<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
-- SECURITIES EXCHANGE ACT OF 1934
Commission file number 33-20018
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 - September 30, 2000 and December 31, 1999 3
Statements of Operations - Nine and Three Months Ended September 30, 2000 and 1999 3
Statements of Changes in Net Assets - Nine and Three Months Ended September 30, 2000 and 1999 3
Notes to the Financial Statements of the Account 4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Consolidated Statements of Assets and Liabilities - September 30, 2000 and December 31, 1999 6
Consolidated Statements of Operations - Nine and Three Months Ended September 30, 2000 and 1999 7
Consolidated Statements of Changes in Net Assets - Nine Months Ended September 30, 2000 and 1999 8
Consolidated Statements of Cash Flows - Nine Months Ended September 30, 2000 and 1999 9
Consolidated Schedules of Investments - September 30, 2000 and December 31, 1999 10
Notes to the Financial Statements of the Partnership 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risks 22
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
</TABLE>
2
<PAGE>
FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 DECEMBER 31,
(UNAUDITED) 1999
------------ -----------
<S> <C> <C> <C> <C>
ASSETS
Investment in The Prudential Variable Contract
Real Property Partnership (Note 2) $9,541,485 $9,074,151
---------- ----------
Net Assets $9,541,485 $9,074,151
========== ==========
NET ASSETS, REPRESENTING:
Equity of contract owners (Note 3) $5,807,631 $5,925,394
Equity of Pruco Life Insurance Company of New Jersey 3,733,854 3,148,757
---------- ----------
$9,541,485 $9,074,151
========== ==========
STATEMENTS OF OPERATIONS (UNAUDITED)
For the nine and three months ended September 30, 2000 and 1999 NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
INVESTMENT INCOME
Net investment income from Partnership operations $ 444,545 $ 413,742 $ 153,495 $ 141,470
---------- ---------- ---------- ----------
EXPENSES
Charges to contract owners for assuming mortality risk and
expense risk and for administration 25,353 26,800 8,349 8,860
---------- ---------- ---------- ----------
NET INVESTMENT INCOME 419,192 386,942 145,146 132,610
---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net change in unrealized loss on investments in Partnership (91,084) (266,784) (4,765) (114,784)
Realized gain (loss) on sale of investments in Partnership 113,873 329 46,309 (10,566)
---------- ---------- ---------- ----------
NET GAIN (LOSS) ON INVESTMENTS 22,789 (266,455) 41,544 (125,350)
---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 441,981 $ 120,487 $ 186,690 $ 7,260
========== ========== ========== ==========
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
For the nine and three months ended September 30, 2000 and 1999 NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
OPERATIONS
Net investment income $ 419,192 386,942 $ 145,146 132,610
Net change in unrealized loss on investments in Partnership (91,084) (266,784) (4,765) (114,784)
Realized gain (loss) on sale of investments in Partnership 113,873 329 46,309 (10,566)
---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 441,981 120,487 186,690 7,260
---------- ---------- ---------- ----------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners (Note 4) (384,724) (583,468) (55,848) (195,498)
Net contributions by Pruco Life Insurance Company of New Jersey 410,077 610,268 64,197 204,357
---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 25,353 26,800 8,349 8,859
---------- ---------- ---------- ----------
TOTAL INCREASE IN NET ASSETS 467,334 147,287 195,039 16,119
NET ASSETS
Beginning of period 9,074,151 9,260,250 9,346,446 9,391,418
---------- ---------- ---------- ----------
End of period $9,541,485 $9,407,537 $9,541,485 $9,407,537
========== ========== ============ ==========
</TABLE>
3
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
SEPTEMBER 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 nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000. For further information, refer to the
financial statements and notes thereto included in the Real Property
Account's December 31, 1999 Annual Report on Form 10K.
NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
The investment in The Prudential Variable Contract Real Property Partnership
(the "Partnership") is based on the Real Property Account's proportionate
interest of the Partnership's market value. At September 30, 2000 and
December 31, 1999, the Real Property Account's interest in the Partnership
was 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
September 30, 2000 and December 31, 1999 were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
NUMBER OF SHARES (ROUNDED): 435,051 435,051
NET ASSET VALUE PER SHARE (ROUNDED): $21.93 $20.86
COST: $5,058,737 $5,058,737
</TABLE>
NOTE 3: CONTRACT OWNER EQUITY INFORMATION
Contract owner equity at September 30, 2000 and December 31, 1999 by product,
were as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
(UNAUDITED) DECEMBER 31, 1999
------------------- -----------------
<S> <C> <C>
VAL $4,682,671 $4,815,383
VLI 911,954 889,633
SPVA 84,504 101,868
SPVL 128,502 118,510
---------- ----------
TOTAL $5,807,631 $5,925,394
========== ==========
</TABLE>
4
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
SEPTEMBER 30, 2000
(UNAUDITED)
NOTE 4: NET WITHDRAWALS BY CONTRACT OWNERS
Net withdrawals by contract owners for the real estate investment option in
Pruco Life Insurance Company of New Jersey's variable insurance and variable
annuity products for the nine months ended September 30, 2000 and 1999, were
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
VAL $348,620 $520,884
VLI 20,749 55,066
SPVA 20,742 7,914
SPVL (5,387) (396)
-------- --------
TOTAL $384,724 $583,468
======== ========
</TABLE>
5
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
(UNAUDITED) DECEMBER 31, 1999
-------------------- --------------------
<S> <C> <C>
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 9/30/2000 -- $193,351,211;
12/31/1999 -- $190,007,568) $171,076,665 $171,154,516
Real estate partnership (cost: 9/30/2000 -- $5,853,092;
12/31/1999 -- $5,187,126) 5,335,089 4,506,257
Real estate investment trusts (cost: 9/30/2000 --
$23,808,197; 12/31/1999 -- $32,535,158) 25,739,425 29,727,085
--------------- ---------------
Total real estate investments 202,151,179 205,387,858
MARKETABLE SECURITIES - At estimated market value
(cost: 9/30/2000 -- $2,702,030; 12/31/1999 -- $2,805,493) 2,702,084 $2,797,008
CASH AND CASH EQUIVALENTS 20,267,642 13,972,669
DIVIDEND RECEIVABLE 175,545 131,542
OTHER ASSETS (net of allowance for uncollectible
accounts: 9/30/2000 -- $11,200; 12/31/1999 -- $179,000) 3,115,957 2,853,576
--------------- ---------------
Total assets 228,412,407 225,142,653
--------------- ---------------
LIABILITIES
MORTGAGE LOAN PAYABLE 10,114,333 10,184,662
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,182,708 2,967,614
DUE TO AFFILIATES 859,047 869,477
OTHER LIABILITIES 772,564 525,892
MINORITY INTEREST 606,631 372,068
--------------- ---------------
Total liabilities 15,535,283 14,919,713
--------------- ---------------
INVESTMENT COMMITMENTS
Partners' equity 212,877,124 210,222,940
--------------- ---------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $228,412,407 $225,142,653
=============== ===============
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 9,706,284 10,078,921
=============== ===============
SHARE VALUE AT END OF PERIOD $21.93 $20.86
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- -----------------------------------
2000 1999 2000 1999
----------------- ------------------ ----------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Revenue from real estate and improvements $17,089,509 $15,707,829 $5,623,942 $5,222,918
Equity in income of real estate partnership 658,905 0 338,729 0
Dividend Income from real estate investment trusts 1,162,185 789,754 382,270 352,685
Interest on short-term investments 874,294 1,384,882 342,764 331,902
---------------- ----------------- ---------------- ----------------
Total investment income 19,784,893 17,882,465 6,687,705 5,907,505
---------------- ----------------- ---------------- ----------------
EXPENSES:
Investment management fee 2,020,562 2,027,470 672,389 681,807
Real estate taxes 1,973,769 2,133,374 671,532 618,014
Administrative 1,837,556 1,468,770 545,583 429,855
Operating 3,249,334 2,737,517 1,149,241 967,731
Interest 530,893 0 177,186 0
Minority interest 11,785 0 45,531 0
---------------- ----------------- ---------------- ----------------
Total investment expenses 9,623,899 8,367,131 3,261,462 2,697,407
---------------- ----------------- ---------------- ----------------
NET INVESTMENT INCOME 10,160,994 9,515,334 3,426,243 3,210,098
---------------- ----------------- ---------------- ----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS
Net proceeds from real estate investments
sold or converted 28,516,320 19,668,030 9,781,665 2,468,061
Less: Cost of real estate investments sold or
converted 29,436,095 17,579,801 9,775,154 2,718,144
Realization of prior periods' unrealized
(loss) gain on real estate investments
sold or converted (3,522,580) 2,080,673 (431,983) (146,339)
---------------- ------------------ ----------------- -----------------
Net gain (loss) realized on real estate investments
sold or converted 2,602,805 7,556 438,494 (103,744)
---------------- ----------------- ---------------- ----------------
Change in unrealized (loss) gain on real estate
investments (2,041,907) (6,225,283) 427,552 (2,740,601)
Minority interest in unrealized (loss) gain on
investments (67,708) 0 59,167 0
---------------- ----------------- ---------------- ----------------
Net unrealized (loss) gain on real estate
investments (2,109,615) (6,225,283) 486,719 (2,740,601)
---------------- ----------------- ---------------- ----------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 493,190 (6,217,727) 925,213 (2,844,345)
---------------- ----------------- ---------------- ----------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $10,654,184 $3,297,607 $4,351,456 $365,753
================ ================= ================ ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
7
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
-------------------- -------------------
<S> <C> <C>
NET INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $10,160,994 $9,515,334
Net realized gain on real estate investments sold
or converted 2,602,805 7,556
Change in unrealized loss on real estate investments (2,109,615) (6,225,283)
------------------- ------------------
Net increase in net assets resulting from operations 10,654,184 3,297,607
------------------- ------------------
NET DECREASE IN NET ASSETS
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(9/30/2000 -- 372,636 shares; 9/30/1999 -- 1,482,233 shares) (8,000,000) (30,000,000)
------------------- ------------------
Net decrease in net assets resulting from
capital transactions (8,000,000) (30,000,000)
------------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS 2,654,184 (26,702,393)
NET ASSETS - Beginning of period 210,222,940 240,160,397
------------------- ------------------
NET ASSETS - End of period $212,877,124 $213,458,004
=================== ==================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $10,654,184 $3,297,607
Adjustments to reconcile net increase in net assets
resulting from operations to net cash flows from
operating activities:
Net realized and unrealized (gain) loss on investments (493,190) 6,217,727
Distributions from real estate partnership less than
equity in income (658,905) 0
Minority interest from operating activities 11,785 0
Bad debt expense 7,589 16,917
(Increase) Decrease in:
Dividend receivable (44,003) 167,275
Other assets (269,970) 1,217,730
Increase (Decrease) in:
Accounts payable and accrued expenses 215,094 208,503
Due to affiliates (10,430) (339,218)
Other liabilities 246,672 40,336
------------------ -------------------
Net cash flows from operating activities 9,658,826 10,826,877
------------------ -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additional costs on prior purchases:
Net proceeds from real estate investments sold 28,516,320 8,725,464
Acquisition of real estate property 0 (7,542,712)
Additions to real estate property (3,343,643) (1,138,743)
Acquisition of real estate partnership 0 (4,875,000)
Additions to real estate partnership (7,061) 0
Acquisition of real estate investment trust (20,709,134) (29,174,960)
Sale of marketable securities, net 94,924 13,128,681
------------------ -------------------
Net cash flows from investing activities 4,551,406 (20,877,270)
------------------ -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loan payable (70,329) 0
Withdrawals by partners (8,000,000) (30,000,000)
Contributions from minority interest partners 155,070 377,135
------------------ -------------------
Net cash flows from financing activities (7,915,259) (29,622,865)
------------------ -------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,294,973 (39,673,258)
CASH AND CASH EQUIVALENTS - Beginning of period 13,972,669 58,578,848
------------------ -------------------
CASH AND CASH EQUIVALENTS - End of period $20,267,642 $18,905,590
================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the nine months for interest $530,893 $0
=================== ===================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Exchange of shares of Meridian real estate investment
trust for shares of ProLogis real estate investment
trust shares $0 $10,942,566
=================== ===================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------------------ -----------------------------------
ESTIMATED ESTIMATED
MARKET MARKET
COST VALUE COST VALUE
----------------------------------------------------------------------------
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 80.4% 81.4%
Location Description
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lisle, IL Office Building $ 22,132,688 $ 13,930,205 $ 22,075,782 $ 13,895,122
Atlanta, GA Garden Apartments 15,666,454 16,400,002 15,646,846 16,104,268
Roswell, GA Retail Shopping Center 32,458,175 26,800,871 32,394,853 27,000,939
Morristown, NJ Office Building 20,320,495 12,300,000 20,116,694 12,337,499
Bolingbrook, IL Warehouse 8,948,028 6,400,000 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,846,639 17,200,000 15,833,928 17,004,623
Brentwood, TN Office Building 9,561,222 10,543,906 8,509,908 10,000,000
Oakbrook Terrace, IL Office Complex 13,004,341 13,000,000 12,945,366 14,200,000
Beaverton, OR Office Complex 11,201,230 10,300,001 10,768,811 10,400,866
Salt Lake City, UT Industrial Building 5,640,709 5,700,050 5,640,709 5,703,419
Aurora, CO Industrial Building 10,130,644 9,800,000 10,119,072 10,520,780
Brentwood, TN Office Complex 9,608,460 9,601,630 9,606,828 9,537,000
Jacksonville, FL Garden Apartments 18,832,126 19,100,000 17,400,743 17,450,000*
----------------------------------------------------------------------------
$193,351,211 $171,076,665 $190,007,568 $171,154,516
============================================================================
REAL ESTATE PARTNERSHIP (PERCENT OF NET ASSETS) 2.5% 2.1%
Location Description
--------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
Kansas City, KS; MO Retail Shopping Center $5,853,092 $5,335,089 $5,187,126 $4,506,257
=============================================================================
</TABLE>
* Real estate partnership accounted for by the consolidated method.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
-----------------------------------
ESTIMATED
MARKET
COST VALUE
-----------------------------------
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 12.1%
----------------------------------------------------------------------------------------
<S> <C> <C>
AMLI Residential Properties (30,000 shares) $ 706,800 $ 720,000
Apartment Inv & Mgmt Co., Class A (33,900 shares) 1,422,878 1,561,518
Brandywine Realty Trust (15,000 shares) 321,338 303,750
CBL & Associates Prop (15,800 shares) 396,088 395,988
Cabot Industrial Trust (40,000 shares) 820,726 797,500
Camden Property Trust (25,000 shares) 780,125 775,000
Centerpoint Properties Corp. (18,600 shares) 632,302 856,762
Equity Office Properties Trust (52,400 shares) 1,463,396 1,627,675
Essex Property Trust, Inc. (15,000 shares) 593,700 830,625
Felcor Lodging Trust (25,000 shares) 545,920 578,125
First Industrial Realty Trust (25,000 shares) 781,100 768,750
Franchise Finance Cp Amer (46,300 shares) 1,118,418 1,041,750
Gables Residential Trust (25,000 shares) 632,750 679,688
Great Lakes Reit (30,000 shares) 554,775 521,250
Highwoods Properties Inc. (20,000 shares) 541,982 472,500
Host Marriot Corp. (80,000 shares) 824,800 900,000
IRT Property (45,000 shares) 406,395 393,750
Kilroy Realty Corp. (30,000 shares) 746,886 800,625
Liberty Property LP. (35,000 shares) 899,562 962,500
Macerich Co. (30,000 shares) 670,489 637,500
MeriStar Hospitality Corp. (32,500 shares) 538,813 658,125
Mission West Properties (108,200 shares) 862,224 1,501,275
Parkway Properties Inc. (25,000 shares) 782,750 762,500
Philips International Realty (68,500 shares) 1,129,948 1,181,625
Public Storage Inc. (23,700 shares) 611,872 567,319
Reckson Assoc Realty Corp. (32,500 shares) 805,150 828,750
Regency Realty Corp. (25,000 shares) 576,600 573,437
Spieker Properties (17,000 shares) 665,228 978,563
Taubeau Centers Inc.(50,000 shares) 556,625 578,125
United Dominion Realty Trust (70,000 shares) 811,068 761,250
Vornado Realty Trust (24,800 shares) 848,269 920,700
Washington Reit (40,000 shares) 759,220 802,500
=====================================
$23,808,197 $25,739,425
=====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------
ESTIMATED
MARKET
COST VALUE
------------------------------------
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 14.1%
-------------------------------------------------------------------------------------------------
<S> <C> <C>
Prologis REIT Shares (386,208 shares) $ 7,579,332 $ 7,434,504
AMB Property Corp (42,100 shares) 933,851 839,369
Alexandria Real Est Equities (30,800 shares) 874,221 979,825
Apartment Inv & Mgmt Co - Class A (16,500 shares) 672,953 656,906
Centerpoint Properties Corp (16,200 shares) 544,308 581,175
Cousins Properties (24,800 shares) 890,459 841,650
Equity Office Properties Trust (32,400 shares) 901,571 797,850
Equity Residential Property Trust (13,100 shares) 623,573 559,206
Excel Legacy Corp (322,300 shares) 1,479,431 1,067,619
Franchise Finance Cp Amer (25,500 shares) 620,027 610,406
General Growth Properties (13,600 shares) 512,353 380,800
Intrawest Corporation (76,100 shares) 1,258,575 1,317,481
MeriStar Hotels & Resorts Inc. (239,100 shares) 875,818 851,794
Mission West Properties (116,800 shares) 938,124 905,200
Philips International Realty (63,700 shares) 1,052,331 1,047,069
Prime Hospitality Corp. (112,500 shares) 1,320,524 991,406
Public Storage (45,100 shares) 1,269,884 1,023,206
Reckson Service Industries (18,200 shares) 221,041 1,135,225
Reckson Assoc Realty Corp (52,200 shares) 1,299,227 1,070,100
Spieker Properties (12,000 shares) 426,078 437,250
Starwood Hotels and Resorts (87,200 shares) 3,027,806 2,049,200
Sun Communities Inc. (16,700 shares) 606,047 537,531
Vornado Realty Trust (51,800 shares) 1,930,911 1,683,500
Sun International Hotels Ltd (30,900 shares) 1,116,266 598,688
Boardwalk Equities, Inc. (146,800 shares) 1,560,447 1,330,125
====================================
$32,535,158 $29,727,085
====================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
12
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
---------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
--------------- -------------- ---------------
<S> <C> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.3%
Merrill Lynch & Co., Inc. 6.51%, October 27, 2000 $ 725,000 $ 711,234 $ 711,234
Campbell Soup Co., 6.53% October 30, 2000 717,000 704,775 704,775
E.I. Du Pont de Nemours & Co. Inc., 6.53%, December 18, 2000 225,000 219,613 219,613
E.I. Du Pont de Nemours & Co. Inc., 6.55%, December 18, 2000 100,000 97,616 97,616
Lasalle National Bank, 6.71%, February 1, 2001 969,000 968,792 968,846
--------------- -------------- ---------------
TOTAL MARKETABLE SECURITIES $ 2,736,000 $ 2,702,030 $ 2,702,084
=============== ============== ===============
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 9.5%
Lucent Technologies, 6.80%, October 2, 2000 $ 1,000,000 $ 999,433 $ 999,433
First Data Corp., 6.50%, October 3, 2000 1,000,000 994,944 994,944
J.P. Morgan and Co., Inc., 6.50%, October 5, 2000 1,000,000 994,583 994,583
Household Finance Corp., 6.50%, October 10, 2000 577,000 574,708 574,708
Target Corp., 6.55%, October 10, 2000 616,000 614,543 614,543
Ciesco L.P., 6.50%, October 11, 2000 979,000 963,268 963,268
New Center Asset Trust, 6.50%, October 11, 2000 976,000 970,713 970,713
Homeside Lending Inc., 6.50%, October 16, 2000 975,000 964,614 964,614
Ford Motor Credit Corp Co., 6.50%, October 18, 2000 388,000 384,988 384,988
Equitable Life Assur Society U.S., 6.51%, October 20, 2000 641,000 637,523 637,523
Paccar Financial Corp., 6.50%, October 20, 2000 959,000 949,303 949,303
Textron Financial Corp., 6.51%, October 20, 2000 947,000 938,438 938,438
Bank of Montreal, 6.62%, November 2, 2000 900,000 900,000 900,000
B-One Australia LTD., 6.53%, November 3, 2000 925,000 917,282 917,282
Verizon Global Funding Corp., 6.50%, November 3, 2000 975,000 962,325 962,325
AON Corp., 6.53%, November 14, 2000 1,000,000 991,112 991,112
General Motors Acceptance Corp., Inc., 6.49%, November 15, 2000 950,000 940,238 940,238
Salomon Smith Barney Hldgs Inc., 6.50%, November 20, 2000 1,000,000 990,069 990,069
AT&T Corp., 6.48%, November 29, 2000 591,000 583,660 583,660
Nike Inc., 6.48%, November 29, 2000 727,000 718,494 718,494
Eastman Kodak Co., 6.49%, December 4, 2000 900,000 887,994 887,994
Alcoa Inc., 6.48%, December 6, 2000 524,000 516,926 516,926
--------------- -------------- ---------------
TOTAL CASH EQUIVALENTS 18,550,000 18,395,158 18,395,158
CASH 1,872,484 1,872,484 1,872,484
--------------- -------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS $ 20,422,484 $ 20,267,642 $ 20,267,642
=============== ============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
13
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
--------------- -------------- ---------------
<S> <C> <C> <C>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.3%
J.P. Morgan and Co., Inc., 5.96%, March 13, 2000 $ 995,000 $ 980,010 $ 980,010
Ford Motor Credit Co., 7.50%, April 6, 2000 150,000 151,779 150,653
CIT Group Inc., 6.80%, April 17, 2000 500,000 503,765 501,487
Associates Corp of North America, 6.71%, June 1, 2000 1,160,000 1,169,939 1,164,858
--------------- -------------- ---------------
TOTAL MARKETABLE SECURITIES $ 2,805,000 $ 2,805,493 $ 2,797,008
=============== ============== ===============
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 6.6%
Duke Energy Corp., 5.00%, January 3, 2000 $ 550,000 $ 549,771 $ 549,771
Bell Atlantic Financial Services, 5.20%, January 7, 2000 672,000 671,321 671,321
Household Finance Corp, 5.93%, January 18, 2000 990,000 983,314 983,314
Ford Motor Credit Co., 6.00%, January 21, 2000 847,000 840,789 840,789
American Express Cr. Corp., 6.02%, January 26, 2000 999,000 990,981 990,981
Procter & Gamble Co., 6.00%, January 26, 2000 200,000 197,867 197,867
Goldman Sachs Group L.P., 6.43%, January 31, 2000 1,000,000 991,963 991,963
Countrywide Home Loans, 6.00%, February 3, 2000 990,000 980,595 980,595
Merrill Lynch & Co., Inc., 5.98%, February 3, 2000 990,000 980,626 980,626
Unifunding Inc., 6.05%, February 3, 2000 900,000 892,135 892,135
Metlife Funding Inc., 5.90%, February 4, 2000 841,000 832,730 832,730
General Electric Cap Corp., 5.95%, February 10, 2000 350,000 346,182 346,182
GTE Funding, Inc., 6.10%, February 10, 2000 1,000,000 990,681 990,681
E.I. Du Pont De Nemours & Co. Inc., 6.00%, February 11, 2000 250,000 246,667 246,667
General Electric Capital Corp., 5.92% March 1, 2000 406,000 400,258 400,258
--------------- -------------- ---------------
TOTAL CASH EQUIVALENTS 10,985,000 10,895,880 10,895,880
CASH 3,076,789 3,076,789 3,076,789
--------------- -------------- ---------------
TOTAL CASH AND CASH EQUIVALENTS $ 14,061,789 $ 13,972,669 $ 13,972,669
=============== ============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and accounting
principles generally accepted in the United States for interim financial
information. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine months ended September 30,
2000 are not necessarily indicative of the results that may be expected for
the year ended December 31, 2000. For further information, refer to the
financial statements and notes thereto included in each Partner's December
31, 1999 Annual Report on Form 10K.
NOTE 2: COMMITMENT FROM PARTNER
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the
Partnership under this commitment were utilized for property acquisitions,
and returned to Prudential on an ongoing basis from the contract owners' net
contributions and other available cash. The amount of the commitment is
reduced by $10 million for every $100 million in current value net assets of
the Partnership. Thus, with $213 million in net assets, the commitment has
been automatically reduced to $80 million. As of September 30, 2000,
Prudential's equity interest in the Partnership, on a cost basis, under this
commitment was $44 million. Prudential does not intend to make contributions
during the 2000 fiscal year and will begin to phase out this commitment over
the next several years.
NOTE 3: RELATED PARTY TRANSACTIONS
Pursuant to an investment management agreement, Prudential charges the
Partnership a daily investment management fee at an annual rate of 1.25% of
the average daily gross asset valuation of the Partnership. For the nine
months ended September 30, 2000 and 1999 management fees incurred by the
Partnership were $2,020,562 and $2,027,470 respectively.
The Partnership also reimburses Prudential for certain administrative
services rendered by Prudential. The amounts incurred for the nine months
ended September 30, 2000 and 1999 were $87,472 and $87,305 respectively, and
are classified as administrative expenses in the consolidated statements of
operations.
NOTE 4: INVESTMENT IN REAL ESTATE INVESTMENT TRUST (REIT)
On March 30, 1999, the Partnership exchanged 506,894 shares of Meridian REIT
for 557,583 shares of ProLogis REIT, fair value of $10,942,566, and
receivable of $1,013,796 (or total fair value of $11,956,362) as a result of
ProLogis' acquisition of Meridian. Management continued applying a 3%
discount to the market value of the ProLogis REIT shares through June 29,
1999 because of the restriction which limits the number of shares that can be
publicly traded during any six month period to 30% of the total shares
originally acquired. The application of the 3% discount was discontinued on
June 30, 1999 because this restriction no longer applied.
NOTE 5: SUBSEQUENT EVENTS
On October 26, 2000, the Partnership sold the office complex located in
Morristown, New Jersey. The total proceeds received were approximately
$12.9 million, resulting in a realized gain for the current year of
approximately $0.2 million.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of the Real Property Account (the "Account") are invested
in the Prudential Variable Contract Real Property Partnership (the
"Partnership"). Correspondingly, the liquidity, capital resources and results
of operations for the Real Property Account are contingent upon the
Partnership. Therefore, all of management's discussion of these items is at
the Partnership level. The Partners in the Partnership are The Prudential
Insurance Company of America, Pruco Life Insurance Company, and Pruco Life
Insurance Company of New Jersey (collectively, the "Partners").
The following analysis of the liquidity and capital resources and results of
operations of the Partnership should be read in conjunction with the
Financial Statements and the related Notes to the Financial Statements
included elsewhere herein.
(a) LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2000, the Partnership's liquid assets consisting of cash,
cash equivalents and marketable securities were $23.0 million, an increase of
$6.2 million from December 31, 1999. This increase was primarily due to the
sale of REIT shares and operations of the Partnership's properties which were
offset by a distribution to a Partner of $8.0 million on June 28, 2000.
Sources of liquidity include net cash flow from property operations, interest
from short-term investments, and dividends from REIT shares.
The Partnership's investment policy allows up to 30% investment in cash and
short-term obligations, although the Partnership generally holds
approximately 10% of its assets in cash or liquid instruments. At
September 30, 2000, 10% of the Partnership's assets consisted of cash and
cash equivalents and marketable securities.
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the
Partnership under this commitment have been utilized for property
acquisitions, and returned to Prudential on an ongoing basis from contract
owners' net contributions and other available cash. The amount of the
commitment is reduced by $10 million for every $100 million in current value
net assets of the Partnership. Thus, with $213 million in net assets, the
commitment has been automatically reduced to $80 million. As of September 30,
2000, Prudential's equity interest in the Partnership, on a cost basis, under
this commitment was $44 million. Prudential does not intend to make any
contributions during the 2000 fiscal year and will begin to phase out this
commitment over the next several years.
On June 28, 2000, the Partnership made an $8 million distribution to the
Partners, while on February 2, 1999 a distribution of $30 million was made to
the Partners. Additional distributions may be made to the Partners during
2000, taking into consideration anticipated cash needs of the Partnership
including potential property acquisitions, property dispositions and capital
expenditures. Management anticipates that its current liquid assets and
ongoing cash flow from operations will satisfy the Partnership's needs over
the next twelve months and the foreseeable future.
During the first nine months of 2000, the Partnership spent approximately
$3.3 million in capital expenditures. Approximately $1.4 million was
associated with the renovation of the apartment complex located in
Jacksonville, FL. The remaining $1.9 million balance was primarily associated
with capital expenditures in relation to leasing activity at one of the
office properties located in Brentwood, TN as well as the offices located in
Morristown, NJ and Beaverton, OR.
(b) RESULTS OF OPERATIONS
The following is a brief year-to-date and quarterly comparison of the
Partnership's results of operations for the periods ended September 30, 2000
and 1999.
16
<PAGE>
SEPTEMBER 30, 2000 VS. SEPTEMBER 30, 1999
The following table presents a year-to-date and quarterly comparison of the
Partnership's sources of net investment income, and realized and unrealized
gains or losses by investment type.
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET INVESTMENT INCOME:
Office properties $ 4,174,180 $ 5,404,103 $ 1,261,021 $ 1,654,448
Apartment complexes 2,545,173 1,617,646 845,424 701,052
Retail property 2,129,555 2,067,724 701,637 692,468
Industrial properties 1,056,304 480,812 286,091 324,431
Equity in income of real estate partnership 658,905 - 338,729 -
Dividend income from real
estate investment trust 1,162,185 789,754 382,270 352,685
Other (including interest income,
investment mgt fee, etc.) (1,565,308) (844,705) (388,929) (514,986)
----------- ----------- ----------- -----------
TOTAL NET INVESTMENT INCOME $10,160,994 $ 9,515,334 $ 3,426,243 $ 3,210,098
----------- ----------- ----------- -----------
UNREALIZED (LOSS) GAIN ON INVESTMENTS:
Office properties $(2,499,791) $(3,052,513) $ (189,271) $ 867,563
Apartment complexes 609,699 (188,505) 91,624 (614,430)
Retail property (263,389) 291,767 (217,769) (39,973)
Industrial properties (1,335,721) 142,513 (200,000) 347,963
Interest in properties 162,866 - (102,912) -
Real estate investment trusts 1,216,721 (3,418,545) 1,105,047 (3,301,724)
----------- ----------- ----------- -----------
$(2,109,615) $(6,225,283) $ 486,719 $(2,740,601)
----------- ----------- ----------- -----------
REALIZED GAIN (LOSS) ON INVESTMENTS:
Apartment complexes - - - -
Industrial properties - 43,641 - -
Interest in properties - - - -
Real estate investment trust 2,602,805 (36,085) 438,494 (103,744)
----------- ----------- ----------- -----------
2,602,805 7,556 438,494 (103,744)
----------- ----------- ----------- -----------
TOTAL REALIZED AND UNREALIZED GAIN ----------- ----------- ----------- -----------
(LOSS) ON INVESTMENTS $ 493,190 $(6,217,727) $ 925,213 $(2,844,345)
----------- ----------- ----------- -----------
</TABLE>
The Partnership's net investment income for the nine months ended
September 30, 2000 was $10.2 million, an increase of $0.7 million from net
investment income of $9.5 million in the corresponding period in 1999. The
Partnership's net investment income for the quarter ended September 30, 2000
was $3.4 million, an increase of $0.2 million from net investment income of
$3.2 million in the corresponding period in 1999.
Revenue from real estate properties was $17.1 million for the nine months
ended September, 30 2000, an increase of $1.4 million, or 8.8%, from $15.7
million in the corresponding period in 1999. This increase was primarily due
to the Partnership's acquisition of a controlling interest in an apartment
complex located in Jacksonville, FL. Revenue from real estate properties was
$5.6 million for the third quarter of 2000, an increase of $0.4 million, or
7.7%, from $5.2 million in the corresponding quarter in 1999.
Equity in income of real estate partnership increased $0.7 million during the
first nine months of 2000, and $0.3 million during the third quarter of 2000,
as a result of the acquisition of the Partnership's equity investment
interest in the retail portfolio located in the Kansas City, MO area. This
interest was not acquired until September 30, 1999.
17
<PAGE>
Dividend income from real estate investment trusts was $1.2 million for the
first nine months of 2000, an increase of $0.4 million or 47.2% from the
corresponding period in 1999. This increase was primarily due to higher
amounts invested in real estate investment trusts. A significant increase in
the Partnership's investment in REIT shares took place in the latter part of
the second quarter 1999. Therefore, dividend income for the first nine months
of 2000 represents a full nine months of dividend income activity on the
increased investment, while the first nine months of 1999 only include
approximately 4 1/2 months dividend income from the increased investment.
Interest on short-term investments decreased approximately $0.5 million or
36.9% for the nine months ended September 30, 2000 due primarily to a
significantly lower average cash balance. Cash and cash equivalents during
the first nine months of 2000 averaged approximately $18.2 million compared
to approximately $36.5 million for the first nine months of 1999.
Administrative expenses increased $0.4 million, or 25.1%, to $1.8 million
during the first nine months of 2000 when compared to the corresponding
period in 1999. Administrative expenses for the third quarter of 2000
increased $0.1 million or 26.9% to $0.5 million when compared to the third
quarter of 1999. These increases were primarily due to the acquisition of a
controlling interest in an apartment complex located in Jacksonville, FL.
Operating expenses increased $0.5 million or 18.7% to $3.2 million during the
first nine months of 2000 when compared to the corresponding period in 1999.
Operating expenses increased $0.2 million or 18.8% to $1.1 million when
compared to the third quarter of 1999. These increases were primarily a
result of the Partnership's acquisition of a controlling interest in the
apartment complex located in Jacksonville, FL.
Interest expense increased $0.5 million during the first nine months of 2000,
and $0.2 million during the third quarter of 2000, when compared to the
corresponding periods in 1999. These increases were a result of the
Partnership's acquisition of a controlling interest in the apartment complex
located in Jacksonville, FL, which was acquired subject to $10.2 million in
debt.
Minority interest in consolidated partnership increased $11,785 during the
first nine months of 2000, and $45,531 during the third quarter of 2000.
These increases were a result of the Partnership's controlling joint venture
investment in the apartment complex located in Jacksonville, FL.
OFFICE PROPERTIES
Net investment income from property operations for the office sector
decreased approximately $1.2 million or 22.8% for the nine months ended
September 30, 2000 when compared to the corresponding period in 1999. Net
investment income from property operations for the office sector decreased
approximately $0.4 million or 23.8% during the third quarter of 2000 when
compared to the corresponding period in 1999. These decreases were primarily
due to lower revenue levels experienced by the Oakbrook Terrace, IL office
complex during 2000 as a result of the lease termination fee received from
one of the tenants during 1999 coupled with a corresponding decrease in
occupancy at this same office property. A 36% decrease in occupancy at one of
the Brentwood, TN office properties also contributed to the decrease.
The six office properties owned by the Partnership experienced a net
unrealized loss of approximately $2.5 million during the first nine months of
2000 compared to a net unrealized loss of $3.1 million in the corresponding
period in 1999.
The largest share (52%) of the net unrealized loss experienced during the
first nine months of 2000 was primarily due to the office property located in
Oakbrook Terrace, IL. This approximate $1.3 million value decrease was due to
a lease termination associated with 45% of the space and weaker market
conditions. The Beaverton, OR and Brentwood, TN office properties also
experienced net unrealized losses of approximately $0.5 million each
primarily due to capital expenditures on the properties that were not
reflected as an increase in market value.
18
<PAGE>
The majority of the $3.1 million net unrealized loss during the first nine
months of 1999 was attributable to the office complex located in Oakbrook
Terrace, IL. This $1.6 million value decrease was due to costs associated
with re-leasing and expected vacancy resulting from the upcoming lease
termination exercised by a tenant. The Beaverton, OR office property also
experienced a net unrealized loss of approximately $0.8 million. This decline
in value is partially attributable to reduced investor demand for suburban
office. The Lisle, IL office property also experienced a net unrealized loss
of approximately $0.6 million primarily due to capital expenditures on the
property that were not reflected as an increase in market value.
The office properties experienced a net unrealized loss of approximately
$0.2 million during the third quarter of 2000 compared to a net unrealized gain
of $0.9 million in the corresponding period in 1999. The loss for the third
quarter of 2000 consisted of $0.4 million at the Beaverton, OR property and
$0.4 million at the Brentwood, TN office complexes for the reasons discussed
above. Offsetting these net unrealized losses was a net unrealized gain of
$0.6 million experienced by the office complex located in Morristown, NJ
which was under contract to sell. The majority of the $0.9 million unrealized
gain experienced in 1999 was primarily the result of the Oakbrook Terrace, IL
property experiencing a $0.7 million net unrealized gain as a result of
increased market rent levels at the property.
Occupancy at the Morristown, NJ property increased from 97% at September 30,
1999 to 100% at September 30, 2000, while occupancy at the Lisle, IL office
property decreased from 88% at September 30, 1999 to 87% at September 30,
2000. Occupancy at one of the Brentwood, TN office complexes decreased from
95% to 59% from September 30, 1999 to September 30, 2000, while occupancy at
the other Brentwood, TN office property increased from 95% to 100%. Occupancy
at the Oakbrook Terrace, IL office complex decreased from 100% at September
30, 1999 to 55% at September 30, 2000, while occupancy at the Beaverton, OR
office complex decreased from 100% at September 30, 1999 to 95% at September
30, 2000. As of September 30, 2000 all vacant spaces were being marketed.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment sector was
$2.5 million for the first nine months of 2000, an increase of $0.9 million
or 57.3% compared with the corresponding period in 1999. Net investment
income from property operations for the apartment complexes was $0.8 million
for the third quarter of 2000, an increase of $0.1 million or 20.6% compared
with the corresponding period in 1999. These increases were primarily due to
the acquisition of the controlling interest in the apartment complex located
in Jacksonville, FL.
The apartment complexes owned by the Partnership experienced a net unrealized
gain of $0.6 million and a net unrealized loss of $0.2 million for the nine
months ended September 30, 2000 and 1999 respectively. The largest share of
the unrealized gain for 2000 or $0.3 million was experienced by the apartment
complex located in Atlanta, GA primarily due to increases in rental rates and
stabilized occupancy. The apartment complex located in Raleigh, NC also
experienced a net unrealized gain of $0.2 million due to increases in rental
rates. The net unrealized loss of $0.2 million during the first nine months
of 1999 was experienced by the Atlanta, GA apartment complex which decreased
in value as a result of the final real estate tax bill being approximately
$80,000 higher for the year than was originally anticipated. This unexpected
increase in real estate taxes affects the property's current and future cash
flow and resulted in a decrease in market value.
The apartments experienced a net unrealized gain of $0.1 million and a net
unrealized loss of $0.6 million for the quarters ended September 30, 2000 and
1999 respectively. The majority of the unrealized gain in 2000 was
experienced by the Raleigh, NC property due to increases in rental rates as
discussed previously. The majority of the net unrealized loss in 1999 was
experienced by the property located in Atlanta, GA which decreased in value
approximately $0.6 million due to higher than anticipated real estate taxes
as discussed previously.
The occupancy at the Atlanta, GA complex remained unchanged at 98% as of
September 30, 1999 and September 30, 2000. Occupancy at the apartment complex
in Raleigh, NC also remained unchanged at 96% as of September 30, 1999 and
September 30, 2000. Occupancy at the Jacksonville, FL apartment complex
decreased from 93% as of
19
<PAGE>
September 30, 1999 to 92% as of September 30, 2000. This vacancy is largely a
result of renovations at the project. As apartments are renovated, they are
then re-leased at higher rates. As of September 30, 2000, all available
vacant units were being marketed.
RETAIL PROPERTIES
Net investment income for the nine months ended September 30, 2000 and 1999
for the Partnership's retail property located in Roswell, GA was
approximately $2.1 million for both periods. Net investment income for the
third quarter of 2000 and 1999 was approximately $0.7 million for both
periods.
The retail property experienced a net unrealized loss of $0.3 million and a
net unrealized gain of $0.3 million for the first nine months of 2000 and
1999, respectively. The unrealized loss experienced by the property in 2000
was due to lower income projections, resulting primarily from lower income
growth rate projections, coupled with capital expenditures which did not
increase the market value of the property. The increase in value for 1999 was
attributable to improved market conditions.
The retail property experienced a net unrealized loss of $0.2 million and
$0.1 million for the third quarter of 2000 and 1999, respectively. The net
unrealized loss for the third quarter 2000 was attributable to the lower
income projections and growth rate projections discussed previously. The net
unrealized loss for the third quarter 1999 was attributable to capital
expenditures on the property that were not reflected as an increase in market
value.
On September 30, 1999, the Partnership invested in an equity joint venture of
retail centers located in the Kansas City, MO area. During the nine months
ended September 30, 2000, income from this investment amounted to $0.7
million, while income for the quarter ended September 30, 2000 was $0.3
million. This investment experienced a net unrealized gain during the first
nine months of 2000 of $0.2 million, and a net unrealized loss for the third
quarter 2000 of $0.1 million, primarily due to capital expenditures on the
properties that were not reflected as an increase in market value.
Occupancy at the shopping center located in Roswell, GA decreased from 100%
as of September 30, 1999 to 96% as of September 30, 2000. The retail
portfolio located in the Kansas City, MO area had an average occupancy of 95%
as of September 30, 2000 compared to an average occupancy of 88% as of
September 30, 1999. As of September 30, 2000, all vacant spaces were being
marketed.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
increased from $0.5 million for the nine months ended September 30, 1999 to
$1.1 million for the corresponding period in 2000. The majority of the
increase was a result of increased occupancy at the property located in
Aurora, CO. Net investment income from property operations for the industrial
properties remained unchanged at $0.3 million for the quarter ended
September 30, 1999 and September 30, 2000.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $1.3 million and a net unrealized gain of
$0.1 million for the nine months ended September 30, 2000 and 1999,
respectively. The majority of the decrease for 2000 was attributable to the
Aurora, CO industrial property, which had a loss of approximately
$0.7 million due to more conservative assumptions regarding rental rates,
lease-up time and terminal capitalization rates used by the appraiser. In
addition, capital expenditures were incurred at the property which were not
reflected as an increase in market value. The industrial property located in
Bolingbrook, IL experienced an unrealized loss of $0.6 million during the
first nine months of 2000. This loss was due to the expiration of the single
tenant lease with no replacement tenant being signed as of yet. The majority
of the $0.1 million unrealized gain for 1999 was attributable to the Aurora,
CO industrial property due to improved market conditions as evidence by
higher market rental rates and the faster absorption of vacant space.
20
<PAGE>
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $0.2 million and a net unrealized gain of
$0.3 million for the quarters ended September 30, 2000 and 1999,
respectively. The decrease in unrealized appreciation for the third quarter
2000 is attributable to the Bolingbrook, IL property for the reasons
discussed previously. The increase in unrealized appreciation for the third
quarter 1999 is also attributable to the Aurora, CO property for the reasons
previously discussed.
The occupancy at the Bolingbrook, IL property decreased from 100% as of
September 30, 1999 to 0% as of September 30, 2000. The occupancy at the Salt
Lake City, Utah property remained unchanged at 34% from September 30, 1999 to
September 30, 2000. The current tenant at the property is experiencing
financial difficulty, and their continued operations are questionable at this
time. The Aurora, CO property's occupancy rate increased to 75% as of
September 30, 2000 from 67% as of September 30, 1999. As of September 30,
2000, all vacant spaces were being marketed.
REAL ESTATE INVESTMENT TRUSTS
The Partnership recognized a net realized gain from real estate investment
trusts of $2.6 million for the nine months ended September 30, 2000 primarily
as a result of the sale of the Partnership's remaining investment in 386,208
ProLogis REIT shares and sales of shares within the Partnership's investment
in a REIT fund. The Partnership recognized a net realized gain from real
estate investment trusts of $0.4 million for the quarter ended September 30,
2000 primarily as a result of the sales of shares within the Partnership's
investment in a REIT fund.
The Partnership's investment in REIT shares experienced an unrealized gain of
$1.2 million and an unrealized loss of $3.4 million for the nine months ended
September 30, 2000 and 1999, respectively. During the quarters ended
September 30, 2000 and September 30, 1999, the Partnership's investment in
REIT shares experienced an unrealized gain of $1.1 million and an unrealized
loss of $3.3 million, respectively. These changes in unrealized gain and loss
reflect changes in the market value of REIT shares held by the Partnership.
Management applied a 3% discount to the market value of the ProLogis REIT
shares through June 29, 1999 because of a restriction which limited the
number of shares that could be publicly traded during any six month period.
This discount was discontinued on June 30, 1999 because this restriction no
longer applied.
OTHER
Other net investment income decreased $0.7 million during the nine months
ended September 30, 2000 compared to the corresponding period last year.
Other net investment income includes interest income from short-term
investments, investment management fees, and expenses not related to property
activities. The decrease in other net investment income during the first nine
months of 2000 was primarily due to a decrease in interest income on
short-term investments primarily as a result of the Partnership maintaining a
significantly lower cash balance when compared to the corresponding period
last year.
Other net investment income increased $0.1 million during the third quarter
of 2000 compared to the corresponding quarter last year primarily because
expenses not related to property activities decreased when compared to the
same period last year.
(c) INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis
may be considered forward-looking statements. Words such as "expects",
"believes", "anticipates", "intends", "plans", or variations of such words
are generally part of forward-looking statements. Forward-looking statements
are made based upon management's current expectations and beliefs concerning
future developments and their potential effects upon the Partnership. There
can be no assurance that future developments affecting the Partnership will
be those anticipated by
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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.
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)
-------------------------------------------
Date: November 14, 2000 By: /s/
----------------- --------------------------------------------
Esther H. Milnes
President and Director
Date: November 14, 2000 By: /s/
----------------- -------------------------------------------
William J. Eckert
Vice President and Chief Accounting Officer
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