<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 June 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
-----
<TABLE>
<CAPTION>
Page
----
Part I - Financial Information
- ------------------------------
<S> <C>
Item 1. Financial Statements
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets -
June 30, 1997 (Unaudited) and December 31, 1996 3
Statements of Operations and Changes
In Net Assets (Unaudited) - Six Months
Ended June 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 - June 30,
1997 (Unaudited) and December 31, 1996 7
Statements of Operations (Unaudited) - Six and
Three Months Ended June 30, 1997 and 1996 8
Statements of Changes in Net Assets - Six Months
Ended June 30, 1997 (Unaudited)
and Year Ended December 31, 1996 9
Statements of Cash Flows (Unaudited) - Six Months
Ended June 30, 1997 and 1996 10
Schedule of Investments - June 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
- ---------------------
</TABLE>
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1997
(UNAUDITED) DECEMBER 31, 1996
-------------- --------------
<S> <C> <C>
Investment in shares of The Prudential Variable Contract
Real Property Partnership (Note 3) $ 8,233,035 $ 7,878,541
-------------- --------------
NET ASSETS, representing:
Equity of Contract Owners $ 6,456,869 $ 6,505,842
Equity of Pruco Life Insurance Company of New Jersey 1,776,166 1,372,699
-------------- --------------
$ 8,233,035 $ 7,878,541
-------------- --------------
</TABLE>
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
-------------- --------------
<S> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 307,645 $ 308,083
EXPENSES:
Asset Based Charges to Contract Owners (Note 5) 19,101 19,456
-------------- --------------
NET INVESTMENT INCOME 288,544 288,627
-------------- --------------
Net Unrealized Gain/(Loss) on Investments in Partnership 46,994 (60,639)
Net Realized Loss on Sale of Investments in Partnership (145) (18,501)
-------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 335,393 $ 209,487
-------------- --------------
-------------- --------------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (Note 7) (318,481) (123,227)
Net Contributions by Pruco Life
Insurance Company of New Jersey 337,582 142,683
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 19,101 19,456
-------------- --------------
TOTAL INCREASE IN NET ASSETS $ 354,494 $ 228,943
NET ASSETS:
Beginning of period $ 7,878,541 $ 7,455,048
-------------- --------------
End of period $ 8,233,035 $ 7,683,991
-------------- --------------
-------------- --------------
</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 JUNE 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 June 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 June 30, 1997, the investment in the Real Property Account of $8,233,046
was derived from the share value of $17.39769 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 June 30, 1997 were as follows:
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
CONTRACT OWNER
UNITS OUTSTANDING: 3,287,191 500,911 81,395 82,617 3,952,114
UNIT VALUE: $1.63273 $1.67666 $1.52383 $1.52383 n/a
CONTRACT
OWNER EQUITY: $5,367,095 $839,857 $124,032 $125,894 $6,456,878
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 June 30, 1997, the amount of these charges
paid to Pruco Life Insurance Company of New Jersey was $18,659.
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 June 30, 1997, the amount of these charges
paid to Pruco Life Insurance Company of New Jersey was $442.
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 June 30, 1997, was as follows:
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
CONTRACT OWNER
CONTRIBUTIONS: $ 336,553 $ 56,351 $ 0 $ 665 $ 393,569
CONTRACT OWNER
REDEMPTIONS: (617,352) (70,227) (5,399) (19,072) (712,050)
NET TRANSFERS
FROM (TO) OTHER
SUBACCOUNTS OR
FIXED RATE OPTION: (189,722) (1,974) 0 (17,463) (209,159)
----------- ----------- --------- ---------- -----------
NET DECREASE $ (470,521) $ (15,850) $ (5,399) $ (35,870) $ (527,640)
----------- ----------- --------- ---------- -----------
----------- ----------- --------- ---------- -----------
Note 8: Unit Activity
Transactions in units for the period ended June 30, 1997 were as follows:
VAL VLI SPVA SPVL
--- --- ---- ----
CONTRACT OWNER
CONTRIBUTIONS: 210,589.953 34,298.672 0 446.433
CONTRACT OWNER
REDEMPTIONS: (384,275.766) (42,731.831) (3,635.257) (12,752.738)
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>
JUNE 30, 1997
(UNAUDITED) DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 6/30/97 -- $177,456,949;
12/31/96 -- $177,082,291) $152,400,544 $151,074,276
Interest in properties (cost : 6/30/97 -- $6,133,157;
12/31/96 -- $6,133,157) 6,075,000 5,850,000
----------------- -----------------
Total real estate investments 158,475,544 156,924,276
MARKETABLE SECURITIES - At estimated market value
(cost: 6/30/97 -- $15,900,000; 12/31/96 -- $24,345,000) 15,932,754 24,426,644
CASH AND CASH EQUIVALENTS 35,639,640 20,738,204
OTHER ASSETS (net of allowance for uncollectible
accounts: 6/30/97 -- $42,842; 12/31/96 -- $55,823) 2,604,422 2,066,916
----------------- -----------------
Total assets $212,652,360 $204,156,040
----------------- -----------------
----------------- -----------------
LIABILITIES AND PARTNERS' EQUITY
OBLIGATION UNDER CAPITAL LEASE $3,884,453 $4,072,677
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,334,420 1,640,360
DUE TO AFFILIATES 747,214 719,200
OTHER LIABILITIES 553,927 467,009
----------------- -----------------
Total liabilities 6,520,014 6,899,246
----------------- -----------------
COMMITMENTS AND CONTINGENCIES
Partners' equity 206,132,346 197,256,794
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $212,652,360 $204,156,040
----------------- -----------------
----------------- -----------------
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 11,848,275 11,848,275
----------------- -----------------
----------------- -----------------
SHARE VALUE AT END OF PERIOD $17.40 $16.65
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------- ------------- ------------- -------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $11,098,098 $11,713,941 $5,567,965 $5,793,345
Income from interest in properties 303,024 327,684 120,391 163,539
Interest on short-term investments 1,267,905 844,281 676,114 412,424
------------- ------------- ------------- -------------
Total investment income 12,669,027 12,885,906 6,364,470 6,369,308
------------- ------------- ------------- -------------
EXPENSES:
Investment managment fee 1,279,797 1,223,409 654,579 615,334
Real estate taxes 1,092,767 1,251,380 540,190 594,780
Administrative 917,735 1,038,725 483,878 561,885
Operating 1,487,928 1,349,856 762,739 666,571
Interest 188,226 255,255 94,113 117,090
------------- ------------- ------------- -------------
Total investment expenses 4,966,453 5,118,625 2,535,499 2,555,660
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 7,702,574 7,767,281 3,828,971 3,813,648
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net proceeds from real estate investments
sold 0 14,697,789 0 14,697,789
Less: Cost of real estate investments sold 3,632 18,626,754 1,407 18,626,754
Realization of prior periods' unrealized
gain on real estate investments sold 0 (3,462,522) 0 (3,462,522)
------------- ------------- ------------- -------------
Net loss realized on real estate investments
sold (3,632) (466,443) (1,407) (466,443)
------------- ------------- ------------- -------------
Change in unrealized gain (loss) on real estate
investments 1,176,610 (1,536,893) 760,355 (888,252)
------------- ------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 1,172,978 (2,003,336) 758,948 (1,354,695)
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $8,875,552 $5,763,945 $4,587,919 $2,458,953
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, 1997 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income $7,702,574 $15,419,518
Net loss realized on real estate investments sold (3,632) (1,573,147)
Net unrealized gain (loss) from real estate investments 1,176,610 (3,211,436)
----------------- -----------------
Net increase in net assets resulting from operations 8,875,552 10,634,935
----------------- -----------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(6/30/97 -- 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 8,875,552 7,634,935
NET ASSETS - Beginning of period 197,256,794 189,621,859
----------------- -----------------
NET ASSETS - End of period $206,132,346 $197,256,794
----------------- -----------------
----------------- -----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1997 JUNE 30, 1996
--------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $8,875,552 $5,763,945
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 (1,172,978) 2,003,336
Increase in:
Other assets (537,506) (212,703)
(Decrease) Increase in:
Obligations under capital lease (188,224) (163,465)
Accounts payable and accrued expenses (305,940) (146,067)
Due to affiliates 28,014 (26,542)
Other liabilities 86,918 (117,165)
--------------- --------------
Net cash flows from operating activities 6,785,836 7,101,339
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 0 14,697,789
Improvements and additional costs on prior purchases:
Additions to real estate (378,290) (316,884)
Sale (purchase) of marketable securities 8,493,890 (5,877,297)
--------------- --------------
Net cash flows from investing activities 8,115,600 8,503,608
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals by partners 0 (3,000,000)
--------------- --------------
Net cash flows from financing activities 0 (3,000,000)
--------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 14,901,436 12,604,947
CASH AND CASH EQUIVALENTS - Beginning of period 20,738,204 14,223,265
--------------- --------------
CASH AND CASH EQUIVALENTS - End of period $35,639,640 $26,828,212
--------------- --------------
--------------- --------------
</TABLE>
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
JUNE 30,1997 DECEMBER 31, 1996
- -------------------------------------------------------------------------------------------------------------------
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 73.9% 76.6%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lisle, IL Office Building 17,538,024 9,900,000 17,524,421 9,900,000
Atlanta, GA Garden Apartments 15,424,138 13,230,132 15,396,738 13,707,814
Pomona, CA (a) Warehouse 23,487,850 17,547,834 23,456,751 17,553,849
Roswell, GA Retail Shopping Center 31,761,279 29,001,830 31,754,073 28,333,818
Morristown, NJ Office Building 18,869,574 10,775,880 18,797,224 10,113,986
Bolingbrook, IL Warehouse 8,948,028 7,200,000 8,948,028 7,100,000
Farmington
Hills, MI Garden Apartments 13,629,363 15,003,912 13,623,952 14,706,400
Raleigh, NC Garden Apartments 15,777,549 16,505,679 15,762,951 16,854,252
Nashville, TN Office Building 8,585,370 9,105,488 8,379,326 8,800,436
Oakbrook
Terrace, IL Office Complex 12,707,496 13,428,441 12,725,105 13,290,000
Beavorton, OR Office Complex 10,728,278 10,701,348 10,713,722 10,713,721
------------- ------------- ------------- -------------
$177,456,949 $152,400,544 $177,082,291 $151,074,276
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
(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.
<TABLE>
<CAPTION>
INTEREST IN PROPERTIES (PERCENT OF NET ASSETS) 3.0% 3.0%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jacksonville, FL Warehouse/Distribution 1,317,453 1,300,000 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 2,400,000 2,370,362 2,300,000
------------- ------------- ------------- -------------
$6,133,157 $6,075,000 $6,133,157 $5,850,000
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 7.7% 12.4%
(See pages 12 to 13 for details) Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------
Marketable Securities $15,900,000 $15,932,754 $24,345,000 $24,426,644
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 17.3% 10.5%
(See pages 12 to 13 for details) Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------
Commercial Paper and Cash $35,794,618 $35,639,640 $20,804,826 $20,738,204
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
1.3% 1.0%
OTHER ASSETS $2,604,422 $2,066,916
------------- -------------
3.2% 3.5%
TOTAL LIABILITIES ($6,520,014) ($6,899,246)
------------- -------------
TOTAL NET ASSETS $206,132,346 $197,256,794
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
JUNE 30, 1997
FACE ESTIMATED
AMOUNT MARKET VALUE
------------ ------------
MARKETABLE SECURITIES ( PERCENT OF NET ASSETS) 7.7%
<S> <C> <C>
Bank One Ohio, 5.57%, 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
American General Finance Corp., 6.98%, August 29,1997 1,800,000 1,805,112
Key Bank of New York, N.A., 5.55%, September 4,1997 1,300,000 1,298,740
Morgan Guaranty Trust Co., 5.69%, November 14,1997 1,000,000 999,271
Norwest Financial Inc., 6.50%, November 15,1997 300,000 302,286
Norwest Corporation, 5.89%, 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 15,1998 200,000 207,324
General Motors Acceptance Corp., 6.90%, February 19,1998 985,000 994,545
General Motors Acceptance Corp., 5.82%, February 23,1998 1,300,000 1,299,363
American General Finance Corp., 7.25%, March 1,1998 500,000 507,880
Commercial Credit Company, 5.70%, March 1,1998 375,000 375,199
Associates Corp. of North America, 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 500,000 499,855
Royal Bank of Canada, 5.91%, June 17,1998 2,000,000 1,998,853
------------ ------------
TOTAL MARKETABLE SECURITIES $15,900,000 $15,932,754
------------ ------------
------------ ------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 17.3%
First Data Corp, 6.25%, July 1,1997 $2,500,000 $2,499,566
General Electric Capital Corp., 6.30%, July 1,1997 2,500,000 2,500,000
H.J.Heinz Co., 5.60%, July 3,1997 900,000 898,740
Bank of Montreal, 5.53%, July 7,1997 2,000,000 1,991,705
GTE Funding Inc., 5.55%, July 7,1997 673,000 670,095
Ford Motor Credit Co., 5.55%, July 9,1997 2,000,000 1,985,200
Citicorp, 5.70%, July 10,1997 2,000,000 1,995,567
Finova Capital Corp., 5.85%, July 11,1997 500,000 498,863
H.J.Heinz Co., 5.60%, July 14,1997 1,000,000 996,889
Preferred Receivables Funding Corp., 5.54%, July 14,1997 926,000 921,440
Rank Xerox Capital (Europe) PLC, 5.60%, July 14,1997 2,000,000 1,993,778
Aetna Services Inc., 5.57%, July 15,1997 1,325,000 1,319,875
GTE Corp., 5.57%, July 15,1997 785,000 781,964
PHH Corp., 5.60%, July 15,1997 1,500,000 1,495,100
Countrywide Home Loan, Inc., 5.57%, July 21,1997 650,000 646,782
Nynex Corp., 5.60%, July 21,1997 1,597,000 1,590,541
Nynex Credit Co., 5.60%, July 21,1997 829,000 825,776
Xerox Credit Corp., 5.65%, July 23,1997 495,000 492,980
GTE Funding Inc., 5.60%, July 24,1997 1,000,000 995,644
Paccar Financial Corp., 5.60%, July 25, 1997 1,200,000 1,194,587
Royal Bank of Scotland, 5.65%, July 28,1997 1,000,000 995,135
Colonial Pipeline Co., 5.54%, August 1,1997 108,000 107,468
IBM Credit Corp., 5.54%, August 12,1997 2,400,000 2,377,840
American Express Credit Corp., 5.54%, August 18,1997 2,400,000 2,375,624
Beneficial Corp., 5.54%, August 20,1997 1,733,000 1,714,865
------------ ------------
TOTAL CASH EQUIVALENTS 34,021,000 33,866,022
CASH 1,773,618 1,773,618
------------ ------------
TOTAL CASH AND CASH EQUIVALENTS $35,794,618 $35,639,640
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 16
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
FACE ESTIMATED
AMOUNT MARKET VALUE
------------ ------------
MARKETABLE SECURITIES ( PERCENT OF NET ASSETS) 12.4%
<S> <C> <C>
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 Wiitter 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
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
JUNE 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 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 six months ended June 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) 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 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 represent their estimated market
values as of June 30, 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.
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
15
<PAGE>
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 June 30, 1997 is approximately $48.6 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 six months
ended June 30, 1997 and 1996 management fees incurred by the Partnership were
$1,279,797 and $1,223,409, respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the six months ended June 30,
1997 and 1996 were $57,281 and $59,945 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 fees earned by PREMISYS, incurred by the Partnership and Prudential
for the six months ended June 30, 1997 and 1996 were $10,533 and $17,571,
respectively.
Note 4: Commitment and Contingencies
As of June 30, 1997, the Partnership had outstanding commitments on industrial
buildings of approximately $15.8 million. These commitments provide for the
purchase of real estate investments. Funding will be provided by existing cash,
real estate sales and/or Contract owners' contributions. Purchases of real
estate investments are contingent on the developer building the real estate
according to plans and specifications outlined in the pre-sale agreement.
Note 5: Subsequent event
On July 2, 1997, the Partnership funded one of its outstanding commitments in
the amount of $5.4 million. This was an industrial acquisition in Salt Lake
City, Utah.
16
<PAGE>
PER SHARE INFORMATION (FOR A SHARE OUTSTANDING THOUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
01/01/97 03/31/97 01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO TO TO
06/30/97 06/30/97 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 $ 0.9367 $ 0.4700 $ 1.9173 $ 1.6387 $ 1.2754 $ 1.1659 $ 1.0727
Income from interest
in properties $ 0.0256 $ 0.0101 $ 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 $ 0.1070 $ 0.0571 $ 0.1795 $ 0.2199 $ 0.1226 $ 0.0549 $ 0.0653
--------- --------- --------- --------- --------- --------- ---------
INVESTMENT INCOME $ 1.0693 $ .5372 $ 2.1478 $ 1.9113 $ 1.5900 $ 1.5102 $ 1.4061
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Investment management fee $ 0.0528 $ 0.0552 $ 0.2097 $ 0.1936 $ 0.1786 $ 0.1673 $ 0.1642
Real estate tax expense $ 0.0466 $ 0.0456 $ 0.1991 $ 0.1602 $ 0.1399 $ 0.1465 $ 0.1488
Administrative expenses $ 0.0366 $ 0.0409 $ 0.1569 $ 0.1484 $ 0.1103 $ 0.1187 $ 0.1046
Operating expenses $ 0.0612 $ 0.0644 $ 0.2442 $ 0.1546 $ 0.1332 $ 0.1209 $ 0.1241
Interest expense $ 0.0079 $ 0.0080 $ 0.0412 $ 0.0381 $ 0.0255 $ 0.0236 $ 0.0215
--------- --------- --------- --------- --------- --------- ---------
EXPENSES $ 0.4192 $ 0.2141 $ 0.8511 $ 0.6949 $ 0.5875 $ 0.5770 $ 0.5632
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
NET INVESTMENT INCOME $ .6501 $ .3231 $ 1.2967 $ 1.2164 $ 1.0025 $ 0.9332 $ 0.8429
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net realized loss on
investments sold ($ 0.0003) ($ 0.0001) ($ 0.1323) $ 0.0000 $ (0.0966) $ (0.1816) $ 0.0000
Net unrealized gain/(loss)
on investments $ 0.0993 $ 0.0642 ($ 0.2695) $ 0.0581 $ 0.2169 $ 0.0152 $ (1.1359)
--------- --------- --------- --------- --------- --------- ---------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS $ 0.0990 $ 0.0641 ($ 0.4018) $ 0.0581 $ 0.1203 $ (0.1664) $ (1.1359)
--------- --------- --------- --------- --------- --------- ---------
Net increase/(decrease)
in share value $ 0.7491 $ 0.3872 $ 0.8949 $ 1.2745 $ 1.1228 $ 0.7668 $ (0.2930)
Share Value at
beginning of period $16.6486 $ 17.0105 $ 15.7537 $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826
--------- --------- --------- --------- --------- --------- ---------
Share Value at end of period $ 17.3977 $ 17.3977 $ 16.6486 $ 15.7537 $ 14.4792 $ 13.3564 $ 12.5896
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Ratio of expenses to
average net assets 2.47% 1.24% 5.26% 4.62% 4.27% 4.44% 4.47%
Ratio of net investment
income to average net assets 3.83% 1.87% 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 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 June 30, 1997, the Partnership's liquid assets consisting of cash and cash
equivalents and marketable securities totaled $51,572,394. This is an increase
of $6,407,546 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 $48.6 million as of June 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 June 30,
1997, 24.25% 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. On July 2, 1997, the Partnership closed one of these
acquisitions, the Salt Lake City, UT industrial forward commitment, for a
purchase price of $5.4 million. The Partnership expects to close on the other
industrial forward commitment in Denver, CO in the third quarter, for an
estimated price of $10.4 million. The Partnership also intends to purchase the
land under the Pomona, CA warehouse for approximately $4 million. This land is
currently leased to the Partnership. The Jacksonville, FL unit warehouse
co-investment is being included in an industrial sale package, along with 57
industrial buildings from Prudential's General Account, to be sold to Meridian
Industrial Trust. The Partnership has signed a contract to sell its
Jacksonville, FL unit warehouse co-investment for an estimated selling price of
$6.3 million. The use of these and additional funds will enable the Partnership
to acquire $10 million in restricted Meridian Industrial Trust common stock.
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. At June 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 six months and the foreseeable future.
During the quarter ended June 30, 1997, the Partnership expended approximately
$183,000 in capital expenditures of which $110,000 were spent on tenant
alterations and leasing commissions. The Morristown, NJ office building which
spent $75,000 on tenant alterations and leasing commissions and the Atlanta, GA
apartment complex which spent $41,000 to stabilize problems related to original
construction were responsible for the majority of the capital expenditures made
by the Partnership .
Projected capital expenditures for the remainder of the 1997 total approximately
$4.6 million of which $4.3 million is allocated for tenant alterations and
leasing commissions. A major portion of this amount is budgeted for the Lisle,
IL office building where the Partnership is expecting to pay approximately $2.3
million in tenant improvements and $0.8 million in leasing commissions to
acquire new tenants to replace the sole tenant who is expected to vacate at the
end of their lease. The Morristown, NJ office building budgeted $0.9 million for
tenant improvements and
18
<PAGE>
leasing commissions to be used in leasing lower level suites. All of these
projected expenditures relate to prospective leases and are based on estimated
costs. 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. Other capital expenditures planned for the remainder of
1997 include: upgrades to the heating/air-conditioning system and roof repairs
at the Lisle, IL office building totaling $235,000 and $40,000 to relieve
congestion in and around the Roswell, GA retail center.
(b.1) Results of Operations - Portfolio
The following is a brief comparison of the Partnership's results of operations
for the six months ended June 30, 1997 and 1996.
The Partnership's net investment income for the first six months of 1997 was
$7,702,574, a decrease of $64,707 (0.8%) from $7,767,281 for the corresponding
period of 1996. This was largely due to the loss of approximately $1.0 million
in income from the sale of two properties held in 1996 offset by an increase of
approximately $0.4 million in income from an acquisition that occurred in the
fourth quarter of 1996.
The Partnership's income unrelated to specific properties for the period ended
June 30, 1997 was $157,494, an increase of $857,919 from the $700,425 loss
reported for the corresponding period of 1996. This increase was mainly due to
$424,000 of interest income earned on a larger cash balance as discussed earlier
and an increase of $56,000 in investment management fees. Components of income
unrelated to specific properties are $1,267,905 in interest income from
short-term investments and $169,386 in administrative income offset by
$1,279,797 in investment management fee.
During the six months ended June 30, 1997, the Partnership experienced a
realized loss of $3,632 and a net unrealized gain of $1,176,610 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 market value increases in 7 properties held,
totaling approximately $2.4 million. These increases were partially offset by
market value decreases in 4 properties held, totaling $0.9 million 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 six months ended June 30, 1997 and 1996.
Income from property operations for the office buildings for the first six
months of 1997 was $2,851,413, a decrease of $131,347 (4.4%), from $2,982,760
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 $600,000. This decrease was offset by the acquisition of the
Beaverton, OR office building, an increase of income of approximately $400,000,
and an increase in income at the Oakbrook Terrace, IL office building of
approximately $49,000. Excluding the results of acquired and sold properties,
income from property operations increased by $20,448 (0.7%). For properties held
for the comparable period revenue and expenses increased approximately $69,000
and $48,000, respectively.
The five office buildings owned by the Partnership experienced a net unrealized
gain of $804,064 for the first six months of 1997. The office building in
Morristown, NJ had the largest unrealized gain of $589,544 due to the improving
office market in New Jersey. The office building at Oakbrook Terrace, IL
experienced an unrealized gain of $156,050 due to rental step-ups of three
leases, and the Nashville, TN building experienced an unrealized gain of
$99,008. These unrealized gains were offset by an unrealized losses of $26,937
at the Beaverton, OR building and $13,601 at the Lisle, IL building. Occupancy
at all of the office buildings except for the Morristown, NJ office building
were 100% at June 30, 1997. This represented an increase of 1% at both the
Nashville, TN and Oakbrook Terrace, IL office building from December 31, 1996.
Occupancy at the Morristown, NJ office building as of June
19
<PAGE>
30, 1997 remained at 93% compared to December 31, 1996. At the Lisle, IL office
building the sole tenant, RR Donnelley, is expected to vacate at the end of its
lease at September 30, 1997. This space is currently being marketed to
prospective tenants expressing interest in leasing all or part of the entire
building. As of June 30, 1997, all other vacant spaces are being marketed
The realized loss of $3,632 at the Flint, MI office building was due to the
capitalization of legal fees incurred relating to the sale of the property.
Income from property operations for the apartment complexes for the first six
months of 1997 was $1,892,587, a decrease of $137,100 (6.8%), from $2,029,687
for the corresponding period in 1996. The Farmington Hill, MI, the Raleigh, NC
and the Atlanta, GA apartment complexes had decreases in income of $78,684,
$35,954 and $22,462, respectively. For properties held for the comparable period
revenues decreased by approximately $87,000 while expenses increased by
approximately $50,000.
The three apartment complexes owned by the Partnership experienced net
unrealized losses of $576,152 for the first six months of 1997. The apartment
complex in Atlanta, GA experienced the largest unrealized loss of $505,082 due
to increased competition in the market. Although this apartment complex
experienced a significant unrealized loss, the occupancy rate increased 2%, from
93% at December 31, 1996 to 95% at June 30, 1997. The Raleigh, NC apartment
complex also experienced an unrealized loss of $363,170. This was due to the
expiration of higher than market leases being renewed at lower market rates.
This complex's occupancy rate decreased 3% from the December 31, 1996 rate of
97% to the June 30, 1997 rate of 94%. These unrealized losses were offset by
the Farmington Hills, MI apartment complex which experienced an unrealized gain
of $292,100 due to a 9% increase in occupancy at the complex from an occupancy
of 88% at December 31, 1996 to 97% at June 30, 1997.
Income from property operations from the retail center for the first six months
of 1997 was $1,480,979 a decrease of $149,359 (9.2%), from $1,630,338 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 $111,000 while expenses increased by
approximately $38,000.
The retail center experienced an unrealized gain of $660,805 for the first six
months of 1997, although the property experienced a 3% decrease in occupancy
from 96% at December 31, 1996 to 93% at June 30, 1997. The unrealized gain in
value was due to a change in the appraiser's assumptions regarding base building
capital requirements. During the six months ended June 30, 1997, three tenants
agreed to renew. Family Eyecare and Voorhees Salon, both, agreed to three year
extensions and Mailboxes etc. also agreed to renew as well as expand. As of
June 30, 1997, all other vacant spaces are being marketed.
Income from property operations for the industrial properties for the first six
months of 1997 was $1,017,077, a decrease of $480,160 (32.1%), from $1,497,237
for the corresponding period in 1996. This was primarily the result of the sale
of the Azusa, CA warehouse facility that accounted for $441,361 (29.5%) of the
decrease. Excluding this sold property, income from property operations
decreased by $38,799 (2.6%). For properties held for the comparable period
revenue and expenses decreased approximately $138,000 and $105,000,
respectively
The two industrial centers owned by the Partnership experienced a net unrealized
gain of $62,893 for the first six months of 1997. The Bolingbrook, IL
warehouse's experienced $100,000 unrealized gain while the Pomona, CA warehouse
experienced an unrealized loss of $37,107. Occupancy at both warehouses
remained unchanged at 100% for the period ending June 30, 1997.
Income from interest in real estate properties relates to the Partnership's 50%
co-investment in the Jacksonville, FL unit warehouses. This income decreased by
$24,660 (7.5%), to $303,024 for the six months of 1997, from $327,684 for the
corresponding period in 1996. For the six months ending June 30, 1997, the
co-investment experienced an unrealized gain of $225,000, due mainly to an
increase in occupancy of 7%, from an occupancy of 85% at December 31, 1996, to
an occupancy of 92% at June 30, 1997. The Partnership expects to sell these
properties to Meridian Industrial Trust during the third quarter for $6.3
million.
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: August 13, 1997 By: /s/ Esther H. Milnes
------------------------------ --------------------------------
Esther H. Milnes
President and Director
Date: August 13, 1997 By: /s/ Linda Dougherty
------------------------------ --------------------------------
Linda Dougherty
Vice President, Comptroller and
Chief Accounting Officer
22
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
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<NAME> PRUCO LIFE OF N.J. VARIABLE CONTRACT REAL PROPERTY ACCOUNT
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<SERIES>
<NUMBER> 02
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
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