<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
--- ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
--- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 33-20083
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
IN RESPECT OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
-------------------------------------------------------
(Exact name of Registrant as specified in its charter)
New Jersey 22-1211670
---------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
751 Broad Street, Newark, New Jersey 07102-2992
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(201) 802-6000
---------------------------------------------------------
(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
--- ---
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THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)
INDEX
Item Page
No. No.
---- ----
Cover Page -
Index 2
PART I
1. Business 3
2. Properties 4
3. Legal Proceedings 5
4. Submission of Matters to a Vote of Security Holders 5
PART II
5. Market for the Registrant's Interests and Related
Security Holder Matters 6
6. Selected Financial Data 6
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
8. Financial Statements and Supplementary Data 15
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 15
PART III
10. Directors and Executive Officers of The Prudential 16
11. Executive Compensation 20
12. Security Ownership of Certain Beneficial Owners and Management 20
13. Certain Relationships and Related Transactions 21
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 22
Exhibit Index 22
Signatures 25
2
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PART I
ITEM 1. BUSINESS
The Prudential Variable Contract Real Property Account (the "Real Property
Account"), the Registrant, was established on November 20, 1986 by The
Prudential Insurance Company of America ("The Prudential"), as a separate
investment account, pursuant to New Jersey law. The Real Property Account was
established to provide a real estate investment option offered in connection
with the funding of benefits under certain variable life insurance and variable
annuity contracts (the "Contracts") issued by The Prudential.
The assets of the Real Property Account are invested in The Prudential Variable
Contract Real Property Partnership (the "Partnership"). The Partnership, a
general partnership organized under New Jersey law on April 29, 1988, was formed
through agreement among The Prudential, Pruco Life Insurance Company, and Pruco
Life Insurance Company of New Jersey, to provide a means for assets allocated to
the real property option under certain variable life insurance and variable
annuity contracts issued by the respective companies to be invested in a
commingled pool.
The Partnership has an investment policy of investing at least 65% of its assets
in direct ownership interests in income-producing real estate and participating
mortgage loans. The largest portion of these real estate investments will be
direct ownership interests in income-producing real estate, such as office
buildings, agricultural land, shopping centers, hotels, apartments, or
industrial properties. From 10% to 15% of the Partnership's assets generally
will be invested in short-term or intermediate-term marketable debt instruments.
The remainder of the Partnership's assets may be invested in other types of real
estate-related investments, including conventional, non-participating mortgage
loans.
The Partnership's investments will be maintained so as to meet the
diversification requirements set forth in Treasury Regulations issued pursuant
to Section 817(h) of the Internal Revenue Code relating to the investments of
variable life insurance and variable annuity separate accounts.
For information regarding the Partnership's investments, operations, and other
significant events, see Item 2, Properties, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, and Item 8, Financial
Statements and Supplementary Data.
3
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ITEM 2. PROPERTIES
The Partnership owns the following properties.
WAREHOUSE FACILITY IN AZUSA, CALIFORNIA
This facility consists of three one-story warehouse buildings in Azusa,
California, approximately 20 miles east of downtown Los Angeles. The buildings
were constructed in 1986. They contain approximately 432,000 rentable square
feet which were 100% leased to four tenants at December 31, 1994.
OFFICE FACILITY IN LISLE, ILLINOIS
The property is a four-story office building on 5.6 acres of land. It was
constructed in 1985 and contains approximately 102,000 square feet of leasable
space. R.R. Donnelley & Sons Company currently leases the entire building under
a renewable lease expiring in 1997. The facility is located at 750 Warrenville
Road in the Corporetum Office Park in Lisle, Illinois. Corporetum Office Park
is a 75 acre planned office development located 25 miles west of downtown
Chicago.
APARTMENT COMPLEX IN ATLANTA, GEORGIA
Brookwood Valley Apartments is a garden apartment complex located approximately
3 miles north of downtown Atlanta. It consists of eight three-story buildings
containing a total of 240 units. Construction of the 7.1 acre site was
completed in 1987. At December 31, 1994 the property was 97% occupied.
WAREHOUSE FACILITY IN POMONA, CALIFORNIA
The Partnership owns a leasehold estate in six industrial buildings on
approximately 28 acres in Pomona, California. The site is approximately 30
miles east of downtown Los Angeles. The buildings were constructed between 1982
and 1984 and contain approximately 531,000 square feet of leasable space. The
property was 83% occupied by six tenants at December 31, 1994.
Land under the leasehold estate was capitalized upon the assignment of a ground
lease from the previous owner. The lease term extends until November 2078 with
no renewal options. The annual ground lease payments are $250,000 through
November 1994, and, for each ten year increment thereafter, are subject to
increase by 50% of the increase in the Consumer Price Index during the previous
period. For 1995, the annual ground lease payment will increase $126,450 to
$376,450. The ground lease agreement contains a purchase option from November
1994 to November 1997 at a fixed price of $4,000,000.
SHOPPING CENTER IN ROSWELL, GEORGIA
King's Market shopping center was constructed in 1988. It is located
approximately 22 miles north of downtown Atlanta on a 30 acre site. It contains
approximately 301,700 square feet of rentable space. At December 31, 1994 it
was 99% occupied by 31 tenants.
OFFICE FACILITY IN MORRISTOWN, NEW JERSEY
This four-story suburban office building was constructed in 1981 and contains
85,000 rentable square feet. It is located on a 5.1 acre site, approximately 30
miles west of New York City. At December 31, 1994 it was 93% leased to 13
tenants.
WAREHOUSE FACILITY IN BOLINGBROOK, ILLINOIS
This single-story warehouse was completed in 1989. It contains 224,640 rentable
square feet. It is located approximately 20 miles southwest of downtown
Chicago. The entire facility is leased to the Gillette Company under a lease
expiring in October, 2000.
4
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APARTMENT COMPLEX IN FARMINGTON HILLS, MICHIGAN
Indian Creek Apartments consists of fifteen two-story buildings containing 156
two-bedroom and 40 one- bedroom units. It was constructed in 1988 and is
located approximately 20 miles northwest of Detroit. At December 31, 1994, the
property was 99% occupied.
OFFICE PARK IN FLINT, MICHIGAN
This investment consists of twelve single-story buildings located in an office
park in Flint, Michigan. The property contains 113,393 rentable square feet.
It is currently 89% occupied by 50 tenants.
The property was obtained by the Partnership on July 1, 1994 through foreclosure
on the mortgage loan made to Oak Creek Associates. The Partnership took title
to the property at the end of the redemption period on January 3, 1995. During
this period, the Partnership received all income generated by the property.
WAREHOUSE FACILITIES
The Partnership owns a 50% interest in four single-story warehouse/distribution
buildings located in Jacksonville, Fl. The remaining 50% is owned by The
Prudential and one of its subsidiaries. The buildings contain approximately
502,000 rentable square feet and were 92% occupied at December 31, 1994.
Associated Unit Companies or its affiliates lease approximately 328,000 square
feet, Angelo Brothers leases approximately 84,000 square feet and Biaggi
Brothers signed a two year lease for 90,000 square feet, effective February
1995, which would bring the occupancy of the four warehouses to 100%.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Contract owners participating in the Real Property Account have no voting rights
with respect to the Real Property Account.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY HOLDER
MATTERS
Owners of the Contracts may participate by allocating all or part of the net
premiums or purchase payments to the Real Property Account. Contract values
will vary with the performance of the Real Property Account's investments
through the Partnership. Participating interests in the Real Property Account
are not traded in any public market, thus a discussion of market information is
not relevant.
As of March 1, 1995, there were approximately 71,496 Contract owners of record
investing in the Real Property Account.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1990
As Adjusted
1994 1993 1992 1991 (Note 2A) *
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Net Investment Income $ 5,252,476 $ 4,906,836 $ 4,396,240 $ 4,826,006 $ 4,655,170
Net Gain/(Loss) on Investment
in Partnership $ 634,661 $ (935,754) $(6,443,108) $(4,589,140) $ (983,514)
----------- ------------ ------------ ------------ ------------
Net Increase/(Decrease) in Net Assets
Resulting From Operations $ 5,887,137 $ 3,971,082 $(2,046,868) $ 236,866 $ 3,671,656
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
<CAPTION>
FINANCIAL POSITION:
December 31,
-----------------------------------------------------------------------------
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Assets $79,136,103 $75,841,656 $71,488,007 $73,151,520 $78,292,702
Total Equity $79,136,103 $75,841,656 $71,488,007 $73,151,520 $78,292,702
<FN>
* December 31, 1990's financial statements were restated due to a change in
accounting policy in 1991. See Note 2A in the Notes to the Financial Statements
of The Prudential Variable Contract Real Property Account.
</TABLE>
6
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of the Prudential Variable Contract Real Property Account (the
"Real Property 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 those of 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.
(a) Liquidity and Capital Resources
At December 31, 1994, the Partnership's liquid assets consisting of cash and
cash equivalents and marketable securities totalled $48,917,436. This is an
increase of $23,086,195 from liquid assets at December 31, 1993 of $25,831,241.
The increase is due primarily to the sale of the Partnership's 50% interest in
seven warehouses for approximately $19,020,000 and the receipt of $3,513,704 in
cash upon the maturing of the Lincoln, NE mortgage loan. Sources of liquidity
also include net cash flow from property operations and interest from short-term
investments.
The Partnership has established a $10 million annually renewable unsecured
revolving line of credit with First Fidelity Bank National Association to be
drawn upon as needed for potential liquidity needs. As of December 31, 1994, no
drawdowns had occurred. Management does not anticipate the need to draw upon
this resource in the near future. In addition, The Prudential has also
committed to fund up to $100 million to enable the Partnership to acquire real
estate investments. Contributions to the Partnership under this commitment are
utilized for property acquisitions and returned to The Prudential on an ongoing
basis from Contract owners' net contributions. The amount of the commitment is
reduced by $10 million for every $100 million in current value net assets of the
Partnership. The amount available for future investments is approximately $51.6
million as of December 31, 1994.
The Partnership will ordinarily invest 10-15% of its assets in cash and short-
term obligations to maintain liquidity, however its investment policy allows up
to 30% investment in cash and short-term obligations. At December 31, 1994,
26.7% of the Partnership's assets consisted of cash and cash equivalents and
marketable securities. The Partnership has retained a portion of the cash
generated by operations as well as from the sale of properties and the maturing
of the mortgage loans in 1994 pending anticipated reinvestment of these funds.
The Partnership has entered into a commitment to acquire an apartment property
for up to $16 million during 1995. This acquisition will be funded from cash
held by the Partnership.
During 1994, the partners withdrew $11.0 million. Withdrawals may be made
during 1995 based upon the percentage of assets invested in short-term
obligations and taking into consideration anticipated cash needs of the
Partnership including potential property acquisitions and dispositions and
capital expenditures. At December 31, 1994, and currently, the Partnership has
adequate liquidity. Management anticipates that ongoing cashflow from
operations will satisfy the Partnership's needs over the next twelve months and
the foreseeable future.
The Partnership's two mortgage loans receivable matured in May 1994. The
mortgagor on the Lincoln, NE loan paid the full amount due of $3,513,704. As
previously reported, the mortgagor on the Flint, MI loan notified the
Partnership that it would not make any of the payments due in 1994 on the loan.
These payments totalled $8,094,271 including principal and interest. On July 1,
1994, the Partnership foreclosed on the property under a voluntary conveyance
from the mortgagor. The Partnership took title to the property on January 3,
1995 upon expiration of the redemption period. Upon foreclosure,
7
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the Partnership received approximately $400,000 from the mortgagor representing
operating cash flow from the property for the first six months of 1994. This
amount was applied against the amount due from the mortgagor.
The Partnership received the cash flow generated by the property's operation
during the redemption period. This totalled approximately $375,000 and is
included with cash provided by operating activities in the statement of cash
flows.
During 1994, the Partnership expended approximately $1,173,000 in capital
expenditures, of which approximately $838,000 was for tenant alterations and
leasing commissions. Approximately $427,000 in tenant improvements and leasing
commissions was spent at the Azusa, CA warehouse related to a new tenant, Best
Buy. This is the first installment of such costs related to this tenant.
Approximately $214,000 was expended at the Pomona, CA warehouse related to the
expansion of space by Ashley Furniture (approximately $114,000), a new tenant,
JB Engineering (approximately $72,000), and a lease renewal by Performance
Engineered (nearly $28,000). Approximately $164,000 was expended at the
Bolingbrook, IL warehouse for the extension of Gillette's lease.
Other major capital expenditures in 1994 included approximately $118,000 for
HVAC upgrades, installation of an energy management system and expenditures
related to the Americans with Disabilities Act at the Morristown, NJ office
center; approximately $51,000 for improvements in the flooring at the
Bolingbrook warehouse and approximately $103,000 for exterior improvements,
signage and landscaping at the Pomona and Azusa, CA warehouses, the Farmington
Hills, MI apartments and the Morristown office building. An additional $54,000
was expended at the Partnership's apartment complexes for various projects
including remodeling the clubhouse and model apartments.
Previously, the Partnership reported that it expected to exercise its option to
purchase the land on which the Pomona warehouse is located during the fourth
quarter of 1994 for $4,000,000. However, after comparing the option price of
the land to the additional benefits that the Partnership may receive from owning
the land rather than leasing it, the Partnership decided not to exercise the
option at the present time. The option is available until November 1997. The
Partnership will continue to evaluate the relevant factors during the option
period before deciding whether to exercise the option.
Projected capital expenditures for 1995 total approximately $1,319,000. Of
this, approximately $1,089,000 consists of leasing commission and tenant
alterations. The largest of these is the final installment of costs related to
the lease with Best Buy at the Azusa property ($300,000). At the Morristown
office building, Kodak is expected to sign a new lease for which approximately
$142,000 in tenant improvements and leasing commissions are anticipated. Kodak
has been occupying their space on a month-to-month basis since their lease
expired in 1994. An additional $284,000 in tenant improvements and commissions
are projected for Morristown in 1995 as well as $202,000 for Pomona, $131,000
for the Unit warehouses and $30,000 for the Roswell, GA shopping center. Except
for the Best Buy lease, all of these projected expenditures relate to
prospective leases. The actual amount of such expenditures will depend on the
number of new leases signed, the needs of the particular tenants and the timing
of lease executions.
Other major capital projects planned for 1995 include $57,000 for fencing and
entrance gates at the Azusa warehouse and Atlanta, GA apartments; $51,000 for
sprinklers, electric transformers and climate control units at Morristown;
$45,000 for exterior lighting at the Lisle, IL office building; $44,000 for
irrigation and drainage upgrades and landscaping at Farmington Hills,
Bolingbrook and the four Jacksonville, FL warehouses (the Unit warehouses) and
approximately $33,000 for smaller projects among the various properties
including improvements to common areas and carpet replacements at the
apartments.
8
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Neither of the Partnership's California properties, which are covered by
earthquake insurance, suffered damage in the January 1994 Los Angeles
earthquake.
The Partnership has entered into a commitment to purchase a garden apartment
complex currently under construction in Raleigh, NC. The property consists of
fourteen two and three-story buildings with a total of 250 units. The property
is expected to be completed in June 1995. The initial funding will be
approximately $14 million. A second funding will be made during 1995 based upon
the property's achieving certain income and occupancy levels. The maximum
amount of the second funding is $1,950,000. This investment will be funded from
cash held by the Partnership.
(b) Results of Operations
The following is a brief discussion of a comparison of the results of operations
for the three years ended December 31, 1994, 1993 and 1992.
1994 VS 1993
The Partnership's net investment income for 1994 was $12,848,199, an increase of
$193,568 (1.5%) from net investment income for 1993 of $12,654,631. The
increase was primarily the result of higher interest income from short-term
investments ($827,470) and income from property operations ($270,620) partially
offset by lower interest income on mortgage loans ($917,598).
Income from property operations, including income from interest in properties,
was $14,023,251 for 1994. This is an increase of $270,620 (2.0%) from
$13,752,631 for 1993. This was due primarily to increased rent from properties
(approximately $533,000) and lower real estate taxes (approximately $193,000)
and property administrative expenses (approximately $157,000). These were
partially offset by lower income from interest in properties (approximately
$546,000) and increased property operating expenses (approximately $67,000).
Rent from properties for 1994 increased by $533,265 (3.4%) to $16,344,259 from
$15,810,994 for 1993. Higher occupancy in 1994 at the Roswell shopping center
and the Partnership's two apartment properties resulted in approximately
$430,000 in additional rental income. Percentage rent at the shopping center
also increased nearly $198,000 primarily as a result of the property now billing
tenants for such rent throughout the current year rather than in arrears.
Rental income at the Morristown office building increased by approximately
$139,000 in 1994 due to a retroactive rent adjustment for Midlantic Bank and
scheduled rent step-ups and the ending of free rent periods for various tenants.
Beginning July 1, 1994, the Partnership is receiving all of the revenue from the
property related to the foreclosed Flint mortgage loan. This amounted to
approximately $675,000 for the last six months of 1994.
These additional revenues were partially offset by lower rental income from the
Azusa warehouse (approximately $582,000) due to lower occupancy in 1994, rent no
longer received on the Denver warehouse sold in 1993 (approximately $67,000), a
lower rental rate and concessions granted to Gillette in 1994 related to their
early lease renewal (approximately $90,000) and lower recoveries of real estate
taxes at the net leased properties in Lisle and Bolingbrook (approximately
$47,000). Expense recoveries also declined by approximately $159,000 at Pomona
in 1994. This was the result of lower recoverable expenses at the property.
Revenue in 1993 included recoveries for parking lot and roof repairs for which
there were no corresponding amounts in 1994.
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Income from interest in properties relates to the Partnership's 50% co-
investment in the Unit warehouses. Income from this source decreased $546,273
(18.8%) from $2,901,477 for 1993 to $2,355,204 for 1994. The Partnership sold
its investments in two of these warehouses in 1993 and in seven warehouses in
1994. This resulted in a reduction of income of approximately $476,000 in 1994.
Lower occupancy at one of the remaining warehouses also reduced income by
approximately $75,000.
Administrative expenses on the statement of operations includes both those
related to property operations and the administration of the Partnership.
Property administrative expenses for 1994 were $1,176,398. This is $157,368
(11.8%) lower than the $1,333,766 for 1993. Most of the decrease was the result
of non-recurring expenses in 1993. In 1993, the Roswell shopping center
reported approximately $46,000 in bad debt expense related to a bankrupt tenant,
Lionel Playworld. No such charge was incurred in 1994. A casualty loss of
approximately $53,000 was also incurred at the shopping center in 1993. At the
Azusa warehouse, a tenant vacated its space in 1993, before the expiration of
its lease resulting in a bad debt expense of nearly $156,000 in 1993. No such
charge was incurred in 1994. In addition, the 1994 application of a security
deposit to amounts owed by that tenant reduced 1994 bad debt expense by
approximately $33,000.
These reductions were partially offset by an increase in insurance premiums of
nearly $63,000, primarily at the Azusa, Pomona and Roswell properties and
approximately $22,000 in higher advertising and promotional expenses at these
same properties. In addition, approximately $59,000 in administrative expenses
were incurred at the Flint property acquired through foreclosure in 1994.
Property operating expenses for 1994 were $1,707,039 compared to $1,639,828 for
1993, an increase of $67,211 (4.1%). The increase was the result of
approximately $64,000 in operating expenses related to the Flint property for
the last six months of 1994 and nearly $37,000 in higher repairs and maintenance
expenses, particularly at the Azusa warehouse related to the painting of
building exteriors. These were partially offset by a reduction of almost
$34,000 due to the sale of the Denver property in 1993.
Real estate taxes for 1994 were $1,792,775, a reduction of $193,471 (9.7%) from
$1,986,246 for 1993. Approximately $110,000 of this decrease was the result of
appealing the assessed values of the Azusa, Pomona and Morristown properties.
The sale of the Denver warehouse reduced real estate taxes by approximately
$32,000. Real estate taxes at the net lease properties in Bolingbrook and Lisle
also decreased nearly $47,000. As net leased properties, the tenants absorb
almost all operating costs, so this decrease also reduced rental income as noted
above.
Interest income on the mortgage loans decreased $917,598 (89.7%) from $1,023,292
for 1993 to $105,694 for 1994. This was due to the maturing of the Lincoln, NE
loan in May 1994 and the default of the mortgagor on the Flint loan. These are
discussed further in the Liquidity and Capital Resources section.
Interest income from short-term investments increased $827,470 (111.2%) from
$743,924 for 1993 to $1,571,394 for 1994. This was the result of increased
amounts invested and higher interest rates in 1994. As noted above, the
Partnership is retaining increased cash balances in anticipation of acquiring
properties in 1995.
Administrative expenses related to the Partnership totalled $237,324 for 1994.
This is a reduction of $38,202 (13.9%) from $275,526 for 1993. The decrease
resulted primarily from lower professional fees for 1994.
The investment management fee for 1994 was $2,287,816. This is $18,610 (0.8%)
higher than the fee for 1993 of $2,269,206. The fee is computed as 1.25% of
gross assets. During 1994, gross assets were
10
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slightly higher than the prior year due to cash flow retained by the Partnership
and increased market values of the real estate investments.
Interest expense relates to the obligation under capital lease. For 1994,
interest expense was $327,000. This is $6,516 (2.0%) higher than interest
expense for 1993 of $320,484.
During 1994, the Partnership sold its 50% interest in the two Unit warehouses
located in Atlanta and the ones located in Desoto, TX; Fort Worth, TX;
Shreveport, LA; Bedford Park, IL; and Normal, IL. The proceeds, net of related
costs, were approximately $19,020,000, resulting in a realized loss of
approximately $1,237,000. Realized loss is the difference between net sales
proceeds and the cost of the properties. The Partnership had already recognized
decreases in the properties' market values in prior periods, so the net sales
proceeds actually exceeded the values at which the properties were carried on
the sale date by approximately $445,000. The proceeds from the sale are
expected to be reinvested during 1995. The Partnership still owns a 50%
interest in the four warehouses located in Jacksonville, FL. These are not
currently being marketed for sale.
MARKET VALUES OF INVESTED ASSETS: 1994 VS 1993
During 1994, the Partnership experienced an unrealized gain of $2,576,828 on its
real estate investments. Of this, $1,502,226 represents decreases in the market
values of the Unit warehouses, sold in October 1994, which had already been
reported as unrealized losses in prior years. With the sale of the properties,
these unrealized losses were reclassified as unrealized gains on the statement
of operations. These unrealized gains revert the property value back to its
historical cost, which is used to calculate the $1,237,000 realized loss
described above. The remaining $1,074,602 is the net increase in the current
values of the investments owned by the Partnership at the end of 1994. This
represents 0.8% of the investments' December 31, 1993 value.
The office buildings experienced the largest increase, approximately $1,145,000.
The apartments increased by about $945,000. The warehouses experienced an
unrealized loss of approximately $184,000 and the retail property, an unrealized
loss of about $832,000.
The office property acquired through the foreclosure of the Flint mortgage loan
experienced the largest increase in current value, $2,423,739 (42.6% of the
investment's December 31, 1993 value). After foreclosure the Partnership
reviewed detailed operating information on the property. Based on current
market conditions and property performance, an appraisal resulted in an increase
in the estimated market value.
This increase in value was partially offset by decreases in the values of the
Lisle office building of $1,200,000 (9% of the property's December 31, 1993
value) and the Morristown property of $78,321 (0.8% of its December 31, 1993
value). The former was caused by reduced expectations that the current tenant,
R.R. Donnelley, will remain in the building when their current lease expires in
1997. This would result in downtime while a new tenant was found and
necessitate incurring additional tenant improvements and leasing commissions.
It is also likely that the rental rate on any new lease would be lower than that
currently paid by Donnelley. The decline in the value of the Morristown
property was the result of projected increases in tenant improvements and
leasing commissions which will be necessary to lease the remaining vacant space.
The Partnership's apartment complex in Atlanta had an unrealized gain of
$671,245 (6.0% of the property's December 31, 1993 value) while the Farmington
Hills apartments experienced an increase of $274,134 (2.1% of its year-end 1993
value). These increases were primarily the result of higher rental rates,
occupancy and tenant retention than previously projected for these properties.
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The Partnership's sole retail property, King's Market Shopping Center in
Roswell, GA, experienced an unrealized loss of $832,405 (2.5% of its December
31, 1993 value). This was due both to capital expenditures at the property
during 1994, which did not result in a corresponding increase in the shopping
center's value, and to reduced expectations concerning future rental rates when
current leases expire.
The warehouses experienced an unrealized loss of almost $184,000 during 1994.
The Pomona property had the largest loss, $1,679,740 (9.4% of its year-end 1993
value). This change was due primarily to the increased cost of a planned roof
replacement program and an acceleration in the timing of that work. The market
values of the four Unit warehouses in which the Partnership owns a 50% interest
at the end of 1994 increased $214,364 (3.9% of their December 31, 1993 value).
This resulted from leasing the vacant space at one of the warehouses effective
February 1995 as well the improved potential for higher rental rates on new and
renewal leases on these properties.
The warehouse in Bolingbrook experienced an unrealized loss of $80,303 (1.2% of
the property's December 31, 1993 value) due to capital expenditures which did
not increase the property's value.
The decreases in the market values of these warehouses were partially offset by
an increase of $1,361,890 (10.0% of the property's December 31, 1993 value) in
the market value of the Azusa warehouse. This was the result of the new lease
with Best Buy bringing the property's occupancy to 100% as well as improved
conditions in the local market.
PROPERTY LEASING ACTIVITY
Occupancy at the Partnership's properties at December 31, 1994 is generally
higher than at December 31, 1993, especially for the industrial properties.
During the fourth quarter of 1994, a lease covering the vacant 215,000 square
feet (50% of the property) was executed at the Azusa warehouse making the
property 100% leased as of the end of 1994. The tenant is Best Buy, a
distributor of home appliances and electronics. The lease term is seven years
and provides that the tenant will take an additional 145,000 square feet of
space in 1996 when another lease expires. No leases are scheduled to expire at
the property until 1996.
Occupancy at Pomona increased from 78% at December 31, 1993 to 83% at the end of
1994. During the first quarter of 1994, Ashley Furniture expanded its space by
30,000 square feet (5% of the property). Two leases totalling 92,000 square
feet expired during 1994. One tenant vacated upon lease termination, but the
space was quickly leased to a new tenant, JB Engineering. The lease covers
50,000 square feet (9% of the property) and expires in 1997. The tenant on the
other lease, Performance Engineered, Inc. exercised a renewal option to continue
to lease the space for an additional five years. The rental rate under the
option is slightly lower than the original rate. This lease covers 42,000
square feet (8% of the property). The Partnership is currently discussing lease
terms with two potential tenants for the remaining vacant space. No leases are
scheduled to expire until 1996.
After the sale of the Unit warehouses noted above, the Partnership now owns an
interest in only the four properties located in Jacksonville, FL. These total
approximately 502,000 square feet. At December 31, 1994, the warehouses were
92% occupied, although one tenant occupying 40,000 square feet (8% of the four
warehouses) on a month-to-month basis vacated effective January 1, 1995. A two-
year lease has since been signed with a new tenant, Biaggi Brothers, covering
90,000 square feet (18% of the four buildings). This brings occupancy of the
four warehouses to 100%. One lease covering 102,000 square feet (20% of the
warehouses) expires on April 30, 1995. The tenant is expected to renew,
although no agreement has been reached.
The warehouse in Bolingbrook continues to be fully occupied by Gillette under a
lease expiring in 2000.
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The Morristown office building was 93% occupied at December 31, 1994 as it was
at the end of 1993. One lease, covering 6,600 square feet (8% of the property)
expired on March 31, 1994. The tenant, Kodak, has continued to occupy the space
on a month-to-month basis. The Partnership is negotiating with the tenant on a
new lease and expects that an agreement will be reached during the first quarter
of 1995. During the fourth quarter of 1994, a 2,000 square foot expansion was
executed with Smith Barney, effective January 16, 1995. This represents 2% of
the property and brings occupancy to 95%. The Partnership is also discussing
expansions with other tenants in the property. No leases are scheduled to
expire in 1995.
The office building in Lisle continues to be fully leased to R.R. Donnelley
under a lease expiring in September 1997. The lease contains two five-year
renewal options at the lower of the current rate or 85% of the then market
rental rate. No discussions are currently being held with the tenant and they
have not indicated whether they are considering exercising the option.
King's Market Shopping Center in Roswell, GA was 99% leased at December 31, 1994
as compared to 100% at the end of 1993. Two tenants whose leases totalled 2,140
square feet (less than 1% of the center) vacated at the expiration of their
leases during the fourth quarter 1994. The Partnership is marketing the space
and expects to lease the space during the first quarter of 1995. Four leases
totalling approximately 8,800 square feet (3% of the property) are scheduled to
expire in 1995. The Partnership is discussing potential renewal terms with the
current tenants. Leases covering the major tenants at the shopping center, Home
Depot, CompUSA and A&P, are not scheduled to expire until after 2003.
As of December 31, 1994, the Partnership's residential properties located in
Atlanta, GA and Farmington Hills, MI were approximately 98% leased. Occupancy
at these properties has been at about this level for most of 1994. At December
31, 1993, these properties were approximately 96% leased. Rental rates rose
approximately 4%-5% during 1994 and tenant retention at these properties remains
high. Market rental rates are expected to continue to increase slightly in 1995
in the residential markets in which the Partnership's apartments are located.
Occupancy at these properties is not expected to change significantly over the
upcoming year.
1993 VS 1992
The Partnership's net investment income for the year ended December 31, 1993,
was $12,654,631, an increase of $311,016 (2.5%) from net investment income for
the corresponding period of 1992 of $12,343,615. The increase was the result of
higher income from property operations ($438,239) and lower investment
management fees ($135,818) offset by lower interest from short-term investments
and mortgage loans ($229,679) and higher Partnership administrative expenses
($27,393) and interest expense ($5,969).
Income from property operations, including income from interest in properties,
for the year ended December 31, 1993, was $13,752,631. This is an increase of
$438,239 (3.3%) over the $13,314,392 for the corresponding period of 1992.
Property revenues increased by $118,543 (0.6%) from $18,593,928 for 1992 to
$18,712,471 for 1993. Property revenues at the Morristown office building
increased approximately $400,000 due to higher occupancy and the expiration of
free rent periods during 1993. The office building in Lisle generated
approximately $200,000 in higher revenues as a result of a scheduled increase in
the rental rate. These increases were partially offset by a reduction in
revenues of approximately $450,000 due the sale of three properties in 1993.
Property operating expenses for 1993 were $4,959,840. This is a decrease of
$319,696 (6.0%) from $5,279,536 for 1992. The decrease was primarily the result
of lower real estate taxes at Pomona as well
13
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as the 1993 sale of the Denver warehouse and the Partnership's 50% interest in
the warehouses located in Hightstown, NJ and one of the Jacksonville, FL
warehouses.
Mortgage loans generated interest income for the year ended December 31, 1993,
of $1,023,292 as compared to $1,040,803 for the corresponding period of 1992.
Interest income from short-term investments decreased by $212,168 (22.2%) from
$956,092 for 1992 to $743,924 for 1993. This was due to lower interest rates
and decreased amounts invested.
The investment management fee incurred for the year ended December 31, 1993 were
$2,269,206 and for the same period in 1992, $2,405,024. This is a decrease of
$135,818 (5.6%) which is due to a decline in the assets upon which the fee is
calculated due primarily to the sale of the three properties described below.
Administrative expenses on the statement of operations includes both property
and Partnership administrative expenses. Partnership administrative expenses
for 1993 were $275,526 and, for 1992, $248,133. This increase of $27,393
(11.0%) was primarily the result of higher appraisal fees.
Due to a capitalized lease, the Partnership incurred $320,484 of interest
expense during 1993. This change is a $5,969 (1.9%) increase from the $314,515
of interest expense incurred during 1992.
During 1993, the Partnership sold its warehouse in Denver, CO and its 50%
interest in warehouses located in Hightstown, NJ and Jacksonville, FL. The sale
proceeds, net of related costs, totalled approximately $4,727,000, resulting in
a realized loss of approximately $2,463,000 based on cost and a gain of
approximately $72,700 based on the properties' carrying values on the date of
the sale.
The Denver warehouse was sold on August 6, 1993 for $2,650,000. The net sales
proceeds were approximately $2,561,000. This resulted in a loss of
approximately $1,451,000 based on cost and a gain of approximately $206,500
based on the property's carrying value on the date of sale.
On September 2, 1993, the Partnership sold its 50% interest in one of the Unit
warehouses located in Jacksonville, FL for $1,450,000. The net sales proceeds
were approximately $1,380,000. This resulted in a realized loss of
approximately $220,000 based on cost and a gain of approximately $29,800 based
on the investment's carrying value on the date of sale.
The Partnership sold its 50% interest in the Unit warehouse located in
Hightstown, NJ on October 29, 1993, for $825,000. Net sales proceeds were
approximately $786,000. This resulted in a realized loss of approximately
$792,000 based on cost and a loss of approximately $163,600 based on the
investment's carrying value on the date of sale.
MARKET VALUES OF INVESTED ASSETS: 1993 VS 1992
The market values of the properties and interest in properties declined
approximately $1,300,000 (0.8% of the investments' December 31, 1992 values)
between December 31, 1992 and 1993. The market values of the Partnership's
industrial properties decreased by approximately $3,400,000 (4.9% of the
properties December 31, 1992 value) in 1993. The warehouses in Azusa and Pomona
experienced the largest declines totalling approximately $3,000,000. This was
due to the continuing soft warehouse real estate market in southern California
as well as a major tenant vacating before the expiration of its lease at Azusa.
The tenant, citing a decline in its business and financial difficulties, vacated
its 160,000 square foot space (37% of the property) during the fourth quarter of
1993. The lease was scheduled to expire in 1997.
14
<PAGE>
The Partnership's office buildings declined approximately $1,400,000 (5.9% of
their December 31, 1992 value) during 1993. The Morristown property experienced
the larger decrease, approximately $850,000. This was due to continuing soft
market conditions in the northern New Jersey office market and an expected
increase in the cost of leasing and operating the property. The value of the
Lisle office building decreased $600,000. This property is entirely leased to
R.R. Donnelley through 1997. The decline in value is due to the expectation
that rental rates on the property upon expiration of the current lease will be
lower than the current rate.
The market value of Kings Market Shopping Center in Roswell, GA increased
approximately $2,300,000 (7.4% of its December 31, 1992 value) during 1993 as a
result of securing CompUSA to occupy the space vacated by Lionel Playworld
earlier in 1993.
The Partnership's two apartment complexes increased in value by approximately
$1,200,000 (5.3% of their December 31, 1992 values). All of the increase was at
the Farmington Hills property. This was the result of higher actual and
projected rental rates and higher retention of tenants by the property. The
value of the apartments in Atlanta did not change from its December 31, 1992
value.
The only change in the current values of the mortgage loans during 1993 resulted
from the repayments of principal.
(c) Effects of Inflation
The Partnership has not experienced any significant effects from inflation
during recent years. To the extent that inflation in future periods may have an
adverse impact on property operating expenses, the Partnership has structured
its leases to require the tenant to pay some portion of a property's operating
expenses. As a result of these lease provisions, increases due to inflation
generally do not have a significant adverse effect upon the Partnership's
operating results. However, since no expenses are recovered on unrented space,
the Partnership will be exposed to the effects of inflation on such space.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data listed in the accompanying Index
to Financial Statements and Supplementary Data are incorporated herein by
reference and filed as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PRUDENTIAL
DIRECTORS OF THE PRUDENTIAL
JAMES G. AFFLECK, Director since 1979 (current term expires April, 1995).
Member, Auditing Committee; Member, Executive Committee. Retired since 1984.
Chairman of the Board, American Cyanamid Co. from 1976 to 1984. Mr. Affleck is
also a director of Potlatch Corporation. Age 72.
FRANKLIN E. AGNEW, Director since 1994 (current term expires April, 2000).
Member, Finance Committee; Member, Committee on Dividends. Business Consultant
since 1987. Senior Vice President H.J. Heinz from 1971 to 1986. Mr. Agnew is
also a director of Bausch & Lomb Inc. and John Wiley & Sons Inc. Age 60.
ROBERT A. BECK, Director since 1987 (current term expires April, 1995). Member,
Executive Committee; Member, Finance Committee. Acting Chief Executive Officer,
Prudential Securities Incorporated during 1991. Retired from 1987 to 1991.
Chairman of the Board and Chief Executive Officer, Prudential from 1978 to 1987.
Mr. Beck is also a director of Xerox Corporation, Campbell Soup Company, Texaco,
Inc., and The Boeing Company. Age 69.
FREDERICK K. BECKER, Director since 1994 (current term expires April, 1999).
Member Auditing Committee; Member, Committee on Business Ethics. President,
Wilentz Goldman and Spitzer (law firm) since 1989, with firm since 1960. Age
59.
WILLIAM W. BOESCHENSTEIN, Director since 1982 (current term expires April,
1997). Chairman, Executive Committee; Member, Auditing Committee. Retired
since 1990. Chairman of the Board and Chief Executive Officer, Owens-Corning
Fiberglas Corporation from 1981 to 1990. Mr. Boeschenstein is also a director
of FMC Corp. and Owens-Corning Fiberglas Corporation. Age 69.
LISLE C. CARTER, JR., Director since 1987 (current term expires April, 1997).
Chairman, Committee on Nominations; Member, Executive Committee; Member, Finance
Committee. Retired since 1991. Senior Vice President and General Counsel,
United Way of America from 1988 to 1991. Age 69.
JAMES G. CULLEN, Director since 1994 (current term expires April, 1995).
Member, Compensation Committee; Member, Committee on Business Ethics.
President, Bell Atlantic Corporation since 1993. President New Jersey Bell
1989-1993. Mr. Cullen is also a director of First Fidelity Bancorporation. Age
52.
CAROLYNE K. DAVIS, Director since 1989 (current term expires April, 1997).
Member, Compensation Committee; Member, Finance Committee; Member, Committee on
Business Ethics. Health Care Advisor, Ernst & Young since 1985. Administrator,
Health Care Financing Administration, HHS from 1981 to 1985. Dr. Davis is also
a director of Merck & Co. Inc., Beckman Instruments, Inc., Pharmaceutical
Marketing Services, Inc. and Science Applications International. Age 63.
ROGER A. ENRICO, Director since 1994 (current term expires April, 1998).
Member, Committe on Nominations; Member, Compensation Committee. Vice Chairman,
Pepsi Co. Inc. since 1993. Chairman and CEO, Pepsi Co. Worldwide Food, from
1991 to 1993. President and CEO Pepsi Co. Worldwide Beverage from 1986-1991.
Mr. Enrico is also a director of Dayton Hudson Corp. and BankOne, Texas. Age
50.
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<PAGE>
WILLIAM H. GRAY III, Director since 1991 (current term expires April, 1996).
Member, Finance Committee; Member, Committee on Nominations. President and
Chief Executive Officer, United Negro College Fund, Inc. since 1991. Mr. Gray
served in Congress from 1979 to 1991. Mr. Gray is also a director of Warner-
Lambert Co., Chase Manhattan Corp., Municipal Bond Investors Assurance Corp.,
Westinghouse Electric Corp., Union Pacific Corp, Lotus Development Corp. and
Rockwell International Corp. Age 53.
JON F. HANSON, Director since 1991 (current term expires April, 1997). Member,
Committee on Dividends; Member, Finance Committee. Chairman, Hampshire
Management Company since 1976. Mr. Hanson is also a director of New Jersey Bell,
Wickes Lumber Co. and United Water Resources. Age 58.
CONSTANCE J. HORNER, Director since 1994 (current term expires April, 1998).
Member, Committee on Nominations; Member, Auditing Committee. Guest Scholar,
The Brookings Institution since 1993. Assistant to the President and Director of
Presidential Personnel, U.S. Government, 1991-1992. Deputy Secretary,
Department of Health and Human Services from 1989 to 1991. Ms. Horner is also a
director of Pfizer, Inc. Age 53.
ALLEN F. JACOBSON, Director since 1992 (current term expires April, 1997).
Member, Auditing Committee; Member, Compensation Committee. Retired since 1991.
Chairman of the Board and Chief Executive Officer, Minnesota Mining &
Manufacturing Co. from 1986 to 1991. Mr. Jacobson is also a director of Abott
Laboratories, Alliant Techsystems, Inc., Deluxe Corp., Northern States Power
Co., Silicon Graphics, Inc., Valmont Industries, 3M, Mobil Corporation, U.S.
West, Inc., Sara Lee Corporation and Potlatch Corporation. Age 68.
GARNETT L. KEITH, JR., Director since 1984 (current term expires April, 1995).
Vice Chairman of Prudential since 1984. Mr Keith is also a director of Super
Valu Stores, Inc., AEA Investors, Inc., Inland Steel Industries, Inc. and Pan-
Holding, Societe Anonyme. Age 59.
BURTON G. MALKIEL, Director since 1978 (current term expires April, 1994).
Chairman, Finance Committee; Member, Committee on Nominations; Member, Executive
Committee. Chemical Bank Chairman's Professor of Economics, Princeton
University, since 1988. Dr. Malkiel is also a director of The Jeffrey Co.,
Vanguard Group, Inc., Amdahl Corp., Baker Fentress & Co. and Southern New
England Telecommunications Co. Age 62.
JOHN R. OPEL, Director since 1984 (current term expires April, 1996). Chairman,
Committe on Dividends; Member, Compensation Committee; Member, Executive
Committee; Member, Finance Committee. Retired Chairman, International Business
Machines Corporation since 1986; Chairman of the Executive Committee, IBM, from
1986 to 1993. Mr. Opel is also a director of Pfizer, Inc. Age 70.
DONALD E. PROCKNOW, Director since 1974 (current term expires April, 1995).
Member, Executive Committee; Member, Finance Committee. Retired since 1986.
Vice Chairman and Chief Operating Officer, AT&T Technologies, Inc. from 1984 to
1986. Mr. Procknow is also a director of CPC International, Inc., and
Ingersoll-Rand Company. Age 71.
ARTHUR F. RYAN, Chairman of the Board, President and Chief Executive Officer of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Corp. from 1990 to 1994, with Chase since 1972. Age 52.
RICHARD M. THOMSON, Director since 1976 (current term expires April, 1996).
Chairman, Compensation Committee; Member, Committee on Nominations; Member,
Executive Committee. Chairman of the Board and Chief Executive Officer, The
Toronto-Dominion Bank since 1978. Mr. Thomson is also a director of The
Cadillac Fairview Corp. Limited, CGC, Inc., Eaton's of Canada, Ltd., INCO, Ltd.,
The Thomson Corp., S.C. Johnson and Son, Ltd., TEC Leaseholds Limited. Age 61.
17
<PAGE>
P. ROY VAGELOS, M.D., Director since 1989 (current term expires April, 1997).
Chairman, Auditing Committee; Member, Committee on Dividends; Member, Executive
Committee. Chairman, Regeneron Pharmaceeuticals since 1995. Chairman and Chief
Executive Officer, Merck & Co., Inc. from 1986 to 1994. Dr. Vagelos is also a
director of Pepsi Co., Inc. Age 65.
STANLEY C. VAN NESS, Director since 1990 (current term expires April, 1996).
Chairman, Committee on Business Ethics; Member, Auditing Committee; Member,
Executive Committee. Attorney, Picco Mack Herbert Kennedy Jaffe Perella and
Yoskin (law firm) since 1990. Partner of Jamieson, Moore, Peskin & Spicer from
1984 to 1990. Mr. Van Ness is also a director of Jersey Central Power & Light
Company. Age 61.
PAUL A. VOLCKER, Director since 1988 (current term expires April, 1996).
Member, Committee on Dividends; Member, Committee on Nominations. Chairman,
James D. Wolfensohn, Inc. since 1988. Chairman, J. Rothschild, Wolfensohn & Co.
since 1992. Mr. Volcker is also a director of Fuji-Wolfensohn International,
Nestle, S.A., Imperial Chemical Industries, PLC, Municipal Bond Investors
Assurance Corporation and the Board of Governors, American Stock Exchange. Age
67.
JOSEPH H. WILLIAMS, Director since 1994 (current term expires April, 1998).
Member, Committee on Dividends; Member, Auditing Committee. Chairman of the
Board, The Williams Companies since 1994. Chairman and Chief Executive Officer,
The Williams Companies 1979-1993. Age 61.
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EXECUTIVE OFFICERS OF THE PRUDENTIAL
GARNETT L. KEITH, JR., Vice Chairman since 1984. Age 59.
WILLIAM P. LINK, Executive Vice President since 1990; 1987-90: Senior Vice
President. Age 48.
ROBERT P. HILL, Executive Vice President since 1990; 1989-90: Senior Vice
President and Company Actuary. Age 54.
WILLIAM M. BETHKE, Senior Vice President since 1986. Age 47.
STEPHEN R. BRASWELL, Senior Vice President since 1983. Age 55.
JOHN D. BROOKMEYER, Senior Vice President since 1988. Age 52.
E. MICHAEL CAULFIELD, Senior Vice President since 1992; 1989-1992: Managing
Director. Age 48.
ROBERT M. CHMELY, Senior Vice President since 1988. Age 60.
JAMES E. DWANE, Senior Vice President since 1986. Age 55.
WILLIAM D. FRIEL, Senior Vice President since 1993; 1988-1992: Vice President.
Age 55.
JAMES R. GILLEN, Senior Vice President and General Counsel since 1984. Age 57.
BRUCE J. GOODMAN, Senior Vice President since 1993; 1992-93 Senior Vice
President, Metropolitan Life; 1977-91 Vice President, Metropolitan Life. Age 53.
NICHOLAS M. GRAVES, Senior Vice President since 1988. Age 54.
ALLEN M. HAIGHT, Senior Vice President since 1989; 1985-89: Vice President.
Age 55.
SAMUEL H. HAVENS, Senior Vice President since 1989; 1985-89: Vice President.
Age 51.
EUGENE B. HEIMBERG, Senior Vice President since 1987, Age 61.
WILLIAM G. HUNT, JR., Senior Vice President since 1988. Age 54.
MILAN E. JOHNSON, Senior Vice President since 1992; 1987-1992: Vice President.
Age 57.
IRA J. KLEINMAN, Senior Vice President since 1992; 1978-1992: Vice President.
Age 47.
DONALD C. MANN, Senior Vice President since 1990; 1985-90: Vice President. Age
52.
JOHN P. MURRAY, Senior Vice President since 1984. Age 58.
EUGENE M. O'HARA, Senior Vice President and Comptroller since 1982. Age 57.
I. EDWARD PRICE, Senior Vice President 1993; 1990-1993: Senior Vice President
and Company Actuary. 1986-90: Senior Vice President. Age 52.
19
<PAGE>
DONALD G. SOUTHWELL, Senior Vice President since 1989; Age 43.
MARTIN PFINSGRAFF, Vice President and Treasurer since 1991; 1989-1991: Managing
Director, Corporate Finance. Age 40.
DOROTHY K. LIGHT, Vice President and Secretary since 1987. Age 57.
ITEM 11. EXECUTIVE COMPENSATION
The Real Property Account does not pay any fees, compensation or reimbursement
to any Director or Officer of the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
20
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an investment management agreement, the Partnership has retained The
Prudential to act as investment manager of the Partnership. The Prudential
charges the Partnership a daily investment management fee which is equal to an
effective annual rate of 1.25% of the average daily total asset valuation of the
Partnership. The amount incurred by the Partnership for the year ended December
31, 1994 was $2,287,816.
The Partnership reimburses The Prudential for certain administrative services
rendered by The Prudential. The amount incurred by the Partnership for the year
ended December 31, 1994 was $95,015.
The Partnership owns a 50% interest in four warehouse/distribution buildings in
Jacksonville, Florida (the Unit warehouses). The total cost of the Partnership's
interest is $6,108,742. The remaining 50% interest is owned by The Prudential
and one of its subsidiaries.
The Partnership has contracted with PREMISYS Real Estate Services, Inc.
(PREMISYS), an affiliate of The Prudential, to provide property management
services at the Unit warehouses, the Bolingbrook, IL warehouse, and through
October 1994, at the Atlanta, GA, Desoto, TX, Fort Worth, TX, Shreveport, LA,
Bedford Park, IL, and Normal, IL warehouses. The property management fees
earned by PREMISYS during 1994 were $92,382.
21
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
See the Index to Financial Statements and Supplementary Data on pages
F-1 and F-2.
2. Financial Statement Schedules
The following financial statement schedules of The Prudential Variable
Contract Real Property Partnership should be read in conjunction with
the financial statements incorporated by reference in Item 8 of this
Annual Report on Form 10-K:
III Real Estate Owned: Properties
III Real Estate Owned: Interest in Properties
IV Mortgage Loans on Real Estate
See the Index to Financial Statements and Supplementary Data on pages
F-1 and F-2.
3. Documents Incorporated by Reference
See the following list of exhibits.
4. Exhibits
See the following list of exhibits.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the last quarter of 1994.
(c) The following is a list of Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994. The Registrant will
furnish a copy of any Exhibit listed below to any security holder of the
Registrant who requests it upon payment of a fee of 15 cents per page. All
Exhibits are either contained in this Annual Report on Form 10-K or are
incorporated by reference as indicated below.
3.1 Amended Charter of The Prudential Insurance Company of America, filed
as Exhibit 1.A.(6)(a) to Post-Effective Amendment No. 2 to Form S-6,
Registration Statement No. 33-19999, filed March 2, 1989, and
incorporated herein by reference.
3.2 Amended By-Laws of The Prudential Insurance Company of America, filed
as Exhibit 1.A.(6)(b) to Post-Effective Amendment No. 4 to Form S-6,
Registration Statement No. 33-19999, filed March 2, 1990, and
incorporated herein by reference.
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<PAGE>
3.3 Resolution of the Board of Directors establishing The Prudential
Variable Contract Real Property Account, filed as Exhibit (3C) to Form
S-1, Registration Statement No. 33-20083, filed February 10, 1988, and
incorporated herein by reference.
4.1 Revised Individual Variable Annuity Contract filed as Exhibit A(4)(w)
to Post-Effective Amendment No. 8 to Form N-4, Registration Statement
No. 2-80897, filed October 23, 1986, and incorporated herein by
reference.
4.2 Discovery Plus Contract, filed as Exhibit (4)(a) to Form N-4,
Registration Statement No. 33-25434, filed November 8, 1988, and
incorporated herein by reference.
4.3 Custom VAL (previously named Adjustable Premium VAL) Life Insurance
Contracts with fixed death benefit, filed as Exhibit 1.A.(5) to Form
S-6, Registration Statement No. 33-25372, filed November 4, 1988, and
incorporated herein by reference.
4.4 Custom VAL (previously named Adjustable Premium VAL) Life Insurance
Contracts with variable death benefit, filed as Exhibit 1.A.(5) to
Form S-6, Registration Statement No. 33-25372, filed November 4, 1988,
and incorporated herein by reference.
4.5 Variable Appreciable Life Insurance Contracts with fixed death
benefit, filed as Exhibit 1.A.(5) to Pre-Effective Amendment No. 1 to
Form S-6, Registration Statement No. 33-20000, filed June 15, 1988,
and incorporated herein by reference.
4.6 Variable Appreciable Life Insurance Contracts with variable death
benefit, filed as Exhibit 1.A.(5) to Pre-Effective Amendment No. 1 to
Form S-6, Registration Statement No. 33-20000, filed June 15, 1988,
and incorporated herein by reference.
9. None.
10.1 Investment Management Agreement between The Prudential Insurance
Company of America and The Prudential Variable Contract Real Property
Partnership, filed as Exhibit (10A) to Pre-Effective Amendment No. 1
to Form S-1, Registration Statement No. 33-20083, filed May 2, 1988,
and incorporated herein by reference.
10.2 Service Agreement between The Prudential Insurance Company of America
and The Prudential Investment Corporation, filed as Exhibit (10B) to
Form S-1, Registration Statement No. 33-8698, filed September 12,
1986, and incorporated herein by reference.
10.3 Partnership Agreement of The Prudential Variable Contract Real
Property Partnership filed as Exhibit (10C) to Pre-Effective Amendment
No. 1 to Form S-1, Registration Statement No. 33-20083, filed May 2,
1988, and incorporated herein by reference.
11. Not applicable.
12. Not applicable.
13. None.
18. None.
21. Not applicable.
23
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22. Not applicable.
23. None.
24.1 Powers of Attorney: J. Affleck, R. Beck, W. Boeschenstein, L. Carter,
Jr., J. Cullen, C. Davis, R. Enrico, W. Gray, III, J. Hanson, C.
Horner, A. Jacobson, G. Keith, Jr., B. Malkiel, E. O'Hara, J. Opel, D.
Procknow, R. Thomson, P. Vagelos, S. Van Ness, P. Volcker, and J.
Williams, filed as Exhibit 9(a) to Post-Effective Amendment No. 13 to
Form S-6, Registration Statement No. 33-20000, filed April 26, 1994,
and incorporated herein by reference.
24.2 Powers of Attorney: F. Agnew, F. Becker, and A. Ryan filed as Exhibit
9(b) to Post-Effective Amendment No. 14 to Form S-6, Registration
Statement No. 33-20000, filed February 15, 1995, and incorporated
herein by reference.
27. Not applicable.
28. None.
24
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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.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
in respect of
The Prudential Variable Contract Real Property Account
------------------------------------------------------
(Registrant)
Date: March 17, 1995 By: /s/ Esther H. Milnes
--------------------- ------------------------
Esther H. Milnes
Vice President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
* Chairman of the Board and March 20, 1995
----------------------- Chief Executive Officer
Arthur F. Ryan
* Vice Chairman of the Board March 20, 1995
----------------------- and Director
Garnett L. Keith, Jr.
* Chief Financial Officer March 20, 1995
----------------------- and Comptroller
Eugene M. O'Hara
/s/ Stephen P. Tooley Chief Accounting Officer March 16, 1995
------------------------
Stephen P. Tooley
By: * /s/ Thomas C. Castano
----------------------
Thomas C. Castano
(Attorney-in-Fact)
25
<PAGE>
Signature Title Date
--------- ----- ----
* Director March 20, 1995
-----------------------
James G. Affleck
* Director March 20, 1995
-----------------------
Franklin E. Agnew
* Director March 20, 1995
-----------------------
Robert A. Beck
* Director March 20, 1995
-----------------------
Frederick K. Becker
* Director March 20, 1995
-----------------------
William W. Boeschenstein
* Director March 20, 1995
-----------------------
Lisle C. Carter, Jr.
* Director March 20, 1995
-----------------------
James G. Cullen
* Director March 20, 1995
-----------------------
Carolyne K. Davis
* Director March 20, 1995
-----------------------
Roger A. Enrico
* Director March 20, 1995
-----------------------
William H. Gray, III
* Director March 20, 1995
-----------------------
Jon F. Hanson
* Director March 20, 1995
-----------------------
Constance J. Horner
* Director March 20, 1995
-----------------------
Allen F. Jacobson
* Director March 20, 1995
-----------------------
Burton J. Malkiel
By: * /s/ Thomas C. Castano
----------------------
Thomas C. Castano
(Attorney-in-Fact)
26
<PAGE>
Signature Title Date
--------- ----- ----
* Director March 20, 1995
-----------------------
John R. Opel
* Director March 20, 1995
-----------------------
Donald E. Procknow
* Director March 20, 1995
-----------------------
Richard M. Thomson
* Director March 20, 1995
-----------------------
P. Roy Vagelos, M.D.
* Director March 20, 1995
-----------------------
Stanley C. Van Ness
* Director March 20, 1995
-----------------------
Paul A. Volcker
* Director March 20, 1995
-----------------------
Joseph H. Williams
By: * /s/ Thomas C. Castano
---------------------
Thomas C. Castano
(Attorney-in-Fact)
27
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)
INDEX
Page
----
A. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Independent Auditors' Report F-3
Financial Statements:
Statements of Net Assets - December 31, 1994 and 1993 F-4
Statements of Operations - Years Ended December 31, 1994,
1993 and 1992 F-4
Statements of Changes in Net Assets - Years Ended
December 31, 1994, 1993 and 1992 F-5
Notes to Financial Statements F-6
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Independent Auditors' Report F-8
1. Financial Statements:
Statements of Assets and Liabilities - December 31,
1994 and 1993 F-9
Statements of Operations - Years Ended December 31, 1994,
1993 and 1992 F-10
Statements of Changes in Net Assets - Years Ended
December 31, 1994, 1993 and 1992 F-11
Statements of Cash Flows - Years Ended December 31,
1994, 1993 and 1992 F-12
Schedule of Investments - December 31, 1994 and 1993 F-13
Notes to Financial Statements F-16
F-1
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)
INDEX
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP (continued)
2. Financial Statement Schedules:
III. - Real Estate Owned: Properties F-21
III. - Real Estate Owned: Interest in Properties F-22
IV. - Mortgage Loans on Real Estate F-23
All other schedules are omitted because they are not applicable, or because the
required information is included in the financial statements or notes thereto.
F-2
<PAGE>
Deloitte &
Touche LLP
----------- -----------------------------------------------------------
Two Hilton Court Telephone: (201)631-7000
P.O. Box 319 Facsimile: (201)631-7459
Parsippany, New Jersey 07054-0319
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
The Prudential Variable Contract Real Property Account
Newark, New Jersey
We have audited the accompanying statements of net assets of The Prudential
Variable Contract Real Property Account ("Real Property Account") as of
December 31, 1994 and 1993, and the related statements of operations and changes
in net assets for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Real Property Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Prudential Variable Contract Real
Property Account as of December 31, 1994 and 1993, and the results of its
operations and the changes in net assets for each of the three years in the
period ended December 31, 1994 in conformity with generally accepted accounting
principles.
Investment in shares of The Prudential Variable Contract Real Property
Partnership is stated at current value at December 31, 1994 and 1993, as
discussed in Note 2 to the financial statements. Determination of current value
involves subjective judgment because the actual market value of such shares can
be determined only by negotiation between the parties in a sales transaction.
Deloitte & Touche LLP
March 6, 1995
F-3
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
<S> <C> <C>
1994 1993
-------------- --------------
Investment in shares of The Prudential Variable Contract
Real Property Partnership $ 79,136,103 $ 75,841,656
-------------- --------------
-------------- --------------
NET ASSETS, representing:
Equity of Contract owners $ 51,545,161 $ 46,780,975
Equity of The Prudential Insurance Company of America 27,590,942 29,060,681
-------------- --------------
$ 79,136,103 $ 75,841,656
-------------- --------------
-------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 5,659,786 $ 5,289,403 $ 4,779,595
EXPENSES:
Asset Based Charges to Contract owners (Note 3) 407,310 382,567 383,355
-------------- -------------- --------------
NET INVESTMENT INCOME 5,252,476 4,906,836 4,396,240
-------------- -------------- --------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized loss on investments sold (Note 6) (545,083) (1,029,669) 0
Net unrealized gain/(loss) on investments 1,179,744 93,915 (6,443,108)
-------------- -------------- --------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS IN PARTNERSHIP 634,661 (935,754) (6,443,108)
-------------- -------------- --------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,887,137 $ 3,971,082 $ (2,046,868)
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-6 THROUGH F-7.
F-4
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income $ 5,252,476 $ 4,906,836 $ 4,396,240
Net Realized and Unrealized
Gain/(Loss) on Investments in Partnership 634,661 (935,754) (6,443,108)
-------------- -------------- --------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 5,887,137 3,971,082 (2,046,868)
-------------- -------------- --------------
CAPITAL TRANSACTIONS:
Net Contributions by Contract owners 1,195,248 3,927 954,411
Net Contributions/(Withdrawals) by The
Prudential Insurance Company of America (3,787,938) 378,640 (571,056)
-------------- -------------- --------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (2,592,690) 382,567 383,355
-------------- -------------- --------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS $ 3,294,447 $ 4,353,649 $ (1,663,513)
NET ASSETS:
Beginning of year $ 75,841,656 $ 71,488,007 $ 73,151,520
-------------- -------------- --------------
End of year $ 79,136,103 $ 75,841,656 $ 71,488,007
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-6 THROUGH F-7.
F-5
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
FOR YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
NOTE 1: GENERAL
The Prudential Variable Contract Real Property Account (the "Real Property
Account") was established on November 20, 1986 by resolution of the Board of
Directors of The Prudential Insurance Company of America ("The Prudential"), as
a separate investment account pursuant to New Jersey law. The assets of the
Real Property Account are segregated from The Prudential's other assets. The
Real Property Account is used to fund benefits under certain variable life
insurance and variable annuity contracts issued by The Prudential. On April 29,
1988, The Prudential contributed $100,000 to commence operations of the Real
Property Account.
The assets of the Real Property Account are invested in The Prudential Variable
Contract Real Property Partnership (the "Partnership"). The Partnership is a
general partnership organized under New Jersey law on April 29, 1988, through
agreement among The Prudential, Pruco Life Insurance Company, and Pruco Life
Insurance Company of New Jersey to provide a means for assets allocated to the
real property option under certain variable life insurance and variable annuity
contracts issued by the respective companies to be invested in a commingled
pool. On April 29, 1988, the Real Property Account initially contributed
$100,000 to the Partnership.
The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. CHANGE IN ACCOUNTING POLICY
The financial statements are prepared on a current value basis.
This represents a change in accounting policy from financial
statements issued prior to the year ended December 31, 1991 which
utilized the historical cost basis of accounting and provided
only supplementary information on current values. Since the unit
values under Contracts participating in the Partnership are
determined using the current value basis of investments (see
General Note to the Partnership financials), this basis is deemed
more meaningful to the investor than a historical cost basis.
B. INVESTMENT IN PARTNERSHIP INTEREST
The investment in the Partnership is based on the Real Property
Account's proportionate interest of the Partnership's current
value, as discussed in Note 1 to the Partnership's financial
statements. At December 31, 1994 and 1993 the Real Property
Account's interest in the Partnership, based on current value
equity was 44.6% or 5,465,515 shares and 43.6% or 5,678,320
shares, respectively.
C. INCOME RECOGNITION
The Real Property Account recognizes its proportionate share of
the Partnership's net investment income on a daily basis, as
consistent with the Partnership Agreement. The Net Gain/(Loss)
on Investment in Partnership reflected on the Statements of
Operations represents the Real Property Account's proportionate
share of the Net Gain/(Loss) on Investments recognized by the
Partnership.
F-6
<PAGE>
Note 3: Asset Based Charges
Mortality risk and expense risk charges and charges for administration are
applied daily against the net assets representing equity of Contract owners
investing in the Real Property Account, at an effective annual rate as shown
below for each of The Prudential's separate accounts investing in the Real
Property Account:
--------------------------------------------------------------------------------
Variable Appreciable Account
- Contracts with face amounts of less than $100,000 0.90%
- Contracts with face amounts of $100,000 or more 0.60%
Individual Variable Contract Account 1.20%
--------------------------------------------------------------------------------
Note 4: Taxes
Income and capital gains and losses of the Partnership are attributed, for
federal income tax purposes, to the Partners in the Partnership, including The
Prudential, in respect of the Real Property Account. The operations of the Real
Property Account form a part of, and are taxed with, the operations of The
Prudential. Under the Internal Revenue Code, all ordinary income and capital
gains allocated to the Contract owners are not taxable to The Prudential. As a
result, the net asset values of the Real Property Account are not affected by
federal income taxes on the ordinary income and capital gains and losses
attributable to the Real Property Account.
Note 5: Commitment from Partner
On January 9, 1990, The Prudential committed to fund up to $100 million to
enable the Partnership to take advantage of opportunities to acquire attractive
real property investments whose cost is greater than the Partnership's available
cash. Contributions to the Partnership under this commitment are utilized for
property acquisitions and returned to Prudential on an ongoing basis from
Contract owners' net contributions. Also, the amount of the commitment is
reduced by $10 million for every $100 million in current value net assets of the
Partnership. The amount available under this commitment as of December 31, 1994
is approximately $51.6 million.
NOTE 6: NET REALIZED LOSS ON INVESTMENT
The Net Realized Loss on Investment reflected on the Statement of Operations
represents the Real Property Account's proportionate share of the loss realized
by the Partnership upon the sale of certain properties. For further
information, please refer to Note 8 of the Partnership's December 31, 1994
financial statements.
F-7
<PAGE>
Deloitte &
Touche LLP
-------------- ----------------------------------------------------------------
Two Hilton Court Telephone: (201)631-7000
P.O. Box 319 Facsimile: (201)631-7459
Parsippany, New Jersey 07054-0319
INDEPENDENT AUDITORS' REPORT
To the Partners of
The Prudential Variable Contract Real Property Partnership
Newark, New Jersey
We have audited the accompanying statements of assets and liabilities of The
Prudential Variable Contract Real Property Partnership as of December 31, 1994
and 1993, and the related statements of operations, changes in net assets and
cash flows for each of the three years in the period ended December 31, 1994
(collectively referred to as the financial statements), including the schedule
of investments as of December 31, 1994. Our audit also included the financial
statement schedules listed in the Index at Item 14. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of The Prudential Variable Contract Real
Property Partnership as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules when considered in
relation to the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
Investment in properties, interest in properties and mortgage loans are stated
at current value at December 31, 1994 and 1993, as discussed in Note 1 to the
financial statements. Determination of current value involves subjective
judgment because the actual market value of real estate and mortgage loans can
be determined only by negotiation between the parties in a sales transaction.
Deloitte & Touche LLP
March 6, 1995
F-8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
----------------------------------------
1994 1993
--------------- ---------------
<S> <C> <C>
ASSETS:
Properties at current value
(cost $154,157,068 and $145,532,430
respectively) (Note 1) $ 126,258,004 $ 118,960,280
Interest in properties at current value
(cost $6,108,742 and $26,348,882
respectively) (Note 1) 5,726,451 24,250,000
Mortgage loans at current value
(cost $0 and $11,410,944
respectively) (Notes 1 and 3) 0 9,223,791
Cash and cash equivalents 33,093,237 23,852,233
Marketable securities 15,824,199 1,979,008
Other assets and accounts receivable
(net of allowance for uncollectible
amounts of $128,336 and $161,203 respectively) 2,218,095 1,490,274
--------------- ---------------
Total Assets $ 183,119,986 $ 179,755,586
--------------- ---------------
--------------- ---------------
LIABILITIES:
Obligation under capital lease $ 3,804,836 $ 3,798,565
Accounts payable and accrued expenses 805,066 729,190
Due to affiliates (Note 5) 624,206 694,644
Other liabilities 645,913 480,864
--------------- ---------------
Total liabilities 5,880,021 5,703,263
--------------- ---------------
NET ASSETS:
Partners' Equity 177,239,965 174,052,323
--------------- ---------------
$ 183,119,986 $ 179,755,586
--------------- ---------------
--------------- ---------------
Number of shares outstanding at end of year 12,241,034 13,031,424
--------------- ---------------
--------------- ---------------
Share Value at end of year $14.48 $13.36
------ ------
------ ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.
F-9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Rent from properties $ 16,344,259 $ 15,810,994 $ 15,707,807
Income from interest in properties 2,355,204 2,901,477 2,886,121
Interest on mortgage loans 105,694 1,023,292 1,040,803
Interest from short-term investments 1,571,394 743,924 956,092
--------------- --------------- ---------------
20,376,551 20,479,687 20,590,823
--------------- --------------- ---------------
EXPENSES:
Investment management fee (Note 2) 2,287,816 2,269,206 2,405,024
Real estate tax expense 1,792,775 1,986,246 2,179,044
Administrative expenses 1,413,722 1,609,292 1,531,149
Operating expenses 1,707,039 1,639,828 1,817,476
Interest expense 327,000 320,484 314,515
--------------- --------------- ---------------
7,528,352 7,825,056 8,247,208
--------------- --------------- ---------------
NET INVESTMENT INCOME 12,848,199 12,654,631 12,343,615
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS:
Net realized loss on
investments sold (Note 8) (1,237,385) (2,463,431) 0
Net unrealized gain/(loss)
on investments 2,576,828 223,714 (16,855,857)
--------------- --------------- ---------------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS 1,339,443 (2,239,717) (16,855,857)
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 14,187,642 $ 10,414,914 $ (4,512,242)
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.
F-10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1994 1993 1992
--------------- --------------- ---------------
<S> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 12,848,199 $ 12,654,631 $ 12,343,615
Net Realized and Unrealized
Gain/(Loss) on Investments 1,339,443 (2,239,717) (16,855,857)
--------------- --------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS 14,187,642 10,414,914 (4,512,242)
--------------- --------------- --------------
CAPITAL TRANSACTIONS:
Withdrawals by partners
(790,390; 1,157,814 and 803,827
shares respectively) (11,000,000) (15,000,000) (10,000,000)
--------------- --------------- --------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS (11,000,000) (15,000,000) (10,000,000)
--------------- --------------- --------------
TOTAL INCREASE/(DECREASE)
IN NET ASSETS 3,187,642 (4,585,086) (14,512,242)
NET ASSETS:
Beginning of Year 174,052,323 178,637,409 193,149,651
--------------- --------------- ---------------
End of Year $ 177,239,965 $ 174,052,323 $ 178,637,409
--------------- --------------- ---------------
--------------- --------------- ---------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.
F-11
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1994 1993 1992
-------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase/(decrease) in net assets resulting from operations $ 14,187,642 $ 10,414,914 $ (4,512,242)
Adjustments to reconcile net increase/(decrease) in net assets
resulting from operations to net cash provided by
operating activities:
Net unrealized (gain)/loss on investments (2,576,828) (223,714) 16,855,857
Net realized loss on investments sold 1,237,385 2,463,431 0
Changes in assets and liabilities:
Increase/(Decrease) in other assets and accounts receivable (727,821) 115,982 (827,171)
Increase in marketable securities (13,845,191) (1,979,008) 0
Increase in obligation under capital lease 6,271 5,743 64,515
Increase/(Decrease) in accounts payable
and accrued expenses 75,876 99,524 (235,228)
Decrease in due to affiliates (70,438) (19,529) (73,875)
Increase/(Decrease) in other liabilities 165,049 (9,006) 19,830
-------------- -------------- --------------
Net cash (used in)/provided by operating activities (1,548,055) 10,868,337 11,291,686
-------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital improvements on real estate owned (1,161,224) (1,044,906) (2,085,113)
Capital improvements on interest in properties (12,087) (34,237) (469,617)
Principal repayments received on mortgage loans 3,947,528 202,959 186,564
Proceeds from sale of investments 19,014,842 4,726,705 0
-------------- -------------- --------------
Net cash provided by/(used in) investing activities 21,789,059 3,850,521 (2,368,166)
-------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals (11,000,000) (15,000,000) (10,000,000)
-------------- -------------- --------------
Net cash used in financing activities (11,000,000) (15,000,000) (10,000,000)
-------------- -------------- --------------
Net increase/(decrease) in cash and cash equivalents 9,241,004 (281,142) (1,076,480)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 23,852,233 24,133,375 25,209,855
-------------- -------------- --------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 33,093,237 $ 23,852,233 $ 24,133,375
-------------- -------------- --------------
-------------- -------------- --------------
SUPPLEMENTAL SCHEDULE
OF NONCASH INVESTING ACTIVITIES:
Foreclosure on mortgage loan (Note 3) $ 5,276,262 $ 0 $ 0
-------------- -------------- --------------
-------------- -------------- --------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 250,000 $ 250,000 $ 250,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.
F-12
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1993
-----------------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (PERCENT OF NET ASSETS) 71.2% 68.4%
Current Current
Location Description Cost Value Cost Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Azusa, CA Warehouse $ 18,219,245 $ 15,426,651 $ 17,756,211 $ 13,601,727
Lisle, IL Office Building 17,524,421 12,000,000 17,524,421 13,200,000
Atlanta, GA Garden Apartments 15,309,193 11,903,533 15,276,905 11,200,000
Pomona, CA (a) Warehouse 23,115,589 16,353,556 22,887,053 17,804,760
Roswell, GA Retail Shopping Center 31,605,970 32,500,000 31,565,548 33,291,983
Morristown, NJ Office Building 18,443,689 9,825,401 18,316,191 9,776,224
Bolingbrook, IL Warehouse 8,915,498 7,009,907 8,695,288 6,870,000
Farmington Hills, MI Garden Apartments 13,560,049 13,538,956 13,510,813 13,215,586
Flint, MI Office Building 7,463,414 7,700,000 0 0
-------------- -------------- ------------- --------------
$ 154,157,068 $ 126,258,004 $ 145,532,430 $ 118,960,280
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
<FN>
(a) Includes land under capital lease of $3,412,636 representing the present
value of minimum future lease payments at the inception of the lease.
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT IN INTEREST IN PROPERTIES (PERCENT OF NET ASSETS) 3.2% 13.9%
Current Current
Location Description Cost Value Cost Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Atlanta, GA Warehouse/Distribution $ 0 $ 0 $ 2,830,350 $ 2,300,000
Jacksonville, FL Warehouse/Distribution 1,304,979 1,150,000 1,304,979 1,100,000
Jacksonville, FL Warehouse/Distribution 1,002,448 1,000,000 1,002,448 950,000
Jacksonville, FL Warehouse/Distribution 1,442,894 1,375,000 1,442,894 1,375,000
Jacksonville, FL Warehouse/Distribution 2,358,421 2,201,451 2,346,334 2,075,000
Desoto, TX Warehouse/Distribution 0 0 2,450,273 2,150,000
Fort Worth, TX Warehouse/Distribution 0 0 1,351,646 1,250,000
Shreveport, LA Warehouse/Distribution 0 0 3,231,436 2,900,000
Bedford Park, IL Warehouse/Distribution 0 0 3,911,638 4,100,000
Normal, IL Warehouse/Distribution 0 0 2,714,833 3,000,000
Atlanta, GA Warehouse/Distribution 0 0 3,762,051 3,050,000
-------------- -------------- ------------- --------------
$ 6,108,742 $ 5,726,451 $ 26,348,882 $ 24,250,000
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
INVESTMENT IN MORTGAGE LOANS
(PERCENT OF NET ASSETS) 0.0% 5.3%
Principal Current Principal Current
Description Outstanding Value Outstanding Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Flint, MI, First Mortgage, Office
Building, 8.875% $ 0 $ 0 $ 7,878,490 $ 5,691,337
Lincoln, NE, First Mortgage, Office
Building, 9.000% 0 0 3,532,454 3,532,454
-------------- -------------- ------------- --------------
$ 0 $ 0 $ 11,410,944 $ 9,223,791
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
</TABLE>
<TABLE>
<CAPTION>
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 18.7% 13.7%
(see pages F-14 and F-15 for detail) Face Current Face Current
Description Amount Value Amount Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper and Cash $ 33,456,969 $ 33,093,237 $ 23,889,343 $ 23,852,233
-------------- -------------- ------------- --------------
-------------- -------------
</TABLE>
<TABLE>
<CAPTION>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 8.9% 1.1%
(see pages F-14 and F-15 for detail) Face Current Face Current
Description Amount Value Amount Value
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable Securities $ 16,100,000 $ 15,824,199 $ 2,000,000 $ 1,979,008
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
OTHER ASSETS (2.0%) (2.4%)
(net of liabilities) $ (3,661,926) $ (4,212,989)
-------------- --------------
TOTAL NET ASSETS $ 177,239,965 $ 174,052,323
-------------- --------------
-------------- --------------
</TABLE>
F-13
(CONTINUED)
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1994
------------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 18.7%
Face Current
DESCRIPTION Amount Value
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
Chemical Bank, 6.25%, January 3, 1995 $ 90,000 $ 90,000
Amoco Corp., 5.754%, January 3, 1995 2,104,000 2,102,656
Pacificorp, 6.125%, January 12, 1995 2,000,000 1,991,867
Gateway Fuel Corp., 5.571%, January 17, 1995 1,925,000 1,900,590
Norwest Financial Inc., 5.499%, January 17, 1995 1,660,000 1,636,007
Greyhound Financial Corp., 6.215%, January 18, 1995 1,944,000 1,932,987
PHH Corp Note, 5.928%, January 19, 1995 2,400,000 2,388,593
Merrill Lynch & Company Inc., 6.056%, January 25, 1995 706,000 699,528
Associates Corp. of North Am., 5.828%, January 30, 1995 2,300,000 2,277,144
Duracell Inc., 6.310%, January 30, 1995 2,396,000 2,373,122
Ford Motor Credit Corp., 5.841%, February 1, 1995 2,300,000 2,275,997
Goldman Sachs Group, 5 .705%, February 2, 1995 1,685,000 1,654,071
Sears Roebuck Acceptance Corp., 6.120%, February 7, 1995 1,000,000 988,572
Morgan Stanley Group Inc., 6.363%, March 1, 1995 1,000,000 985,370
Beneficial Corp, 6.349%, March 14, 1995 2,400,000 2,362,500
John Deere Capital Corp., 6.349%, March 14, 1995 2,400,000 2,362,500
American General Financial Corp., 6.350%, March 15, 1995 2,400,000 2,362,084
Toronto Dominion Holdings, 6.318%, March 15, 1995 2,400,000 2,362,680
--------------- ----------------
TOTAL COMMERCIAL PAPER 33,110,000 32,746,268
TOTAL CASH 346,969 346,969
--------------- ----------------
TOTAL CASH AND CASH EQUIVALENTS $ 33,456,969 $ 33,093,237
--------------- ----------------
--------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 8.9%
Face Current
DESCRIPTION Amount Value
--------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
Bankers Trust NY Corp, 5.250%, January 16, 1995 $ 1,400,000 $ 1,401,680
Republic National Bank of NY, 4.300%, March 8, 1995 1,000,000 998,546
Golden Peanut Co., 6.455%, April 5, 1995 2,000,000 1,958,218
General Electric Capital Corp, 6.592%, April 18, 1995 2,400,000 2,348,400
PNC Bank N.A., 5.820%, April 21, 1995 1,400,000 1,398,775
Nationsbank North Carolina, 5.400%, May 19, 1995 1,500,000 1,511,807
Corporate Receivables Corp., 6.760%, May 23, 1995 2,400,000 2,332,548
Province of Quebec, 6.887%, June 1, 1995 2,000,000 1,937,005
Bank of America NT & SA, 6.783%, June 5, 1995 2,000,000 1,937,220
--------------- ----------------
Total Commercial Paper $ 16,100,000 $ 15,824,199
--------------- ----------------
--------------- ----------------
</TABLE>
F-14
(CONTINUED)
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 13.7%
Face Current
DESCRIPTION Amount Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
Rite Aid Corp., 3.350%, January 3, 1994 $ 760,000 $ 758,161
US West Communications, 3.500%, January 3, 1994 1,230,000 1,229,522
Merrill Lynch & Company Inc., 3.300%, January 5, 1994 205,000 204,718
Merrill Lynch & Company Inc., 3.350%, January 6, 1994 500,000 498,651
AT&T Capital Corp., 3.450%, January 7, 1994 242,000 241,791
CIESCO, 3.250%, January 7, 1994 1,215,000 1,212,587
Asset Securitization Coop. Corp., 3.500%, January 10, 1994 250,000 249,757
Merrill Lynch & Company Inc., 3.300%, January 10, 1994 385,000 383,906
Pennsylvania Power & Light Energy Trust, 3.250%, January 10, 1994 935,000 933,227
International Lease Finance Corp., 3.250%, January 11, 1994 1,000,000 997,562
Xerox Credit Corp., 3.400%, January 12, 1994 1,218,000 1,216,159
Weyerhauser Mortgage Company, 3.280%, January 13, 1994 1,260,000 1,256,097
Falcon Asset Securitization Corp., 3.450%, January 14, 1994 550,000 546,996
Kmart Corp., 3.350%, January 18, 1994 1,000,000 998,139
Province of Quebec, 3.250%, January 21, 1994 1,215,000 1,211,051
General Electric Capital Corp., 3.400%, January 24, 1994 200,000 198,716
International Lease Finance Corp., 3.450%, January 24, 1994 130,000 129,689
PHH Corp., 3.250%, January 24, 1994 1,260,000 1,255,223
PREFCO, 3.330%, January 24, 1994 925,000 921,064
Smith Barney Shearson Inc., 3.280%, January 24, 1994 1,215,000 1,210,572
Corporate Asset Funding Co. Inc., 3.340%, January 26, 1994 436,000 433,128
Pepsico Inc., 3.180%, January 28, 1994 1,220,000 1,215,797
Corporate Asset Funding Co., 3.220%, February 1, 1994 780,000 776,721
Goldman Sachs Group, L.P., 3.350%, February 10, 1994 1,000,000 993,207
Student Loan Marketing Assoc., 3.125%, February 10, 1994 3,000,000 3,029,128
Beneficial Corp. Note, 3.220%, February 17, 1994 1,215,000 1,208,697
Asset Securitization Coop Corp., 3.300%, February 25, 1994 268,000 266,624
------------- -------------
TOTAL COMMERCIAL PAPER 23,614,000 23,576,890
TOTAL CASH 275,343 275,343
------------- -------------
TOTAL CASH AND CASH EQUIVALENTS $ 23,889,343 $ 23,852,233
------------- -------------
------------- -------------
</TABLE>
<TABLE>
<CAPTION>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.1%
Face Current
DESCRIPTION Amount Value
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
Ford Motor Credit Corp., 3.340%, March 2, 1994 $ 1,000,000 $ 990,815
General Electric Capital Corp., 3.220%, February 14, 1994 1,000,000 988,193
------------- -------------
Total Commercial Paper $ 2,000,000 $ 1,979,008
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-16 THROUGH F-20.
F-15
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1994, 1993, 1992
GENERAL
On April 29, 1988, The Prudential Variable Contract Real Property Partnership
(the "Partnership"), a general partnership organized under New Jersey law, was
formed through an agreement among The Prudential Insurance Company of America
("The Prudential"), Pruco Life Insurance Company ("Pruco Life"), and Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey"). The Partnership
was established as a means by which assets allocated to the real estate
investment option under certain variable life insurance and variable annuity
contracts issued by the respective companies could be invested in a commingled
pool. The partners in the Partnership are The Prudential, Pruco Life and Pruco
Life of New Jersey.
The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.
The Partnership's investments are valued on a daily basis, consistent with the
Partnership Agreement. On each day during which the New York Stock Exchange is
open for business, the net assets of the Partnership are valued using the
current value of its investments as described in Notes 1A and 1B below, plus an
estimate of net income from operations reduced by any liabilities of the
Partnership.
The periodic adjustments to property and mortgage loan values described in Notes
1A and 1B below and the corrections of previous estimates of net income are made
on a prospective basis. There can be no assurance that all such adjustments and
estimates will be made timely.
Shares of the Partnership are sold to The Prudential Variable Contract Real
Property Account, Pruco Life Variable Contract Real Property Account, and Pruco
Life of New Jersey Variable Contract Real Property Account, (the "Real Property
Accounts") at the current share value of the Partnership's net assets. Share
value is calculated by dividing the current value of net assets of the
Partnership as determined below by the number of shares outstanding. A Contract
owner participates in the Partnership through interests in the Real Property
Accounts.
Note 1: Summary Of Significant Accounting Policies
A: Real Estate Owned and Interest in Properties - The Partnership's
investments in real estate owned and interests in properties are
initially valued at their purchase price. Thereafter, current
values are based upon appraisal reports prepared by independent
real estate appraisers (members of the Appraisal Institute or an
equivalent organization) which are ordinarily obtained on an
annual basis.
The Chief Appraiser of the Prudential Comptroller's Department
Valuation Unit is responsible to assure that the valuation
process provides independent and accurate current value
estimates. In the interest of maintaining and monitoring the
independence and the accuracy of the appraisal process, the
Comptroller of The Prudential has appointed a third party firm to
act as the Appraisal Management Firm. The Appraisal Management
Firm, among other responsibilities, approves the selection and
scheduling of external appraisals; develops a standard package of
information to be supplied to the appraisers; reviews and
provides comments on all external appraisals and a sample of
internal appraisals; assists in developing policy and procedures
and assists in the evaluation of the performance and competency
of external appraisers. The property valuations are reviewed
quarterly by The Prudential Comptroller's Department Valuation
Unit and the Chief Appraiser and adjusted if there has been any
significant changes related to the property since the most recent
independent appraisal.
F-16
<PAGE>
The purpose of an appraisal is to estimate the current value of a
property as of a specific date. Current value has been defined as
the most probable price for which the appraised property will
sell in a competitive market under all conditions requisite to
fair sale, with the buyer and seller each acting prudently,
knowledgeably, and for self interest, and assuming that neither
is under undue duress. This estimate of current value generally
is a correlation of three approaches, all of which require the
exercise of subjective judgement. The three approaches are: (1)
current cost of reproducing a property less deterioration and
functional and economic obsolescence; (2) discounting of a series
of income streams and reversion at a specified yield or by
directly capitalizing a single - year income estimate by an
appropriate factor; and (3) value indicated by recent sales of
comparable properties in the market. In the reconciliation of
these three approaches, the one most heavily relied upon is the
one generally most appropriate for the type of property in the
market.
B: Mortgage Loans - Investment in mortgage loans which mature in the
current year are carried at the amount of unpaid principal.
Impaired loans are valued at the lower of the current value as
described above or the current value of the underlying property
determined as described in Note 1A.
C: Revenue Recognition - Rent from properties consists of all
amounts earned under tenant operating leases including base rent,
recoveries of real estate taxes and other expenses and charges
for miscellaneous services provided to tenants. Revenue from
leases which provide for scheduled rent increases is recognized
as billed.
D: Cash and Cash Equivalents - The Partnership considers all highly
liquid investments with a maturity of three months or less when
purchased to be cash equivalents. Cash equivalents are carried at
market value.
E: Marketable Securities - Marketable securities are highly liquid
investments with maturities of more than three months when
purchased and are carried at market value.
F: Federal Income Taxes - The Partnership is not a taxable entity
under the provisions of the Internal Revenue Code. The income
and capital gains and losses of the Partnership are attributed,
for federal income tax purposes, to the Partners in the
Partnership. The Partnership may be subject to state and local
taxes in jurisdictions in which it operates.
The bases of the Partnership's assets and liabilities for federal
income tax purposes are the same as the amounts reported on the
statements of assets and liabilities except for the investment in
properties. The tax basis of the properties is $148,001,027 at
December 31, 1994 and $146,917,984 at December 31, 1993.
G: Change in Accounting Policy - As of December 31, 1991, the
financial statements are prepared on a current value basis. This
represents a change in accounting policy from financial
statements prior to the year ended December 31, 1991 which
utilized the historical cost basis of accounting and provided
only supplementary information on current values. Since the unit
values under Contracts participating in the Partnership are
determined using the current value basis of investments (see
General Note), this basis is deemed more meaningful to the
investor than a historical cost basis.
H: Reclassifications - Certain reclassifications have been made to
the 1992 and 1993 financial statements to conform to those used
in 1994.
F-17
<PAGE>
Note 2: Obligation Under Capital Lease
The Partnership maintains an interest in a leasehold estate consisting of six
one-story industrial warehouse buildings located in Pomona, California. In
conjunction with this interest, the Partnership assumed assignment of a ground
lease agreement which expires in November 2078, with no renewal options. The
annual ground lease payments after November 1994, and for each 10 year increment
thereafter, are subject to increase 50% of the increase in the Consumer Price
Index during the previous period. For 1995, the annual ground lease payment
will increase $126,450 to $376,450. The ground lease contains a purchase
option exercisable from November 1994 to November 1997 at a fixed price of
$4,000,000. Future minimum ground lease payments under capital lease at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 376,450
1996 376,450
Thereafter 4,062,742
-----------
Total minimum ground lease payments 4,815,642
Less amount representing interest 1,010,816
-----------
Present value of minimum ground lease payments $ 3,804,826
-----------
-----------
</TABLE>
Note 3: Investment In Mortgage Loans
At December 31, 1993, the Partnership had an investment in two mortgage loans
with a current value totalling $9,223,791 with interest rates of 8.875% and 9%.
Both loans were scheduled to mature in 1994. The Partnership received a final
payment in May 1994 of $3,543,892 which satisfied the terms of the loan on the
property in Lincoln, NE. On July 1, 1994, the Partnership foreclosed on the
Flint, MI mortgage loan under a voluntary conveyance of the property by the
mortgagor. The Partnership took title to the property at the expiration of the
redemption period on January 3, 1995. The property is reported as investment
in property in the December 31, 1994 financial statements and is carried at its
current value.
Note 4: Leasing Activity
The Partnership leases space to tenants under various operating lease
agreements. These agreements, without giving effect to renewal options, have
expiration dates ranging from 1995 to 2009. At December 31, 1994, future
minimum base rental income under non-cancelable operating leases by year, and in
the aggregate are shown below. Although these are non-cancelable leases, there
is no assurance that all amounts will be received.
<TABLE>
<CAPTION>
Year Ending
December 31,
-----------
<S> <C>
1995 $ 10,791,000
1996 9,562,000
1997 7,667,000
1998 5,869,000
1999 5,189,000
Thereafter 20,877,000
------------
Total $ 59,955,000
------------
------------
</TABLE>
Note 5: Transactions with affiliates
Pursuant to an investment management agreement, The 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 years ended
December 31, 1994, 1993 and 1992 management fees incurred by the Partnership
were $2,287,816; $2,269,206 and $2,405,024, respectively.
The Partnership also reimburses The Prudential for certain administrative
services rendered by The Prudential. The amounts incurred for the years ended
December 31, 1994, 1993 and 1992 were $95,015; $119,467 and $147,254,
respectively and are classified as administrative expenses in the statements of
operations.
F-18
<PAGE>
The Partnership owns a 50% interest in four warehouse/distribution buildings in
Jacksonville, Florida (the Unit warehouses). The remaining 50% interest is
owned by The Prudential and one of its subsidiaries. At December 31, 1994 and
1993, these properties had total assets of $11,748,222 and $46,911,411 and
liabilities of $150,964 and $33,306, respectively. For the years ended December
31, 1994, 1993 and 1992, these properties had revenues of $4,939,354, $5,931,236
and $5,909,188 and expenses of $1,611,108, $1,847,049 and $1,913,997,
respectively.
The Partnership has contracted with PREMISYS Real Estate Services, Inc.
(PREMISYS), an affiliate of The Prudential to provide property management
services at the Unit warehouses, the Bolingbrook, IL warehouse, and through
August, 1993 at the Azusa and Pomona warehouses. The property management fee
earned by PREMISYS for the years ended December 31, 1994, 1993 and 1992 were
$92,382; $89,684 and $105,664 respectively.
Note 6: Line Of Credit
The Partnership established a $10 million unsecured revolving line of credit
with First Fidelity Bank, N.A., which will be drawn upon as needed for
potential liquidity needs. The annual cost of maintaining the line of credit is
0.1875% of the total line of credit. As of December 31, 1994, no drawdowns had
occurred.
Note 7: Commitment from Partner
On January 9, 1990, The Prudential committed to fund up to $100 million to
enable the Partnership to take advantage of opportunities to acquire attractive
real property investments whose cost is greater than the Partnership's then
available cash. Contributions to the Partnership under this commitment are
utilized for property acquisitions and returned to Prudential on an ongoing
basis from Contract owners' net contributions. Also, the amount of the
committment is reduced by $10 million for every $100 million in current value
net assets of the Partnership. The amount available under this committment for
property purchases as of December 31, 1994 is approximately $51.6 million.
Note 8: Net Realized Loss on Investments
On October 7, 1994, the Partnership sold its 50% ownership interest in the two
warehouses located in Atlanta, GA and the warehouses located in Desoto, TX; Fort
Worth, TX; Shreveport, LA; Bedford Park, IL; and Normal, IL. The net proceeds
on the sale were $19,014,872 resulting in a realized loss of $1,237,385.
On August 9, 1993, the Partnership sold its Denver, Colorado warehouse facility.
The proceeds, net of related costs, amounted to approximately $2,561,000. The
sale of the warehouse resulted in a realized loss of approximately $1,451,000.
On September 2, 1993, the Partnership sold one of the Jacksonville, Florida
warehouse/distribution buildings in which the Partnership owned a 50% interest.
The proceeds, net of related costs, amounted to approximately $1,380,000,
resulting in a realized loss of approximately $220,000.
On October 29, 1993, the Partnership sold its interest in the Unit warehouse
located in Hightstown, New Jersey. The proceeds, net of related costs, were
approximately $786,000, resulting in a realized loss of approximately $792,000.
Note 9: Committment to Purchase
The Partnership has a committment to purchase a 250 - unit garden apartment
community located in Raleigh, North Carolina at a purchase price of
approximately $14 million. The apartment community which is currently under
construction is expected to be completed in June, 1995. In conjunction with the
purchase of the property, the Partnership will enter into an agreement to make
a second funding for not more than $1,950,000 should the property meet certain
income and occupancy requirements. This would increase the Partnership's total
committment to approximately $16 million.
F-19
<PAGE>
Note 10: Per Share Information (For a share outstanding throughout the period)
<TABLE>
<CAPTION>
01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
to to to to to
12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Rent from properties $ 1.2754 $ 1.1659 $ 1.0727 $ 0.9899 $ 0.9479
Income from interest in properties $ 0.1838 $ 0.2139 $ 0.1970 $ 0.1791 $ 0.1533
Interest on mortgage loans $ 0.0082 $ 0.0755 $ 0.0711 $ 0.0663 $ 0.0654
Interest from short-term investments $ 0.1226 $ 0.0549 $ 0.0653 $ 0.1151 $ 0.1202
---------- ---------- ---------- ---------- ----------
INVESTMENT INCOME $ 1.5900 $ 1.5102 $ 1.4061 $ 1.3504 $ 1.2868
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Investment management fee $ 0.1786 $ 0.1673 $ 0.1642 $ 0.1669 $ 0.1591
Real estate tax expense $ 0.1399 $ 0.1465 $ 0.1488 $ 0.1168 $ 0.1010
Administrative expenses $ 0.1103 $ 0.1187 $ 0.1046 $ 0.0946 $ 0.0910
Operating expenses $ 0.1332 $ 0.1209 $ 0.1241 $ 0.0948 $ 0.0776
Interest expense $ 0.0255 $ 0.0236 $ 0.0215 $ 0.0193 $ 0.0186
---------- ---------- ---------- ---------- ----------
EXPENSES $ 0.5875 $ 0.5770 $ 0.5632 $ 0.4924 $ 0.4473
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME $ 1.0025 $ 0.9332 $ 0.8429 $ 0.8580 $ 0.8395
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net realized loss on investments sold $ (0.0966) $ (0.1816) $ 0.0000 $ 0.0000 $ 0.0000
Net unrealized gain/(loss) on investments $ 0.2169 $ 0.0152 $ (1.1359) $ (0.7770) $ (0.1543)
---------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS $ 0.1203 $ (0.1664) $ (1.1359) $ (0.7770) $ (0.1543)
---------- ---------- ---------- ---------- ----------
Net increase/(decrease) in share value $ 1.1228 $ 0.7668 $ (0.2930) $ 0.0810 $ 0.6852
Share Value at beginning of period $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016 $ 12.1164
---------- ---------- ---------- ---------- ----------
Share Value at end of period $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Ratio of expenses to average net assets 4.27% 4.44% 4.47% 3.81% 3.58%
Ratio of net investment income to
average net assets 7.29% 7.17% 6.69% 6.63% 6.72%
Number of shares outstanding at
end of period (000's) 12,241 13,031 14,189 14,993 16,175
</TABLE>
ALL CALCULATIONS ARE BASED ON AVERAGE MONTH-END SHARES OUTSTANDING WHERE
APPLICABLE. PER SHARE INFORMATION PRESENTED HEREIN IS SHOWN ON A BASIS
CONSISTENT WITH THE FINANCIAL STATEMENTS AS DISCUSSED IN NOTE 1G.
F-20
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: PROPERTIES
DECEMBER 31, 1994
----------------------------------------------------------
<TABLE>
<CAPTION>
Initial Costs to Partnership Costs
---------------------------------------- Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Properties:
Warehouse
Azusa, CA None $6,638,694 $10,741,233 $839,318(b)
Office Building
Lisle, IL None 1,780,000 15,743,881 541
Garden Apartments
Atlanta, GA None 3,631,212 11,168,904 509,077(e)
Warehouse
Pomona, CA None 3,412,636(d) 19,091,210 611,743
Retail Shopping Center
Roswell, GA None 9,454,622 21,513,677 637,671
Office Building
Morristown, NJ None 2,868,660 12,958,451 2,616,577
Office/Warehouse
Bolingbrook, IL None 1,373,199 7,302,518 239,781
Garden Apartments
Farmington Hills, MI None 1,550,000 11,744,571 265,478
Office Park
Flint, MI None 1,119,512 6,343,902 0
------------------------------------------------------
$0 $31,828,535 $116,608,347 $5,720,186
======================================================
<CAPTION>
Gross Amount at Which
Carried at Close of Period
--------------------------------------------------------------
Buildings & Year of Date
Description Land Improvements Total (a)(b)(c) Construction Acquired
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Properties:
Warehouse
Azusa, CA $6,478,884 $11,740,361 $18,219,245 1986 Apr., 1988
Office Building
Lisle, IL 1,780,000 15,744,422 17,524,422 1985 Apr., 1988
Garden Apartments
Atlanta, GA 3,631,212 11,677,981 15,309,193 1987 Apr., 1988
Warehouse
Pomona, CA 3,412,636 19,702,953 23,115,589 1984 Apr., 1988
Retail Shopping Center
Roswell, GA 9,462,951 22,143,019 31,605,970 1988 Jan., 1989
Office Building
Morristown, NJ 2,868,660 15,575,028 18,443,688 1981 Aug., 1988
Office/Warehouse
Bolingbrook, IL 1,373,199 7,542,299 8,915,498 1989 Feb., 1990
Garden Apartments
Farmington Hills, MI 1,583,320 11,976,729 13,560,049 1988 Jan., 1990
Office Park
Flint, MI 1,119,512 6,343,902 7,463,414 1986 Jan., 1995
-------------------------------------------------
$31,710,374 $122,446,694 $154,157,068
=================================================
<FN>
(a) Balance at
December 31,
1993, 1992, 1991,
respectively $145,532,430 $148,499,390 $146,414,277
Additions:
Acquisition 7,463,414 0 0
Improvements,
etc. 1,161,224 1,044,906 2,085,113
Deletions:
Sale 0 (4,011,866) 0
------------ --------------------------
Balance at
December 31,
1994, 1993, 1992,
respectively $154,157,068 $145,532,430 $148,499,390
------------ --------------------------
------------ --------------------------
(b) Net of payments received from seller under guarantees of occupancy rates and operating income of $(421,663).
(c) Balance of real estate owned on a tax basis at December 31, 1994 is $148,001,027.
(d) Represents land under capital lease.
(e) Net of $1,000,000 settlement received from lawsuit.
</TABLE>
F-21
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: INTEREST IN PROPERTIES
DECEMBER 31, 1994
------------------------------------------------------------------------
<TABLE>
<CAPTION>
Initial Costs to Partnership Costs
--------------------------------------------- Capitalized
Buildings & Subsequent to
Description Encumbrances Land Improvements Acquisition
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest in Properties:
Warehouse/Distribution
Jacksonville, FL None $231,119 $1,073,849 $11
Warehouse/Distribution
Jacksonville, FL None 176,256 818,935 7,257
Warehouse/Distribution
Jacksonville, FL None 255,545 1,187,335 14
Warehouse/Distribution
Jacksonville, FL None 415,548 1,930,761 12,112
------------------------------------------------------------
$0 $1,078,468 $5,010,880 $19,394
============================================================
<CAPTION>
Gross Amount at Which
Carried at Close of Period
------------------------------------------------------
Buildings & Year of Date
Description Land Improvements Total(a)(b) Construction Acquired
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest in Properties:
Warehouse/Distribution
Jacksonville, FL $231,119 $1,073,860 $1,304,979 1988 Jan., 1990
Warehouse/Distribution
Jacksonville, FL 176,256 826,192 1,002,448 1986 Jan., 1990
Warehouse/Distribution
Jacksonville, FL 255,545 1,187,349 1,442,894 1982 Jan., 1990
Warehouse/Distribution
Jacksonville, FL 415,548 1,942,873 2,358,421 1979 Jan., 1990
-------------------------------------------
$1,078,468 $5,030,274 $6,108,742
===========================================
<FN>
(a) Balance at December 31,
1993, 1992, 1991,
respectively $26,348,882 $29,492,913 $29,023,296
Additions:
Improvements 12,087 34,237 469,617
Deletions:
Sales (20,252,227) (3,178,268) 0
----------- ----------- -----------
Balance at December 31,
1994, 1993, 1992,
respectively $6,108,742 $26,348,882 $29,492,913
=========================================
(b) Balance of real estate owned on a tax basis at December 31, 1994 is $6,108,742.
</TABLE>
F-22
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1994
----------------------------------------------------------------------
<TABLE>
<CAPTION>
Principal
Periodic Face Principal Amount of Loans
Interest Final Payment Prior Amount of Outstanding Subject to Delinquent
Description Rate Maturity Terms (1) Liens Mortgages 12/31/94(2)(3) Principal or Interest
------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
First Mortgages
Office Buildings:
Flint, MI 8.875% May, 1994 (a) None $8,700,000 $0 (4) $0
Lincoln, NE 9.000% May, 1994 (b) None 3,750,000 0 0
----------- -------------- -----------------
$12,450,000 $0 $0
=========== ============== =================
<FN>
(1) Periodic Payment Terms-Mortgage loans are payable at level amounts over life to maturity, with balloon payments due and payable
at maturity.
(a) The balance due at maturity is $7,796,520. There is no provision for prepayment or extension of the loan.
(b) The balance due at maturity is $3,515,332. The loan may be prepaid subject to conditions designed to maintain the yield on
the investment.
(2) Balance at December 31, 1993, 1992, 1991, respectively $11,410,944 $11,613,903 $11,800,467
Deductions:
Collections of Principal (3,947,530) (202,959) (186,564)
Foreclosure (7,463,414) 0 0
----------- ----------- -----------
Balance at December 31, 1994, 1993, 1992, respectively $0 $11,410,944 $11,613,903
=========== =========== ===========
(3) Balance of mortgage loans on a tax basis at December 31, 1994 is $0.
(4) See Note 3 to financial statements.
</TABLE>
F-23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 5,465,515
<SHARES-COMMON-PRIOR> 5,678,320
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> $79,136,103
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> $407,310
<NET-INVESTMENT-INCOME> $5,252,476
<REALIZED-GAINS-CURRENT> $(545,083)
<APPREC-INCREASE-CURRENT> $1,179,744
<NET-CHANGE-FROM-OPS> $5,887,137
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> $3,294,447
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<INVESTMENTS-AT-COST> $160,265,810
<INVESTMENTS-AT-VALUE> $131,984,455
<RECEIVABLES> $2,218,095
<ASSETS-OTHER> $48,917,436
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> $183,119,986
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> $5,880,021
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 12,241,034
<SHARES-COMMON-PRIOR> 13,031,424
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> $177,239,965
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> $1,677,088
<OTHER-INCOME> 0
<EXPENSES-NET> $7,528,352
<NET-INVESTMENT-INCOME> $12,848,199
<REALIZED-GAINS-CURRENT> $(1,237,385)
<APPREC-INCREASE-CURRENT> $2,576,828
<NET-CHANGE-FROM-OPS> $14,187,642
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 790,390
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> $3,187,642
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> $327,000
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> $13.356
<PER-SHARE-NII> $1.003
<PER-SHARE-GAIN-APPREC> $.120
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> $14.479
<EXPENSE-RATIO> .043
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
