<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ----
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the quarterly period ended June 30, 1996
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)
(800) 445-4571
---------------------------------------------------
(Registrant's Telephone Number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
---- ----
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Registrant)
INDEX
-----
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets -June 30, 1996 (Unaudited) and
December 31, 1995 3
Statements of Operations (Unaudited) - Six and Three
Months Ended June 30, 1996 and 1995 3
Statements of Changes in Net Assets -Six Months Ended
June 30, 1996 (Unaudited) and Year Ended December 31, 1995 4
Notes to the Financial Statements (Unaudited) 5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities - June 30, 1996
(Unaudited) and December 31, 1995 7
Statements of Operations (Unaudited) -Six and Three
Months Ended June 30, 1996 and 1995 8
Statements of Changes in Net Assets -Six Months Ended
June 30, 1996 (Unaudited) and Year Ended December 31, 1995 9
Statements of Cash Flows (Unaudited) -Six Months Ended
June 30, 1996 and 1995 10
Schedule of Investments - June 30, 1996 (Unaudited) and
December 31, 1995 11
Notes to the Financial Statements (Unaudited) 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
PART III - SIGNATURES 21
2
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
JUNE 30, 1996
(UNAUDITED) DECEMBER 31, 1995
-------------- -----------------
Investment in shares of The Prudential
Variable Contract Real Property
Partnership $ 88,746,045 $ 86,101,883
-------------- -----------------
-------------- -----------------
NET ASSETS, representing:
Equity of Contract Owners $ 56,758,077 $ 56,252,299
Equity of The Prudential Insurance
Company of America 31,987,968 29,849,584
-------------- -----------------
$ 88,746,045 $ 86,101,883
-------------- -----------------
-------------- -----------------
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------- ------------- ------------- -------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 3,558,195 $ 3,035,761 $ 1,759,668 $ 1,542,847
EXPENSES:
Asset Based Charges to Contract Owners (Note 3) 233,777 218,578 117,801 110,489
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 3,324,418 2,817,183 1,641,867 1,432,358
------------- ------------- ------------- -------------
NET UNREALIZED LOSS ON INVESTMENTS IN PARTNERSHIP (700,355) (216,067) (411,695) 540,973
NET REALIZED LOSS ON SALE OF INVESTMENTS IN
PARTNERSHIP (213,678) 0 (213,678) 0
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,410,385 $ 2,601,116 $ 1,016,494 $ 1,973,331
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 5 THROUGH 6.
3
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
-------------- ------------------
OPERATIONS:
Net Investment Income $ 3,324,418 $ 6,200,851
Net Unrealized (Loss)/Gain on Investments
in Partnership (700,355) 314,267
Net Realized Loss on Sale of Investments
in Partnership (213,678) 0
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 2,410,385 6,515,118
-------------- --------------
CAPITAL TRANSACTIONS:
Net (Withdrawals)/Contributions by
Contract Owners (968,889) 588,074
Net Contributions/(Withdrawals) by The
Prudential Insurance Company of America 1,202,666 (137,412)
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 233,777 450,662
-------------- --------------
TOTAL INCREASE IN NET ASSETS $ 2,644,162 $ 6,965,780
NET ASSETS:
Beginning of period $ 86,101,883 $ 79,136,103
-------------- --------------
End of period $ 88,746,045 $ 86,101,883
-------------- --------------
-------------- --------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 5 THROUGH 6.
4
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
JUNE 30, 1996
(UNAUDITED)
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. BASIS OF ACCOUNTING
The financial statements are prepared on a current value basis due to the
fact that 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). These unaudited financial statements
reflect all adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented. All
such adjustments are of a normal recurring nature.
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 June 30, 1996 the
Real Property Account's interest in the Partnership, based on current value
equity was 46.1% or 5,465,515 shares.
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.
5
<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 June 30, 1996 is
approximately $51.2 million.
6
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
JUNE 30, 1996
(UNAUDITED) DECEMBER 31, 1995
--------------- ---------------
ASSETS:
Properties at estimated market value
market value(cost $173,671,738 and
$191,981,608 respectively) (Note 1) $ 148,210,792 $ 164,695,033
Interest in properties at estimated
(cost $6,133,157 and $6,133,157
respectively) (Note 1) 5,900,000 5,800,000
Cash and cash equivalents 26,828,212 14,223,265
Marketable securities 16,409,452 10,532,155
Other assets and accounts receivable
(net of allowance for uncollectible
amounts of $16,589 and $18,896
respectively) 1,956,008 1,743,305
--------------- ---------------
Total Assets $ 199,304,464 $ 196,993,758
--------------- ---------------
--------------- ---------------
LIABILITIES AND PARTNER'S EQUITY:
Obligation under capital lease $ 3,718,956 $ 3,882,421
Accounts payable and accrued expenses 1,996,547 2,142,614
Due to affiliates (Note 2) 656,253 682,795
Other liabilities 546,904 664,069
--------------- ---------------
Total liabilities 6,918,660 7,371,899
--------------- ---------------
Partners' Equity 192,385,804 189,621,859
--------------- ---------------
Total Liabilities and Partner's Equity $ 199,304,464 $ 196,993,758
--------------- ---------------
--------------- ---------------
Number of shares outstanding at end
of period 11,848,275 12,036,684
--------------- ---------------
--------------- ---------------
Share Value at end of period $16.24 $15.75
--------------- ---------------
--------------- ---------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
7
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME:
Rent from properties $ 11,713,941 $ 9,003,242 $ 5,793,345 $ 4,530,845
Income from interest in properties 327,684 310,449 163,539 161,041
Interest from short-term investments 844,281 1,558,962 412,424 793,632
------------- ------------- ------------- -------------
12,885,906 10,872,653 6,369,308 5,485,518
------------- ------------- ------------- -------------
EXPENSES:
Investment management fee (Note 2) 1,223,409 1,142,684 615,334 573,596
Real estate tax expense 1,251,380 1,075,630 594,780 466,006
Administrative expenses 1,038,725 839,548 561,885 447,428
Operating expenses 1,349,856 831,919 666,571 474,418
Interest expense 255,255 230,289 117,090 115,145
------------- ------------- ------------- -------------
5,118,625 4,120,070 2,555,660 2,076,593
------------- ------------- ------------- -------------
NET INVESTMENT INCOME 7,767,281 6,752,583 3,813,648 3,408,925
------------- ------------- ------------- -------------
REALIZED AND UNREALIZED LOSS/GAIN ON
INVESTMENTS:
Net proceeds from real estate investment sold 14,697,789 0 14,697,789 0
Less cost of real estate investment sold 18,626,754 0 18,626,754 0
Realization of prior quarters' unrealized loss on
real estate investments sold (3,462,522) 0 (3,462,522) 0
------------- ------------- ------------- -------------
NET LOSS REALIZED ON REAL ESTATE
INVESTMENTS SOLD (466,443) 0 (466,443) 0
------------- ------------- ------------- -------------
NET UNREALIZED LOSS ON INVESTMENTS (1,536,893) (501,599) (888,252) 1,193,930
------------- ------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 5,763,945 $ 6,250,984 $ 2,458,953 $ 4,602,855
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
8
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
SIX MONTHS
ENDED
JUNE 30, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
--------------- -----------------
OPERATIONS:
Net Investment Income $ 7,767,281 $ 14,720,271
Net Realized and Unrealized
Gain/(Loss) on Investments (2,003,336) 661,623
--------------- ---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 5,763,945 15,381,894
--------------- ---------------
CAPITAL TRANSACTIONS:
Withdrawals by partners
(188,409 and 204,350,
shares respectively) (3,000,000) (3,000,000)
--------------- ---------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS (3,000,000) (3,000,000)
--------------- ---------------
TOTAL INCREASE IN NET ASSETS 2,763,945 12,381,894
NET ASSETS:
Beginning of period 189,621,859 177,239,965
--------------- ---------------
End of period $ 192,385,804 $ 189,621,859
--------------- ---------------
--------------- ---------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
9
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from
operations $ 5,763,945 $ 6,250,984
Adjustments to reconcile net increase in net
assets resulting from operations to net cash
from operating activities:
Net realized and unrealized loss on investments 2,003,336 501,599
Changes in assets and liabilities:
(Increase) Decrease in other assets
and accounts receivable (212,703) 599,249
(Increase) Decrease in marketable securities (5,877,297) 11,230,731
Decrease in obligation under capital lease (163,465) (89,479)
(Decrease) Increase in accounts payable
and accrued expenses (146,067) 267,588
Decrease in due to affiliates (26,542) (12,514)
Decrease in other liabilities (117,165) (51,867)
------------ ------------
Net cash from operating activities 1,224,042 18,696,291
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 14,697,789 0
Acquisition of property 0 (13,760,531)
Capital improvements on real estate owned (316,884) (291,202)
Capital improvements on interest in properties 0 (23,773)
------------ ------------
Net cash from investing activities 14,380,905 (14,075,506)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals (3,000,000) (3,000,000)
------------ ------------
Net increase in cash and cash equivalents 12,604,947 1,620,785
CASH AND CASH EQUIVALENTS - Beginning of period 14,223,265 33,093,237
------------ ------------
CASH AND CASH EQUIVALENTS - End of period $ 26,828,212 $ 34,714,022
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 376,450 $ 376,450
------------ ------------
------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
10
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
JUNE 30, 1996
(UNAUDITED) DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (PERCENT OF NET ASSETS) 77.0% 86.9%
Estimated Estimated
Market Market
<S> <C> <C> <C> <C> <C>
Location Description Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------------------------
Azusa, CA Warehouse $ 0 $ (10) $ 18,546,247 $ 15,083,725
Lisle, IL Office Building 17,524,420 11,600,000 17,524,421 11,600,000
Atlanta, GA Garden Apartments 15,388,924 13,204,391 15,371,495 12,600,000
Pomona, CA (a) Warehouse 23,250,958 16,171,786 23,205,172 17,127,292
Roswell, GA Retail Shopping Center 31,685,048 30,001,813 31,688,912 32,055,216
Morristown, NJ Office Building 18,751,303 10,192,195 18,664,969 9,572,688
Bolingbrook, IL Warehouse 8,948,028 7,300,000 8,948,028 7,400,000
Farmington Hills, MI Garden Apartments 13,594,950 14,900,000 13,594,950 14,200,000
Flint, MI Office Building 7,706,983 6,035,703 7,616,842 6,539,368
Raleigh, NC Garden Apartments 15,758,699 17,200,000 15,758,699 17,200,000
Nashville, TN Office Building 8,428,652 8,604,914 8,431,680 8,686,551
Oakbrook Terrace, IL Office Complex 12,633,773 13,000,000 12,630,193 12,630,193
-------------- -------------- -------------- --------------
$ 173,671,738 $ 148,210,792 $ 191,981,608 $ 164,695,033
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
(a) Includes land under capital lease of $3,412,636 representing the present value
of minimum future lease payments at the inception of the lease.
INVESTMENT IN INTEREST IN PROPERTIES (PERCENT OF NET ASSETS) 3.1% 3.1%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------------------------
Jacksonville, FL Warehouse/Distribution 1,317,453 1,250,000 1,317,453 1,225,000
Jacksonville, FL Warehouse/Distribution 1,002,448 1,000,000 1,002,448 975,000
Jacksonville, FL Warehouse/Distribution 1,442,894 1,300,000 1,442,894 1,300,000
Jacksonville, FL Warehouse/Distribution 2,370,362 2,350,000 2,370,362 2,300,000
-------------- -------------- -------------- --------------
$ 6,133,157 $ 5,900,000 $ 6,133,157 $ 5,800,000
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 13.9% 7.5%
(see pages 12 and 13 for detail) Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
Commercial Paper and Cash $ 26,947,335 $ 26,828,212 $ 14,282,697 $ 14,223,265
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 8.5% 5.6%
(see pages 12 and 13 for detail) Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------------------------
Marketable Securities $ 16,280,000 $ 16,409,452 $ 10,480,000 $ 10,532,155
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
OTHER ASSETS (2.5%) 3.1%
(net of liabilities) $ (4,962,652) $ (5,628,594)
-------------- --------------
TOTAL NET ASSETS $ 192,385,804 $ 189,621,859
-------------- --------------
-------------- --------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
11
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
JUNE 30, 1996
(UNAUDITED)
-------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 7.3%
Estimated
Face Market
DESCRIPTION Amount Value
- ------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Fleet Funding Corp, 5.30%, July 1,1996 $ 538,000 $ 534,990
Sonoco Prod Co. Note, 5.65% , July 1,1996 978,000 977,540
Wal-Mart Stores, Inc., 5.60%, July 1, 1996 500,000 499,767
Beckman Instruments, 5.50%, July 8,1996 2,126,000 2,122,752
Englehard Corp., 5.43%, July 8, 1996 1,600,000 1,600,000
Finova Capital Corp., 5.50%, July 8, 1996 1,338,000 1,335,138
Finova Capital Corp., 5.25%, July 8, 1996 763,000 761,596
First Data Corp., 5.36%, July 8, 1996 1,300,000 1,292,064
H.J. Heinz Company, 5.30%, July 8, 1996 2,000,000 1,988,811
Preferred Receivables Funding Corp., 5.32%,
July 8, 1996 2,000,000 1,990,542
Whirlpool Financial Corp., 5.39%, July 8,1996 680,000 677,455
Aristart Inc., 5.40%, July 9,1996 1,700,000 1,683,680
First Data Corp., 5.38%, July 9, 1996 750,000 746,413
Lehman Brothers Holding Inc., 5.43%, July 9,1996 2,000,000 1,991,855
Transamerica Financial Corp., 5.36%, July 9, 1996 560,000 557,332
Whirlpool Financial Corp., 5.39%, July 9, 1996 866,000 862,240
PHH Corporation, 5.30%, July 11, 1996 2,000,000 1,987,928
Whirlpool Corp., 5.35%, July 12, 1996 500,000 496,879
Fleet Funding Corp., 5.35%, July 15, 1996 1,178,000 1,172,223
Household International, Inc., 5.37%, July 15, 1996 1,160,000 1,144,254
Potomac Electric Power Co., 5.38%, July 17, 1996 1,343,000 1,338,785
Allied-Signal Inc., 5.41%, July 19, 1996 379,000 377,633
------------ ------------
TOTAL COMMERCIAL PAPER 26,259,000 26,139,877
TOTAL CASH 688,335 688,335
------------ ------------
TOTAL CASH AND CASH EQUIVALENTS $ 26,947,335 $ 26,828,212
------------ ------------
------------ ------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 5.8%
Estimated
Face Market
DESCRIPTION Amount Value
- ------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
John Deere Capital Corp, 5.72%, July 22, 1996 1,000,000 1,002,267
PNC Bank N.A., 5.44%, July 29, 1996 1,100,000 1,099,799
Key Bank of New York, N.A., 5.22%, September 6, 1996 1,000,000 999,210
Bank One Columbus, 5.30%, September 12, 1996 1,000,000 999,297
Associates Corp of North Am, 4.48%, October 15, 1996 350,000 345,642
AVCO Finacial ServicesInc.,7.50%, November 11, 1996 850,000 858,490
American Express Centurion Bank, 5.50%,
November 22, 1996 1,880,000 1,880,000
Caterpillar Financial Services, 5.74%,
November 29, 1996 1,200,000 1,201,560
General Motors Acceptance Corp., 7.75% ,
December 10, 1996 850,000 872,657
Chrysler Financial Copr., 5.16%, December 17, 1996 1,000,000 1,018,087
Sears Roebuck Acceptance Corp, 7.48%,
February 19, 1997 100,000 102,187
Sears Roebuck Acceptance Corp,7.72%,
February 27, 1997 800,000 817,318
General Motors Acceptance Corp, 5.80%,
March 18, 1997 1,200,000 1,201,344
Sears Discover Credit Corp.,7.81%, March 18, 1997 1,150,000 1,185,255
Ford Motor Credit Corp., 5.90%, May 5, 1997 1,400,000 1,405,337
Ford Motor Credit Corp., 9.15%, May 7, 1997 500,000 521,872
Society National Bank Cleveland, 5.32%,
May 14, 1997 900,000 899,130
------------ ------------
Total Commercial Paper $ 16,280,000 $ 16,409,452
------------ ------------
------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
12
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1995
-----------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 7.5%
Estimated
Face Market
DESCRIPTION Amount Value
- ------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Morgan Stanley Group, Inc., 6.10%, January 2, 1996 $ 1,146,000 $ 1,146,000
Engelhard Corp., 6.25%, January 3, 1996 1,038,000 1,038,000
Finova Capital Corp., 5.95%, January 4, 1996 800,000 792,198
Philip Morris Companies Inc., 5.80%,
January 5, 1996 505,000 504,430
Gannett Co. Inc., 5.85%, January 9, 1996 1,700,000 1,696,409
Hanson Finance, 5.80%, January 12, 1996 354,000 352,175
Riverwoods Funding Corp., 5.78%, January 12, 1996 1,189,000 1,183,273
Finova Capital Corp., 5.97%, January 16, 1996 780,000 771,980
Smith Barney Inc., 5.79%, January 18, 1996 1,628,000 1,618,836
Fleet Financial Group, 5.75%, January 30, 1996 1,700,000 1,689,139
Countrywide Funding Corp., 5.82%, February 14, 1996 1,500,000 1,488,128
----------- -----------
TOTAL COMMERCIAL PAPER 12,340,000 12,280,568
TOTAL CASH 1,942,697 1,942,697
----------- -----------
TOTAL CASH AND CASH EQUIVALENTS $ 14,282,697 $ 14,223,265
----------- -----------
----------- -----------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 5.6%
Estimated
Face Market
DESCRIPTION Amount Value
- ------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Associates Corp. of North America, 8.75%,
February 1, 1996 $ 410,000 $ 416,810
General Motors Acceptance Corp., 8.75%,
February 1, 1996 650,000 658,860
General Motors Acceptance Corp., 8.95%,
February 5, 1996 350,000 356,370
General Motors Acceptance Corp., 4.75%,
February 14, 1996 430,000 426,212
General Motors Acceptance Corp., 6.01%,
February 22, 1996 240,000 240,057
Household Finance Corp., 5.75%, April 19, 1996 2,000,000 1,996,520
Ford Motor Credit Corp., 6.24%, April 22, 1996 500,000 500,658
Society National Bank Cleveland, 6.00%,
April 25, 1996 150,000 149,295
International Lease Finance Corp., 5.00%,
May 28, 1996 1,000,000 992,120
Transamerica Financial Corp., 8.55%, June 15, 1996 400,000 409,284
John Deere Capital Corp., 6.16%, July 22, 1996 1,000,000 1,002,267
Sears Roebuck Acceptance Corp., 8.55%,
August 1, 1996 1,000,000 1,039,335
Key Bank of New York, N.A., 5.43%,
September 6, 1996 1,000,000 999,210
Bank One Columbus, 5.56%, September 12, 1996 1,000,000 999,297
Associates Corp. of North America, 4.48%,
October 15, 1996 350,000 345,860
----------- -----------
Total Commercial Paper $ 10,480,000 $ 10,532,155
----------- -----------
----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
JUNE 30, 1996
(UNAUDITED)
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 Insurance Company of America, Pruco Life and the Pruco
Life of New Jersey.
The Partnership has a policy of investing at least 65% of its assets in
direct ownership interests in income-producing real estate and
participating mortgage loans.
The Partnership's investments are valued on a daily basis, consistent with
the Partnership Agreement. On each day during which the New York Stock
Exchange is open for business, the net assets of the Partnership are valued
using the current value of its investments as described in Note 1B below,
plus an estimate of net income from operations reduced by any liabilities
of the Partnership.
The periodic adjustments to property values described in Note 1B below and
the corrections of previous estimates of net income are made on a
prospective basis. There can be no assurance that all such adjustments and
estimates will be made timely.
Shares of the Partnership are sold to The Prudential Variable Contract Real
Property Account, the Pruco Life Variable Contract Real Property Account,
and the Pruco Life of New Jersey Variable Contract Real Property Account,
(the "Real Property Accounts") at the current share value of the
Partnership's net assets. Share value is calculated by dividing the
current value of net assets of the Partnership as determined below by the
number of shares outstanding. A Contract owner participates in the
Partnership through interests in the Real Property Accounts.
Note 1: Summary Of Significant Accounting Policies
A: General - The financial statements included herein have been
prepared in accordance with generally accepted
accounting principles for interim financial
information. Accordingly, they do not include all of
the information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all
adjustments (consisting of normal recurring
adjustments) considered necessary for a fair
presentation have been included. Operating results for
the six months ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the
year ended December 31, 1996. For further information,
refer to the financial statements and notes thereto
included in each Partner's December 31, 1995 Annual
Report on Form 10-K.
B: Real Estate Owned and Interest in Properties - The
Partnership's investments in real estate owned and
interest 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
14
<PAGE>
and the Chief Appraiser and adjusted if there have been
any significant changes related to the property since
the most recent independent appraisal.
The purpose of an appraisal is to estimate the market
value of a property as of a specific date. Estimated
market value has been defined as the most probable
price for which the appraised property will sell in a
competitive market under all conditions requisite to
fair sale, with the buyer and seller each acting
prudently, knowledgeably, and for self interest, and
assuming that neither is under undue duress. This
estimate of 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 most appropriate for the type of property
in the market.
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 Equivalents - The Partnership considers all highly
liquid investments with an original maturity of three
months or less when purchased to be cash equivalents.
Cash equivalents are carried at estimated market value.
E: Marketable Securities - Marketable securities are highly
liquid investments with maturities of more than three
months when purchased and are carried at estimated
market value.
F: Federal Income Taxes - The Partnership is not a taxable
entity under the provisions of the Internal Revenue
Code. The income and capital gains and losses of the
Partnership are attributed, for federal income tax
purposes, to the Partners in the Partnership. The
Partnership may be subject to state and local taxes in
jurisdictions in which it operates.
Note 2: 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 six months ended June 30, 1996 and 1995 management fees
incurred by the Partnership were $1,223,409 and $1,142.684,
respectively.
The Partnership also reimburses The Prudential for certain
administrative services rendered by The Prudential. The amounts
incurred for the six months ended June 30, 1996 and 1995 were $59,945
and $60,965 respectively and are classified as administrative
expenses in the statements of operations.
The Partnership owns a 50% interest in four warehouse/distribution
buildings in Jacksonville, Florida (the Unit warehouses). The
remaining 50% interest is owned by 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
property management fees earned by PREMISYS for the six months ended
June 30, 1996 and 1995 were $17,571 and $16,105 respectively.
Note 3: 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 June 30, 1996 is approximately $ 51.2 million.
15
<PAGE>
NOTE 6: PER SHARE INFORMATION (FOR A SHARE OUTSTANDING THOUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
01/01/96 04/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
TO TO TO TO TO TO TO TO
06/30/96 06/30/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rent from properties $ 0.9819 $ 0.4881 $ 1.6387 $ 1.2754 $ 1.1659 $ 1.0727 $ 0.9899 $ 0.9479
Income from interest in properties $ 0.0275 $ 0.0138 $ 0.0527 $ 0.1838 $ 0.2139 $ 0.1970 $ 0.1791 $ 0.1533
Interest on mortgage loans $ 0.0000 $ 0.0000 $ 0.0000 $ 0.0082 $ 0.0755 $ 0.0711 $ 0.0663 $ 0.0654
Interest from short-term investments $ 0.0708 $ 0.0348 $ 0.2199 $ 0.1226 $ 0.0549 $ 0.0653 $ 0.1151 $ 0.1202
-------- -------- -------- -------- -------- -------- -------- --------
INVESTMENT INCOME $ 1.0802 $ 0.5367 $ 1.9113 $ 1.5900 $ 1.5102 $ 1.4061 $ 1.3504 $ 1.2868
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Investment management fee $ 0.1026 $ 0.0519 $ 0.1936 $ 0.1786 $ 0.1673 $ 0.1642 $ 0.1669 $ 0.1591
Real estate tax expense $ 0.1049 $ 0.0501 $ 0.1602 $ 0.1399 $ 0.1465 $ 0.1488 $ 0.1168 $ 0.1010
Administrative expenses $ 0.0871 $ 0.0473 $ 0.1484 $ 0.1103 $ 0.1187 $ 0.1046 $ 0.0946 $ 0.0910
Operating expenses $ 0.1131 $ 0.0561 $ 0.1546 $ 0.1332 $ 0.1209 $ 0.1241 $ 0.0948 $ 0.0776
Interest expense $ 0.0214 $ 0.0099 $ 0.0381 $ 0.0255 $ 0.0236 $ 0.0215 $ 0.0193 $ 0.0186
-------- -------- -------- -------- -------- -------- -------- --------
EXPENSES $ 0.4291 $ 0.2153 $ 0.6949 $ 0.5875 $ 0.5770 $ 0.5632 $ 0.4924 $ 0.4473
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
NET INVESTMENT INCOME $ 0.6511 $ 0.3214 $ 1.2164 $ 1.0025 $ 0.9332 $ 0.8429 $ 0.8580 $ 0.8395
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Net realized loss on investments sold ($ 0.0391) ($ 0.0391) $ 0.0000 ($ 0.0966) ($ 0.1816) $ 0.0000 $ 0.0000 $ 0.0000
Net unrealized gain/(loss) on
investments ($ 0.1282) ($ 0.0747) $ 0.0581 $ 0.2169 $ 0.0152 ($ 1.1359) ($ 0.7770) ($ 0.1543)
-------- -------- -------- -------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS ($ 0.1673) ($ 0.1138) $ 0.0581 $ 0.1203 ($ 0.1664) ($ 1.1359) ($ 0.7770) ($ 0.1543)
-------- -------- -------- -------- -------- -------- -------- --------
Net increase/(decrease) in share value $ 0.4838 $ 0.2076 $ 1.2745 $ 1.1228 $ 0.7668 ($ 0.2930) $ 0.0810 $ 0.6852
Share Value at beginning of period $15.7537 $16.0299 $14.4792 $13.3564 $12.5896 $12.8826 $12.8016 $12.1164
-------- -------- -------- -------- -------- -------- -------- --------
Share Value at end of period $16.2375 $16.2375 $15.7537 $14.4792 $13.3564 $12.5896 $12.8826 $12.8016
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Ratio of expenses to average net assets 2.68% 1.34% 4.62% 4.27% 4.44% 4.47% 3.81% 3.58%
Ratio of net investment income to
average net assets 4.07% 2.00% 8.08% 7.29% 7.17% 6.69% 6.63% 6.72%
Number of shares outstanding at
end of period (000's) 11,848 11,848 12,037 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.
16
<PAGE>
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 June 30, 1996, the Partnership's liquid assets consisting of cash and cash
equivalents and marketable securities totaled $43,237,664. This is an increase
of $18,482,244 from liquid assets at December 31, 1995, of $24,755,420. The
increase is primarily due to (1) $14,697,789 in cash received from the sale of
the Azusa, CA warehouse, (2) operations of the Partnership's properties, and (3)
interest income received from short-term investments. These are partially
offset by withdrawals by the partners of $3,000,000.
The Partnership had established a $10 million annually renewable line of credit
with First Fidelity Bank, N.A. to be drawn upon as needed for potential
liquidity needs. The line of credit had never been drawn upon. Management did
not anticipate any future needs for this credit facility and decided to
terminate the line of credit as of October 31, 1995. The Prudential has
committed to fund up to $100 million to enable the Partnership to acquire real
estate investments. Contributions to the Partnership under this commitment are
utilized for property acquisitions and returned to 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 $51.2
million as of June 30, 1996.
The Partnership will ordinarily invest 10-15% of its assets in cash and short-
term obligations to maintain liquidity; however, its investment policy allows up
to 30% investment in cash and short-term obligations. At June 30, 1996, 21.69%
of the Partnership's assets consisted of cash and cash equivalents and
marketable securities. This is in excess of the target range because proceeds
from the sale, mentioned above, are being retained in the Partnership in
anticipation of potential acquisitions. The partners withdrew $3 million in
March, 1996. Additional withdrawals may be made during the remainder of 1996
based upon the needs of the Partnership including potential property
acquisitions and dispositions and capital expenditures. At June 30, 1996, and
currently, the Partnership has adequate liquidity. Management anticipates that
ongoing cash flow from operations will satisfy the Partnership's needs over the
next six months and the foreseeable future.
During the quarter ended June 30, 1996, the Partnership expended approximately
$169,000 in capital expenditures for tenant alterations and leasing
commissions. The most significant of these expenses was approximately $100,200
at the office building located in Morristown, NJ relating to a lease signed by
Spectrum Financial. Other significant capital expended included leasing
commissions of $45,000 for Prestige Auto, a new tenant in the industrial park in
Pomona, CA and tenant improvements of $36,000 for Olsten Kimberly, a new
tenant in the office park in Flint, MI. These amounts were partially offset by
an immaterial reversal of accrued building improvements for the apartments in
Atlanta, GA that were not completed by the end of this quarter.
Projected capital expenditures for the remainder of the 1996 total approximately
$627,000. Approximately $617,000 consists of tenant alterations and leasing
commissions. Of this amount, approximately $272,000 is budgeted for the
remaining vacancies at the Morristown Office Center, approximately $129,000 is
budgeted for the Pomona, CA warehouse and $197,000 is budgeted for new tenants
at the Roswell shopping center. These projected capital expenditures are
dependant upon successfully executing new tenant leases or tenant renewals.
17
<PAGE>
(b.1) Results of Operations - Portfolio
The following is a brief comparison of the Partnership's total portfolio results
of operations and realized and unrealized losses for the six months ended June
30, 1996 and 1995.
The Partnership's total net investment income for the first six months of 1996
was $7,767,281, an increase of $1,014,698 (15.0%) from $6,752,583 for the
corresponding period of 1995. This was largely due to income of approximately
$1,789,800 from one apartment and two office building acquisitions that
occurred during the second half of 1995, and an increase of approximately
$373,400 in income from ongoing property operations. These amounts were
partially offset by a decrease of approximately $711,000 in short-term
investment income due to a reduction in investments held, and discontinued
income of approximately $255,000 due to the sale of a warehouse that occurred
in April, 1996.
The Partnership's income unrelated to specific properties was a loss of
$701,051, a decrease of $893,880 from income of $192,829 for the corresponding
period of 1995. Components of unrelated property activity are $844,281 in
interest income from short-term investments, $321,923 in administrative
expenses, and the investment management fee of $1,223,409. During the six
months ended June 30, 1996, the Partnership experienced a decrease in short-term
investment income, as mentioned above, an increase of approximately $102,000 in
administrative expenses, and an increase of $81,000 in the investment management
fee.
During the six months ended June 30, 1996, the Partnership experienced realized
and unrealized losses of $466,443 and $1,536,893, respectively, totaling
$2,003,336 on its real estate investments. The realized loss was the result of
the sale of the Azusa, CA warehouse. The unrealized loss was the result of a
decrease of approximately $2,000,000 in the estimated market value of a
retail center, and a decrease of approximately $1,000,000 in the estimated
market value of an industrial property, partially offset by increases of
approximately $1,300,000 in the values of two apartment complexes. The
explanations for these changes are detailed in the following paragraphs.
(b.2) Results of Operations - Property
The following is a brief comparison of the Partnership's property results of
operations and realized and unrealized losses, by investment type, for the six
months ended June 30, 1996 and 1995.
Income from property operations from office buildings for the first six months
of 1996 was $2,982,761, an increase of $1,193,536 from $1,789,225 for the
corresponding period in 1995. This was primarily the result of the acquisition
of two office buildings, in Nashville, TN and Oakbrook Terrace, IL. These
properties accounted for $1,077,297 in income from office building property
operations. Excluding the results of the acquired properties, income from
property operations increased $116,239 (6.5%). Revenue at the properties held
for the comparable period increased by $100,290, while expenses decreased for
the comparable period by $15,949.
The five office buildings owned by the Partnership experienced net unrealized
gains of $226,985 for the first six months of 1996. The office buildings in
Morristown, NJ and Oakbrook Terrace, IL had unrealized gains totaling $899,400.
Their occupancy rates at June 30, 1996 were 93% and 100%, respectively,
representing a decrease for the Morristown, NJ office building of 2%, and no
change for the Oakbrook Terrace, IL office building. The office buildings in
Flint, MI and Nashville, TN had unrealized losses totaling $672,415 for the
first six months of 1996. Their occupancy rates at June 30, 1996 were 96% and
99%, respectively, unchanged from December 31, 1995. The Lisle, IL office
building had no unrealized gain or loss and its occupancy remained unchanged at
100% from December 31, 1995. All vacant office space is being marketed as of
June 30, 1996.
Income from property operations for apartment complexes for the first six months
of 1996 was $2,029,687, an increase of $851,206 from $1,178,481 for the
corresponding period in 1995. This was primarily the result of an acquisition
in Raleigh, NC, which accounted for $712,479 of the total apartment complexes'
property operations.
18
<PAGE>
Excluding the results of the acquired property, income from property operations
increased $138,727 (11.8%). Revenue from the properties held for the comparable
period increased by $69,291, a result of rent increases. Expenses decreased for
the comparable period by $69,436.
The three apartment complexes owned by the Partnership experienced unrealized
gains of $1,286,962 for the first six months of 1996. The apartment complexes
in Farmington Hills, MI and Atlanta, GA accounted for the unrealized gains.
Their occupancy rates at June 30, 1996 were 94% and 96%, respectively, decreases
for both apartment complexes of 4% and 1%, respectively from December 31, 1995
. The Raleigh, NC apartment complex had no unrealized gain or loss. Occupancy
at this property decreased from 96% at December 31, 1995 to 86% at June 30,
1996. This was a result of new construction within the market and increased
competition. All vacant apartments are being marketed as of June 30, 1996.
Income from property operations for industrial properties for the first six
months of 1996 was $1,497,863, a decrease of $105,052 from $1,602,916 for the
corresponding period in 1995. This was primarily the result of a sale of a
warehouse in Azusa, CA which accounted for $254,580 of the decrease. Excluding
the results of the property sold, income from property operations increased
$149,527 (9.3%). Revenue at the properties held for the comparable period
increased by $178,564, a result of increased occupancy. Expenses increased for
the comparable period by $29,037.
The two industrial warehouses owned by the Partnership experienced unrealized
losses of $1,101,292 for the first six months of 1996. Their occupancy rates
at June 30, 1996 were both 100%, unchanged from December 31, 1995. The
warehouse in Azusa, CA which was sold in April, 1996, resulted in a realized
loss of $466,443. The gross sale price of the property was $15,250,000, and net
proceeds received were $14,697,789.
Income from property operations at the Roswell, GA retail center for the first
six months of 1996 was $1,630,338, a decrease of $48,342 (2.9%) from $1,678,680
for the corresponding period in 1995. Revenue at the property for the
comparable period decreased by $82,789, and expenses decreased by $34,447.
The retail center experienced unrealized losses of $2,049,540 for the first six
months of 1996. The occupancy rate at June 30, 1996 was 97%, a decrease from
the 100% occupancy rate at December 31, 1995. This property is marketing the
vacant space as of June 30, 1996.
Income from interest in properties relates to the Partnership's 50%
co-investment in the Jacksonville, FL unit warehouses. Income from interest in
properties increased by $17,235 (5.6%) from $310,449 for the first two quarters
of 1995 to $327,684 for the corresponding period of 1996. For the first six
months of 1996 the co-investment had unrealized gains of $100,000. A major
tenant has moved out and has been replaced with a new tenant. These
warehouses are 100% occupied, as they were at December 31, 1995.
19
<PAGE>
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Contract owners participating in the Real Property Account have no
voting rights with respect to the Real Property Account.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
4.1 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 The 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, filed as Exhibit 1.A.(5) of Form S-6,
Registration Statement No. 33-25372, filed November 4, 1988, and
incorporated herein by reference.
4.4 Variable Appreciable Life Insurance Contracts, 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.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
in respect of
The Prudential Variable
Contract Real Property Account
____________________________________________________________
Date: August 8, 1996 By: /s/Esther H. Milnes
-------------- ----------------------
Esther H. Milnes
Vice President
Date: August 8, 1996 By: /s/Linda S. Dougherty
-------------- ----------------------
Linda Dougherty
Chief Accounting Officer
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
NET ASSETS; OPERATIONS; STATEMENT OF CHANGES IN NET ASSETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000846581
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<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> 5,465,515
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 88,746,045
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 233,777
<NET-INVESTMENT-INCOME> 3,324,418
<REALIZED-GAINS-CURRENT> (213,678)
<APPREC-INCREASE-CURRENT> (700,355)
<NET-CHANGE-FROM-OPS> 2,410,385
<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> 2,644,162
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM:
STATEMENT OF ASSETS & LIABLITIES; STATEMENT OF OPERATIONS; STATEMENTS
OF CHANGES IN NET ASSETS; CASH FLOWS; PER SHARE TABLE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000846581
<NAME> NO-NAME
<SERIES>
<NUMBER> 002
<NAME> THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<INVESTMENTS-AT-COST> 179,804,895
<INVESTMENTS-AT-VALUE> 154,110,792
<RECEIVABLES> 1,956,008
<ASSETS-OTHER> 43,237,664
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 199,304,464
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 6,918,660
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 11,848,275
<SHARES-COMMON-PRIOR> 12,036,684
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 199,304,464
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 844,281
<OTHER-INCOME> 12,041,625
<EXPENSES-NET> 5,118,625
<NET-INVESTMENT-INCOME> 7,767,281
<REALIZED-GAINS-CURRENT> (466,443)
<APPREC-INCREASE-CURRENT> (1,536,893)
<NET-CHANGE-FROM-OPS> 5,763,945
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 188,409
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 2,763,945
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,223,409
<INTEREST-EXPENSE> 255,255
<GROSS-EXPENSE> 5,118,625
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 15.754
<PER-SHARE-NII> .651
<PER-SHARE-GAIN-APPREC> (.167)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.238
<EXPENSE-RATIO> 2.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
