<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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) 778-2255
----------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
--- ---
<PAGE>
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)
INDEX
<TABLE>
<CAPTION>
Cover Page Page No.
--------
<S> <C>
Index 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - June 30, 2000 and December 31, 1999 3
Statements of Operations - Three and Six Months Ended June 30, 2000 and 1999 3
Statements of Changes in Net Assets - Three and Six Months Ended June 30, 2000 and 1999 3
Notes to the Financial Statements of the Account 4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Consolidated Statements of Assets and Liabilities - June 30, 2000 and December 31, 1999 6
Consolidated Statements of Operations - Three and Six Months Ended June 30, 2000 and 1999 7
Consolidated Statements of Changes in Net Assets - Six Months Ended June 30, 2000 and 1999 8
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2000 and 1999 9
Consolidated Schedules of Investments - June 30, 2000 and December 31, 1999 10
Notes to the Financial Statements of the Partnership 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risks 22
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
</TABLE>
2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<TABLE>
<CAPTION>
STATEMENTS OF NET ASSETS
June 30, 2000 and December 31, 1999
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
ASSETS
Investment in The Prudential Variable Contract
Real Property Partnership (Note 2) $ 9,346,446 $ 9,074,151
------------- -----------------
Net Assets $ 9,346,446 $ 9,074,151
============= =================
NET ASSETS, representing:
Equity of contract owners (Note 3) $ 5,752,354 $ 5,925,394
Equity of Pruco Life Insurance Company of New Jersey 3,594,092 3,148,757
------------- -----------------
$ 9,346,446 $ 9,074,151
============= =================
<CAPTION>
STATEMENTS OF OPERATIONS
For the six and three months ended June 30, 2000 and 1999 SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
2000 1999 2000 1999
------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Net investment income from Partnership operations $ 291,050 $ 272,272 $ 137,942 $ 196,645
------------- ----------------- ----------- ----------
EXPENSES
Charges to contract owners for assuming mortality risk and
expense risk and for administration 17,004 17,940 8,458 9,078
------------- ----------------- ----------- ---------
NET INVESTMENT INCOME 274,046 254,332 129,484 187,567
------------- ----------------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership (86,319) (152,000) 38,818 (87,732)
Realized gain (loss) on sale of investments in Partnership 67,564 10,895 62,962 (7,940)
------------- ----------------- ----------- ----------
NET GAIN (LOSS) ON INVESTMENTS (18,755) (141,105) 101,780 (95,672)
------------- ----------------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 255,291 $ 113,227 $ 231,264 $ 91,895
============= ================= =========== ==========
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
For the six and three months ended June 30, 2000 and 1999 SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
2000 1999 2000 1999
------------- ----------------- ----------- ----------
<S> <C> <C> <C> <C>
OPERATIONS
Net investment income $ 274,046 254,332 $ 129,484 187,567
Net change in unrealized gain (loss) on investments in Partnership (86,319) (152,000) 38,818 (87,732)
Realized gain (loss) on sale of investments in Partnership 67,564 10,895 62,962 (7,940)
------------- ----------------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 255,291 113,227 231,264 91,895
------------- ----------------- ----------- ----------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners (Note 4) (328,876) (387,970) (258,923) (249,431)
Net contributions by Pruco Life Insurance Company of New Jersey 345,880 405,911 267,381 258,510
------------- ----------------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 17,004 17,941 8,458 9,079
------------- ----------------- ----------- ----------
TOTAL INCREASE IN NET ASSETS 272,295 131,168 239,722 100,974
NET ASSETS
Beginning of period 9,074,151 9,260,250 9,106,724 9,290,444
------------- ----------------- ----------- ----------
End of period $ 9,346,446 $ 9,391,418 $ 9,346,446 $9,391,418
============= ================= =========== ==========
</TABLE>
3
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
June 30, 2000
(Unaudited)
Note 1: BASIS OF PRESENTATION
The Pruco Life of New Jersey Variable Contract Real Property Account ("Real
Property Account") is used to fund benefits under certain variable life
insurance and variable annuity contracts issued by Pruco Life Insurance Company
of New Jersey. These products are Variable Appreciable Life ("VAL"), Variable
Life ("VLI"), Discovery Plus ("SPVA"), and Discovery Life Plus ("SPVL").
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and accounting
principles generally accepted in the United States for interim financial
information. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the financial statements
and notes thereto included in the Real Property Account's December 31, 1999
Annual Report on Form 10K.
Note 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
The investment in The Prudential Variable Contract Read Property Partnership
(the "Partnership") is based on the Real Property Account's proportionate
interest of the Partnership's market value. At June 30, 2000 and December 31,
1999, the Real Property Account's interest in the Partnership was 4.5% or
435,051 shares and 4.3% or 435,051 shares respectively.
The number of shares (rounded) held by the Real Property Account in the
Partnership, the Partnership net asset value per share (rounded) and the
aggregate cost of investments in the Real Property Account's shares held at June
30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
NUMBER OF SHARES (ROUNDED): 435,051 435,051
NET ASSET VALUE PER SHARE (ROUNDED): $21.48 $20.86
COST: $5,058,737 $5,058,737
</TABLE>
Note 3: CONTRACT OWNER EQUITY INFORMATION
Contract owner equity at June 30, 2000 and December 31, 1999 by product, were as
follows:
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------- -----------------
<S> <C> <C>
VAL $4,649,840 $4,815,383
VLI 908,406 889,633
SPVA 83,034 101,868
SPVL 111,074 118,510
---------- ----------
TOTAL $5,752,354 $5,925,394
========== ==========
</TABLE>
4
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
June 30, 2000
(Unaudited)
Note 4: NET WITHDRAWALS BY CONTRACT OWNERS
Net withdrawals by contract owners for the real estate investment option in
Pruco Life Insurance Company of New Jersey's variable insurance and variable
annuity products for the six months ended June 30, 2000 and 1999, were as
follows:
<TABLE>
<CAPTION>
June 30,
2000 1999
-------- (Unaudited) --------
<S> <C> <C>
VAL $291,907 $363,656
VLI 6,205 16,510
SPVA 20,742 7,914
SPVL 10,022 (110)
-------- --------
TOTAL $328,876 $387,970
======== ========
</TABLE>
5
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------------------- -------------------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 6/30/2000 -- $192,298,065; 12/31/1999 -- $190,007,568) $170,598,104 $171,154,516
Real estate partnership (cost: 6/30/2000 -- $5,507,302;
12/31/1999 -- $5,187,126) 5,092,209 4,506,257
Real estate investment trusts (cost: 6/30/2000 -- $22,304,843;
12/31/1999 -- $32,535,158) 22,699,041 29,727,085
------------------------- -------------------------
Total real estate investments 198,389,354 205,387,858
MARKETABLE SECURITIES - At estimated market value
(cost: 6/30/2000 -- $0; 12/31/1999 -- $2,805,493) 0 $2,797,008
CASH AND CASH EQUIVALENTS 20,743,121 13,972,669
DIVIDEND RECEIVABLE 155,985 131,542
OTHER ASSETS (net of allowance for uncollectible
accounts: 6/30/2000 -- $5,500; 12/31/1999 -- $179,000) 4,952,188 2,853,576
------------------------- -------------------------
Total assets 224,240,648 225,142,653
------------------------- -------------------------
LIABILITIES
MORTGAGE LOAN PAYABLE 10,137,554 10,184,662
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,354,378 2,967,614
DUE TO AFFILIATES 909,719 869,477
OTHER LIABILITIES 702,551 525,892
MINORITY INTEREST 610,780 372,068
------------------------- -------------------------
Total liabilities 15,714,982 14,919,713
------------------------- -------------------------
INVESTMENT COMMITMENTS
Partners' equity 208,525,666 210,222,940
------------------------- -------------------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $224,240,648 $225,142,653
========================= =========================
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 9,706,284 10,078,921
========================= =========================
SHARE VALUE AT END OF PERIOD $21.48 $20.86
========================= =========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------- ------------------------------
2000 1999 2000 1999
---------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $11,465,567 $10,484,907 $5,604,105 $6,857,945
Equity in income of real estate partnership 320,176 0 150,963 0
Dividend Income from real estate investment trusts 779,915 437,069 426,164 269,794
Interest on short-term investments 531,530 1,052,980 283,782 426,348
---------------- -------------- -------------- --------------
Total investment income 13,097,188 11,974,956 6,465,014 7,554,087
---------------- -------------- -------------- --------------
EXPENSES:
Investment management fee 1,348,173 1,345,663 679,858 674,919
Real estate taxes 1,302,236 1,515,360 644,837 947,615
Administrative 1,291,973 1,038,915 675,115 570,113
Operating 2,100,095 1,769,786 1,145,456 844,530
Interest 353,707 0 177,600 0
Minority interest (33,746) 0 (45,531) 0
---------------- -------------- -------------- --------------
Total investment expenses 6,362,438 5,669,724 3,277,335 3,037,177
---------------- -------------- -------------- --------------
NET INVESTMENT INCOME 6,734,750 6,305,232 3,187,679 4,516,910
---------------- -------------- -------------- --------------
REALIZED AND UNREALIZED GAIN ON
INVESTMENTS
Net proceeds from real estate investments
sold or converted 18,734,655 17,199,969 15,004,105 5,245,092
Less: Cost of real estate investments sold or
converted 19,660,942 14,861,657 15,117,339 4,906,778
Realization of prior periods' unrealized
(loss) gain on real estate investments sold
or converted (2,489,670) 2,080,673 (300,934) 125,686
---------------- -------------- -------------- --------------
Net gain realized on real estate investments
sold or converted 1,563,383 257,639 187,700 212,628
---------------- -------------- -------------- --------------
Change in unrealized (loss) gain on real estate
investments (1,868,532) (3,631,021) 2,311,535 (2,438,422)
Minority interest in unrealized gain on
investments (126,875) 0 (138,789) 0
---------------- -------------- -------------- --------------
Net unrealized (loss) gain on real estate
investments (1,995,407) (3,631,021) 2,172,746 (2,438,422)
---------------- -------------- -------------- --------------
NET REALIZED AND UNREALIZED (LOSS)
GAIN ON INVESTMENTS (432,024) (3,373,382) 2,360,446 (2,225,794)
---------------- -------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $6,302,726 $2,931,850 $5,548,125 $2,291,116
================ ============== ============== ==============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
7
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------------ ------------------------
<S> <C> <C>
NET INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $6,734,750 $6,305,232
Net realized gain on real estate investments sold
or converted 1,563,383 257,639
Change in unrealized loss on real estate investments (1,995,407) (3,631,021)
------------------------ ------------------------
Net increase in net assets resulting from operations 6,302,726 2,931,850
------------------------ ------------------------
NET DECREASE IN NET ASSETS
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(6/30/2000 -- 372,636 shares; 6/30/1999 -- 1,482,233 shares) (8,000,000) (30,000,000)
------------------------ ------------------------
Net decrease in net assets resulting from
capital transactions (8,000,000) (30,000,000)
------------------------ ------------------------
NET DECREASE IN NET ASSETS (1,697,274) (27,068,150)
NET ASSETS - Beginning of period 210,222,940 240,160,397
------------------------ ------------------------
NET ASSETS - End of period $208,525,666 $213,092,247
======================== ========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------------------- -------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $6,302,726 $2,931,850
Adjustments to reconcile net increase in net assets resulting
from operations to net cash flows from operating activities:
Net realized and unrealized loss on investments 432,024 3,373,382
Distributions from real estate partnership less than
equity in income (320,175) 0
Minority interest from operating activities (33,746) 0
Bad debt expense 2,709 15,255
(Increase) Decrease in:
Dividend receivable (24,443) 167,275
Other assets (2,101,321) 186,995
Increase (Decrease) in:
Accounts payable and accrued expenses 386,764 1,127,982
Due to affiliates 40,242 (815,750)
Other liabilities 176,659 23,289
------------------------- -------------------------
Net cash flows from operating activities 4,861,439 7,010,278
------------------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additional costs on prior purchases:
Net proceeds from real estate investments sold 18,734,655 6,257,403
Acquisition of real estate investment trust (9,430,630) (25,839,278)
Additions to real estate owned (2,290,498) (864,215)
Sale of marketable securities, net 2,797,008 11,918,168
------------------------- -------------------------
Net cash flows from investing activities 9,810,535 (8,527,922)
------------------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loan payable (47,108) 0
Withdrawals by partners (8,000,000) (30,000,000)
Contributions from minority interest partners 145,586 0
------------------------- -------------------------
Net cash flows from financing activities (7,901,522) (30,000,000)
------------------------- -------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,770,452 (31,517,644)
CASH AND CASH EQUIVALENTS - Beginning of period 13,972,669 58,578,848
------------------------- -------------------------
CASH AND CASH EQUIVALENTS - End of period $20,743,121 $27,061,204
========================= =========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the six months for interest $353,707 $0
========================= =========================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Exchange of shares of Meridian real estate investment trust
for shares of ProLogis real estate investment trust shares $0 $10,942,566
========================= =========================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
JUNE 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------------------------- -----------------------------------
ESTIMATED ESTIMATED
MARKET MARKET
COST VALUE COST VALUE
------------------------------------------------------------------------------------------------
REAL ESTATE AND IMPROVEMENTS (Percent of Net Assets) 81.8% 81.4%
Location Description
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lisle, IL Office Building $22,102,433 $13,809,258 $22,075,782 $13,895,122
Atlanta, GA Garden Apartments 15,666,454 16,413,852 15,646,846 16,104,268
Roswell, GA Retail Shopping Center 32,449,696 27,010,163 32,394,853 27,000,939
Morristown, NJ Office Building 20,430,202 11,844,703 20,116,694 12,337,499
Bolingbrook, IL Warehouse 8,948,028 6,600,000 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,841,458 17,007,530 15,833,928 17,004,623
Nashville, TN Office Building 9,017,316 10,403,573 8,509,908 10,000,000
Oakbrook Terrace, IL Office Complex 13,004,341 13,108,975 12,945,366 14,200,000
Beaverton, OR Office Complex 10,768,811 10,300,000 10,768,811 10,400,866
Salt Lake City, UT Industrial Building 5,640,709 5,700,050 5,640,709 5,703,419
Aurora, CO Industrial Building 10,130,644 9,800,000 10,119,072 10,520,780
Brentwood, TN Office Complex 9,606,828 9,500,000 9,606,828 9,537,000
Jacksonville, FL Garden Apartments * 18,691,145 19,100,000 17,400,743 17,450,000
======================================================================
$192,298,065 $170,598,104 $190,007,568 $171,154,516
======================================================================
REAL ESTATE PARTNERSHIP (PERCENT OF NET ASSETS) 2.4% 2.1%
Location Description
------------------------------------------------------------------------------------------------------------------------------
======================================================================
Kansas City, KS; MO Retail Shopping Centers $5,507,302 $5,092,209 $5,187,126 $4,506,257
======================================================================
</TABLE>
* Real estate partnership accounted for by the consolidated method.
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED SCHEDULE OF INVESTMENTS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------------------------
ESTIMATED
MARKET
COST VALUE
-------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 10.9%
-------------------------------------------------------------------------------------------------------------
AMB Property Corp. (32,100 shares) $712,626 $732,281
AMLI Residential Properties (30,000 shares) 706,800 706,875
Alexandria Real Est Equities (25,600 shares) 726,957 878,400
Apartment Inv & Mgmt Co., Class A (23,900 shares) 945,347 1,033,675
Centerpoint Properties Corp. (18,600 shares) 632,302 757,950
Cousins Properties (25,600 shares) 919,307 985,600
Equity Office Properties Trust (42,400 shares) 1,174,046 1,168,650
Equity Residential Property Trust (20,000 shares) 883,700 920,000
Essex Property Trust, Inc. (15,000 shares) 593,700 630,000
Excel Legacy Corp. (322,300 shares) 1,479,431 866,181
Franchise Finance Cp Amer (36,300 shares) 873,337 834,900
Gables Residential Trust (25,000 shares) 632,750 643,750
General Growth Properties (26,800 shares) 934,325 850,900
Host Marriot Corp. (20,000 shares) 196,200 187,500
Intrawest Corp. (16,100 shares) 258,217 305,900
Kilroy Realty Corp. (15,000 shares) 362,625 389,063
Liberty Property Trust (25,000 shares) 620,213 648,437
Macerich Co. (15,000 shares) 330,869 330,937
MeriStar Hospitality Corp. (32,500 shares) 538,813 682,500
MeriStar Hotels & Resorts Inc. (239,100 shares) 875,818 687,412
Mission West Properties (133,200 shares) 1,068,474 1,398,600
Philips International Realty (68,500 shares) 1,129,948 1,190,188
Public Storage Inc. (43,700 shares) 1,193,963 1,024,219
Reckson Assoc Realty Corp. (32,500 shares) 805,150 771,875
Spieker Properties (17,000 shares) 665,228 782,000
Starwood Hotels and Resorts (30,200 shares) 775,331 983,388
Vornado Realty Trust (49,800 shares) 1,812,956 1,730,550
Boardwalk Equities, Inc. (61,100 shares) 456,410 577,310
==============================================
$22,304,843 $22,699,041
==============================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------
ESTIMATED
MARKET
COST VALUE
--------------------------------------------
<S> <C> <C>
REAL ESTATE INVESTMENT TRUST (Percent of Net Assets) 14.1%
-----------------------------------------------------------------------------------------------------------------------
Prologis REIT Shares (386,208 shares) $7,579,332 $7,434,504
AMB Property Corp (42,100 shares) 933,851 839,369
Alexandria Real Est Equities (30,800 shares) 874,221 979,825
Apartment Inv & Mgmt Co - Class A (16,500 shares) 672,953 656,906
Centerpoint Properties Corp (16,200 shares) 544,308 581,175
Cousins Properties (24,800 shares) 890,459 841,650
Equity Office Properties Trust (32,400 shares) 901,571 797,850
Equity Residential Property Trust (13,100 shares) 623,573 559,206
Excel Legacy Corp (322,300 shares) 1,479,431 1,067,619
Franchise Finance Cp Amer (25,500 shares) 620,027 610,406
General Growth Properties (13,600 shares) 512,353 380,800
Intrawest Corporation (76,100 shares) 1,258,575 1,317,481
MeriStar Hotels & Resorts Inc. (239,100 shares) 875,818 851,794
Mission West Properties (116,800 shares) 938,124 905,200
Philips International Realty (63,700 shares) 1,052,331 1,047,069
Prime Hospitality Corp. (112,500 shares) 1,320,524 991,406
Public Storage (45,100 shares) 1,269,884 1,023,206
Reckson Service Industries (18,200 shares) 221,041 1,135,225
Reckson Assoc Realty Corp (52,200 shares) 1,299,227 1,070,100
Spieker Properties (12,000 shares) 426,078 437,250
Starwood Hotels and Resorts (87,200 shares) 3,027,806 2,049,200
Sun Communities Inc. (16,700 shares) 606,047 537,531
Vornado Realty Trust (51,800 shares) 1,930,911 1,683,500
Sun International Hotels Ltd (30,900 shares) 1,116,266 598,688
Boardwalk Equities, Inc. (146,800.shares) 1,560,447 1,330,125
============================================
$32,535,158 $29,727,085
============================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
12
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, 2000
-------------------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
----------------- ----------------- ------------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 9.9%
Countrywide Home Loans, 7.10%, July 3, 2000 $262,000 $261,845 $261,845
Federal Home Loan Banks, 6.95%, July 3, 2000 174,000 173,899 173,899
General Electric Capital Corp., 6.55%, July 5, 2000 444,000 442,223 442,223
Halliburton Co., 6.55%, July 5, 2000 900,000 894,596 894,596
Homeside Lending Inc., 6.53%, July 6, 2000 907,000 901,406 901,406
Kellogg Co., 6.55%, July 6, 2000 410,000 407,315 407,315
IBM Corp., 6.58%, July 7, 2000 950,000 946,354 946,354
Bell Atlantic Financial Services Inc., 6.54%, July 10, 2000 400,000 396,221 396,221
E.I. Du Pont De Nemours & Co., Inc., 6.55%, July 10, 2000 700,000 697,580 697,580
Ford Motor Credit Co., 6.52%, July 11, 2000 521,000 518,358 518,358
AT&T Corp., 6.51%, July 12, 2000 464,000 460,979 460,979
Canadian Imperial Bank of Commerce, 6.58%, July 12, 2000 923,000 923,000 923,000
Goldman Sachs Group L.P., 6.54%, July 12, 2000 900,000 895,095 895,095
Associates Corp of North America, 6.55%, July 13, 2000 700,000 694,778 694,778
Ciesco L.P., 6.55%, July 13, 2000 500,000 494,997 494,997
American Express Credit Corp., 6.55%, July 14, 2000 225,000 223,977 223,977
J.P. Morgan and Co., Inc., 6.55%, July 14, 2000 700,000 695,033 695,033
Metlife Funding Inc., 6.52%, July 14, 2000 845,000 840,409 840,409
Nike Inc., 6.52%, July 14, 2000 875,000 870,087 870,087
General Electric Capital Corp., 6.54%, July 17, 2000 500,000 496,276 496,276
Procter & Gamble Co., 6.55%, July 17, 2000 384,000 382,114 382,114
General Motors Acceptance Corp., Inc., 6.55%, July 18, 2000 772,000 767,505 767,505
Potomac Electric Power Co., 6.55%, July 18, 2000 948,000 943,515 943,515
Ford Motor Credit Co., 6.55%, July 20, 2000 427,000 424,825 424,825
PPG Industries, 6.55%, July 21, 2000 948,000 942,998 942,998
Morgan Stanley Dean Witter & Co., 6.58%, July 27, 2000 948,000 941,935 941,935
Paccar Financial Corp., 6.55%, July 28, 2000 705,000 698,202 698,202
----------------- ----------------- ------------------
TOTAL CASH EQUIVALENTS 17,432,000 17,335,522 17,335,522
CASH 3,407,599 3,407,599 3,407,599
----------------- ----------------- ------------------
TOTAL CASH AND CASH EQUIVALENTS $20,839,599 $20,743,121 $20,743,121
================= ================= ==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
13
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
------------------ ----------------- ------------------
<S> <C> <C> <C>
MARKETABLE SECURITIES (Percent of Net Assets) 1.3%
J.P. Morgan and Co., Inc., 5.96%, March 13, 2000 $995,000 $980,010 $980,010
Ford Motor Credit Co., 7.50%, April 6, 2000 150,000 151,779 150,653
CIT Group Inc., 6.80%, April 17, 2000 500,000 503,765 501,487
Associates Corp of North America, 6.71%, June 1, 2000 1,160,000 1,169,939 1,164,858
------------------ ----------------- ------------------
TOTAL MARKETABLE SECURITIES $2,805,000 $2,805,493 $2,797,008
================== ================= ==================
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 6.6%
Duke Energy Corp., 5.00%, January 3, 2000 $550,000 $549,771 $549,771
Bell Atlantic Financial Services, 5.20%, January 7, 2000 672,000 671,321 671,321
Household Finance Corp, 5.93%, January 18, 2000 990,000 983,314 983,314
Ford Motor Credit Co., 6.00%, January 21, 2000 847,000 840,789 840,789
American Express Cr. Corp., 6.02%, January 26, 2000 999,000 990,981 990,981
Procter & Gamble Co., 6.00%, January 26, 2000 200,000 197,867 197,867
Goldman Sachs Group L.P., 6.43%, January 31, 2000 1,000,000 991,963 991,963
Countrywide Home Loans, 6.00%, February 3, 2000 990,000 980,595 980,595
Merrill Lynch & Co., Inc., 5.98%, February 3, 2000 990,000 980,626 980,626
Unifunding Inc., 6.05%, February 3, 2000 900,000 892,135 892,135
Metlife Funding Inc., 5.90%, February 4, 2000 841,000 832,730 832,730
General Electric Cap Corp., 5.95%, February 10, 2000 350,000 346,182 346,182
GTE Funding, Inc., 6.10%, February 10, 2000 1,000,000 990,681 990,681
E.I. Du Pont De Nemours & Co. Inc., 6.00%, February 11, 2000 250,000 246,667 246,667
General Electric Capital Corp., 5.92% March 1, 2000 406,000 400,258 400,258
------------------ ----------------- ------------------
TOTAL CASH EQUIVALENTS 10,985,000 10,895,880 10,895,880
CASH 3,076,789 3,076,789 3,076,789
------------------ ----------------- ------------------
TOTAL CASH AND CASH EQUIVALENTS $14,061,789 $13,972,669 $13,972,669
================== ================= ==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTERGRAL PART OF THE FINANCIAL STATEMENTS.
14
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
June 30, 2000
(Unaudited)
Note 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and accounting
principles generally accepted in the United States for interim financial
information. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the six months ended June 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the financial statements
and notes thereto included in each Partner's December 31, 1999 Annual Report on
Form 10K.
Note 2: COMMITMENT FROM PARTNER
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment were utilized for property acquisitions, and returned to
Prudential on an ongoing basis from the contract owners' net contributions and
other available cash. The amount of the commitment is reduced by $10 million for
every $100 million in current value net assets of the Partnership. Thus, with
$209 million in net assets, the commitment has been automatically reduced to $80
million. As of June 30, 2000, Prudential's equity interest in the Partnership,
on a cost basis, under this commitment was $44 million. Prudential does not
intend to make contributions during the 2000 fiscal year and will begin to phase
out this commitment over the next several years.
Note 3: RELATED PARTY TRANSACTIONS
Pursuant to an investment management agreement, Prudential charges the
Partnership a daily investment management fee at an annual rate of 1.25% of the
average daily gross asset valuation of the Partnership. For the six months ended
June 30, 2000 and 1999 management fees incurred by the Partnership were
$1,348,173 and $1,345,663 respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the six months ended June 30,
2000 and 1999 were $58,315 and $58,148 respectively, and are classified as
administrative expenses in the consolidated statements of operations.
Note 4: INVESTMENT IN REAL ESTATE INVESTMENT TRUST (REIT)
On March 30, 1999, the Partnership exchanged 506,894 shares of Meridian REIT for
557,583 shares of ProLogis REIT, fair value of $10,942,566, and receivable of
$1,013,796 (or total fair value of $11,956,362) as a result of ProLogis'
acquisition of Meridian. Management continued applying a 3% discount to the
market value of the ProLogis REIT shares through June 29, 1999 because of the
restriction which limits the number of shares that can be publicly traded during
any six month period to 30% of the total shares originally acquired. The
application of the 3% discount was discontinued on June 30, 1999 because this
restriction no longer applied.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of the Real Property Account (the "Account") are invested in
the Prudential Variable Contract Real Property Partnership (the "Partnership").
Correspondingly, the liquidity, capital resources and results of operations for
the Real Property Account are contingent upon the Partnership. Therefore, all of
management's discussion of these items is at the Partnership level. The Partners
in the Partnership are The Prudential Insurance Company of America, Pruco Life
Insurance Company, and Pruco Life Insurance Company of New Jersey (collectively,
the "Partners").
The following analysis of the liquidity and capital resources and results of
operations of the Partnership should be read in conjunction with the Financial
Statements and the related Notes to the Financial Statements included elsewhere
herein.
(a) LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2000, the Partnership's liquid assets consisting of cash, cash
equivalents and marketable securities were $20.7 million, an increase of $4.0
million from December 31, 1999. This increase was primarily due to the sale of
REIT shares and operations of the Partnership's properties which were offset by
a distribution to a Partner of $8.0 million on June 28, 2000. Sources of
liquidity include net cash flow from property operations, interest from
short-term investments, and dividends from REIT shares.
The Partnership's investment policy allows up to 30% investment in cash and
short-term obligations, although the Partnership generally holds approximately
10% of its assets in cash or liquid instruments. At June 30, 2000, 9% of the
Partnership's assets consisted of cash and cash equivalents. There were no
marketable securities held at June 30, 2000.
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment have been utilized for property acquisitions, and returned
to Prudential on an ongoing basis from contract owners' net contributions and
other available cash. The amount of the commitment is reduced by $10 million for
every $100 million in current value net assets of the Partnership. Thus, with
$209 million in net assets, the commitment has been automatically reduced to $80
million. As of June 30, 2000, Prudential's equity interest in the Partnership,
on a cost basis, under this commitment was $44 million. Prudential does not
intend to make any contributions during the 2000 fiscal year and will begin to
phase out this commitment over the next several years.
On June 28, 2000, the Partnership made an $8 million distribution to a partner,
while on February 2, 1999 a distribution of $30 million was made to the
Partners. Additional distributions may be made to the Partners during 2000,
taking into consideration anticipated cash needs of the Partnership including
potential property acquisitions, property dispositions and capital expenditures.
Management anticipates that its current liquid assets and ongoing cash flow from
operations will satisfy the Partnership's needs over the next twelve months and
the foreseeable future.
During the first six months of 2000, the Partnership spent approximately $2.3
million in capital expenditures. Approximately $1.3 million was associated with
the renovation of the apartment complex located in Jacksonville, FL. The balance
was primarily associated with leasing activity at one of the office properties
located in Brentwood, TN and another located in Morristown, NJ.
16
<PAGE>
(b) RESULTS OF OPERATIONS
The following is a brief year-to-date and quarterly comparison of the
Partnership's results of operations for the periods ended June 30, 2000 and
1999.
JUNE 30, 2000 VS. JUNE 30, 1999
The following table presents a year-to-date and quarterly comparison of the
Partnership's sources of net investment income, and realized and unrealized
gains or losses by investment type.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
2000 1999 2000 1999
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Office properties $ 2,913,160 $ 3,749,655 $ 1,333,421 $ 2,683,159
Apartment complexes 1,699,749 916,594 787,295 532,143
Retail property 1,427,918 1,375,256 720,038 686,110
Industrial properties 770,213 156,380 393,133 71,130
Equity in income of real estate partnership 320,176 - 150,963 -
Dividend income from real
estate investment trust 779,915 437,069 426,164 269,794
Other (including interest income,
Investment mgt fee, etc) (1,176,381) (329,722) (623,335) 274,574
----------- ------------ ----------- -----------
TOTAL NET INVESTMENT INCOME $ 6,734,750 $ 6,305,232 $ 3,187,679 $ 4,516,910
----------- ------------ ----------- -----------
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Office properties ($2,310,520) ($3,920,080) ($242,469) ($2,596,801)
Apartment complexes 518,075 425,925 438,423 491,295
Retail property (45,620) 331,740 (5,991) 480,916
Industrial properties (1,135,721) (205,450) (10,930) (5,360)
Interest in Properties 265,777 - 185,211 -
Real estate investment trusts 712,602 (263,156) 1,808,502 (808,472)
REALIZED GAIN ON INVESTMENTS
Apartment complexes - - - -
Industrial properties - 43,641 - -
Interest in properties - - - -
Real estate investment trust 1,563,383 213,998 187,700 212,628
TOTAL REALIZED AND UNREALIZED LOSS ----------- ------------ ----------- -----------
ON INVESTMENTS ($432,024) ($3,373,382) $2,360,446 ($2,225,794)
----------- ------------ ----------- -----------
</TABLE>
The Partnership's net investment income for the six months ended June 30, 2000
was $6.7 million, an increase of $0.4 million from net investment income of $6.3
million in the corresponding period in 1999. The Partnership's net investment
income for the quarter ended June 30, 2000 was $3.2 million, a decrease of $1.3
million from net investment income of $4.5 million in the corresponding period
in 1999.
Revenue from real estate properties was $11.5 million for the six months ended
June, 30 2000, an increase of $1.0 million, or 9.4%, from $10.5 million in the
corresponding period in 1999. This increase was primarily due to the
Partnership's acquisition of a controlling interest in an apartment complex
located in Jacksonville, FL.
Revenue from real estate properties was $5.6 million for the second quarter of
2000, a decrease of $1.3 million, or 18.3%, from $6.9 million in the
corresponding quarter in 1999. This decrease was primarily due to a $940,000
lease
17
<PAGE>
termination fee collected during the second quarter of 1999 from a tenant at the
office property located in Oakbrook Terrace, IL coupled with a corresponding
decrease in occupancy from 100% to 55% at this same office complex.
Equity in income from real estate partnership increased $320,176 during the
first six months of 2000, and $150,963 during the second quarter of 2000, as a
result of the acquisition of the Partnership's equity investment interest in the
retail portfolio located in the Kansas City, MO area. This interest was not
acquired until October 1999.
Dividend income from real estate investment trusts was $779,915 for the first
six months of 2000, an increase of $342,846 or 78% from the corresponding period
in 1999. Dividend income from real estate investment trusts amounted to $426,164
for the quarter ended June 30, 2000, an increase of $156,370, or 58.0%, compared
to the corresponding quarter in 1999. These increases were primarily due to
higher amounts invested in real estate investment trusts. A significant increase
in the Partnership's investment in REIT shares took place in the latter part of
the second quarter 1999. Therefore, dividend income for the first six months of
2000 represents a full six months of dividend income activity on the increased
investment, while the first six months of 1999 only include approximately 1 1/2
months dividend income from the increased investment.
Interest on short-term investments decreased approximately $0.5 million or 49.5%
for the six months ended June 30, 2000 due primarily to a significantly lower
average cash balance. Cash and cash equivalents during the first six months of
2000 averaged approximately $17.5 million compared to approximately $42.3
million for the first six months of 1999.
Interest on short-term investments decreased approximately $0.1 million or 33.4%
from $0.4 million during the second quarter of 1999 to $0.3 million during the
second quarter of 2000 also as a result of a significantly lower average cash
balance.
Real estate taxes decreased $0.2 million or 14.1% to $1.3 million for the six
months ended June 30, 2000, when compared to the corresponding period in 1999.
Real estate tax expense decreased $0.3 million from $0.9 million for the second
quarter of 1999 to $0.6 million for the second quarter of 2000. These decreases
were primarily due to decreased real estate taxes by the industrial property
located in Aurora, CO, the apartment complex located in Atlanta, GA, and the
apartment complex located in Farmington Hills, MI. Offsetting these decreases in
real estate tax expense was the acquisition of a controlling interest in an
apartment complex located in Jacksonville, FL.
Administrative expenses increased $0.3 million, or 24.4%, for the first six
months of 2000 over the corresponding period in 1999. Administrative expenses
for the second quarter of 2000 increased $0.1 million or 18.4% to $0.7 million
when compared to the second quarter of 1999. These increases were primarily due
to the acquisition of a controlling interest in an apartment complex located in
Jacksonville, FL.
Operating expenses increased $0.3 million or 18.7% to $2.1 million during the
first six months of 2000 when compared to the corresponding period in 1999.
Operating expenses increased $0.3 million or 35.6% to $1.1 million when compared
to the second quarter of 1999. These increases were primarily a result of the
Partnership's acquisition of a controlling interest in the apartment complex
located in Jacksonville, FL.
Interest expense increased $353,707 during the first six months of 2000, and
$177,600 during the second quarter of 2000, when compared to the
corresponding periods in 1999. These increases were a result of the
Partnership's acquisition of a controlling interest in the apartment complex
located in Jacksonville, FL, which was acquired subject to $10.2 million in
debt.
Minority interest in consolidated partnership decreased $33,746 during the first
six months of 2000, and $45,531 during the second quarter of 2000. These
decreases were a result of the Partnership's controlling joint venture
investment in the apartment complex located in Jacksonville, FL.
OFFICE PROPERTIES
Net investment income from property operations for the office sector decreased
approximately $0.8 million or
18
<PAGE>
22.3% for the six months ended June 30, 2000 when compared to the corresponding
period in 1999. Net investment income from property operations for the office
sector decreased approximately $1.3 million or 50.3% during the second quarter
of 2000 when compared to the corresponding period in 1999. These decreases were
primarily due to lower revenue levels experienced by the Oakbrook Terrace, IL
office complex during 2000 as a result of the lease termination fee received
from one of the tenants during 1999 coupled with a corresponding decrease in
occupancy at this same office property discussed previously. A 44% decrease in
occupancy at one of the Brentwood, TN office properties also contributed to the
decrease.
The six office properties owned by the Partnership experienced a net unrealized
loss of approximately $2.3 million during the first six months of 2000 compared
to a net unrealized loss of $3.9 million in the corresponding period in 1999.
The largest share (50%) of the net unrealized loss experienced during 2000 was
primarily due to the office property located in Oakbrook Terrace, IL. This
approximate $1.2 million value decrease was due to a lease termination
associated with 45% of the space and weaker market conditions. The Morristown,
NJ office property also experienced a net unrealized loss of approximately $0.8
million primarily due to capital expenditures on the property that were not
reflected as an increase in market value. The majority of the $3.9 million net
unrealized loss during the first six months of 1999 was attributable to the
office complex located in Oakbrook Terrace, IL. This $2.3 million (14%) value
decrease was due to costs associated with re-leasing and expected vacancy
resulting from the upcoming lease termination exercised by a tenant.
The office properties experienced a net unrealized loss of approximately $0.2
million during the second quarter of 2000 compared to a net unrealized loss of
$2.6 million in the corresponding period in 1999. The loss for the second
quarter of 2000 consisted of $1.2 million at the Oakbrook Terrace, IL property
and $0.1 million at the Morristown, NJ office complex for the reasons discussed
above. In addition, one of the Brentwood, TN office complexes experienced a net
unrealized loss of $0.1 million due to a decrease in occupancy since the
beginning of the year. Offsetting these net unrealized losses was a net
unrealized gain of $1.2 million experienced by the office complex located in
Beaverton, OR primarily as a result of increased occupancy at the property at
higher rental rates than previously forecasted.
Occupancy at the Morristown, NJ property increased from 85% at June 30, 1999 to
100% at June 30, 2000, while occupancy at the Lisle, IL office property
decreased from 89% at June 30, 1999 to 82% at June 30, 2000. Occupancy at one of
the Brentwood, TN office complexes decreased from 100% to 56% from June 30, 1999
to June 30, 2000, while occupancy at the other Brentwood, TN office property
remained unchanged at 100%. Occupancy at the Oakbrook Terrace, IL office complex
decreased from 100% at June 30, 1999 to 55% at June 30, 2000, while occupancy at
the Beaverton, OR office complex decreased from 100% at June 30, 1999 to 61% at
June 30, 2000. The Beaverton, OR vacancy has been re-leased. As of June 30, 2000
all vacant spaces were being marketed.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment sector was $1.7
million for the first six months of 2000, an increase of $0.8 million or 85.4%
compared with the corresponding period in 1999. Net investment income from
property operations for the apartment complexes was $0.8 million for the second
quarter of 2000, an increase of $0.3 million or 47.9% compared with the
corresponding period in 1999. These increases were primarily due to the
acquisition of the controlling interest in the apartment complex located in
Jacksonville, FL,
The apartment complexes owned by the Partnership experienced a net unrealized
gain of $518,075 and $425,925 for the six months ended June 30, 2000 and 1999
respectively. The apartments experienced a net unrealized gain of $438,423 and
$491,295 for the quarters ended June 30, 2000 and 1999 respectively.
The occupancy at the Atlanta, GA complex increased from 97% at June 30, 1999 to
98% at June 30, 2000. Occupancy at the apartment complex in Raleigh, NC
decreased from 95% at June 30, 1999 to 88% at June 30, 2000. Occupancy at the
Jacksonville, FL apartment complex was 85% at June 30, 2000. This vacancy is
largely a result of
19
<PAGE>
renovations at the project. As apartments are renovated, they are then re-leased
at higher rates. As of June 30, 2000, all available vacant units were being
marketed.
RETAIL PROPERTIES
Net investment income for the six months ended June 30, 2000 and 1999 for the
Partnership's retail property located in Roswell, GA was approximately $1.4
million for both periods. Net investment income for the second quarter of 2000
and 1999 was approximately $0.7 million for both periods.
The retail property experienced a net unrealized loss of $45,620 and a net
unrealized gain of $331,740 for the first six months of 2000 and 1999,
respectively. The unrealized loss experienced by the property in 2000 was due to
capital expenditures which did not increase the market value of the property.
The increase in value for 1999 was attributable to improved occupancy and market
conditions.
The retail property experienced a net unrealized loss of $5,991 and a net
unrealized gain of $480,916 for the second quarter of 2000 and 1999,
respectively. The net unrealized gain and loss are attributable to the
aforementioned reasons.
On September 30, 1999, the Partnership invested in an equity joint venture of
retail centers located in the Kansas City, MO area. During the six months ended
June 30, 2000, income from this investment amounted to $320,176, while income
for the quarter ended June 30, 2000 was $150,963. This investment experienced a
net unrealized gain during the first six months of 2000 of $265,777, and a net
unrealized gain for the second quarter 2000 of $185,211, primarily due to
increased leasing and higher rental rates.
Occupancy at the shopping center located in Roswell, GA decreased from 98% at
June 30, 1999 to 97% at June 30, 2000. The retail portfolio located in the
Kansas City, MO area had an average occupancy of 93% at June 30, 2000. As of
June 30, 2000, all vacant spaces were being marketed.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
increased from $0.2 million for the six months ended June 30, 1999 to $0.8
million for the corresponding period in 2000. Net investment income from
property operations for the industrial properties increased from $0.1 million
for the quarter ended June 30, 1999 to $0.4 million for the corresponding
quarter in 2000. The majority of these increases was a result of increased
occupancy at the property located in Aurora, CO.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $1.1 million and $0.2 million for the six
months ended June 30, 2000 and 1999, respectively. The majority of the decrease
was attributable to the Aurora, CO industrial property, which had a loss of
approximately $0.7 million due to more conservative assumptions regarding rental
rates, lease-up time and terminal capitalization rates used by the appraiser. In
addition, capital expenditures were made on the property that were not reflected
as an increase in market value. The industrial property located in Bolingbrook,
IL experienced an unrealized loss of $0.4 million during the six months of 2000.
This loss was due to softening market conditions. The majority of the $0.1
million decrease for 1999 was attributable to the Aurora, CO industrial property
due to capital expenditures on the property that were not reflected as an
increase in market value.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $11,000 and $5,000 for the quarters ended June
30, 2000 and 1999, respectively.
The occupancy at the Bolingbrook, IL property was 100% at June 30, 2000 and
1999. The occupancy at the Salt Lake City, Utah property remained unchanged at
34% from June 30, 1999 to June 30, 2000. The Aurora, CO property's occupancy
rate increased to 75% at June 30, 2000 from 67% at June 30, 1999. As of June 30,
2000, all vacant spaces were being marketed.
20
<PAGE>
REAL ESTATE INVESTMENT TRUSTS
The Partnership recognized a net realized gain from real estate investment
trusts of $1.6 million for the six months ended June 30, 2000 primarily as a
result of the sale of the Partnership's remaining investment in 386,208 ProLogis
REIT shares.
During the first six months of 1999, the Partnership recognized a realized gain
of $401,713 from the exchange of 506,894 shares of Meridian REIT for 557,583
shares of ProLogis REIT which was offset by a realized loss of $187,715
primarily as a result of the sale of 171,375 ProLogis REIT shares.
The Partnership's investment in REIT shares experienced an unrealized gain of
$0.7 million and an unrealized loss of $0.3 million for the six months ended
June 30, 2000 and 1999, respectively. During the quarters ended June 30, 2000
and June 30, 1999, the Partnership's investment in REIT shares experienced an
unrealized gain of $1.8 million and an unrealized loss of $0.8 million,
respectively. These changes in unrealized gain and loss reflect changes in the
market value of REIT shares held by the Partnership.
Management applied a 3% discount to the market value of the ProLogis REIT shares
through June 29, 1999 because of a restriction which limited the number of
shares that could be publicly traded during any six month period. This discount
was discontinued on June 30, 1999 because this restriction no longer applied.
OTHER
Other net investment income decreased $0.8 million during the six months ended
June 30, 2000 compared to the corresponding period last year. Other net
investment income decreased $0.9 million during the second quarter of 2000
compared to the corresponding quarter last year. Other net investment income
includes interest income from short -term investments, investment management
fees, and expenses not related to property activities. Interest income on
short-term investments decreased primarily as a result of a the Partnership
maintaining a significantly lower cash balance when compared to the
corresponding periods last year as mentioned previously. In addition, expenses
not related to property activities increased when compared to the same periods
last year.
(c) INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects", "believes",
"anticipates", "intends", "plans", or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Partnership. There can be no
assurance that future developments affecting the Partnership will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements including without limitation, changes in general
economic conditions, including the performance of financial markets and interest
rates; market acceptance of new products and distribution channels; competitive,
regulatory or tax changes that affect the cost or demand for the Partnership's
products; and adverse litigation results. While the Partnership reassesses
material trends and uncertainties affecting its financial position and results
of operations, it does not intend to review or revise any particular
forward-looking statement referenced in this Management's Discussion and
Analysis in light of future events. The information referred to above should be
considered by readers when reviewing any forward-looking statements contained in
this Management's Discussion and Analysis.
21
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Account and the Partnership are not subject to significant exposure to
market rate risk for changes in interest rates because the Partnership's
financial instruments consist primarily of short-term fixed rate commercial
paper and neither the Account nor the Partnership use derivative financial
instruments. Further, by policy, the Partnership places its investments with
high quality debt security issuers, limits the amount of credit exposure to any
one issuer, limits duration by restricting the term, and holds investments to
maturity except under rare circumstances.
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PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Contract owners participating in the Real Property Account have no
voting rights with respect to the Real Property Account.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1 Variable Life Insurance Contract filed as Exhibit 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 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 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.
b) REPORT ON FORM 8-K
None
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
in respect of
Pruco Life of New Jersey Variable
Contract Real Property Account
(Registrant)
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Date: August 14, 2000 By: /s/
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Esther H. Milnes
President and Director
Date: August 14, 2000 By: /s/
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Dennis G. Sullivan
Vice President and Chief Accounting Officer
