these shares experienced a
$2,853,339 unrealized gain.
20
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Contract owners participating in the Real Property Account have no
voting rights with respect to the Real Property Account.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
4.1 Variable Life Insurance Contract filed as Exhibit A(5) to Form N-8B-2,
Registration Statement No. 2-81243, filed January 10, 1983, and
incorporated herein by reference.
4.2 Revised Variable Appreciable Life Insurance Contract with fixed death
benefit, filed as Exhibit 1.A.(5)(c) to Post-Effective Amendment No. 5
to Form S-6, Registration Statement No. 2-89780, filed July 11, 1986,
and incorporated herein by reference.
4.3 Revised Variable Appreciable Life Insurance Contract with variable
death benefit, filed as Exhibit 1.A.(5)(d) to Post-Effective Amendment
No. 5 to Form S-6, Registration Statement No. 2-89780, filed July 11,
1986, and incorporated herein by reference.
4.4 Single Premium Variable Annuity Insurance Contract, filed as Exhibit
4(i) to Form N-4, Registration Statement No. 2-99916, filed August 28,
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. 2-99537, filed August
8, 1985, and incorporated herein by reference.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
in respect of
Pruco Life of New Jersey Variable
Contract Real Property Account
-----------------------------------------
Date: November 14, 1997 By: /s/ Esther H. Milnes
------------------------------- -----------------------------
Esther H. Milnes
President and Director
Date: November 14, 1997 By: /s/ Linda Dougherty
------------------------------- -----------------------------
Linda Dougherty
Vice President, Comptroller and
Chief Accounting Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
NET ASSETS; STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NAME> PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
<NUMBER> 01
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
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<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 473,226
<SHARES-COMMON-PRIOR> 473,226
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 8,562,020
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 28,726
<NET-INVESTMENT-INCOME> 425,445
<REALIZED-GAINS-CURRENT> (10,746)
<APPREC-INCREASE-CURRENT> 240,054
<NET-CHANGE-FROM-OPS> 654,753
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 683,479
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
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<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
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<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 0
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENT OF ASSETS & LIABILITIES; STATEMENT OF OPERATIONS; STATEMENT
OF CHANGES IN NET ASSETS; STATEMENT OF CASH FLOWS; PER SHARE TABLE
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
<NUMBER> 02
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 201,660,410
<INVESTMENTS-AT-VALUE> 181,662,701
<RECEIVABLES> 2,732,930
<ASSETS-OTHER> 33,570,299
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 217,965,930
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 3,596,711
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 11,848,275
<SHARES-COMMON-PRIOR> 11,848,275
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 214,369,219
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,905,560
<OTHER-INCOME> 17,564,130
<EXPENSES-NET> 8,098,519
<NET-INVESTMENT-INCOME> 11,371,171
<REALIZED-GAINS-CURRENT> (269,052)
<APPREC-INCREASE-CURRENT> 6,010,306
<NET-CHANGE-FROM-OPS> 17,112,425
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 17,112,425
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,944,966
<INTEREST-EXPENSE> 220,118
<GROSS-EXPENSE> 8,098,519
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 16.649
<PER-SHARE-NII> .960
<PER-SHARE-GAIN-APPREC> .485
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.093
<EXPENSE-RATIO> .040
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
