<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 March 31, 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
-----
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - March 31, 1997 (Unaudited) and December 31, 1996 3
Statements of Operations and Changes In Net Assets (Unaudited) -
Three Months Ended March 31, 1997 and 1996 3
Notes to the Financial Statements (Unaudited) 4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities - March 31, 1997 (Unaudited) and December 31, 1996 7
Statements of Operations (Unaudited) - Three Months Ended March 31, 1997 and 1996 8
Statements of Changes in Net Assets - Three Months Ended March 31, 1997 (Unaudited)
and Year Ended December 31, 1996 9
Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 1997 and 1996 10
Schedule of Investments - March 31, 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 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
PART III - SIGNATURES 23
</TABLE>
2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
March 31, 1997
(Unaudited) December 31, 1996
------------ ------------
<S> <C> <C>
Investment in shares of The Prudential Variable Contract
Real Property Partnership (Note 3) $ 8,049,791 $ 7,585,779
------------ ------------
------------ ------------
NET ASSETS, representing:
Equity of Contract Owners $ 6,604,039 $ 6,588,830
Equity of Pruco Life Insurance Company of New Jersey 1,445,752 996,949
------------ ------------
$ 8,049,791 $ 7,585,779
------------ ------------
------------ ------------
</TABLE>
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
------------ ------------
<S> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 154,714 $ 155,724
EXPENSES:
Asset Based Charges to Contract Owners (Note 5) 9,456 9,663
------------ ------------
NET INVESTMENT INCOME 145,258 146,061
------------ ------------
Net Unrealized Gain/(Loss) on Investments in Partnership 16,625 (24,993)
Net Realized Loss on Sale of Investments in Partnership (89) 0
------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 161,794 $ 121,068
------------ ------------
------------ ------------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (Note 7) (33,150) (79,536)
Net Contributions by Pruco Life Insurance Company of New Jersey 42,606 89,199
------------ ------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 9,456 9,663
------------ ------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS $ 171,250 $ 130,731
NET ASSETS:
Beginning of period $ 7,878,541 $ 7,455,048
------------ ------------
End of period $ 8,049,791 $ 7,585,779
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements on page 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 MARCH 31, 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 March 31,
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 March 31, 1997, the investment in the Real Property Account of
$8,049,791 was derived from the share value of $17.010465 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 March 31, 1997 were as follows:
<TABLE>
<CAPTION>
VAL VLI SPVA SPVL TOTAL
---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER:
UNITS OUTSTANDING: 3,445,020 508,099 81,395 94,397 4,128,915
UNIT VALUE: $ 1.59872 $ 1.64079 $ 1.49458 $ 1.49458 n/a
CONTRACT OWNER EQUITY: $5,507,622 $ 833,683 $ 121,651 $ 141,083 $6,604,039
</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 March 31, 1997, the amount of these
charges paid to Pruco Life Insurance Company of New Jersey was $9,231.
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 March 31, 1997, the amount of
these charges paid to Pruco Life Insurance Company of New Jersey was $225.
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 March 31, 1997, was as follows:
<TABLE>
<CAPTION>
VAL VLI SPVA SPVL TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER CONTRIBUTIONS: $ 173,469 $ 23,902 $ 0 $ 374 $ 197,745
CONTRACT OWNER REDEMPTIONS: (186,936) (23,965) (5,399) (1,163) (217,463)
NET TRANSFERS FROM (TO) OTHER
SUBACCOUNTS OR FIXED RATE OPTION: (11,532) (1,908) 0 8 (13,432)
---------- ---------- ---------- ---------- ----------
NET DECREASE $ (24,999) $ (1,971) $ (5,399) $ (781) $ (33,150)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Note 8: Unit Activity
Transactions in units for the period ended March 31, 1997 were as follows:
VAL VLI SPVA SPVL
----------- ----------- ---------- --------
<S> <C> <C> <C> <C>
CONTRACT OWNER CONTRIBUTIONS: 109,793.063 14,741.110 0 258.110
CONTRACT OWNER REDEMPTIONS: (125,645.633) (15,986.609) (3,635.257) (784.261)
</TABLE>
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
MARCH 31, 1997
(UNAUDITED) DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
ASSETS:
Properties at estimated market value
(cost $177,274,154 and $177,082,291
respectively) $ 151,632,394 $ 151,074,276
Interest in properties at estimated market value
(cost $6,133,157 and $6,133,157
respectively) 5,900,000 5,850,000
Marketable securities at estimated market value
(cost $19,850,000 and $24,345,000
respectively) 19,947,223 24,426,644
Cash and cash equivalents 27,972,917 20,738,204
Other assets and accounts receivable
(net of allowance for uncollectible
amounts of $52,645 and $55,823 respectively) 2,559,610 2,066,916
-------------- --------------
Total Assets $ 208,012,144 $ 204,156,040
-------------- --------------
-------------- --------------
LIABILITIES AND PARTNERS' EQUITY:
Obligation under capital lease $ 3,790,340 $ 4,072,677
Accounts payable and accrued expenses 1,504,178 1,640,360
Due to affiliates 715,324 719,200
Other liabilities 457,878 467,009
-------------- --------------
Total liabilities 6,467,720 6,899,246
-------------- --------------
Commitments and contingencies
Partners' Equity 201,544,424 197,256,794
-------------- --------------
Total Liabilities and Partner's Equity $ 208,012,144 $ 204,156,040
-------------- --------------
-------------- --------------
Number of shares outstanding at end of period 11,848,275 11,848,275
-------------- --------------
-------------- --------------
Share Value at end of period $17.01 $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>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Rent from properties $ 5,530,131 $ 5,920,596
Income from interest in properties 182,633 164,145
Interest on mortgage loans 0 0
Interest from short-term investments 591,791 431,857
------------ ------------
6,304,555 6,516,598
------------ ------------
INVESTMENT EXPENSES:
Investment management fee 625,218 608,075
Real estate taxes 552,577 656,600
Administrative 433,858 476,840
Operating 725,189 683,285
Interest 94,113 138,165
------------ ------------
2,430,955 2,562,965
------------ ------------
NET INVESTMENT INCOME 3,873,600 3,953,633
------------ ------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net proceeds from real estate investment sold 0 0
Less: cost of real estate investment sold 2,225 0
Realization of prior years' unrealized
(loss)/gain on real estate investments sold 0 0
------------ ------------
NET (LOSS) REALIZED ON REAL ESTATE
INVESTMENTS SOLD (2,225) 0
------------ ------------
NET UNREALIZED GAIN/(LOSS)
ON INVESTMENTS 416,255 (648,641)
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,287,630 $ 3,304,992
------------ ------------
------------ ------------
</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>
THREE MONTHS
ENDED
MARCH 31, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
OPERATIONS:
Net Investment Income $ 3,873,600 $ 15,419,518
Net Realized and Unrealized
Gain/(Loss) on Investments 414,030 (4,784,583)
------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 4,287,630 10,634,935
------------- -------------
CAPITAL TRANSACTIONS:
Withdrawals by partners
(0 and 188,409 shares
respectively) 0 (3,000,000)
------------- -------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 0 (3,000,000)
------------- -------------
TOTAL INCREASE IN NET ASSETS 4,287,630 7,634,935
NET ASSETS:
Beginning of period 197,256,794 189,621,859
------------- -------------
End of period $ 201,544,424 $ 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>
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1997 MARCH 31, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 4,287,630 $ 3,304,992
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Net realized and unrealized loss (gain)
on investments (414,030) 648,641
(Increase) Decrease in:
Other assets and accounts receivable (492,694) (328,732)
(Decrease) Increase in:
Obligations under capital lease (282,337) (248,942)
Accounts payable and accrued expenses (136,182) (138,972)
Due to affiliates (3,876) (43,671)
Other liabilities (9,131) (25,629)
------------ ------------
Net cash flows from operating activities 2,949,380 3,167,687
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additional costs on prior purchases:
Additions to real estate (194,088) (148,168)
Sale (Purchase) of marketable securities 4,479,421 (390,330)
------------ ------------
Net cash flows from investing activities 4,285,333 (538,498)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals 0 (3,000,000)
------------ ------------
Net cash flows from financing activities 0 (3,000,000)
------------ ------------
Net increase (decrease) in cash and cash equivalents 7,234,713 (370,811)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 20,738,204 14,223,265
------------ ------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 27,972,917 $ 13,852,454
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 376,450 $ 376,450
------------ ------------
------------ ------------
</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>
MARCH 31,1997 DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (PERCENT OF NET ASSETS) 75.2% 76.6%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lisle, IL Office Building 17,524,421 9,900,000 17,524,421 9,900,000
Atlanta, GA Garden Apartments 15,396,738 13,700,000 15,396,738 13,707,814
Pomona, CA (a) Warehouse 23,461,649 17,546,000 23,456,751 17,553,849
Roswell, GA Retail Shopping Center 31,759,449 28,302,462 31,754,073 28,333,818
Morristown, NJ Office Building 18,790,931 10,700,000 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 13,625,452 14,701,500 13,623,952 14,706,400
Raleigh, NC Garden Apartments 15,771,869 16,508,918 15,762,951 16,854,252
Nashville, TN Office Building 8,579,882 9,050,556 8,379,326 8,800,436
Oakbrook Terrace, IL Office Complex 12,689,065 13,410,010 12,725,105 13,289,999
Beavorton, OR Office Complex 10,726,670 10,712,948 10,713,722 10,713,721
-------------- -------------- -------------- --------------
$ 177,274,154 $ 151,632,394 $ 177,082,291 $ 151,074,276
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
(a) Includes land under capital lease of $3,412,636 representing the present
value of minimum future lease payments at the inception of the lease.
INVESTMENT IN INTEREST IN PROPERTIES (PERCENT OF NET ASSETS) 2.9% 3.0%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------------------
Jacksonville, FL Warehouse/Distribution 1,317,453 1,225,000 1,317,453 1,225,000
Jacksonville, FL Warehouse/Distribution 1,002,448 1,000,000 1,002,448 1,000,000
Jacksonville, FL Warehouse/Distribution 1,442,894 1,375,000 1,442,894 1,325,000
Jacksonville, FL Warehouse/Distribution 2,370,362 2,300,000 2,370,362 2,300,000
-------------- -------------- -------------- --------------
$ 6,133,157 $ 5,900,000 $ 6,133,157 $ 5,850,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 9.9% 12.4%
Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------------
Marketable Securities $ 19,850,000 $ 19,947,223 $ 23,345,000 $ 24,426,644
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 13.9% 10.5%
Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------------------------------
Commercial Paper and Cash $ 28,049,545 $ 27,972,917 $ 20,804,826 $ 20,738,204
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
OTHER ASSETS (1.9%) (2.5%)
(net of liabilities) $ (3,908,110) $ (4,832,330)
-------------- --------------
TOTAL NET ASSETS $ 201,544,424 $ 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>
MARCH 31, 1997
---------------------------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 9.9%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
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 1,227,934
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 1,000,000 999,317
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
International Lease Finance Corp., 5.92%, January 15, 1998 500,000 499,083
Citicorp, 10.15%, February 28, 1998 200,000 208,847
General Motors Acceptance Corp., 6.90%, February 28, 1998 985,000 1,017,200
American General Financial Corp., 7.25%, March 1, 1998 500,000 507,880
Commercial Credit Co., 5.70%, March 1, 1998 375,000 375,199
Associates Corp. of North America Note, 7.30%, 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 500,000 499,854
------------- -------------
TOTAL MARKETABLE SECURITIES $ 19,850,000 $ 19,947,223
------------- -------------
------------- -------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 13.9%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Aristar, 7.10%, April 1, 1997 $ 2,300,000 $ 2,299,546
Morgan Stanley Group, 6.75%, April 1, 1997 2,300,000 2,299,569
Transamerica Corp., 5.31%, April 1, 1997 1,500,000 1,492,699
Bell Atlantic Network Funding Corp., 6.25%, April 2, 1997 2,100,000 2,100,000
PHH Corp., 5.35%, April 2, 1997 1,107,000 1,102,394
Paccar Financial Corp., 6.00%, April 3, 1997 2,300,000 2,298,850
Allied-Signal Inc., 5.60%, April 4, 1997 449,000 448,511
Sonoco Prod. Co. Note, 5.32%, April 8, 1997 1,120,000 1,113,380
First Data Corp., 5.33%, April 10, 1997 1,500,000 1,493,338
H.J. Heinz Co., 5.33%, April 14, 1997 750,000 745,447
PHH Corp., 5.33%, April 14, 1997 1,200,000 1,194,492
Weyerhaeuser Real Estate Co., 5.35%, April 14, 1997 2,188,000 2,178,895
Preferred Receivables Funding Corp., 5.37%, April 21, 1997 2,300,000 2,288,678
First Data Corp., 5.35%, April 22, 1997 800,000 795,720
Countrywide Home Loan, Inc., 5.65%, April 24, 1997 1,853,000 1,844,566
Pacificorp, 5.67%, April 25, 1997 2,000,000 2,000,000
Colonial PL Co. Note, 5.60%. April 29, 1997 504,000 501,491
PepsiCo Inc., 5.58%, May 2, 1997 646,000 642,796
------------- -------------
TOTAL COMMERCIAL PAPER 26,917,000 26,840,372
TOTAL CASH 1,132,545 1,132,545
------------- -------------
TOTAL CASH AND CASH EQUIVALENTS $ 28,049,545 $ 27,972,917
------------- -------------
------------- -------------
</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
---------------------------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 12.4%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
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 2,001,921
------------- -------------
TOTAL MARKETABLE SECURITIES $ 24,345,000 $ 24,426,644
------------- -------------
------------- -------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 10.5%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
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 300,000 296,322
------------- -------------
TOTAL COMMERCIAL PAPER 19,280,000 19,213,378
TOTAL 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
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
MARCH 31, 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 the Pruco Life of New Jersey.
The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.
The Partnership's investments are valued on a daily basis, consistent with the
Partnership Agreement. On each day during which the New York Stock Exchange is
open for business, the net assets of the Partnership are valued using the
current value of its investments as described in Note 1B below, plus an estimate
of net income from operations reduced by any liabilities of the Partnership.
The periodic adjustments to property values described in Note 1B below and the
corrections of previous estimates of net income are made on a prospective basis.
There can be no assurance that all such adjustments and estimates will be made
timely.
Shares of the Partnership are sold to 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 three
months ended March 31, 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) which are
ordinarily obtained on an annual basis. The property valuations
are reviewed internally at least every three months and adjusted
if there has been a change in the value of the property since the
last valuation.
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>
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 generally recognized 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 represent their estimated market values as of March 31,
1997 and December 31, 1996.
C: Revenue Recognition - Rent from properties consists of all amounts
earned under tenant operating leases including base rent,
recoveries of real estate taxes and other expenses and charges
for miscellaneous services provided to tenants. Revenue from
leases which provide for scheduled rent increases is recognized
as billed.
D: Marketable Securities - Marketable securities are highly liquid
investments with maturities of more than three months when
purchased and are carried at estimated market value.
E: 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.
F: Federal Income Taxes - The Partnership is not a taxable entity under
the provisions of the Internal Revenue Code. The income and
capital gains and losses of the Partnership are attributed, for
federal income tax purposes, to the Partners in the Partnership.
The Partnership may be subject to state and local taxes in
jurisdictions in which it operates.
G: 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.
15
<PAGE>
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 March 31, 1997 is
approximately $ 49.6 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 three months
ended March 31, 1997 and 1996 management fees incurred by the Partnership were
$625,218 and $608,075, respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the three months ended March
31, 1997 and 1996 were $28,970 and $32,912 respectively and are classified as
administrative expenses in the statements of operations.
The Partnership owns a 50% interest in four warehouse/distribution buildings
in Jacksonville, Florida (the Unit warehouses). The remaining 50% interest is
owned by Prudential and one of its subsidiaries. The Partnership has contracted
with PREMISYS Real Estate Services, Inc. (PREMISYS), an affiliate of Prudential
to provide property management services at the Unit warehouses. The property
management fee earned by PREMISYS, incurred by the Partnership and Prudential
for the three months ended March 31, 1997 and 1996 were $9,141 and $9,289
respectively.
16
<PAGE>
PER SHARE INFORMATION (FOR A SHARE OUTSTANDING THOUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
01/01/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91
TO TO TO TO TO TO TO
03/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Rent from properties $ 0.4667 $ 1.9173 $ 1.6387 $ 1.2754 $ 1.1659 $ 1.0727 $ 0.9899
Income from interest in properties $ 0.0155 $ 0.0510 $ 0.0527 $ 0.1838 $ 0.2139 $ 0.1970 $ 0.1791
Interest on mortgage loans $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0082 $ 0.0755 $ 0.0711 $ 0.0663
Interest from short-term investments $ 0.0499 $ 0.1795 $ 0.2199 $ 0.1226 $ 0.0549 $ 0.0653 $ 0.1151
--------- --------- --------- --------- --------- --------- ---------
INVESTMENT INCOME $ .5321 $ 2.1478 $ 1.9113 $ 1.5900 $ 1.5102 $ 1.4061 $ 1.3504
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Investment management fee $ 0.0528 $ 0.2097 $ 0.1936 $ 0.1786 $ 0.1673 $ 0.1642 $ 0.1669
Real estate tax expense $ 0.0466 $ 0.1991 $ 0.1602 $ 0.1399 $ 0.1465 $ 0.1488 $ 0.1168
Administrative expenses $ 0.0366 $ 0.1569 $ 0.1484 $ 0.1103 $ 0.1187 $ 0.1046 $ 0.0946
Operating expenses $ 0.0612 $ 0.2442 $ 0.1546 $ 0.1332 $ 0.1209 $ 0.1241 $ 0.0948
Interest expense $ 0.0079 $ 0.0412 $ 0.0381 $ 0.0255 $ 0.0236 $ 0.0215 $ 0.0193
--------- --------- --------- --------- --------- --------- ---------
EXPENSES $ 0.2051 $ 0.8511 $ 0.6949 $ 0.5875 $ 0.5770 $ 0.5632 $ 0.4924
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
NET INVESTMENT INCOME $ .3270 $ 1.2967 $ 1.2164 $ 1.0025 $ 0.9332 $ 0.8429 $ 0.8580
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net realized loss on investments sold ($ 0.0002) ($ 0.1323) $ 0.0000 $ (0.0966) $ (0.1816) $ 0.0000 $ 0.0000
Net unrealized gain/(loss) on investments $ 0.0351 ($ 0.2695) $ 0.0581 $ 0.2169 $ 0.0152 $ (1.1359) $ (0.7770)
--------- --------- --------- --------- --------- --------- ---------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS $ 0.0349 ($ 0.4018) $ 0.0581 $ 0.1203 $ (0.1664) $ (1.1359) $ (0.7770)
--------- --------- --------- --------- --------- --------- ---------
Net increase/(decrease) in share value $ 0.3619 $ 0.8949 $ 1.2745 $ 1.1228 $ 0.7668 $ (0.2930) $ 0.0810
Share Value at beginning of period $ 16.6486 $ 15.7537 $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016
--------- --------- --------- --------- --------- --------- ---------
Share Value at end of period $ 17.0105 $ 16.6486 $ 15.7537 $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of expenses to average net assets 1.22% 5.26% 4.62% 4.27% 4.44% 4.47% 3.81%
Ratio of net investment income to
average net assets 1.94% 8.01% 8.08% 7.29% 7.17% 6.69% 6.63%
Number of shares outstanding at
end of period (000's) 11,848 11,848 12,037 12,241 13,031 14,189 14,993
</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 Prudential 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 March 31, 1997, the Partnership's liquid assets consisting of cash and cash
equivalents and marketable securities totaled $47,920,140. This is an increase
of $2,755,292 from liquid assets at December 31, 1996, which totaled
$45,164,848. The increase is due to cash received from the operations of the
Partnership's properties and interest income received 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 $49.6 million as of March 31, 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 March 31, 1997, 23.04%
of the Partnership's assets consisted of cash and cash equivalents and
marketable securities. This is in excess of the target range because cash is
being retained in the partnership in anticipation of three potential
acquisitions. The Partnership is scheduled to close on two industrial forward
commitments in mid 1997, one in Denver, CO for an estimated purchase price of
$10.4 million and the other in Salt Lake City, UT for an estimated purchase
price of $7 million. The Partnership also intends to purchase the land under the
Pomona, CA warehouse, currently a capital lease, for approximately $4 million.
Withdrawals may be made during the remainder of 1997 based upon the needs of the
Partnership including potential property acquisitions and dispositions and
capital expenditures. At March 31, 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 nine months and the foreseeable future.
During the quarter ended March 31, 1997, the Partnership expended approximately
$192,000 in capital expenditures. Approximately $186,000 were spent on tenant
alterations and leasing commissions. At the Nashville, TN office building,
management terminated an existing lease which allowed a tenant to expand its
space, concurrently leasing the balance of vacant space to a new tenant. This
office building incurred approximately $182,000 in tenant alterations and
leasing commissions.
Projected capital expenditures for the remainder of the 1997 total approximately
$5.0 million. Approximately $4.4 million consists of tenant alterations and
leasing commissions. Approximately $3.1 million is budgeted for the Lisle, IL
office building. The Partnership expects to pay approximately $2.3 million in
tenant improvements and $0.8 million in leasing commissions to acquire new
tenants, as the sole tenant will be vacating at the expiration of their lease.
At the Morristown, NJ office building, approximately $0.8 million has been
budgeted in tenant improvements and leasing commissions. Approximately $0.6
million has been budgeted in an effort to renew the Smith Barney lease prior to
the October, 1997 expiration and the balance of approximately $0.2 million has
been budgeted to lease the vacant lower level suites. Tenant improvements and
leasing commissions have been budgeted for approximately $0.3 million at the
Roswell, GA retail center and approximately $0.1 million at the Pomona, CA
warehouse. In addition, tenant improvements and leasing commissions are expected
to be approximately $56,000 at the Unit Distribution warehouses and
18
<PAGE>
approximately $48,000 at the Nashville, TN office building. All of these
projected expenditures relate to prospective leases and are based on reasonable
cost. The actual amount of such expenditures will depend on the number of new
leases signed, the actual needs of the particular construction or repair, and
the timing of lease executions.
Other major capital expenditures planned for the remainder of 1997 include,
approximately $0.2 million at the Lisle, IL office building for upgrades to the
heating and air-conditioning system, approximately $35,000 for roof repairs and
$15,000 for parking lot repairs. The Roswell, GA retail center has budgeted
approximately $0.1 million for a new traffic layout to ease traffic in and
around the center. The Jacksonville, FL warehouses have budgeted approximately
$0.1 million for building repairs. Approximately $0.2 million has been budgeted
for smaller projects among the various properties.
(b.1) Results of Operations - Portfolio
The following is a brief comparison of the Partnership's total results of
operations for the three months ended March 31, 1997 and 1996.
The Partnership's net investment income for the first three months of 1997 was
$3,873,600, a decrease of $80,033 (2.0%) from $3,953,633 for the corresponding
period of 1996. This was largely due to the loss of income from the sale of two
properties in 1996 (approximately $0.6 million), offset by income from an
acquisition that occurred during the fourth quarter of 1996 (approximately $0.3
million), and increases in interest income from short-term investments
(approximately $0.2 million), and income from interest in properties
(approximately $18,000).
The Partnership's income unrelated to specific properties for the period ended
March 31, 1997 resulted in income of $4,337, an increase of $419,853 from the
loss reported for the corresponding period of 1996, of $415,516. Components of
unrelated property activity are $591,791 in interest income from short-term
investments and $37,764 in administrative income offset by $625,218 in
investment management fee.
During the three months ended March 31, 1997, the partnership experienced a
realized loss of $2,225 and a net unrealized gain of $416,255 on its real estate
investments. The realized loss is the result of additional selling expenses
related to the sale of the Flint, MI office building. The net unrealized gain
is the result of an increase of approximately $0.6 million in the market value
of the Morristown, NJ office building and an increase of approximately $0.2
million in the market value of the Oakbrook Terrace, IL office building. These
increases were partially offset by a decrease of approximately $0.4 million in
the market value of the Raleigh, NC apartment complex. The explanation for
these changes are detailed in the following paragraphs.
(b.2) Results of Operations - Property
The following is a brief comparison of the Partnership's property results of
operations and realized loss and net unrealized gains, by investment type, for
the three months ended March 31, 1997 and 1996.
Income from property operations for the office buildings for the first three
months of 1997 was $1,456,407, an increase of $17,164 (1.2%), from $1,439,243
for the corresponding period in 1996. This was primarily the result of the
acquisition of the Beaverton, OR office building, an increase of income of
approximately $0.2 million, and increases in income at the Oakbrook Terrace, IL
office building of approximately $58,000 and at the Morristown, NJ office
building of approximately $34,000. These increases were offset by the sale of
the Flint, MI office building which resulted in a reduction of income of
approximately $0.3 million. Excluding the results of acquired and sold
properties, income from property operations increased by $93,938 (6.5%). For
properties held for the comparable period both revenue and expenses increased
approximately $106,000 and $12,000, respectively.
19
<PAGE>
The five office buildings owned by the Partnership experienced a net unrealized
gain of $784,200 for the first three months of 1997. The office building in
Morristown, NJ had the largest unrealized gain of $592,307 due to the improving
office building market in New Jersey. The office building at Oakbrook Terrace,
IL experienced an unrealized gain of $156,050 due to the annual rental step-ups
of three leases, and the Nashville, TN building experienced an unrealized gain
of $49,564. These unrealized gains were offset by an unrealized loss of $13,721
at the Beaverton, OR office building. Occupancy at the Lisle, Nashville,
Beaverton and Oakbrook Terrace office buildings at March 31, 1997 were 100%,
this represented an increase of 1% at both the Nashville, TN and Oakbrook
Terrace, IL office buildings from December 31, 1997. Occupancy at the
Morristown, NJ office building as of March 31, 1997 remained at 93% compared to
December 31, 1996. RR Donnelley is expected to vacate its space at the end of
its lease at September 30, 1997, the space is currently being marketed and 5
prospective tenants have expressed interest in leasing all or part of the
building. All other vacant spaces are being marketed as of March 31, 1997.
The realized loss of $2,225 at the Flint, MI office building was due to legal
bills related to the sale of the property during last quarter presented this
quarter for payment.
Income from property operations from the apartment complexes for the first three
months of 1997 was $945,982, a decrease of $103,261 (9.8%), from $1,049,243 for
the corresponding period in 1996. This was primarily the result of decreased
occupancy at all three complexes. The Farmington Hill, MI apartment complex, the
Raleigh, NC apartment complex and the Atlanta, GA had decreases in income of
$68,715, $25,422 and $9,124, respectively. For the comparable period revenues
decreased by $78,956 while expenses increased by $24,305.
The three apartment complexes owned by the Partnership experienced unrealized
losses of $368,466 for the first three months of 1997. The apartment complex in
Raleigh, NC experienced the largest unrealized loss of $354,252 due to the
expiration of higher than market leases being renewed at a lower rate. The
Atlanta, GA and the Farmington Hills, MI apartment complexes experienced losses
of $7,814 and $6,400, respectively. These losses were the results of lower
occupancy rates, at March 31, 1997, the occupancies were 89% and 92%,
respectively, a decrease of 10% and 4%, respectively, compared to March 31,
1996. The occupancy at the Raleigh, NC apartment complex at March 31, 1997 was
92%, a reduction of 2% compared to the same period last year. All vacant
apartments are being marketed as of March 31, 1997.
Income from property operations at the Roswell, GA retail center for the first
three months of 1997 was $772,127 a decrease of $50,132 (6.1%), from $822,259
for the corresponding period in 1996. This was primarily the result of
decreased occupancy at the center. For the comparable period revenues and
expenses decreased by $56,965 and $6,833, respectively.
The retail center experienced an unrealized loss of $36,732 for the first three
months of 1997. The unrealized loss was due to the occupancy rate decreasing
from 96% at December 31, 1996 to 94% at March 31, 1997, a reduction of 2%.
During the three months ended March 31, 1997, Blockbuster moved out at the
expiration of their lease, Voorhees Salon lease expired but is currently
negotiating a renewal and Mailboxes etc., lease expired in February but is
currently negotiating a lease to a larger space. All other vacant spaces are
being marketed as of March 31, 1997.
Income from property operations for the industrial properties for the first
three months of 1997 was $512,114, a decrease of $382,145 (42.7%), from $894,259
for the corresponding period in 1996. This was primarily the result of the sale
of the Azusa, CA warehouse facility that accounted for $391,908 (43.8%) of the
decrease. Excluding this sold property, income from property operations
increased by $9,763 (1.1%). Revenue and expenses at the properties held for the
comparable decreased by $79,736 and $89,499, respectively.
The two industrial centers owned by the Partnership experienced an unrealized
loss of $12,747 for the first three months of 1997. The Pomona, CA warehouse
experienced an unrealized loss of $12,747 while the
20
<PAGE>
Bolingbrook, IL warehouse's market value remained unchanged. Occupancy at both
warehouses remained unchanged at 100% for the period ending March 31, 1997.
Income from interest in properties relates to the Partnership's 50% co-
investment in the Jacksonville, FL unit warehouses. Income from interest in
properties increased by $18,488 (11.26%), to $182,633 for the three months of
1997, from $164,145 for the corresponding period in 1996. For the three months
ending March, 31, 1997, the co-investment had an unrealized gain of $50,000,
due mainly to an increase in occupancy of 7%, from an occupancy of 85% at
December 31, 1997, to an occupancy of 92% at March 31, 1997.
21
<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.
22
<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: MAY 13, 1997 By: /s/ Esther H. Milnes
----------------------- ------------------------
Esther H. Milnes
President and Director
Date: MAY 13, 1997 By: /s/ Linda Dougherty
----------------------- ------------------------
Linda Dougherty
Vice President, Comptroller and
Chief Accounting Officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENT OF ASSETS & LIABILITIES; STATEMENT OF OPERATIONS & CHANGES
IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 01
<NAME> PRUCO LIFE OF N.J. VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 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> 8,049,791
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 9,456
<NET-INVESTMENT-INCOME> 145,258
<REALIZED-GAINS-CURRENT> (89)
<APPREC-INCREASE-CURRENT> 16,625
<NET-CHANGE-FROM-OPS> 161,794
<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> 171,250
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
STATEMENT OF ASSETS & LIABILITIES; STATEMENT OF OPERATIONS; STATEMENT
OF CHANGES IN NET ASSETS; CASH FLOWS; PER SHARE TABLE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<SERIES>
<NUMBER> 02
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<INVESTMENTS-AT-COST> 177,274,154
<INVESTMENTS-AT-VALUE> 151,632,394
<RECEIVABLES> 2,559,610
<ASSETS-OTHER> 53,820,140
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 208,012,144
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 6,467,720
<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> 201,544,424
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 774,424
<OTHER-INCOME> 5,530,131
<EXPENSES-NET> 2,430,955
<NET-INVESTMENT-INCOME> 3,873,600
<REALIZED-GAINS-CURRENT> (2,225)
<APPREC-INCREASE-CURRENT> 416,255
<NET-CHANGE-FROM-OPS> 4,287,630
<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> 4,287,630
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 625,218
<INTEREST-EXPENSE> 94,113
<GROSS-EXPENSE> 2,430,955
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 16.649
<PER-SHARE-NII> .327
<PER-SHARE-GAIN-APPREC> .035
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 17.011
<EXPENSE-RATIO> .012
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
