AS FILED WITH THE SEC ON _____________. REGISTRATION NO. 33-20083
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM S-1
POST-EFFECTIVE AMENDMENT NO. 9
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
IN RESPECT OF
THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Exact Name of Registrant)
C/O THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRUDENTIAL PLAZA
NEWARK, NEW JERSEY 07102-3777
(800) 445-4571
(Address and telephone number of principal executive offices)
----------
THOMAS C. CASTANO
ASSISTANT SECRETARY
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRUDENTIAL PLAZA
NEWARK, NEW JERSEY 07102-3777
(800) 445-4571
(Name, address, and telephone number of agent for service)
Copy to:
JEFFREY C. MARTIN
SHEA & GARDNER
1800 MASSACHUSETTS AVENUE, N.W.
WASHINGTON, D.C. 20036
================================================================================
<PAGE>
CROSS REFERENCE SHEET
(AS REQUIRED BY FORM S-1)
<TABLE>
<CAPTION>
S-1 ITEM NUMBER AND CAPTION LOCATION
- --------------------------- --------
<S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus .............. Cover
2. Inside Front and Outside Back Cover Pages of
Prospectus .......................................... Inside Front Cover
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges ........................ Prospectus Cover; Summary; Risk Factors
4. Use of Proceeds ..................................... Investment Policies; Current Real Estate-Related
Investments; Management's Discussion and Analysis
of Financial Condition and Results of Operations
5. Determination of Offering Price ..................... Not Applicable
6. Dilution ............................................ Not Applicable
7. Selling Security Holders ............................ Not Applicable
8. Plan of Distribution ................................ Distribution of the Contracts
9. Description of Securities to be Registered .......... Prospectus Cover; General Information about The
Prudential Insurance Company of America, The
Prudential Variable Contract Real Property Account,
The Prudential Variable Contract Real Property
Partnership, and The Investment Manager; The Real
Property Account's Unavailability to Certain
Contracts; Valuation of Contract Owners'
Participating Interests; Charges; Restrictions on
Withdrawals; Restrictions on Contract Owners'
Investment in the Real Property Account
10. Interests of Named Experts and Counsel .............. Not Applicable
11. Information With Respect to the
Registrant .......................................... General Information about The Prudential Insurance
Company of America, The Prudential Variable
Contract Real Property Account, The Prudential
Variable Contract Real Property Partnership, and
The Investment Manager; Investment Policies;
Current Real Estate-Related Investments;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Per Share
Investment Income and Capital Changes; Investment
Restrictions; Conflicts of Interest; Valuation of
Contract Owners' Participating Interests; Financial
Statements; Litigation; State Regulation; Federal
Income Tax Considerations
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities ...... Not Applicable
</TABLE>
<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
<PAGE>
PROSPECTUS
May 1, 1997
THE PRUDENTIAL
VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
This prospectus describes the real estate investment option that The Prudential
Insurance Company of America ("Prudential") offers in connection with the
funding of benefits under certain variable life insurance and variable annuity
contracts (the "Contracts") it issues. These Contracts are described in
different prospectuses, and this prospectus is attached to the prospectus for
the type of Contract selected. Although the Contracts vary in their terms, each
provides that owners may allocate all or part of their net premiums or purchase
payments to The Prudential Variable Contract Real Property Account (the "Real
Property Account"), a separate account of Prudential. The assets of the Real
Property Account are invested entirely through The Prudential Variable Contract
Real Property Partnership (the "Partnership") which is a general partnership
established by Prudential and two of its subsidiaries, Pruco Life Insurance
Company ("Pruco Life") and Pruco Life Insurance Company of New Jersey ("Pruco
Life of New Jersey"), to provide for investment of assets allocated to the real
property investment option under variable contracts issued by those companies.
Through the Partnership, the assets of the Real Property Account will be
invested primarily (at least 65%) in direct ownership interests in
income-producing real property such as office buildings, shopping centers,
apartments, industrial properties, agricultural land or hotels, participating
mortgage loans originated by the Partnership, and real property sale-leaseback
transactions negotiated on behalf of the Partnership. It is expected that
typically the large majority of these real estate investments will be in direct
ownership interests in real estate, including but not limited to fee interests,
general partnership interests, leaseholds, and tenancies in common. Apart from a
portion of the Partnership's assets (normally 10-15%) invested in short-term or
intermediate-term debt instruments for liquidity purposes, the remainder of the
Partnership's assets may be invested in other types of real estate-related
investments, including primarily conventional, non-participating mortgage loans
and real estate investment trusts. Values under the Contracts, with respect to
the portion of the Contract owner's Contract fund allocated to the Real Property
Account, will vary with the performance of the Real Property Account's
investments through the Partnership.
The investment objectives of the Real Property Account and Partnership are to:
(i) preserve and protect capital; (ii) provide for compounding of income as a
result of reinvestment of cash flow from investments; and (iii) provide for
increases over time in the amount of such income through appreciation in the
value of assets. There can be no assurance, of course, that these investment
objectives will be met.
---------------------------------------
THIS OFFERING INVOLVES CERTAIN RISK FACTORS. INVESTMENT IN THE REAL PROPERTY
ACCOUNT INVOLVES A SIGNIFICANT DEGREE OF RISK, ATTRIBUTABLE IN PART TO THE FACT
THAT THE ASSETS HELD IN THE PARTNERSHIP MAY NOT BE READILY SALABLE ON
COMMERCIALLY REASONABLE TERMS. SEE RISK FACTORS, PAGE 10. THE ASSETS OF THE REAL
PROPERTY ACCOUNT AND PARTNERSHIP WILL NOT BE AS LIQUID AS THE INVESTMENTS
GENERALLY MADE BY VARIABLE LIFE INSURANCE AND VARIABLE ANNUITY SEPARATE ACCOUNTS
(SEE LIQUIDITY OF INVESTMENTS, PAGE 10) AND THE ABILITY OF THE CONTRACT OWNER TO
WITHDRAW OR TRANSFER PORTIONS OF HIS OR HER CONTRACT FUND ALLOCATED TO THE REAL
PROPERTY ACCOUNT MAY BE SUBJECT TO CERTAIN RESTRICTIONS. SEE RESTRICTIONS ON
WITHDRAWALS, PAGE 17. MOREOVER, THE INVESTMENTS AND OPERATION OF THE REAL
PROPERTY ACCOUNT AND PARTNERSHIP MAY BE SUBJECT TO CERTAIN CONFLICTS OF
INTEREST. SEE CONFLICTS OF INTEREST, PAGE 12.
---------------------------------------
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. IT IS ATTACHED TO
A CURRENT PROSPECTUS FOR THE RELATED VARIABLE CONTRACT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential Plaza
Newark, New Jersey 07102-3777
Telephone: (800) 445-4571
PRPA-3 Ed 5-97
<PAGE>
PROSPECTUS CONTENTS
<TABLE>
Page
<S> <C>
PER SHARE INVESTMENT INCOME, CAPITAL CHANGES AND SELECTED RATIOS......................1
SUMMARY...............................................................................2
GENERAL INFORMATION ABOUT THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, THE
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT, THE PRUDENTIAL VARIABLE
CONTRACT REAL PROPERTY PARTNERSHIP, AND THE INVESTMENT MANAGER...................3
The Prudential Insurance Company of America......................................3
The Prudential Variable Contract Real Property Account...........................3
The Prudential Variable Contract Real Property Partnership.......................4
The Investment Manager...........................................................4
INVESTMENT POLICIES...................................................................5
Overview.........................................................................5
Investment in Direct Ownership Interests in Real Estate..........................5
Investments in Mortgage Loans....................................................6
Investments in Sale-Leasebacks...................................................8
General Investment and Operating Policies........................................8
CURRENT REAL ESTATE-RELATED INVESTMENTS...............................................9
Properties.......................................................................9
RISK FACTORS........................................................................10
Liquidity of Investments........................................................10
General Risks of Real Property Investments......................................10
Reliance on The Partners and The Investment Manager.............................12
INVESTMENT RESTRICTIONS..............................................................12
CONFLICTS OF INTEREST................................................................12
THE REAL PROPERTY ACCOUNT'S UNAVAILABILITY TO CERTAIN CONTRACTS......................14
VALUATION OF CONTRACT OWNERS' PARTICIPATING INTERESTS................................14
BORROWING BY THE PARTNERSHIP.........................................................16
CHARGES..............................................................................16
RESTRICTIONS ON WITHDRAWALS..........................................................17
RESTRICTIONS ON CONTRACT OWNERS' INVESTMENT IN THE REAL PROPERTY ACCOUNT.............17
FEDERAL INCOME TAX CONSIDERATIONS....................................................18
DISTRIBUTION OF THE CONTRACTS........................................................18
STATE REGULATION.....................................................................18
ADDITIONAL INFORMATION...............................................................18
EXPERTS..............................................................................18
LITIGATION...........................................................................19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.............................................19
FINANCIAL STATEMENTS.................................................................24
<PAGE>
FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT.......A1
FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP...B1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
The Registrant is subject to the informational requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports and other
information with the Securities and Exchange Commission. All reports and
information filed by the Registrant can be inspected and copied at the Public
Reference Section of the Commission at 450 Fifth Street, Room 1024, N.W.,
Washington, D.C. 20549, and at certain of its regional offices: Midwestern
Regional Office, CitiCorp Center, 500 West Madison Street, Suite 1400, Chicago,
IL 60661-2511; Northeastern Regional Office SEC, 7 World Trade Center, Suite
1300, New York, NY 10048.
REPORTS TO CONTRACT OWNERS
Prudential will mail to each Contract owner who elects to allocate a portion of
his or her Contract fund to the Real Property Account an annual report
containing audited financial statements for the Real Property Account and the
Partnership and an annual statement showing the status of his or her Contract
fund and such other information as may be required by applicable regulation or
law.
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
PER SHARE INVESTMENT INCOME, CAPITAL CHANGES AND SELECTED RATIOS
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
THE FOLLOWING INFORMATION ON PER SHARE INVESTMENT INCOME, CAPITAL CHANGES AND
SELECTED RATIOS HAS BEEN AUDITED BY PRICE WATERHOUSE LLP, INDEPENDENT
ACCOUNTANTS (1996 FIGURES) AND DELOITTE & TOUCHE LLP, INDEPENDENT AUDITORS (1995
AND PRIOR FIGURES). BOTH UNQUALIFIED AUDITORS' REPORTS ARE INCLUDED IN THIS
PROSPECTUS. THIS PAGE SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY
PARTNERSHIP INCLUDED IN THIS PROSPECTUS.
<TABLE>
<CAPTION>
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92
TO TO TO TO TO
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Rent from properties $ 1.9173 $ 1.6387 $ 1.2754 $ 1.1659 $ 1.0727
Income from interest in properties $ 0.0510 $ 0.0527 $ 0.1838 $ 0.2139 $ 0.1970
Interest on mortgage loans $ 0.0000 $ 0.0000 $ 0.0082 $ 0.0755 $ 0.0711
Interest from short-term investments $ 0.1795 $ 0.2199 $ 0.1226 $ 0.0549 $ 0.0653
-------- -------- -------- -------- --------
INVESTMENT INCOME $ 2.1478 $ 1.9113 $ 1.5900 $ 1.5102 $ 1.4061
======== ======== ======== ======== ========
Investment management fee $ 0.2097 $ 0.1936 $ 0.1786 $ 0.1673 $ 0.1642
Real estate tax expense $ 0.1991 $ 0.1602 $ 0.1399 $ 0.1465 $ 0.1488
Administrative expenses $ 0.1569 $ 0.1484 $ 0.1103 $ 0.1187 $ 0.1046
Operating expenses $ 0.2442 $ 0.1546 $ 0.1332 $ 0.1209 $ 0.1241
Interest expense $ 0.0412 $ 0.0381 $ 0.0255 $ 0.0236 $ 0.0215
-------- -------- -------- -------- --------
EXPENSES $ 0.8511 $ 0.6949 $ 0.5875 $ 0.5770 $ 0.5632
======== ======== ======== ======== ========
NET INVESTMENT INCOME $ 1.2967 $ 1.2164 $ 1.0025 $ 0.9332 $ 0.8429
======== ======== ======== ======== ========
Net realized loss on investments sold $(0.1323) $ 0.0000 $(0.0966) $(0.1816) $ 0.0000
Net unrealized gain/(loss) on investments $(0.2695) $ 0.0581 $ 0.2169 $ 0.0152 $(1.1359)
-------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS $(0.4018) $ 0.0581 $ 0.1203 $(0.1664) $(1.1359)
-------- -------- -------- -------- --------
Net increase/(decrease) in share value $ 0.8949 $ 1.2745 $ 1.1228 $ 0.7668 $(0.2930)
Share Value at beginning of period $15.7537 $14.4792 $13.3564 $12.5896 $12.8826
-------- -------- -------- -------- --------
Share Value at end of period $16.6486 $15.7537 $14.4792 $13.3564 $12.5896
======== ======== ======== ======== ========
Ratio of expenses to average net assets 5.26% 4.62% 4.27% 4.44% 4.47%
Ratio of net investment income to
average net assets 8.01% 8.08% 7.29% 7.17% 6.69%
Number of shares outstanding at
end of period (000's) 11,848 12,037 12,241 13,031 14,189
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.
</TABLE>
1-Real Property
<PAGE>
SUMMARY
This prospectus describes The Prudential Variable Contract Real Property Account
(the "Real Property Account"), a separate account of The Prudential Insurance
Company of America ("Prudential") created pursuant to New Jersey insurance law.
See THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, page 3 and THE PRUDENTIAL
VARIABLE CONTRACT REAL PROPERTY ACCOUNT, page 3. Under that law, the assets of
the Real Property Account are not chargeable with liabilities arising out of any
other business of Prudential. Owners of certain variable life insurance and
variable annuity contracts issued by Prudential may allocate a portion of their
net premiums or purchase payments, or transfer a portion of the total amount
invested under their Contracts (known as the "Contract fund"), to the Real
Property Account, and values and benefits under the Contracts will thereafter
reflect the investment experience of the Real Property Account. Contract owners,
not Prudential, bear the risks and rewards of the investment performance of the
Real Property Account to the extent of the Contract owner's Contract fund
invested in the Real Property Account. This prospectus is attached to and should
be read in conjunction with the prospectus for the type of Contract selected.
The assets of the Real Property Account are invested through The Prudential
Variable Contract Real Property Partnership (the "Partnership"), which invests
primarily in income-producing real estate. See THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY PARTNERSHIP, page 4. Prudential is the investment manager of the
Partnership. See THE INVESTMENT MANAGER, page 4. The Partnership invests at
least 65% of its assets in direct ownership interests in income-producing real
estate, participating mortgage loans (mortgages providing for participation in
the revenues generated by, or the appreciation of, the underlying property, or
both) originated for the Partnership, and real property sale-leasebacks
negotiated by Prudential on behalf of the Partnership. It is expected that
typically the large majority of these real estate investments will be in direct
ownership interests in income producing real estate, such as office buildings,
shopping centers, apartments, industrial properties or hotels. The Partnership
may also invest up to 5% of its assets in direct ownership interests in
agricultural land. A small portion of the Partnership's assets (ordinarily
10-15%) will be invested in short-term or intermediate-term marketable debt
securities. The remainder of the Partnership's assets may be invested in other
types of real estate-related investments, including conventional,
non-participating mortgage loans and real estate investment trusts. The
investment objectives of the Partnership are to: (i) preserve and protect the
Partnership's capital; (ii) provide for compounding of income as a result of
reinvestment of cash flow from investments; and (iii) provide for increases over
time in the amount of such income through appreciation in the value of acquired
real property and, to a lesser extent, through mortgage loans and sale-leaseback
transactions. See INVESTMENT POLICIES, page 5. There is no assurance that
sufficient suitable investments will be found or that the Partnership's
objectives will be attained.
Investment in the Real Property Account, and thereby, participation in the
investment experience of the Partnership, involves significant risks. See RISK
FACTORS, page 10. These include the risk of fluctuating real estate values and
the risk that the appraised or estimated values of the Partnership's real
property investments will not be realized upon their disposition. Many of the
Partnership's real estate investments will not be quickly convertible into cash
through disposition on commercially reasonable terms. The Real Property Account
should therefore be viewed only as a long-term investment. See RESTRICTIONS ON
WITHDRAWALS, page 17. For certain other risk factors associated with the Real
Property Account, see RISK FACTORS, page 10.
Prudential has taken steps to ensure that the Real Property Account and
Partnership will be sufficiently liquid to satisfy all withdrawal or loan
requests promptly (within 7 days). The Partnership will normally maintain 10-15%
of its assets in short-term and intermediate-term marketable debt instruments
and will have income streams from its real property investments, mortgage loans,
and leasebacks. Moreover, the Partnership may borrow funds for liquidity
purposes, if necessary. See BORROWING BY THE PARTNERSHIP, page 16. There are
currently in force limitations on transfers out of the Real Property Account.
See RESTRICTIONS ON WITHDRAWALS, page 17.
Prudential's management of the Partnership is subject to certain conflicts of
interest, including the possible acquisition of properties from affiliates. See
CONFLICTS OF INTEREST, page 12.
Prudential generally charges the Partnership a daily fee for investment
management which amounts to 1.25% per year of the average daily gross assets of
the Partnership. The Partnership also compensates Prudential for providing
certain accounting and administrative services to the Partnership. See CHARGES,
page 16.
Contract owners who select the real property investment option will also be
subject to the same Contract charges with respect to the portion of their
Contract fund allocated to the Real Property Account as they are with respect to
the portion of their Contract fund allocated to a separate account that invests
in The Prudential Series Fund, Inc. (the "Series Fund"), the underlying funding
vehicle for the other variable investment options available to Contract owners.
The particular Contract prospectus should be consulted for a description of
those charges. The Real Property Account is currently available to purchasers of
PRUDENTIAL'S VARIABLE INVESTMENT Plan(R) Contracts,
2 - Real Property
<PAGE>
The Prudential's Discovery(R) Plus Contracts, The Prudential's Variable
Appreciable Life(R) Insurance Contracts, and The Prudential's Custom VAL(sm)
Life Insurance Contracts, except for Contracts, such as those purchased in
connection with IRAs, Section 403(b) annuities, and other tax-qualified plans,
that are subject to the Employee Retirement Income Security Act of 1974
("ERISA") or to the prohibited transaction excise tax provisions of the Internal
Revenue Code. See THE REAL PROPERTY ACCOUNT'S UNAVAILABILITY TO CERTAIN
CONTRACTS, page 14. A Variable APPRECIABLE LIFE Contract owner, for example, who
elects to invest part of his or her net premiums in The Prudential Variable
Appreciable Account and part in the Real Property Account will be subject to the
same monthly sales load charges, the same risk charges, the same administrative
charges, the same insurance charges, and the same contingent deferred sales load
charges without regard to what portion is invested in The Prudential Variable
Appreciable Account and what portion is invested in the Real Property Account.
The Real Property Account has established different subaccounts, relating to the
different types of variable Contracts that may participate in the Real Property
Account, and these subaccounts provide the mechanism and maintain the records
whereby these different Contract charges are made.
GENERAL INFORMATION ABOUT THE PRUDENTIAL
INSURANCE COMPANY OF AMERICA, THE
PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY ACCOUNT, THE PRUDENTIAL VARIABLE
CONTRACT REAL PROPERTY PARTNERSHIP, AND
THE INVESTMENT MANAGER
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
The Prudential Insurance Company of America ("Prudential") is a mutual insurance
company, founded in 1875 under the laws of the State of New Jersey. It is
licensed to sell life insurance and annuities in the District of Columbia, Guam,
and in all states. These Contracts are not offered in any state in which the
necessary approvals have not yet been obtained.
Prudential's consolidated financial statements appear in either the attached
Contract prospectus or in the statement of additional information for the
Contract prospectus, which is available upon request.
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
The Prudential Variable Contract Real Property Account (the "Real Property
Account") was established on November 20, 1986 under New Jersey law as a
separate investment account. The account meets the definition of a "separate
account" under the federal securities laws. The Real Property Account holds
assets that are segregated from all the other assets of Prudential. The Real
Property Account is used only to support those variable benefits payable under
the Contracts that are funded by the real estate investment option.
The obligations to Contract owners and beneficiaries arising under the Contracts
are general corporate obligations of Prudential. Prudential is also the legal
owner of the assets in the Real Property Account. Prudential will maintain
assets in the Real Property Account with a total market value at least equal to
the amounts credited under the real estate option to all the Contracts
participating in the Real Property Account. These assets may not be charged with
liabilities which arise from any other business Prudential conducts. In addition
to these assets, the Real Property Account's assets may include funds
contributed by Prudential, and may include accumulations of the charges
Prudential makes against the Real Property Account.
Prudential will bear the risks and rewards of the Real Property Account's
investment experience to the extent of its investment in the Real Property
Account. After the Real Property Account has been in operation for some time,
Prudential may withdraw or redeem its investment in the Real Property Account,
but will not make any such redemption unless it is satisfied that the redemption
will not have a materially adverse impact on the Real Property Account.
Accumulations of charges will be withdrawn on a regular periodic basis.
Unlike the other separate accounts funding the Contracts, the Real Property
Account is not registered with the Securities and Exchange Commission ("SEC")
under the Investment Company Act of 1940 as an investment company. For state law
purposes, the Real Property Account is treated as a part or division of
Prudential. Contract owners have no voting rights with respect to the Real
Property Account. The Real Property Account is under the control and management
of Prudential, and the Board of Directors and officers of Prudential are
responsible for the management of the Real Property Account. No salaries of
Prudential personnel are paid by the Real Property Account. Information
regarding the directors and officers of Prudential is contained in the attached
prospectus for the Contract. The financial statements of the Real Property
Account begin on page A1.
3 - Real Property
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
All amounts allocated to the Real Property Account are invested through The
Prudential Variable Contract Real Property Partnership (the "Partnership"), a
general partnership organized under New Jersey law on April 29, 1988. The only
partners in the Partnership (collectively, the "Partners") are Prudential and
two of its subsidiaries, Pruco Life Insurance Company ("Pruco Life") and Pruco
Life Insurance Company of New Jersey ("Pruco Life of New Jersey"). The
Partnership was established to provide a means for assets allocated to the real
estate investment options under variable life insurance and variable annuity
contracts issued by these three companies to be invested in a commingled pool,
so as to provide greater diversification of investments and lower transaction
costs than would be possible if such assets were separately invested by each
company. All amounts allocated to the Real Property Account are contributed by
Prudential to the Partnership. Prudential's general partnership interest in the
Partnership is held in the Real Property Account.
The initial contributions to the Partnership were made on April 29, 1988.
Prudential contributed $100,000 in cash to the Partnership; Pruco Life of New
Jersey contributed $100,000 in cash to the Partnership; and Pruco Life
contributed the real estate and other assets held in its real estate separate
account, which had been actively investing in real estate for more than a year.
Those assets had an estimated market value of $91,538,737 on that date. Each
Partner is entitled to its prospective proportionate share of all income, gains,
and losses of the Partnership.
The assets of the Partnership are valued on each business day and the value of
each Partner's interest will fluctuate with the investment performance of the
Partnership. In addition, the interests of the Partners are proportionately
readjusted, at the then current value, on each day when a Partner makes a
contribution to, or withdrawal from, the Partnership. When a Contract owner
chooses to allocate a portion of his or her net premiums or purchase payments,
or transfer a portion of his or her Contract fund, to the Real Property Account,
Prudential will contribute that amount to the Partnership as a capital
contribution, which will correspondingly increase the Real Property Account's
interest in the Partnership. Values and benefits under the Contract will
thereafter vary with the performance of the Partnership's investments. For
further discussion on how the value of a Contract owner's interest in the Real
Property Account and the value of the Partnership's investments are calculated,
see VALUATION OF CONTRACT OWNERS' PARTICIPATING INTERESTS, page 14.
Contract owners have no voting rights with respect to the operations of the
Partnership. The financial statements of the Partnership begin on page B1.
THE INVESTMENT MANAGER
Pursuant to an investment management agreement, the Partnership has retained
Prudential to act as investment manager of the Partnership. Prudential is one of
the largest real estate investors in North America. Prudential has been making
mortgage loans since before 1900 and is one of the most experienced real estate
mortgage lenders in the United States. Prudential, through its affiliates, has a
nationwide staff to underwrite, originate, and service such loan activity. Its
network of field offices has direct working relationships with regional and
national real estate developers, brokers, managers, and investors providing
Prudential with mortgage investment opportunities on a national basis. Since the
early 1970's, Prudential's mortgage lending has been concentrated in the
commercial and agricultural markets. The urban commercial lending activities
include loans secured by apartment, office, and industrial buildings, hotels and
motels, and shopping centers.
In the late 1940's, Prudential began to acquire real estate equities. Today,
Prudential and its affiliates continue to make equity investments in investment
properties and develop income-producing real estate.
At present, Prudential directly and through affiliates invests in and manages
real estate equities and mortgages for its general account and for several
separate accounts. Prudential and its affiliates also participate in real estate
ventures through public and private partnerships. As of December 31, 1996,
Prudential owned or controlled $24.9 billion of net real estate mortgages and
equities of which $20.3 billion is in the general account, $4 billion is in
separate accounts and $600 million is in subsidiaries. Statement value for
general account assets is recorded at depreciated cost and for separate account
assets at market value. For a discussion of how the Partnership's real
estate-related investments are valued, see VALUATION OF CONTRACT OWNERS'
PARTICIPATING INTERESTS, page 14.
Prudential has organized its real estate activities into separate business units
within Prudential's Private Asset Management Group. Prudential Real Estate
Investors (PREI) is the unit responsible for the investments of the Real
Property Account. PREI's investment staff is separate and distinct from that of
Prudential's general account real estate activities.
PREI provides investment management services on a domestic basis and also acts
as part of a global team providing these services to institutional investors
worldwide. PREI is headquartered in Parsippany, New Jersey and has 4 field
offices across the United States. As of December 31, 1996, PREI had under
management
4 - Real Property
<PAGE>
approximately 11.2 million net rentable square feet of office real estate, 23.3
million net rentable square feet of industrial real estate, 5.8 million net
rentable square feet of retail real estate, 8,887 hotel rooms, 14,919
multifamily residential units, and 27 acres of unimproved land.
Prudential's general account real estate operation may provide PREI with such
services as may be required in connection with the investment management
agreement regarding the Partnership. Such operations are now located in Newark
and Parsippany, New Jersey and have 4 regional offices across the United States.
As of December 31, 1996, these operations had under management approximately
29.1 million net rentable square feet of office real estate, 5.9 million net
rentable square feet of industrial real estate, 4.3 million net rentable square
feet of retail real estate, 12,800 hotel rooms, 4,900 multifamily residential
units and manages a portfolio of mortgage loans totaling approximately $16.5
billion.
Proposals to acquire properties for the Partnership will generally be originated
by the field office and reviewed and approved by the Investment Management
Committee of PREI. Depending upon the size of the acquisition and other factors,
a proposed real estate investment may also be submitted for review to the
Finance Committee of the Board of Directors of Prudential.
INVESTMENT POLICIES
OVERVIEW
The Partnership has an investment policy of investing at least 65% of its assets
in direct ownership interests in income-producing real estate, participating
mortgage loans originated for the Partnership, and real property sale-leasebacks
negotiated by Prudential on behalf of the Partnership. It is expected that the
largest portion of these real estate investments will be in direct ownership
interests (including fee interests, general partnership interests, leaseholds,
and tenancies in common) in income-producing real estate, such as office
buildings, shopping centers, apartments, industrial properties or hotels. The
Partnership may also invest up to 5% of its assets in direct ownership interests
in agricultural land. From 10-15% of the Partnership's assets will ordinarily be
invested in short-term debt obligations of the type purchased by the Money
Market Portfolio of the Series Fund or in intermediate-term bonds of the type
invested in by the Diversified Bond Portfolio of the Series Fund. The Partners
reserve the right to increase this amount up to 30% of the Partnership's assets.
Such an increase in the portion invested in debt obligations could occur, for
example, because of property sales, a rapid influx of Contract owners' funds or
because of a perceived need to increase the Partnership's liquidity. The
remainder of the Partnership's assets may be invested in other types of real
estate-related investments, including primarily conventional, non-participating
mortgage loans and real estate investment trusts.
INVESTMENT IN DIRECT OWNERSHIP INTERESTS IN REAL ESTATE
ACQUISITION. The Partnership's principal investment policy involves acquiring
primarily direct ownership interests in existing (including newly constructed)
income-producing real estate, including office buildings, shopping centers,
apartments, industrial properties, and hotels. The Partnership may also invest
up to 5% of its assets in direct ownership interests in agricultural land.
Property acquisitions will generally be carried out by the real estate
acquisition offices in PREI's network of field offices located throughout the
continental United States. The field office or an affiliate of Prudential also
supervise the management of properties in all of Prudential's accounts. Proposed
investments identified by an field office are reviewed and approved by the
Investment Management Committee of PREI, and in the case of larger proposals, by
the Finance Committee of the Board of Directors of Prudential.
Although it has not been deemed appropriate to establish percentage limitations
on the type and location of properties that may be acquired by the Partnership,
the Partnership plans to diversify its investments both as to the type of
property acquired and its geographic location. Moreover, the Partnership's
investments will be maintained to meet the diversification requirements of the
Internal Revenue Code and the regulations thereunder. SEE GENERAL INVESTMENT AND
OPERATING POLICIES, page 8.
In order to attain the Partnership's stated objectives, it will be necessary for
the Partnership to acquire properties which will generate cash in excess of that
required to meet the gross operating expenses of the Partnership. To do this, a
substantial portion of the Partnership's assets will be invested in properties
with operating histories that include established rent and expense schedules.
However, the Partnership may also acquire recently constructed properties that
may be subject to agreements with sellers providing for certain minimum levels
of income. Upon the expiration of or default under these agreements, there can
be no assurance that the Partnership will be able to maintain the level of
operating income which is necessary to produce the return it was previously
experiencing. The Partnership may under certain conditions purchase real
property from Prudential or its affiliates. See CONFLICTS OF INTEREST, page 12.
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The property acquired by the Partnership will generally be real estate which is
ready for use. Accordingly, the Partnership will not usually be subject to the
risks of development or construction inherent in the purchase of unimproved real
estate. From time to time, however, the Partnership may invest in a
developmental real estate project deemed consistent with the Partnership's
objectives, and the Partnership will then be subject to those risks.
While the Partnership will often own the entire fee interest in an acquired
property, it may also hold other direct ownership interests, including, but not
limited to, general partnership interests, limited liability company interests,
leaseholds, and tenancies in common.
PROPERTY MANAGEMENT AND LEASING SERVICES. It is anticipated that the Partnership
generally will retain a management company operating in the area of a property
to perform local property management services. Generally, a field office or
other affiliate of Prudential will supervise and monitor the performance of the
local management company, determine and establish the required accounting
information to be supplied, periodically inspect the property, review and
approve property operating budgets, and review actual operations to ensure
compliance with budgets. In addition to day-to-day management of the property,
the local management company will have responsibility for supervision of any
on-site personnel, negotiation of maintenance and service contracts, advice
regarding major repairs, replacements and capital improvements, the review of
market conditions to recommend desirable changes in rent schedules, and the
formulation of marketing and advertising programs to obtain and maintain good
occupancy rates by responsible tenants. The fees of the local management company
will reduce the cash flow from the property to the Partnership. Certain of the
Partnership's properties are expected to be managed by PREMISYS Real Estate
Services, Inc., a wholly-owned property management company of Prudential.
It is anticipated that the Partnership will retain a leasing company to perform
leasing services on any property with actual or projected vacancies. The leasing
company will coordinate with the property management company to provide
marketing and leasing services with respect to the property. In some cases, the
property management company will be qualified to handle leasing and in those
cases a separate leasing company will not be hired. Leasing commissions and
expenses will reduce the cash flow from the property to the Partnership.
Prudential may, on behalf of the Partnership, hire an affiliate to perform
property management or leasing services, so long as the affiliate's services are
provided on terms competitive with those available from unaffiliated entities
performing comparable services in the same geographic area. See CONFLICTS OF
INTEREST, page 12.
Annually, the field office which oversees the management of each property owned
by the Partnership will, together with the local property management firm,
formulate a business plan and budget for each property. This plan and budget
will consider, among other things, the projected rollover of individual leases,
necessary capital expenditures and any expansion or modification of the use of
the property and will require the approval of an officer of PREI. The field
office will also report periodically to PREI regarding the operating performance
of the property.
INVESTMENTS IN MORTGAGE LOANS
TYPES OF MORTGAGE LOANS. One of the Partnership's investment policies is the
making of mortgage loans. These will include conventional mortgage loans that
may pay fixed or variable rates of interest and, to the extent available,
mortgage loans that have a "participation" (as defined below). The Partnership
will not make mortgage loans to affiliates of Prudential.
The properties to be subject to the Partnership's mortgage loans are intended to
consist of commercial properties (such as office buildings, shopping centers,
hotels, industrial properties, and office showrooms), agricultural properties,
and residential properties (such as garden apartment complexes and high-rise
apartment buildings). The Partnership's mortgage loans will generally be secured
by properties with a demonstrable income-producing potential based on historical
or projected data. Such mortgage loans will generally not be personal
obligations of the borrower and will generally not be insured or guaranteed by
government agencies or otherwise.
1. FIRST MORTGAGE LOANS. It is expected that the Partnership will primarily make
first mortgage loans secured by mortgages on existing income-producing property.
Such first mortgage loans may provide for interest-only payments and a balloon
payment at maturity.
The yield on a traditional first mortgage loan has historically been less than
that of a wraparound mortgage loan on the same property. However, because of
recent innovations involving the terms and conditions of first mortgage loans,
such as the use of variable interest rates, equity participations and similar
devices, the yield on a first mortgage loan may, in certain instances, be
greater than that of a wraparound mortgage on the same property.
2. WRAPAROUND MORTGAGE LOANS. The Partnership also may make wraparound mortgage
loans on income-producing real properties which are already subject to prior
mortgage indebtedness to unaffiliated entities. A wraparound mortgage loan is a
mortgage having a principal amount equal to the outstanding balance under the
prior existing mortgage loan plus the amount actually to be advanced by the
lender under the wraparound mortgage loan,
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thereby providing the owner of a property with additional funds without
disturbing the existing loan. The terms of any wraparound mortgage loans made by
the Partnership will require the borrower to make all principal and interest
payments on the underlying loan to the Partnership, which will in turn pay the
holder of the prior loan. Because the existing first mortgage loan is preserved,
the lien of the wraparound mortgage loan is necessarily junior to it. The
Partnership will make wraparound mortgage loans only in states where local
applicable foreclosure laws permit a lender, in the event of the borrower's
default, to obtain possession of the property which secures the loan, and it
will be the policy of the Partnership to file notices of default and attempt to
obtain a court-appointed receiver where appropriate as quickly as possible after
any default.
3. JUNIOR MORTGAGE LOANS. The Partnership may also invest in other junior
mortgage loans. Junior mortgage loans will be secured by mortgages which are
subordinate to one or more prior liens on the real property and generally, but
not in all cases, will provide for repayment in full prior to the end of the
amortization period of the senior mortgages. Recourse on such loans will include
the real property encumbered by the Partnership's mortgage and additionally may
include other collateral or personal guarantees by the borrower.
The Partnership will generally make junior or wraparound mortgage loans only if
the senior mortgage, when combined with the amount of the Partnership's mortgage
loan, would not exceed the maximum amount which the Partnership would be willing
to commit to a first mortgage loan and only under such circumstances and on such
property as to which the Partnership would otherwise make a first mortgage loan.
4. PARTICIPATIONS. The Partnership may seek to make mortgage loans which, in
addition to charging a base rate of interest, will include provisions permitting
the Partnership to participate (a "participation") in the economic benefits of
the underlying property through the receipt of additional interest in the form
of a percentage of the gross or net revenues derived from operation of the
property and/or of the increase in the value of the property realized by the
borrower, such as through sale or refinancing of the property. Such arrangements
may also involve the grant to the Partnership of an option to acquire the
property or an undivided interest in the property securing the loan. To the
extent that the Partnership negotiates the right to receive additional interest
in the form of a percentage of the gross revenues or otherwise, the fixed cash
return to the Partnership from such an investment will generally be less than
would otherwise be the case. It is expected that the Partnership generally will
be entitled to such percentage participations when the gross or net revenues
derived from operation of the property exceed a certain base amount, which may
be subject to adjustment upon an increase in real estate taxes or similar
charges. The form and extent of such additional interest to be received by the
Partnership will vary with each transaction depending on such factors as the
equity investment of the owner or developer of the property, other financing or
credit obtained by the owner or developer, the fixed base interest rate on the
mortgage loan by the Partnership, any other security arrangement, the cash flow
and pro forma cash flow from the property, and market conditions.
The Partnership intends to utilize such additional interest as a hedge against
inflation on the assumption that as prices increase in the economy generally,
the rental prices obtained by properties, such as shopping centers or office
buildings, will increase and that there should be a corresponding increase in
the value of such properties. There can be no assurance that such additional
interest or increased values will in fact be received. In that event, the
Partnership would be entitled to receive only the fixed portion of its return.
STANDARDS FOR MORTGAGE LOAN INVESTMENTS. In making mortgage loans, the
investment manager will consider relevant real property and financial factors,
including the location, condition, and use of the underlying property, its
operating history, its future income-producing capacity and the quality,
experience, and creditworthiness of the unaffiliated borrower.
Prior to the Partnership's making any mortgage loan, the investment manager will
analyze the fair market value of the underlying real estate. In general, the
amount of each mortgage loan made by the Partnership will not exceed, when added
to the amount of any existing indebtedness, 80% of the estimated or appraised
value of the property mortgaged.
DEALING WITH OUTSTANDING LOANS. The Partnership may sell its mortgage loans
prior to maturity if such action is deemed advisable by the investment manager
and consistent with the Partnership's investment objectives. The investment
manager may also extend the maturity of any mortgage loan made by the
Partnership, consent to a sale of the property subject to a mortgage loan or
finance the purchase of a property by making a new mortgage loan in connection
with the sale of a property (either with or without requiring the repayment of
the mortgage loan), renegotiate the terms of a mortgage loan, and otherwise deal
with the mortgage loans of the Partnership.
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INVESTMENTS IN SALE-LEASEBACKS
A portion of the Partnership's investments may consist of real property
sale-leaseback transactions ("leasebacks"). In a transaction of this type, the
Partnership will typically purchase land and income-producing improvements on
the land and simultaneously lease the land and improvements, generally to the
seller, under a long-term lease. Leasebacks may be for very long terms and may
provide for payments from the lessee in escalating amounts.
Generally, under the terms of the leaseback, the tenant will operate, or provide
for the operation of, the property and be responsible for the payment of all
costs, including taxes, mortgage debt service, maintenance and repair of the
improvements, and insurance. The Partnership may also, in some cases, grant to
the lessee an option to acquire the land and improvements from the Partnership
after a period of years. The option exercise price would generally be based upon
such factors as the fair market value of the property, as encumbered by the
lease, the increase in the gross revenues from the property or other objective
criteria reflecting the increased value of the property.
In some leaseback transactions, the Partnership may only purchase the land under
an income-producing building and lease the land to the owner of the building. In
such cases, the Partnership may seek, in addition to base rents in its
leasebacks, participations in the gross revenues from the building in a form
such as a percentage of the gross revenues of the lessee above a base amount
(which may be subject to adjustment upon an increase in real property taxes or
upon other events). The Partnership may invest in leasebacks which are
subordinated to other interests in the land, buildings, and improvements, such
as a first mortgage, other mortgage or lien. In those situations, the
Partnership's leaseback interest will be subject to greater risks.
The Partnership will only acquire a property for a leaseback transaction if the
purchase price is equal to not more than 100% of the estimated or appraised
value of the property. The Partnership may dispose of its leasebacks when deemed
advisable by the investment manager and consistent with the Partnership's
investment objectives.
GENERAL INVESTMENT AND OPERATING POLICIES
The Partnership does not intend to invest in any direct ownership interests in
properties, mortgage loans, leasebacks or other real estate investments with a
view to making short-term profits from their sale. However, the Partnership may
dispose of its investments to the extent such disposition is necessary to meet
its cash requirements or where it is deemed to be desirable by the investment
manager because of market conditions or otherwise. Any proceeds from the
disposition of assets (and any cash flow from operations) which are not
necessary for the Partnership's operations and which are not withdrawn by the
Partners in order to make distributions pursuant to the variable contracts
issued by the Partners will be reinvested by the Partnership in investments
consistent with the Partnership's investment objectives and policies.
In making investments in properties, mortgage loans, leasebacks or other real
estate investments, the Partnership will rely on the investment manager's own
analysis of the investment and will not receive an independent appraisal prior
to acquisition. The Partnership expects, however, that all properties owned by
the Partnership, and most mortgage loans held by the Partnership, will be
appraised or valued on an annual basis by an independent appraiser who is a
member of a nationally recognized society of appraisers. Each such appraisal
shall be maintained in the records of the Partnership for at least 5 years. It
should be noted that appraised values are opinions and, as such, may not
represent the true worth or realizable value of the property being appraised.
The Partnership will ordinarily purchase properties on an unleveraged basis and
the properties acquired will typically be free and clear of mortgage
indebtedness immediately after their acquisition. The Partnership may, however,
acquire properties subject to existing mortgage loans. In addition, while the
Partnership will generally not mortgage its properties or acquire properties
partly with the proceeds of purchase money mortgage loans, it may do so up to
75% of the value of the property where the investment manager deems such action
consistent with the Partnership's investment objectives. Where the Partnership
does mortgage its properties, it will, of course, bear the expense of mortgage
payments. See BORROWING BY THE PARTNERSHIP, page 16.
In addition to the types of real estate investments previously discussed, the
Partnership may also invest a portion of its assets in real estate limited
partnerships and shares of real estate investment trusts.
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 (the "Code") relating to the
investments of variable life insurance and variable annuity separate accounts.
In order to meet the diversification requirements under the regulations, the
Partnership will meet the following test: no more than 55% of the assets will be
invested in any one investment, no more than 70% of the assets will be invested
in any two investments, no more than 80% of the assets will be invested in any
three investments, and no more than 90% of the assets will be invested in any
four investments. All interests in the same real property project are treated as
a single investment. The Partnership must meet the above test within 30 days of
the end of each calendar quarter. To
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comply with the diversification requirements of the State of Arizona, the
Partnership will limit additional investments in any one parcel or related
parcels to an amount not exceeding 10% of Partnership assets.
In managing the assets of the Partnership, Prudential will use its discretion in
determining whether to foreclose on defaulting borrowers or to evict defaulting
tenants. Such determination will depend on the course of action Prudential
concludes will be in the best interests of the Partnership in maintaining the
value of the investment.
Property management services generally will be required in connection with the
Partnership's investments in properties which are owned and operated by the
Partnership but usually will not be needed with respect to mortgage loans owned
by the Partnership, except for mortgage servicing. It is possible, however, that
such services will be necessary or desirable in exercising default remedies
under a foreclosure on a mortgage loan. Prudential may engage on behalf of the
Partnership affiliated or unaffiliated entities to provide such additional
services to the Partnership. Prudential may engage its affiliates to provide
property management, property development services, loan servicing or other
services if and only if the fees paid to an affiliate do not exceed the amount
that would be paid to an independent party for similar services rendered in the
same geographic area. See CONFLICTS OF INTEREST, page 12.
Finally, Prudential will manage the Partnership so that the Real Property
Account will not be subject to registration under the Investment Company Act of
1940 (the "1940 Act"). This will require monitoring the proportion of the
Partnership's assets to be placed in various investments so that the Real
Property Account does not become subject to the 1940 Act.
CURRENT REAL ESTATE-RELATED INVESTMENTS
The current principal real estate-related investments held by the Partnership
are described below. Many of these investments were originated by, and
previously held in, The Prudential Real Property Account of Pruco Life Insurance
Company (the "Pruco Life Account"), a separate account established to fund the
real estate investment option under variable contracts issued by Pruco Life.
Prior to the formation of the Partnership, the Pruco Life Account followed the
same investment policies as those followed by the Partnership. Pruco Life
contributed the assets held in the Pruco Life Account to the Partnership as its
initial capital contribution to the Partnership.
PROPERTIES
1. 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.
2. 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,
1996 the property was 93% leased.
3. 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 100% leased at December
31, 1996.
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 increased by $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, which management intends
to exercise.
4. 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 300,000 square feet of
rentable space. At December 31, 1996 it was 96% leased.
5. OFFICE FACILITY IN MORRISTOWN, NEW JERSEY. This four-story suburban office
building was constructed in 1981 and contains 83,000 rentable square feet. It is
located on a 5.1 acre site, approximately 30 miles west of New York City. At
December 31, 1996 it was 93% leased.
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6. 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.
7. 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, 1996, the property was 88% leased.
8. WAREHOUSE FACILITIES IN JACKSONVILLE, FLORIDA. 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 85% leased at December 31, 1996
9. APARTMENT COMPLEX IN RALEIGH, NORTH CAROLINA. Dunhill Trace consists of
fourteen two and three story apartment buildings. It was constructed and
acquired in June, 1995 and located on a 16.2 acre site in northwest Raleigh,
North Carolina. At December 31, 1996 the property was 97% leased.
10. OFFICE FACILITY IN NASHVILLE, TENNESSEE. Westpark is a 97,000 square foot
office center located in suburban Nashville, Tennessee. The property was
constructed in 1982, at December 31, 1996 the building was 99% leased.
11. OFFICE FACILITY IN OAKBROOK TERRACE, ILLINOIS. Oakbrook Terrace Corporate
Center is a 123,000 square foot building located in a western suburb of Chicago,
Illinois. At December 31, 1996 the property is 99% leased.
12. OFFICE FACILITY IN BEAVERTON, OREGON. This three story office building was
completed in 1995. It contains approximately 72,000 square feet of rentable
space. The building is located on a 3.89 acre land parcel in Beaverton, Oregon.
At December 31, 1996 the building was 100% leased.
RISK FACTORS
There are certain risk factors that a Contract owner should consider before
allocating a portion of his or her net premiums or purchase payments, or
transferring a portion of his or her Contract fund, to the Real Property
Account, so as to participate in the real estate-related investments held by the
Partnership. These include valuation risks, see VALUATION OF CONTRACT OWNERS'
PARTICIPATING INTERESTS, page 14, certain conflicts of interest, see CONFLICTS
OF INTEREST, page 12, as well as the following risks:
LIQUIDITY OF INVESTMENTS
Because the Real Property Account will, through the Partnership, invest
primarily in real estate, its assets will not be as liquid as the investments
generally made by separate accounts of life insurance companies funding variable
life insurance and variable annuity contracts. The Partnership will, however,
hold 10-15% of its assets in the form of marketable short-term or
intermediate-term debt securities. The primary purposes for such investments are
to meet the expenses involved in the operation of the Partnership and to allow
it to have sufficient liquid assets to meet any requests for withdrawals from
the Real Property Account to meet requested or required payments under the
Contracts. The Partnership may also borrow funds to meet liquidity needs. See
BORROWING BY THE PARTNERSHIP, page 16.
Prudential has taken steps to ensure that the Partnership will be sufficiently
liquid to meet all anticipated withdrawals by the Partners to meet the separate
accounts' liquidity requirements, but it is nonetheless possible that the
Partnership may need to dispose of a real property or mortgage loan investment
promptly in order to meet such withdrawal requests.
GENERAL RISKS OF REAL PROPERTY INVESTMENTS
By participating in the Real Property Account and thereby in the investment
performance of the Partnership, a Contract owner will be subject to many of the
risks of real property investments. These include:
1. RISKS OF OWNERSHIP OF REAL PROPERTIES. The Partnership will be subject to the
risks inherent in the ownership of real property such as fluctuations in
occupancy rates and operating expenses and variations in rental schedules, which
in turn may be adversely affected by general and local economic conditions, the
supply of and demand for properties of the type in which the Partnership
invests, zoning laws, and real property tax rates. Operation of property in
which the Partnership invests will primarily involve rental of that property to
tenants. The financial failure of a tenant resulting in the termination of such
tenant's lease might cause a reduction in the cash flow to the Partnership. In
the event of termination of any lease, there can be no assurance that the
Partnership would be able to find a new tenant for the property on terms as
favorable to the Partnership as obtained from the prior
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tenant. Investments in hotels are subject to additional risk inherent in the
daily turnover and fluctuating occupancy rates of hotel rooms and the absence of
long-term tenants.
The Partnership's properties will also be subject to the risk of loss due to
certain types of property damage (such as that resulting from nuclear power
plant accidents and wars) which are either uninsurable or not economically
insurable.
2. RISKS OF MORTGAGE LOAN INVESTMENTS. The Partnership's mortgage loan
investments will be subject to the risk of default by the borrowers, in which
event the Partnership would have the added responsibility of foreclosing on or
pursuing other remedies on the underlying properties to protect the value of its
mortgage loans. A borrower's ability to meet its mortgage loan payments will be
dependent upon the risks generally incident to the ownership of real property.
Mortgage loans made by the Partnership will generally not be personal
obligations of the borrowers, and the Partnership will accordingly be relying
solely on the value of the underlying property for its security. Mechanics',
materialmen's, government, and other liens may have or obtain priority over the
Partnership's security interest in the property.
In addition, the Partnership's mortgage loan investments will generally be
subject to prepayment risks. If the terms of the mortgage loans so permit,
mortgagors may prepay the loans, thus possibly changing the Partnership's
return.
Junior mortgage loans (including wraparound mortgage loans) will be subject to
greater risk than first mortgage loans, since they will be subordinate to liens
of senior mortgagees. In the event a default occurs on a senior mortgage, the
Partnership may be required to make payments or take other actions to cure the
default (if it has the right to do so) in order to prevent foreclosure on the
senior mortgage and possible loss of all or portions of the Partnership's
investment. "Due on sale" clauses included in some senior mortgages,
accelerating the amount due under the senior mortgage in the case of sale of the
property, may be deemed to apply to the sale of the property upon foreclosure by
the Partnership of its junior mortgage loan.
The risk of lending on real estate increases as the proportion which the amount
of the mortgage loans bears to the fair market value of the real estate
increases. The Partnership will generally not make mortgage loans in excess of
80% of the estimated or appraised value of the property that secures the loan.
There can be no assurance, however, that in the event of a default, the
Partnership will realize an amount equal to the estimated or appraised value of
the property on which a mortgage loan was made.
Mortgage loans made by the Partnership may be subject to state usury laws
imposing limits on interest charges and possible penalties for violation of
those limits, including restitution of excess interest, unenforceability of
debt, and treble damages. The Partnership does not intend to make mortgage loans
at usurious rates of interest, but uncertainties in determining the legality of
rates of interest and other borrowing charges under some statutes could result
in inadvertent violations, in which case the Partnership could incur the
penalties mentioned above.
3. RISKS WITH PARTICIPATIONS. The Partnership may seek to invest in mortgage
loans and leasebacks with participations, which will provide the Partnership
with both fixed interest and additional interest based upon gross revenues, sale
proceeds, and/or other variable amounts. To the extent that the interest income
received by the Partnership is based, in part, on a percentage of the gross
revenues or sale proceeds of the underlying property, the Partnership's income
will be dependent upon the success in the leasing of the underlying property,
the management, and operation of such property by the borrower or lessee and
upon the market value of the property upon ultimate disposition. If the
Partnership negotiates a mortgage loan with a lower fixed interest rate and an
additional percentage of the gross revenues or eventual sale proceeds of the
underlying property, and the underlying property fails to generate increased
revenues or to appreciate, the Partnership will have foregone a potentially
greater fixed return without receiving the benefit of appreciation. In addition,
there may be limitations on participations as a result of applicable state law.
It is also possible that as a result of the Partnership's interest in the gross
revenues or sale proceeds, a court in the event of the borrower's bankruptcy
could possibly treat the Partnership as a partner or joint venturer with the
borrower, and the Partnership could, accordingly, lose the priority its security
interest would otherwise have been given, or be liable for the debts of the
borrower. The Partnership will seek to structure its participations to avoid
being characterized as a partner or joint venturer with the borrower.
4. RISKS WITH SALE-LEASEBACK TRANSACTIONS. In leaseback transactions, which
typically involve the acquisition of land and improvements thereon and the
leaseback of such land and improvements to the seller or another party, the
value of the land and improvements will depend, in large part, on the
performance and financial stability of the lessee and its tenants, if any. The
lessee's leases with its tenants may have shorter terms than the leaseback and,
accordingly, the lessee's future ability to meet payment obligations to the
Partnership will depend on its ability to obtain renewals of such leases or new
leases upon satisfactory terms and the ability of the tenants to meet their
rental payments to the lessee.
PREI investigates the stability and creditworthiness of lessees in all
commercial properties it may acquire, including leaseback transactions. However,
a lessee in a leaseback transaction may have few, if any assets. The Partnership
will therefore be required to rely on the value of the land and the improvements
for its security. When
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the Partnership's leaseback interest is subordinate to other interests in the
land or improvements, such as a first mortgage or other lien, the Partnership's
leaseback will be subject to greater risk. A default by a lessee or other
premature termination of the leaseback may result in the Partnership being
unable to recover its investment unless the property is sold or leased on
favorable terms. The ability of the lessee to meet its obligations under the
leaseback, and the value of a property, may be affected by a number of factors
inherent in the ownership of real property which are described above.
Furthermore, the long-term nature of a leaseback may, in the future, result in
the Partnership receiving annual rentals below what it might then be receiving
under prevailing market conditions. However, such risk may be materially reduced
to the extent the Partnership is able to obtain participations in connection
with its leasebacks.
RELIANCE ON THE PARTNERS AND THE INVESTMENT MANAGER
A Contract owner does not have a vote in determining the policies of the
Partnership or the Real Property Account and will have no right or power to take
part in the management of the Partnership or the Real Property Account. The
investment manager alone, subject to the supervision of the Partners, will make
all decisions with respect to the management of the Partnership, including the
determination as to what properties to acquire, subject to the investment
policies and restrictions. Although the Partners have the right to replace
Prudential as the investment manager, it should be noted that Pruco Life is a
direct wholly-owned subsidiary of Prudential, and Pruco Life of New Jersey is an
indirect wholly-owned subsidiary of Prudential.
The Partnership will compete in the acquisition of its investments with many
other individuals and entities engaged in real estate activities, including the
investment manager and its affiliates. See CONFLICTS OF INTEREST, page 12. There
may be intense competition in obtaining properties or mortgages of the type in
which the Partnership intends to invest and competition may result in increases
in the costs of suitable investments.
Since the Partnership will continuously look for new investments, Contract
owners will be unable to evaluate for themselves the economic merit of many of
the investments which may be acquired by the Partnership and must depend solely
upon the ability of the investment manager to select investments.
INVESTMENT RESTRICTIONS
The Partnership has adopted certain restrictions relating to its investment
activities. These restrictions may be changed, if the law permits, by the
Partners. Pursuant to these restrictions, the Partnership will not:
1. Make any investments not related to real estate, other than short-term or
intermediate-term debt instruments.
2. Engage in underwriting of securities issued by others.
3. Invest in securities issued by any investment company.
4. Sell securities short.
5. Purchase or sell oil, gas or other mineral exploration or development
programs.
6. Make loans to the Partners or any of their affiliates or any investment
program sponsored by such parties.
7. Enter into leaseback transactions in which the lessee is Prudential, Pruco
Life, Pruco Life of New Jersey or their affiliates or any investment
program sponsored by such parties.
8. Borrow more than 50% of the value of the assets of the Partnership (based
upon periodic valuations and appraisals). See VALUATION OF CONTRACT OWNERS'
PARTICIPATING INTERESTS, page 14.
CONFLICTS OF INTEREST
Prudential, as the investment manager, will be subject to various conflicts of
interest in managing the Partnership. Prudential invests in real estate equities
and mortgages for its own general account and for a number of separate accounts
for qualified pension and profit-sharing plans. Prudential also manages, or
advises in the management of, real estate equities and mortgages owned by other
persons. In addition, affiliates of Prudential are general partners in publicly
offered limited partnerships that invest in real estate equities and mortgage
loans. Prudential and its affiliates may engage in additional business
activities which will be competitive with the Partnership. Moreover, the
Partnership may purchase properties from Prudential or its affiliates.
The conflicts involved in managing the Partnership include:
1. LACK OF INDEPENDENT NEGOTIATIONS BETWEEN THE PARTNERSHIP AND PRUDENTIAL. All
agreements and arrangements relating to compensation between the Partnership and
Prudential or any affiliate of Prudential will not be the result of arm's-length
negotiations.
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2. COMPETITION BY THE PARTNERSHIP WITH PRUDENTIAL'S AFFILIATES FOR ACQUISITION
AND DISPOSITION OF INVESTMENTS. Prudential and its affiliates are involved in
numerous real estate investment activities for Prudential's own general account,
its separate accounts, and other entities, many of which may involve investment
policies comparable to those of the Partnership and thus may compete with the
Partnership for the acquisition and disposition of investments. Moreover,
additional accounts or affiliated entities may be formed in the future with
investment objectives similar, in whole or part, to those of the Partnership. In
short, existing or future real estate investment accounts or entities managed or
advised by Prudential or its affiliates may have the same management as the
Partnership and may be in competition with the Partnership regarding real
property investments, mortgage loan investments, leasebacks, and the management
and sale of such investments. Prudential and its affiliates are not obligated to
present to the Partnership any particular investment opportunity, regardless of
whether such opportunity is of a character that might be suitable for investment
by the Partnership.
Prudential and its affiliates have, however, adopted certain procedures for the
purpose of distinguishing between equity investments available for the
Partnership as opposed to the other programs and entities described above. To
the extent that investment accounts or entities managed by Prudential or its
affiliates have investment objectives and policies similar to the Partnership
and are in the market to acquire properties or make investments at the same time
as the Partnership, the following procedures will be followed to resolve any
conflict of interest. Prudential will seek to locate through its contacts and
business relationships an adequate supply of equity investments for all of the
accounts and other entities which are managed by Prudential and its affiliates
and to allocate such investments equitably among such accounts and entities
based upon their respective investment goals and requirements. In those
situations where the aggregate demand by all such accounts and entities exceeds
the amount of equity investments then available, allocations will be made based
upon such factors as currently available cash flow of particular portfolios,
existing financing on the property, estimated future cash flow of such
portfolios, the effect of the acquisition on diversification of each portfolio,
and other relevant legal or investment policy factors. The rotation system
designates which of those accounts or entities has the next opportunity to make
an equity investment for which it is eligible. The use of such a system is
monitored to ensure that equitable treatment of all investment accounts and
entities is achieved.
3. COMPETITION WITH THE PARTNERSHIP FROM AFFILIATES FOR THE TIME AND SERVICES OF
COMMON OFFICERS, DIRECTORS, AND MANAGEMENT PERSONNEL. As noted above, Prudential
and its affiliates are involved in numerous real estate investment activities.
Accordingly, many of the personnel of Prudential and its affiliates who will be
involved in performing services for the Partnership have competing demands on
their time. Thus, conflicts of interest may arise with respect to allocating
time among such entities and the Partnership. The directors, officers, and other
personnel of Prudential and affiliates will devote such time to the affairs of
the Partnership as the officers and directors determine in their sole
discretion, exercised in good faith. Prudential believes it has sufficient
personnel to discharge its responsibilities to all entities to which it is
responsible.
4. COMPETITIVE PROPERTIES. Some properties of affiliated entities may be
competitive with properties in which the Partnership has an interest. Among
other things, such properties could be in competition with the Partnership's
properties for prospective tenants.
5. LESSEE POSITION. It is possible that Prudential or its affiliates may have a
lessee's position in one or more of the properties owned by the Partnership. In
the case of any such lease, however, the terms of such lease will be competitive
with leases of space in such properties entered into with non-affiliated third
parties, and the Partnership currently follows a practice of limiting the amount
of space that an affiliate of Prudential may rent in a property owned by the
Partnership.
6. USE OF AFFILIATES TO PERFORM ADDITIONAL SERVICES FOR THE PARTNERSHIP. The
Partnership may engage entities affiliated with Prudential to provide additional
services to the Partnership, such as real estate brokerage, mortgage servicing,
property management, leasing, property development, and other real
estate-related services. The Partnership may utilize the services of such
affiliates and pay their fees, so long as the fees paid to an affiliate do not
exceed the amount that would be paid to an independent party for similar
services rendered in the same geographic area.
7. JOINT VENTURES WITH AFFILIATES. The Partnership may enter into investments
through joint ventures with Prudential or its affiliates or investment programs
they sponsor. The Partnership may enter into such a joint venture investment
with an affiliate only if the following conditions are met: (i) such affiliate
must have investment objectives substantially identical to those of the
Partnership; (ii) there must be no duplicative property management fee, mortgage
servicing fee or other fees; (iii) the compensation payable to the sponsor of
such affiliate must be no greater than that payable to the Partnership's
investment manager; (iv) the Partnership must have a right of first refusal to
buy if such affiliate wishes to sell the property held in the joint venture; and
(v) the investment of the Partnership and the affiliate in the joint venture
must be made on substantially the same terms and conditions (although not the
same percentage). In connection with such an investment, both affiliated parties
would be required to approve any decision concerning the investment. Thus, an
impasse may result in the event the affiliated joint venture partners disagree.
However, in the event of a disagreement regarding a proposed sale or
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other disposition of the investment, the party not desiring to sell would have a
right of first refusal to purchase the affiliated joint venture partner's
interest in the investment. In the event of such an investment, there exists the
possibility under limited circumstances that at some future time the joint
venture partners would no longer be affiliated. In such a case, in the event of
a proposed sale initiated by the joint venture partner, the Partnership would
also have a right of first refusal to purchase the joint venture partner's
interest in the investment. The exercise of a right of first refusal would be
subject to the Partnership's having the financial resources to effectuate such a
purchase, and there can be no assurance that it would have such resources.
The investment by the Partnership in joint venture partnerships which own
properties, instead of investing directly in the properties themselves, may
under certain circumstances involve risks not otherwise present, including, for
example, risks associated with the possible bankruptcy of the Partnership's
co-venturer or such co-venturer at any time having economic or business
interests or goals which are inconsistent with the business interests or goals
of the Partnership.
8. PURCHASE OF REAL PROPERTY FROM PRUDENTIAL OR AFFILIATES. The Partnership may
acquire properties owned by Prudential or its affiliates, subject to compliance
with special conditions designed to minimize the conflicts of interests. The
Partnership may purchase property satisfying the Partnership's investment
objectives and policies from an affiliate only if: (i) the applicable insurance
regulators approve the principle of permitting the Partnership to acquire real
property from Prudential or affiliates; (ii) the Partnership acquires the
property at a price not greater than the appraised value, with the appraisal
being conducted by a qualified, unaffiliated appraiser; (iii) the affiliate has
owned the property at least 2 years, the cost paid by the affiliate is
established, and any increase in the proposed purchase price over the cost to
the affiliate is, in the opinion of the independent real estate advisor
mentioned in the next provision, explicable by reference to material factors
(including the passage of time) that have in fact increased the value of the
property; and (iv) a qualified and independent real estate advisor (other than
the appraiser) reviews the proposed acquisition and provides a letter of opinion
that the transaction is fair to the Partnership.
THE REAL PROPERTY ACCOUNT'S UNAVAILABILITY TO
CERTAIN CONTRACTS
Prudential has determined that it is in the best interest of Contract owners
participating in the Real Property Account to provide the Real Property Account
with the flexibility to engage in transactions that may be prohibited if the
Real Property Account accepts funds under Contracts subject to ERISA or the
prohibited transaction excise tax provisions of the Internal Revenue Code.
Accordingly, owners of Prudential Contracts that are purchased in connection
with IRAs, tax deferred annuities subject to Section 403(b) of the Code, or
other employee benefit plans which are subject to ERISA or to the prohibited
transaction excise tax provisions of the Code, may not select the Real Property
Account as one of the investment options under their Contract. By not offering
the Real Property Account as an investment option under such contracts,
Prudential is able to comply with state insurance law requirements that policy
loans be made available to Contract owners.
VALUATION OF CONTRACT OWNERS' PARTICIPATING
INTERESTS
A Contract owner's interest in the Real Property Account will initially be the
amount allocated to the Real Property Account in accordance with the Contract
owner's instructions. Thereafter, that value will change daily. The value of a
Contract owner's interest in the Real Property Account at the close of any day
is equal to its amount at the close of the preceding day, multiplied by the "net
investment factor" for that day arising from the Real Property Account's
participation in the Partnership, plus any additional amounts allocated to the
Real Property Account by the Contract owner, and reduced by any withdrawals by
the Contract owner from the Real Property Account and by the applicable Contract
charges recorded in that Contract's subaccount. Some of the charges will be made
daily, some on the Contract's monthly anniversary date, some at the end of each
Contract year, and some upon withdrawal or annuitization. Periodically
Prudential will withdraw from the Real Property Account an amount equal to the
aggregate charges recorded in the subaccounts.
The "net investment factor" is calculated on each business day by dividing the
value of the net assets of the Partnership at the end of that day (ignoring, for
this purpose, changes resulting from new contributions to or withdrawals from
the Partnership) by the value of the net assets of the Partnership at the end of
the preceding business day. The value of the net assets of the Partnership at
the end of any business day is equal to the sum of the value of the
Partnership's short-term and intermediate-term debt instruments, the value of
the individual real properties and other real estate-related investments owned
by the Partnership, determined in the manner described below, and an estimate of
the accrued net operating income earned by the Partnership from properties and
other
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real estate-related investments, reduced by the liabilities of the Partnership,
including the daily investment management fee and certain other expenses
attributable to the operation of the Partnership. See CHARGES, page 16.
The Partnership's short-term debt investments (obligations of 1 year's maturity
or less) will be of the type that may be held by the Series Fund's Money Market
Portfolio and will be valued on an amortized cost basis. This means that each
obligation will be valued initially at its purchase price and thereafter by
amortizing any discount or premium uniformly to maturity. This method of
valuation almost always results in a value that is extremely close to market
value. In the event of a sizable change in interest rates, the value determined
by this method may be more or less than market value. If this should occur, the
Partners will consider whether an appropriate adjustment should be made in the
valuation of these obligations. The Partnership's intermediate-term bonds will
be of the type that may be held by the Series Fund's Diversified Bond Portfolio
and will be valued utilizing an independent pricing service to determine
valuations for normal institutional size trading units of such securities. The
pricing service considers such factors as security prices, yields, maturities,
call features, ratings, and developments relating to specific securities in
arriving at securities valuations.
The value of the individual real properties and other real estate-related
investments, including mortgages, acquired by the Partnership will be determined
as follows. Each property or other real estate-related investment acquired by
the Partnership will initially be valued at its purchase price. In acquiring a
property or other real estate-related investment, Prudential will not obtain an
independent appraisal but will instead rely on its own analysis of the
investment's fair market value. Thereafter, all properties and most real
estate-related investments will ordinarily be appraised by an independent
appraiser no less frequently than annually. At least every 3 months, Prudential
will make internal reviews of each property or other real estate-related
investments and make an adjustment to its valuation if there is reason to
conclude that there has been a change in the value of the property or other real
estate-related investment since the last valuation. The revised value will
remain in effect and will be used in each day's calculation of the value of the
Partnership's assets until the next review or appraisal. It should be noted that
appraisals are only estimates and do not necessarily reflect the realizable
value of an investment.
The estimated amount of the net operating income of the Partnership from
properties and other real estate-related investments will be based on estimates
of revenues and expenses for each property and other real estate-related
investments. Annually Prudential will prepare a month-by-month estimate of the
revenues and expenses ("estimated net operating income") for each property and
other real estate-related investments owned by the Partnership. Each day
Prudential will add to the value of the assets as determined above a
proportionate part of the estimated net operating income for the month. In
effect, Prudential will establish a daily accrued receivable of the estimated
net operating income from each property and other real estate-related
investments owned by the Partnership (the "daily accrued receivable"). On a
monthly basis, the Partnership will receive a report of actual operating results
for each property and other real estate-related investments ("actual net
operating income"). Such actual net operating income will be recognized on the
books of the Partnership and the amount of the then-outstanding daily accrued
receivable will be correspondingly adjusted. In addition, as cash from a
property or other real estate-related investment is actually received by the
Partnership, receivables and other accounts will be appropriately adjusted.
Periodically, but at least every 3 months, Prudential will review its
prospective estimates of net operating income in light of actual experience and
make an adjustment to such estimates if circumstances indicate that such an
adjustment is warranted. Prudential follows this practice of accruing estimated
net operating income from properties and other real estate-related investments
because net operating income from such investments is generally received on an
intermittent rather than daily basis, and the Partners believe it is more
equitable to participating Contract owners if such net operating income is
estimated and a proportionate amount thereof recognized daily. Because the daily
accrual of estimated net operating income is based on estimates that may not
turn out to reflect actual revenue and expenses, Contract owners will bear the
risk that this practice will result in the undervaluing or overvaluing of the
Partnership's assets.
The value of any asset held by the Partnership may be adjusted by Prudential at
any time based upon events which come to the attention of Prudential affecting a
property or other real estate-related investment that Prudential believes has
increased or decreased its realizable value. For example, adjustments may be
made for events indicating an impairment of a borrower's or a lessee's ability
to pay any amounts due or events which affect the property values of the
surrounding area. There can be no assurance that the factors for which an
adjustment may be made will immediately come to the attention of Prudential.
Additionally, because the evaluation of such factors may be subjective, there
can be no assurance that such adjustments will be timely made in all cases where
the value of the Partnership's investments may be affected. All adjustments made
to the valuation of the Partnership's investments, including adjustments to
estimated net operating income, the daily accrued receivable, and adjustments to
the valuation of properties and other real estate-related investments, will be
on a prospective basis only.
The above method of valuation of the Partnership's assets may be changed,
without the consent of Contract owners, should the Partners determine that
another method would more accurately reflect the value of the
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Partnership's investments. Changes in the method of valuation could result in a
change in the Contract fund values which may have either an adverse or
beneficial effect on both existing Contract owners and new purchasers of
Contracts. Information concerning any material change in the valuation method
will be given to all Contract owners in the annual report of the operations of
the Real Property Account.
Although the above-described valuation methods have been adopted because the
Partners believe they will provide a reasonable way to determine the fair market
value of the Partnership's investments, there may well be variations between the
amount realizable upon disposition and the Partnership's valuation of such
assets. Contract owners may be either favorably or adversely affected if the
valuation method results in either overvaluing or undervaluing the Partnership's
investments. If a Contract owner invests in the Real Property Account at a time
in which the Partnership's investments are overvalued, the Contract owner will
be credited with less of an interest than if the value had been correctly
stated. A Contract owner withdrawing from the Real Property Account during such
time will receive more than he or she would if the value had been correctly
stated, to the detriment of other Contract owners. The converse situation will
exist if the Partnership's assets are undervalued.
BORROWING BY THE PARTNERSHIP
The Partnership may borrow to meet its liquidity requirements, and the
Partnership will bear the cost of all such borrowings. Thus, the Real Property
Account, and Contract owners participating in it, will bear a portion of any
such borrowing costs equal to their percentage interest in the Partnership.
Moreover, although the Partnership will generally make unleveraged investments,
it reserves the right to borrow up to 75% of the value of a property (with the
value of a property determined as explained under VALUATION OF CONTRACT OWNERS'
PARTICIPATING INTERESTS, page 14). Increasing the Partnership's assets through
leveraged investments would result in increasing the compensation paid to
Prudential since its investment management fee is calculated as a percentage of
the Partnership's gross assets. Moreover, any borrowing by the Partnership would
increase the Partnership's risk of loss and could inhibit the Partnership from
achieving its investment objectives because the Partnership's payments on any
loans would have to be made regardless of the profitability of the Partnership's
investments. The aggregate indebtedness of the Partnership for all purposes will
not exceed 50% of the value of the Partnership's assets.
CHARGES
Pursuant to an investment management agreement, Prudential charges the
Partnership a daily investment management fee which is equal to an effective
annual rate of 1.25% of the average daily gross assets of the Partnership.
Certain other expenses and charges attributable to the operation of the
Partnership are also charged against the Partnership. Thus, in acquiring an
investment, the Partnership may incur various types of expenses paid to third
parties, including but not limited to, brokerage fees, attorneys' fees,
architects' fees, engineers' fees, and accounting fees. After acquisition of an
investment, the Partnership will incur recurring expenses for such things as the
preparation of annual reports, periodic appraisal costs, mortgage servicing
fees, annual audit charges, accounting and legal fees, and various
administrative expenses. These expenses will be charged against the
Partnership's assets. Some of these operating expenses represent reimbursement
of Prudential for the cost of providing certain services necessary to the
operation of the Partnership, such as daily accounting services, preparation of
annual reports, and various administrative services. Moreover, Prudential
charges the Partnership mortgage loan servicing fees pursuant to the standards
outlined in item 6 under CONFLICTS OF INTEREST, page 12. In addition to the
various expenses charged against the Partnership's assets, other expenses such
as insurance costs, taxes, and property management fees will ordinarily be
deducted from rental income, thereby reducing the gross income of the
Partnership.
As explained above, charges made pursuant to the Contracts will be recorded in
the corresponding subaccounts of the Real Property Account. From time to time,
Prudential will withdraw from the Real Property Account an amount equal to the
aggregate amount of such charges. Aside from these charges pursuant to the
Contracts, Prudential makes no charges to the Real Property Account for the
expenses involved in operation of the Real Property Account, although the Real
Property Account will, of course, bear its proportionate share of the charges
made to the Partnership which are described above.
The Partnership is not a taxable entity under the provisions of the Internal
Revenue Code. Rather, the income, gains, and losses of the Partnership are
attributed, for federal income tax purposes to the Partners in the Partnership,
including Prudential with respect to the Real Property Account. The earnings of
the Real Property Account are, in turn, taxed as part of the operations of
Prudential. No charge is being made currently to the Real Property Account for
company federal income taxes. Prudential will review periodically the question
of a charge to the Real Property Account for company Federal income taxes
attributable to the Contracts. Such a charge may be made in future years for any
federal income taxes attributable to the Contracts.
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Under current laws Prudential may incur state and local taxes (in addition to
premium taxes) in several states. At present, these taxes are not significant
and they are not charged against the Contracts or the Real Property Account. If
there is a material change in applicable state or local tax laws, the imposition
of any such taxes upon Prudential that are attributable to the Real Property
Account may result in a corresponding charge against the Real Property Account.
RESTRICTIONS ON WITHDRAWALS
Before allocating any portion of his or her net premium or purchase payments, or
transferring any portion of his or her Contract fund, to the Real Property
Account, a Contract owner should be aware that withdrawal of an investment in
the Real Property Account may be subject to greater restrictions than an
investment in the other variable investment options available under the
Contracts. Prudential reserves the right to restrict transfers into or out of
the Real Property Account. Apart from the routine limitations on transfers out
of the Real Property Account described below, Prudential will exercise its right
to restrict transfers out of the Real Property Account only if there appears to
be insufficient cash available to meet Contract owners' requests and prompt
disposition of the Partnership's investments to meet such requests could not be
made on commercially reasonable terms.
Prudential will pay any death benefit, cash surrender value, withdrawal or loan
proceeds within 7 days after receipt at a Prudential Home Office of all the
documents required for such a payment. Other than the death benefit, which is
determined as of the date of death for life insurance products, the amount will
be determined as of the date of receipt of the request.
The funds necessary to pay any death benefit, cash surrender value, withdrawal
or loan proceeds funded by the Real Property Account will normally be obtained,
first, from any cash flows into the Real Property Account on the day such funds
are required. If, on the day such funds are required, cash flows into the Real
Property Account are less than the amount of funds required, Prudential will
seek to obtain such funds by withdrawing a portion of its interest in the
Partnership. The Partnership will normally obtain funds to meet such a
withdrawal request from its net operating income and from the short-term and
intermediate-term debt obligations it holds. If the Partners determine that
these sources are insufficient to meet anticipated withdrawals from the
Partnership, the Partnership may use a line of credit or otherwise borrow up to
50% of the value of the Partnership's assets. See BORROWING BY THE PARTNERSHIP,
page 16. In the event that Prudential and the other Partners in the Partnership
determine that such a borrowing by the Partnership would not best serve the
interests of Contract owners, Prudential may, in the event of a Contract loan or
withdrawal, rather than taking the amount of any loan or withdrawal request
proportionately from all investment options under the Contract (including the
Real Property Account), take any such loan or withdrawal first from the other
investment options under the Contract.
Transfers from the Real Property Account to the other investment options
available under the Contract are currently permitted only during the 30-day
period beginning on the Contract anniversary. The maximum amount that may be
transferred out of the Real Property Account each year is the greater of: (a)
50% of the amount invested in the Real Property Account or (b) $10,000. Such
transfer requests received prior to the Contract anniversary will be effected on
the Contract anniversary. Transfer requests received within the 30-day period
beginning on the Contract anniversary will be effected as of the end of the
valuation period in which a proper written request or authorized telephone
request is received. The "valuation period" means the period of time from one
determination of the value of the amount invested in the Real Property Account
to the next. Such determinations are made when the value of the assets and
liabilities of the Partnership is calculated, which is generally at 4:15 p.m.
New York City time on each day during which the New York Stock Exchange is open.
Transfers into or out of the Real Property Account are also subject to the
general limits under the Contracts regarding transfers.
RESTRICTIONS ON CONTRACT OWNERS'
INVESTMENT IN THE REAL PROPERTY ACCOUNT
As noted earlier, identification and acquisition of real estate investments
meeting the Partnership's investment objectives is a time-consuming process.
Moreover, because the Real Property Account and the Partnership are managed so
as to ensure that they will not become investment companies subject to the
Investment Company Act of 1940, the portion of the Partnership's assets that may
be invested in securities, as opposed to non-securities real estate investments,
is strictly limited. For these reasons, Prudential reserves the right to
restrict or limit Contract owners' allocation of funds to the Real Property
Account. Any such restrictions are likely to take the form of restricting the
timing, amount and/or frequency of transfers into the Real Property Account
and/or precluding Contract owners who have not previously selected the Real
Property Account from allocating a portion of their net premiums or purchase
payments to the Real Property Account.
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FEDERAL INCOME TAX CONSIDERATIONS
The tax treatment of variable Contract owners is described briefly in the
attached prospectus for the particular variable life insurance or variable
annuity Contract selected. Prudential believes that the same principles will
apply with respect to Contracts funded in whole or part by the Real Property
Account. The Partnership's conformity with the diversification standards for the
investments of variable life insurance and variable annuity separate accounts is
essential to ensure that treatment. See General Investment and Operating
Policies, page 8. Each individual is urged to consult a qualified tax advisor.
Under the Internal Revenue Code, the Partnership is not a taxable entity and any
income, gains or losses of the Partnership are passed through to the Partners,
including Prudential, with respect to the Real Property Account. The Real
Property Account is not a separate taxpayer for purposes of the Internal Revenue
Code. The earnings of the Real Property Account are taxed as part of the
operations of Prudential. No charge is being made currently to the Real Property
Account for company federal income taxes. Prudential will review periodically
the question of a charge to the Real Property Account for company federal income
taxes attributable to the Contracts. Such a charge may be made in future years
for any federal income taxes attributable to the Contracts, see Charges, page
16.
DISTRIBUTION OF THE CONTRACTS
As explained in the attached prospectus for the Contracts, Pruco Securities
Corporation, an indirect, wholly-owned subsidiary of Prudential, acts as the
principal underwriter of the Contracts. Consult that prospectus for information
about commission scales and other facts relating to sale of the Contracts.
STATE REGULATION
Prudential is subject to regulation and supervision by the Department of
Insurance of the State of New Jersey, which periodically examines its operations
and financial condition. It is also subject to the insurance laws and
regulations of all jurisdictions in which it is authorized to do business.
Prudential is required to submit annual statements of its operations, including
financial statements, to the insurance departments of the various jurisdictions
in which it does business to determine solvency and compliance with local
insurance laws and regulations.
In addition to the annual statements referred to above, Prudential is required
to file with New Jersey and other jurisdictions a separate statement with
respect to the operations of all its variable contract accounts, in a form
promulgated by the National Association of Insurance Commissioners.
ADDITIONAL INFORMATION
A registration statement has been filed with the SEC under the Securities Act of
1933, relating to the offering described in this prospectus. This prospectus
does not include all of the information set forth in the registration statement.
Certain portions have been omitted pursuant to the rules and regulations of the
SEC. The omitted information may, however, be obtained from the SEC's principal
office in Washington, D.C., upon payment of a prescribed fee.
Further information may also be obtained from Prudential's office. The address
and telephone number are set forth on the cover of this prospectus.
EXPERTS
The financial statements of the Real Property Account and the Partnership
included in this prospectus, the per share information included on page 1 of
this prospectus, and the related financial statement schedules included
elsewhere in the registration statement for the year ended December 31, 1996
have been audited by Price Waterhouse LLP, independent accountants, as stated in
their reports appearing herein and elsewhere in the registration statement. Such
financial statements, per share information, and financial statement schedules
have been included herein and elsewhere in the registration statement in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing. Price Waterhouse LLP's principal business address is
1177 Avenue of the Americas, New York, New York 10036.
The financial statements of the Real Property Account and the Partnership
included in this prospectus, the per share information included on page 1 of
this prospectus, and the related financial statement schedules included
18 - Real Property
<PAGE>
elsewhere in the registration statement for the years prior to 1996 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
reports appearing herein and elsewhere in the registration statement. Such
financial statements, per share information, and financial statement schedules
have been included herein and elsewhere in the registration statement in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing. Deloitte & Touche LLP's principal business address is
Two Hilton Court, Parsippany, New Jersey 07054-0319.
On March 12, 1996, Deloitte & Touche LLP was dismissed as the Independent
Accountants of Prudential. There have been no disagreements with Deloitte &
Touche LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure which, if not resolved to
the satisfaction of the accountant, would have caused them to make a reference
to the matter in their reports.
LITIGATION
No litigation is pending, and no litigation is known to be contemplated by
governmental authorities, that would have an adverse material effect upon the
Real Property Account or the Partnership. Information about several actions
brought against Prudential is included in the attached prospectus for the
variable contract.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion covers the operations of The Prudential Variable
Contract Real Property Partnership and should be considered in conjunction with
the PER SHARE TABLE appearing on page 1 - Real Property and the financial
statements and notes thereto, commencing on page B1 - Real Property.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Partnership's liquid assets consisted of cash and cash
equivalents and marketable securities totaling $45,164,848. This is an increase
of $20,409,428 from liquid assets at December 31, 1995 of $24,755,420. The
increase is due primarily to (1) $5,509,976 in cash received from the sale of
Oak Creek Office Park in Flint, Michigan, (2) $14,697,789 in cash received from
the sale of the Azusa, California warehouse, (3) operations of the Partnership's
properties, and (4) interest income received from short-term investments. This
was partially offset by (1) the purchase of an office building in Beaverton,
Oregon for $10,713,722, and (2) withdrawals by the partners of $3 million.
Sources of liquidity include net cash flow from property operations and interest
from short-term investments.
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 $50.2 million as of December 31, 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 December 31,
1996, 22.1% 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 sales, noted earlier are being retained in the Partnership in
anticipation of potential acquisitions. Two industrial projects are scheduled to
close in mid 1997, one in Aurora, CO for an estimated purchase price of $10.4
million, and the other in Salt Lake City, UT for an estimated price of $7
million. Also during 1997, the Partnership expects to exercise an option to
acquire the land under the Pomona, CA warehouse, already owned by the
Partnership, for a cost of $4 million.
During 1996, the partners withdrew $3.0 million. Withdrawals may be made during
1997 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, 1996, 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 acquired an office building in Beaverton, Oregon on December 20,
1996 for $10,713,721. The acquisition was funded entirely by cash held by the
Partnership.
During 1996 the Partnership made $550,056 in capital expenditures for tenant
alterations, leasing commissions, and land and building improvements. The most
significant of these expenses was approximately $244,000 for tenant alterations
and leasing commissions at the industrial property in Pomona, CA, of which
approximately $166,000 related to a renewal for the Treasure Chest,
approximately $46,000 related to a lease signed by Prestige
19 - Real Property
<PAGE>
Auto, a new tenant and approximately $30,000 related to a renewal for SCI. Other
significant capital expenditures included approximately $122,000 in tenant
alterations and leasing commissions, of which approximately $100,000 related to
the lease signed by Spectrum Financial at the Morristown, NJ office building,
garage repairs of approximately $81,000 at the Oakbrook Terrace office facility
in Oakbrook Terrace, IL, and tenant improvements and leasing commissions of
approximately $65,000, of which approximately $36,000 related to Shepherd's
Staff Christian Book Store, a new tenant at the Roswell, GA retail center.
Other major capital expenditures in 1996 included approximately $29,000 for
access gates at the Atlanta, GA apartments. At the Farmington Hills apartments,
approximately $25,000 was spent for repairs to brick facade, landscaping and
replacement of fitness equipment.
Projected capital expenditures for 1997 total approximately $5,291,000. Of this,
approximately $4,581,000 consists of leasing commission and tenant alterations.
The largest of these is $3,108,000 planned for the Lisle, IL office center. The
property expects to pay approximately $2,298,000 in tenant improvements and
$810,000 in leasing commissions to acquire a new tenant, as R.R. Donnelley will
be leaving at the expiration of their lease in September. At the Morristown
Office Center, approximately $914,000 has been budgeted in tenant improvements
and leasing commissions, of which approximately $878,000 relates to efforts to
renew the Smith Barney lease prior to the October, 1997 expiration. Tenant
improvements and leasing commissions have been budgeted for approximately
$254,000 at the Roswell, GA retail center, approximately $186,000 at the
Nashville office center and approximately $119,000 at the Pomona warehouse. All
of these projected expenditures relate to prospective leases and are based on
reasonable cost. The actual amount of such expenditures will depend on the
number of new leases signed, the actual needs of the particular construction or
repair, and the timing of lease executions.
Other major capital projects planned for 1997 include, at the Lisle office
building $200,000 for upgrading of the heating and air conditioning system and
$35,000 for repairs to the roof; at the Roswell retail center, $140,000 for a
new traffic layout to ease traffic in and around the center; at the Atlanta
apartments $132,000 for exterior wood replacement and building painting; at the
Raleigh apartments $37,000 for regrading the land; at the Oakbrook Terrace
office building $15,000 for pressure washing of the exterior. Approximately
$151,000 is budgeted for smaller projects among the various properties.
RESULTS OF OPERATIONS
The following is a brief discussion of a comparison of the results of operations
for the three years ended December 31, 1996, 1995 and 1994.
1996 VS 1995
The Partnership's net investment income for 1996 was $15,419,518, an increase of
$699,247 (4.8%) from net investment income for 1995 of $14,720,271. The increase
was primarily the result of higher net income from property operations
($1,455,941) offset primarily by a higher management fee ($152,351) and lower
interest income from short-term investments ($526,479).
Income from property operations, including income from interest in properties,
was $16,061,409 for 1996. This is an increase of $980,119 (6.5%) from
$15,081,290 for 1995. This was due primarily to increased rent from properties
(approximately $2,973,000). The increase was offset by increased operating
expense (approximately $1,034,000) and real estate taxes (approximately
$429,000).
Rent from properties for 1996 increased by $2,972,650 (15.0%) to $22,799,694
from $19,827,044 for 1995. A large portion of this was the result of properties
that were acquired during 1995 and held for the full year of 1996. This increase
in revenue totaled approximately $4,367,000.
These additional revenues were primarily offset by the sale of the Azusa
industrial building which resulted in approximately $1,092,000 reduction in
revenues from last year and the Roswell, GA shopping center which accounted for
a decrease of approximately $214,000 due to lower percentage rents in 1996 and
decreased occupancy.
Income from interest in properties relates to the Partnership's 50%
co-investment in several warehouses (the Unit warehouses). Income from this
source decreased approximately $31,624 (4.9%) from $638,183 for 1995 to
$606,558. The reduction is the result of GATX vacating a portion of its space in
October and the space not being leased.
Administrative expenses on the statement of operations includes both those
related to property operations and the administration of the Partnership.
Property administrative expenses for 1996 were $1,653,934. This is $78,271
(5.0%) higher than the $1,575,663 for 1995. The increase was primarily the
result of full year administrative expenses of approximately $234,000 at the
Nashville, TN office building, Oakbrook Terrace, IL office facility and
20 - Real Property
<PAGE>
the Raleigh, NC apartment complex, partially offset by decreases due to the
partial year of two 1996 sold properties totaling approximately $130,000.
Property operating expenses for 1996 were $2,904,620 compared to $1,870,183 for
1995, an increase of $1,034,437 (55%). The increase was primarily due to a full
year of operating expenses totaling approximately $943,000 related to the
Raleigh, Oakbrook Terrace and Nashville properties, all which were acquired in
1995. Increases were also due to the Morristown office property incurring window
repairs of approximately $21,000 and an increase to its grounds contract for
approximately $59,000 offset by lower repairs and maintenance expenses totaling
$23,000. The Atlanta and the Farmington Hills apartments had increases totaling
approximately $57,000 for 1996 apartment make-ready due to higher turnover as
compared to 1995.
Real estate taxes for 1996 were $2,367,404, an increase of $429,314 (22.2%) from
$1,938,090 for 1995. The increase was primarily due to a full year of real
estate tax expense totaling approximately $572,000 related to the Raleigh,
Oakbrook Terrace and Nashville properties. At the Morristown office building,
real estate taxes increased by approximately $32,000. These increases were
offset by decreases of approximately $106,000, the result of the Azusa and Flint
properties being sold in 1996. Real estate taxes at the Farmington Hills
apartments reduced by approximately $26,000 due to last year's tax appeal.
Administrative expenses related to the Partnership totaled $211,499 for 1996.
This is an increase of $7,930 (3.6%) from $219,429 for 1995.
The investment management fee for 1996 was $2,494,229. This is $152,351 (6.5%)
higher than the fee for 1995 of $2,341,878. The fee is computed as 1.25% of
gross assets. During 1995, gross assets were slightly higher than the prior year
due to cash flow retained by the Partnership and increased market values of the
real estate investments.
MARKET VALUES OF INVESTED ASSETS AND PROPERTY LEASING ACTIVITY: 1996 VS 1995
During 1996, the Partnership recognized an unrealized loss of $3,211,436 on its
real estate investments. This represents 1.9% of the value of the investments at
December 31, 1995. The retail center experienced the largest unrealized loss,
approximately $3,787,000. The offices experienced a net unrealized loss of
approximately $560,000. The industrial properties experienced a net unrealized
loss of approximately $75,000 offset by the apartments experiencing net
unrealized gains of approximately $1,210,000.
Occupancy at the Partnership's properties at December 31, 1996 were generally
lower than at December 31,1995. During 1996, the Partnership acquired a 72,109
square feet office building in Beaverton, Oregon. At December 31, 1996 the
Beaverton office building was 100% occupied to five tenants and there are no
expirations in 1997.
The Partnership's Atlanta apartment complex experienced an unrealized gain of
approximately $1,083,000 (8.6% of its year-end 1995 value) and the Farmington
Hills apartment complex experienced an unrealized gain of approximately $477,000
(3.4% of its year-end 1995 value). These increases were primarily the result of
higher rental rates and occupancy than were previously projected for these
properties. The luxury garden apartment complex in Raleigh experienced an
unrealized loss of approximately $350,000 (2.0% of its year-end 1995 value). The
property had experienced lowered loss of occupancy but has currently recovered
to a December 31, 1996 occupancy of 97%.
Occupancy at the Atlanta and the Farmington Hills apartments decreased from 97%
and 98% at December 31, 1995 to 93% and 88%, respectively. Occupancy at the
Raleigh apartments increased from 95% at December 31, 1995 to 97% at the end of
1996. All vacant apartments are being marketed as of December 31, 1996.
The Bolingbrook warehouse experienced the largest unrealized loss of this
property type, approximately $300,000 (4.1% of its year-end 1995 value).
Gillette, a tenant of the entire property, has indicated they need additional
space and will relocate at the expiration of their lease in 2000. The Pomona
property experienced an unrealized gain of approximately $175,000 (1.0% of its
year-end 1995 value), this was the result of signing leases that maintained the
property occupancy at 100%. The market values of the four Unit warehouses in
which the Partnership owns a 50% interest at the end of 1996 experienced an
unrealized gain of approximately $50,000 (.9% of their December 31, 1995 value).
Occupancy at the Pomona warehouse remained at 100%. During 1996, a total of
234,292 square feet expired and was leased at the property. The most significant
renewal included SCI signing an amendment to their lease to extend the term for
five years. During 1997, JB Engineering's 49,697 square feet lease is expiring.
Occupancy at the Bolingbrook warehouse also remained at 100%. Gillette's lease
of this entire facility will expire in the year 2000, at which time they will
relocate. At the Unit warehouses, occupancy decreased from 100% at 1995 to 85%
at 1996. GATX vacated its space in October and the space has not been leased.
All vacant space is being marketed as of December 31,1996.
21 - Real Property
<PAGE>
The Lisle office, experienced an unrealized loss of approximately $1,700,000
(14.7% of its year-end 1995 value). This was caused by R.R. Donnelley
(sole-tenant) not renewing its lease, which expires September 1997, and the
anticipated expenses that will be incurred in order to release the building in
1997. The Morristown property experienced an unrealized gain of approximately
$409,000 (4.3% of its December 31, 1995 value), due to improved market
conditions in the Northern, NJ market. The Nashville office experienced an
unrealized gain of approximately $166,000. The increase represented 1.9% of its
year-end 1995 value. The rise in value reflects the expectations of continued
high occupancy and the potential for higher rental rates in the future. The
Oakbrook Terrace office building experienced an increase of $565,000 (4.5% of
its December 31, 1995 value). This was the result of two tenant rent increases
that occurred in 1996.
Occupancy at the Lisle office building remained at 100% during 1996. R.R.
Donnelley has given notice they will be vacating their space in 1997. The
Oakbrook Terrace office building continued its 99% occupancy. The Nashville
office building occupancy remained at 99%. During 1996, a total of 25,394 square
feet was re-leased, leaving a vacant space of 1,350 square feet. During 1997, at
the Nashville office building, 11,966 square feet will expire. Occupancy at the
Morristown office decreased from 98% to 93% as of December 31, 1996. There are
four vacant suites totaling 9,583 square feet. During 1996, Mutual of Omaha
renewed their lease of 5,479 square feet and Sprint Spectrum signed a two month
temporary agreement for 4,010 square feet, while Chase Home Mortgage vacated
their suite of 4,010 square feet. During 1997, at the Morristown office
building, a total of 15,753 square feet will be up for renewal. All vacant space
is currently being marketed.
The Partnership's sole retail property in Roswell, GA, experienced an unrealized
loss of $3,786,554 (11.8% of its December 31, 1995 value). This was due to
increased competition in the local market resulting in downward pressure on
rental rates and occupancy.
Occupancy at the Roswell center decreased from 99% at December 31, 1995 to 96%
at December 31, 1996, a loss of 3%. During 1996 a total of 10,464 square feet
expired and 4,127 square feet was renewed. Shepherd's Staff Christian Book Store
leased 6,100 square feet. Two tenants leasing a total of 6,100 square feet have
vacated prior to their lease expiration. At December 31, 1996 a total of 10,464
square feet remained vacant. Several lease proposals are in negotiation, while
all other vacant space is currently being marketed.
During 1996, the Partnership sold its Azusa, CA industrial property and its
Flint, MI office building. The sale of these two properties resulted in a
realized loss of $1,573,147. The Flint, MI property experienced the largest loss
of $1,094,521 (16.7% of its year-end 1995 value). This was the result of both
the uncertain economic outlook and leasing demand for Flint, MI, as well as the
physical condition of the property. The Azusa property experienced a realized
loss of $478,627 (3.2% of its year-end 1995 value). The gross sales price of the
property was $15,250,000 and the net proceeds were $14,697,789.
1995 VS 1994
Income from property operations, including income from interest in properties,
was $15,081,290 for 1995. This is an increase of $1,058,039 (7.5%) from
$14,023,251 for 1994. This was due primarily to increased rent from properties
(approximately $3,482,785). The increase was offset by lower income from
interest in properties due to the sale for the seven Unit warehouses in October,
1994 (approximately $1,717,000), higher real estate taxes (approximately
$145,000), property administrative expenses (approximately $399,000). and
property operating expenses (approximately $163,000).
Rent from properties for 1995 increased by $3,482,785 (21.3%) to $19,827,044
from $16,344,259 for 1994. A large portion of this was the result of properties
that were acquired during 1995. This revenue totaled approximately $1,466,000.
Revenue at the apartments in Raleigh were $1,111,744, the office building in
Nashville,$331,165 and the office building in Oakbrook Terrace $23,587. Rental
income at the Flint office park increased by approximately $662,600 in 1995.
This was primarily due to the acquisition of this property through foreclosure
in July, 1994. As a result, only six months of operating results are included in
1994 as compared to a full year in 1995. Increased occupancy in 1995 resulted in
an additional $906,000 in rental revenue for the Azusa and Morristown buildings
as well as the Partnership's two other apartment properties. Rental income at
the Bolingbrook warehouse increased about $82,000 in 1995 as a result of the
expiration of a free rent period granted to the tenant in the first quarter of
1994. Revenue at the Pomona warehouse was almost $221,000 higher due to
increased occupancy and higher expense recoveries.
These additional revenues were partially offset by lower rental income from the
Roswell, GA shopping center (approximately $15,000) due to lower percentage rent
in 1995, offset by higher rental income and expense recoveries.
Income from interest in properties relates to the Partnership's 50%
co-investment in several warehouses (the Unit warehouses). Income from this
source decreased $1,717,021 (72.9%) from $2,355,204 for 1994 to $638,183 for
1995. The Partnership sold its investments in seven of these warehouses in 1994.
This resulted in a reduction
22 - Real Property
<PAGE>
of income of approximately $1,800,000 in 1995. Of the four remaining warehouses
income increased by approximately $83,000 due to higher occupancy at one of the
warehouses.
Administrative expenses on the statement of operations includes both those
related to property operations and the administration of the Partnership.
Property administrative expenses for 1995 were $1,575,663. This is $399,265
(33.9%) higher than the $1,176,398 for 1994. Most of the increase was the result
of the inclusion of the Flint, Raleigh and Nashville properties, (almost
$270,000), higher insurance premiums ($72,000) primarily at the two California
properties and in increase in bad debt expense ($63,000). The increase in bad
debt expense arose from the 1994 application of a security deposit to amounts
owed by that tenant which reduced 1994 bad debt expense by approximately
$33,000. Professional fees also increased approximately $45,000 in 1995 due to
the utilization of real estate tax consultants to assist with the appeal of
assessed values at several of the properties. The appeal generated significant
tax savings as noted below. Advertising and promotional expenses were lower at
several of the properties which offset the increased administrative expenses by
about $40,000.
Property operating expenses for 1995 were $1,870,183 compared to $1,707,039 for
1994, an increase of $163,144 (9.6%). The increase was primarily due to the
inclusion of approximately $217,336 in operating expenses related to the Raleigh
and Nashville properties. The Flint property had an increase of $73,600 for 1995
compared to the last six months of 1994. In addition there were higher repairs
and maintenance at the Farmington Hills apartments of approximately $18,500.
These increases were reduced by lower expenses at the Azusa warehouse related to
the painting of building exteriors in 1994 ($88,500), at Pomona, ($24,500) due
to lower repairs and maintenance, and lower repairs and maintenance, security
and utilities at Roswell ($35,000).
Real estate taxes for 1995 were $1,938,090, an increase of $145,315 (8.1%) from
$1,792,775 for 1994. Approximately $244,000 of this increase was due to the
inclusion of the Flint office buildings, the Raleigh apartments and the
Nashville office center. This includes $101,000 of 1994 taxes at the Flint
property. At the Roswell shopping center, real estate taxes increased by
$31,500. Approximately $153,000 of the decreases were achieved as the result of
appealing the assessed values at the Azusa, Pomona, Morristown and Farmington
Hills properties. Real estate taxes at the net lease properties in Bolingbrook
and Lisle also increased nearly $22,000.
There was no interest income from mortgage loans in 1995. This was due to the
maturing of the Lincoln, NE loan in May 1994 and the default of the mortgagor on
the Flint loan. Interest income from short-term investments increased $1,089,471
(69.3%) from $1,571,394 for 1994 to $2,660,865 for 1995. This was the result of
increased amounts invested and higher interest rates in 1995. The Partnership
had retained increased cash balances in anticipation of acquiring properties in
1995.
Administrative expenses related to the Partnership totaled $219,429 for 1995.
This is a reduction of $17,895 (7.5%) from $237,324 for 1994. The decrease
resulted primarily from lower professional fees for 1995.
The investment management fee for 1995 was $2,341,878. This is $54,062 (2.4%)
higher than the fee for 1994 of $2,287,816. The fee is computed as 1.25% of
gross assets. During 1995, gross assets were slightly higher than the prior year
due to cash flow retained by the Partnership and increased market values of the
real estate investments.
MARKET VALUES OF INVESTED ASSETS: 1995 VS 1994
During 1995, the Partnership recognized an unrealized gain of $661,623 on its
real estate investments. This represents 0.5% of the investments' December 31,
1994 value. The apartments experienced the largest increase, approximately
$2,700,000. The warehouses increased by about $421,000. The office building
properties experienced an unrealized loss of approximately $1,933,000 and the
retail property, an unrealized loss of about $528,000.
The Partnership's luxury garden apartments in Raleigh had an unrealized gain of
nearly $1,441,300. The property has benefited from very strong leasing demand
(occupancy at December 31, 1995 was 95%) and is performing at a higher level
than anticipated. The Farmington Hills apartments experienced an unrealized gain
of $626,143 (4.6% of its year-end 1994 value) and Atlanta $634,165 (5.3% of its
year-end 1994 value). These increases were primarily the result of higher rental
rates, occupancy and tenant retention than previously projected for these
properties.
The warehouses experienced an unrealized gain of about $421,000 during 1995. The
Pomona property had the largest unrealized gain, $684,153 (4.2% of its year-end
1994 value). This was the result of two leases that were signed which brought
the occupancy to 100%. The market values of the four Unit warehouses in which
the Partnership owns a 50% interest at the end of 1995 increased $49,134 (.9% of
their December 31, 1994 value).
The warehouse in Bolingbrook experienced an unrealized gain of $357,563 (5.1% of
the property's December 31, 1994 value). This was due to lower estimates of
operating expenditures and a scheduled step-up in the rental rate.
23 - Real Property
<PAGE>
The increases in the market values of these warehouses were partially offset by
a decrease of $669,928 (4.3% of the property's December 31, 1994 value) in the
market value of the Azusa warehouse. The decrease in market value was partially
attributable to less optimistic assumptions of expense growth, future rental
rates and leasing activity as current leases expire, based on the property's
competitive position in the local market.
The office buildings experienced an unrealized loss approximately $1,933,000.
The Flint, property value decreased $1,314,060 (17.1% of its December 31, 1994
value). This was caused by reduced expectations of future rental rate increases
and tenant renewals due to increased competition from new construction in the
Flint market. The Lisle office building decreased in value by $400,000 (3.3% of
the property's December 31, 1994 value) and the Morristown property also
decreased in value by $473,993 (4.8% of its December 31, 1994 value). The Lisle
property's decrease in value reflects the possibility that the current tenant,
R.R. Donnelley, may not 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 increases in the discount rates, reflecting the soft market
conditions in the local areas and the expectations potential buyers are
requiring higher returns on such investments. The decreases in value at the
office buildings were partially offset by an increase of $254,871 at the
Nashville building. The increase represented 3% of its acquisition cost. The
rise in value reflects the expectations of continued high occupancy and the
potential for higher rental rates in the future.
The Partnership's sole retail property, King's Market Shopping Center in
Roswell, GA, experienced an unrealized loss of $527,726 (1.6% of its December
31, 1994 value). This was due to increased competition in the local market due
to the construction of a competing shopping center which is expected to exert
downward pressure on rental rates.
FINANCIAL STATEMENTS
Following are financial statements and independent auditors' report of the Real
Property Account, as well as financial statements and independent auditors'
report of the Partnership.
24 - Real Property
<PAGE>
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENT OF NET ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Investment in shares of The Prudential Variable Contract
Real Property Partnership (Note 3) $ 90,992,994 $ 86,101,883
------------- -------------
------------- -------------
NET ASSETS, representing:
Equity of Contract Owners $ 56,878,802 $ 56,252,299
Equity of The Prudential Insurance Company of America 34,114,192 29,849,584
------------- -------------
$ 90,992,994 $ 86,101,883
------------- -------------
------------- -------------
STATEMENT OF OPERATIONS AND CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 7,088,695 $ 6,651,513 $ 5,659,786
EXPENSES:
Asset Based Charges to Contract Owners (Note 5) 473,388 450,662 407,310
------------ ------------ ------------
NET INVESTMENT INCOME 6,615,307 6,200,851 5,252,476
------------ ------------ ------------
Net Unrealized (Loss)/Gain on Investments in Partnership (1,474,373) 314,267 1,179,744
Net Realized Loss on Sale of Investments in Partnership (723,211) 0 (545,083)
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 4,417,723 6,515,118 5,887,137
------------ ------------ ------------
CAPITAL TRANSACTIONS:
Net (Withdrawals)/Contributions by Contract Owners (Note 7) (2,022,824) 588,074 1,195,248
Net Contributions/(Withdrawals) by The Prudential
Insurance Company of America 2,496,212 (137,412) (3,787,938)
------------ ------------ ------------
NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 473,388 450,662 (2,592,690)
------------ ------------ ------------
TOTAL INCREASE IN NET ASSETS $ 4,891,111 $ 6,965,780 $ 3,294,447
NET ASSETS:
Beginning of period $ 86,101,883 $ 79,136,103 $ 75,841,656
------------ ------------ ------------
End of period $ 90,992,994 $ 86,101,883 $ 79,136,103
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A-2 THROUGH A-4.
A1 - Real Property
<PAGE>
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 1996
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 ("Prudential"), as a
separate investment account pursuant to New Jersey law. The assets of the Real
Property Account are segregated from Prudential's other assets. The Real
Property Account is used to fund benefits under certain variable life insurance
and variable annuity contracts issued by Prudential. These products are
Variable Appreciable Life Insurance ("PVAL60"/"PVAL90"), Discovery Plus
("PDISC+") and Variable Investment Plan ("VIP").
The assets of the Real Property Account are invested in The Prudential
Variable Contract Real Property Partnership (the "Partnership"). The
Partnership is organized under New Jersey law and is registered under the
Securities Act of 1933. The Partnership is the investment vehicle for assets
allocated to the real property option under certain variable life insurance
and variable annuity contracts. The Real Property Account, along with the
Pruco Life Variable Contract Real Property Account and Pruco Life of New
Jersey Variable Contract Real Property Account, are the sole investors in the
Partnership.
The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF ACCOUNTING
The accompanying financial statements are prepared in conformity with generally
accepted accounting principles (GAAP). The preparation of the financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual results
could differ from those estimates.
B. INVESTMENT IN PARTNERSHIP INTEREST
The investment in the Partnership is based on the Real Property Account's
proportionate interest of the Partnership's market value. At December 31,
1996 and 1995 the Real Property Account's interest in the Partnership, based
on market value equity was 46.1% or 5,465,515 shares and 45.4% or 5,465,515
shares, respectively.
C. INCOME RECOGNITION
Net investment income, realized and unrealized gains and losses are
recognized daily. Amounts are based upon the Real Property Account's
proportionate interest in the Partnership.
A2 - Real Property
<PAGE>
D. EQUITY OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Prudential maintains a position in the Real Property Account representing
anticipated property acquisition and capital expenditure funding needs. The
position is also utilized for the purpose of administering activity in the
Real Property Account. The activity includes unit transactions, Partnership
share transactions, and expense processing. The position does not have an
effect on the Contract owner's account or the related unit value.
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
As of December 31, 1996, the investment in the Real Property Account of
$90,992,994 was derived from the share value of $16.64859 and 5,465,516
shares outstanding. The related historical cost of the investment in the
Real Property Account was $ 63,790,895.
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding Contract owner units, unit values and total value of Contract
owner equity for the year ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
PDISC+ PVAL60 PVAL90 VIP TOTAL
---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONTRACT OWNER
UNITS OUTSTANDING: 3,265,637 14,481,635 20,561,123 3,042,282 41,350,677
UNIT VALUE: $1.34933 $1.39926 $1.36684 $1.34933 n/a
CONTRACT OWNER EQUITY: $4,406,421 $20,263,573 $28,103,765 $4,105,043 $56,878,802
</TABLE>
NOTE 5: CHARGES AND EXPENSES
A. MORTALITY RISK AND EXPENSE RISK CHARGES
Mortality risk and expense charges are determined daily using an effective
annual rate of 1.0%, 0.6%, 0.9% and 1.2% for PDISC+, PVAL60, PVAL90 and VIP,
respectively. Mortality risk is that life insurance contract holders may not
live as long as estimated or annuitants may live longer than estimated and
expense risk is that the cost of issuing and administering the policies may
exceed the estimated expenses. For 1996, the amount of these charges paid to
Prudential was $464,909.
B. ADMINISTRATIVE CHARGES
Administrative charges are determined daily using an effective annual rate of
0.2% for PDISC+. Administrative charges include costs associated with issuing
the Contract, establishing and maintaining records, and providing reports to
Contract owners. For 1996, the amount of these charges paid to Prudential was
$8,479.
A3 - Real Property
<PAGE>
NOTE 6: TAXES
The Prudential Insurance Company of America is taxed as a "life insurance
company" under the Internal Revenue Code and the operations of the Real Property
Account form a part of and are taxed with those of The Prudential Insurance
Company of America. Under current federal law, no federal income taxes are
payable by the Real Property Account. As such, no provision for tax liability
has been recorded.
NOTE 7: NET WITHDRAWALS BY CONTRACT OWNERS
Contract owner activity for the Prudential products for the year ended December
31, 1996, was as follows:
<TABLE>
<CAPTION>
PDISC+/VIP PVAL60/PVAL90 TOTAL
------------ -------------- -------------
<S> <C> <C> <C>
CONTRACT OWNER CONTRIBUTIONS: $ 1,442,018 $ 12,045,706 $ 13,487,724
CONTRACT OWNER REDEMPTIONS: (812,263) (11,535,649) (12,347,912)
NET TRANSFERS FROM (TO) OTHER
SUBACCOUNTS OR FIXED RATE OPTION: (1,034,616) (2,128,020) (3,162,636)
------------- -------------- --------------
NET DECREASE $ (404,861) $ (1,617,963) $ (2,022,824)
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
NOTE 8: UNIT ACTIVITY
Transactions in units for the year ended December 31, 1996 were as follows:
PDISC+/VIP PVAL60/PVAL90
-------------- ----------------
CONTRACT OWNER CONTRIBUTIONS: 1,090,424.904 8,934,265.218
CONTRACT OWNER REDEMPTIONS: (1,399,897.340) (10,137,311.602)
A4 - Real Property
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of
Prudential Variable Contract Real Property Account
and the Board of Directors of
The Prudential Insurance Company of America
In our opinion, the accompanying statement of net assets and the related
statement of operations and changes in net assets present fairly, in all
material respects, the financial position of Prudential Variable Contract Real
Property Account at December 31, 1996, and the results of its operations and the
changes in its net assets for the year then ended, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of The Prudential Insurance Company of America's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit, which included confirmation of shares owned in The
Prudential Variable Contract Real Property Partnership at December 31, 1996,
provides a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
March 25, 1997
A5 - Real Property
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Contract Owners of
The Prudential Variable Contract Real Property Account
Newark, New Jersey
We have audited the accompanying statement of assets of the Prudential
Variable Contract Real Property Account ("Real Property Account") as of
December 31, 1995, and the related statements of operations and changes in
net assets for each of the two years in the period ended December 31, 1995.
These financial statement 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, 1995, and the results of its operations
and changes in net assets for each of the two years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
Investments in shares of The Prudential Variable Contract Real Property
Partnership are stated at current value at December 31, 1995, as discussed in
Note 1 to the financial statements. Determination of current value involves
subjective judgment because the actual market value of real estate can be
determined only by negotiation between the parties in a sales transaction.
Deloitte & Touche LLP
Parsippany, New Jersey
March 1, 1996
A6 - Real Property
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1996 1995
--------------- ----------------
<S> <C> <C>
ASSETS:
Properties at estimated market value
(cost $177,082,291 and $191,981,608,
respectively) $ 151,074,276 $ 164,695,033
Interest in properties at estimated market value
(cost $6,133,157 and $6,133,157,
respectively) 5,850,000 5,800,000
Marketable securities at estimated market value
(cost $24,345,000 and $10,480,000,
respectively) 24,426,644 10,532,155
Cash and cash equivalents 20,738,204 14,223,265
Other assets and accounts receivable
(net of allowance for uncollectible
accounts of $55,823 and $18,896, respectively) 2,066,916 1,743,305
--------------- ----------------
Total Assets $ 204,156,040 $ 196,993,758
--------------- ----------------
--------------- ----------------
LIABILITIES AND PARTNERS' EQUITY:
Obligation under capital lease $ 4,072,677 $ 3,882,421
Accounts payable and accrued expenses 1,640,360 2,142,614
Due to affiliates 719,200 682,795
Other liabilities 467,009 664,069
--------------- ----------------
Total liabilities 6,899,246 7,371,899
--------------- ----------------
Commitments and contingencies
Partners' Equity 197,256,794 189,621,859
--------------- ----------------
Total Liabilities and Partners' Equity $ 204,156,040 $ 196,993,758
--------------- ----------------
--------------- ----------------
Number of shares outstanding at end of period 11,848,275 12,036,684
--------------- ----------------
--------------- ----------------
Share Value at end of period $16.65 $15.75
--------------- ----------------
--------------- ----------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B8 THROUGH B11
B1 - Real Property
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
INVESTMENT INCOME:
Rent from properties $ 22,799,694 $ 19,827,044 $ 16,344,259
Income from interest in properties 606,558 638,183 2,355,204
Interest on mortgage loans 0 0 105,694
Interest from short-term investments 2,134,386 2,660,865 1,571,394
------------- ------------- -------------
25,540,638 23,126,092 20,376,551
------------- ------------- -------------
INVESTMENT EXPENSES:
Investment management fee 2,494,229 2,341,878 2,287,816
Real estate taxes 2,367,404 1,938,090 1,792,775
Administrative 1,865,433 1,795,092 1,413,722
Operating 2,904,620 1,870,183 1,707,039
Interest 489,434 460,578 327,000
------------- ------------- ------------
10,121,120 8,405,821 7,528,352
------------- ------------- ------------
NET INVESTMENT INCOME 15,419,518 14,720,271 12,848,199
------------- ------------- ------------
REALIZED AND UNREALIZED LOSS ON
INVESTMENTS:
Net proceeds from real estate investments sold 20,497,789 0 19,014,872
Less: Cost of real estate investments sold 26,610,932 0 18,337,052
Realization of prior years' unrealized
(loss)/gain on real estate investments sold (4,539,996) 0 1,915,205
------------- ------------- ------------
NET LOSS REALIZED ON REAL ESTATE
INVESTMENTS SOLD (1,573,147) 0 (1,237,385)
------------- ------------- ------------
NET UNREALIZED (LOSS)/GAIN
ON INVESTMENTS (3,211,436) 661,623 2,576,828
------------- ------------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 10,634,935 $ 15,381,894 $ 14,187,642
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B8 THROUGH B11
B2 - Real Property
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
OPERATIONS:
Net Investment Income $ 15,419,518 $ 14,720,271 $ 12,848,199
Net Realized and Unrealized
Gain/(Loss) on Investments (4,784,583) 661,623 1,339,443
------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 10,634,935 15,381,894 14,187,642
------------- ------------- -------------
CAPITAL TRANSACTIONS:
Withdrawals by partners
(188,409, 204,350 and 790,390
shares, respectively) (3,000,000) (3,000,000) (11,000,000)
------------- ------------- -------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS (3,000,000) (3,000,000) (11,000,000)
------------- ------------- -------------
TOTAL INCREASE IN NET ASSETS 7,634,935 12,381,894 3,187,642
NET ASSETS:
Beginning of year 189,621,859 177,239,965 174,052,323
------------- ------------- -------------
End of year $ 197,256,794 $ 189,621,859 $ 177,239,965
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B8 THROUGH B11
B3 - Real Property
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 10,634,935 $ 15,381,894 $ 14,187,642
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Net realized and unrealized loss (gain) on investments 4,784,583 (661,623) (1,339,443)
Changes in assets and liabilities:
(Increase) Decrease in other assets
and accounts receivable (323,611) 474,790 (727,821)
Decrease in obligation under capital lease 190,256 77,585 6,271
(Decrease) Increase in accounts payable
and accrued expenses (502,254) 1,337,548 75,876
Increase (Decrease) in due to affiliates 36,405 58,589 (70,438)
(Decrease) Increase in other liabilities (197,060) 18,156 165,049
------------- ------------- ------------
Net cash provided by operating activities 14,623,254 16,686,939 12,297,136
------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 20,497,789 0 19,014,842
Acquisition of property (10,713,722) (36,774,343) 0
Capital improvements on real estate owned (997,893) (1,050,197) (1,161,224)
Capital improvements on interest in properties 0 (24,415) (12,087)
Principal repayments recieved on mortgage loans 0 0 3,947,528
(Purchase) Sale of marketable securities (13,894,489) 5,292,044 (13,845,191)
------------- ------------- ------------
Net cash provided by (used in) investing activities (5,108,315) (32,556,911) 7,943,868
------------- ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals (3,000,000) (3,000,000) (11,000,000)
------------- ------------- ------------
Net cash (used in)provided by financing activities (3,000,000) (3,000,000) (11,000,000)
------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 6,514,939 (18,869,972) 9,241,004
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 14,223,265 33,093,237 23,852,233
------------- ------------- ------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 20,738,204 $ 14,223,265 $ 33,093,237
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL SCHEDULE
OF NONCASH INVESTING ACTIVITIES
Foreclosure on mortgage loan $ 0 $ 0 $ 5,276,262
------------- ------------- ------------
------------- ------------- ------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 376,450 $ 376,450 $ 250,000
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B8 THROUGH B11
B4 - Real Property
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
- ----------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (PERCENT OF NET ASSETS) 76.6% 86.8%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Azusa, CA Warehouse $ 0 $ 0 $ 18,546,247 $ 15,083,725
Lisle, IL Office Building 17,524,421 9,900,000 17,524,421 11,600,000
Atlanta, GA Garden Apartments 15,396,738 13,707,814 15,371,495 12,600,000
Pomona, CA (a) Warehouse 23,456,751 17,553,849 23,205,172 17,127,292
Roswell, GA Retail Shopping Center 31,754,073 28,333,818 31,688,912 32,055,216
Morristown, NJ Office Building 18,797,224 10,113,986 18,664,969 9,572,688
Bolingbrook, IL Warehouse 8,948,028 7,100,000 8,948,028 7,400,000
Farmington Hills, MI Garden Apartments 13,623,952 14,706,400 13,594,950 14,200,000
Flint, MI Office Building 0 0 7,616,842 6,539,368
Raleigh, NC Garden Apartments 15,762,951 16,854,252 15,758,699 17,200,000
Nashville, TN Office Building 8,379,326 8,800,436 8,431,680 8,686,551
Oakbrook Terrace, IL Office Complex 12,725,105 13,289,999 12,630,193 12,630,193
Beaverton, OR Office Complex 10,713,722 10,713,722 0 0
------------- -------------- ------------- -------------
$ 177,082,291 $ 151,074,276 $ 191,981,608 $ 164,695,033
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>
(a) Cost and estimated market value include land under capital lease of
$3,412,636 representing the present value of minimum future lease
payments at the inception of the lease.
<TABLE>
<CAPTION>
INVESTMENT IN INTEREST IN PROPERTIES (PERCENT OF NET ASSETS) 3.0% 3.1%
Estimated Estimated
Market Market
Location Description Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Jacksonville, FL Warehouse/Distribution 1,317,453 1,225,000 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 1,325,000 1,442,894 1,300,000
Jacksonville, FL Warehouse/Distribution 2,370,362 2,300,000 2,370,362 2,300,000
------------- -------------- ------------- -------------
$ 6,133,157 $ 5,850,000 $ 6,133,157 $ 5,800,000
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 12.4% 5.6%
Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Marketable Securities $ 23,345,000 $ 24,426,644 $ 10,480,000 $ 10,532,155
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
</TABLE>
<TABLE>
<CAPTION>
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 10.5% 7.5%
Estimated Estimated
Face Market Face Market
Description Amount Value Amount Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial Paper and Cash $ 20,804,826 $ 20,738,204 $ 14,282,697 $ 14,223,265
------------- -------------- ------------- -------------
------------- -------------- ------------- -------------
OTHER ASSETS -2.5% -3.0%
(net of liabilities) $ (4,832,330) $ (5,628,594)
-------------- -------------
TOTAL NET ASSETS $ 197,256,794 $ 189,621,859
-------------- -------------
-------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B8 THROUGH B11
B5 - Real Property
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 12.4%
Estimated
Face Market
DESCRIPTION Amount Value
- ----------------------------------------------------- ------------------------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
PNC Bank, 5.48%, January 6, 1997 $ 2,200,000 $ 2,199,643
Wells Fargo, 5.54%, January 28, 1997 2,300,000 2,300,446
Sears Roebuck Acceptance Corp, 7.48%, February 19, 1997 100,000 102,187
General Motors Acceptance Corp, 5.88%, February 27, 1997 105,000 107,143
Sears Roebuck Acceptance Corp,7.72%, February 27, 1997 800,000 812,000
Dean Wiitter Discover & Co., 5.75%, March 6,1997 500,000 500,387
General Motors Acceptance Corp, 5.74%, March 18, 1997 1,200,000 1,201,344
Sears Discover Credit Corp, 7.81%, March 18, 1997 1,150,000 1,164,548
American Home Products, 6.88%, April 15, 1997 2,000,000 2,019,323
Ford Motor Credit, 5.90%, May 5, 1997 1,400,000 1,405,337
Ford Motor Credit, 5.90%, May 5, 1997 350,000 350,875
Ford Motor Credit, 9.15%, May 7, 1997 500,000 515,010
Key Bank NA, 5.58%, May 14, 1997 900,000 899,130
American Express Centurion Bank, 5.58%, June 10, 1997 2,300,000 2,299,862
Associates Corp of North America, 7.05%, June 30, 1997 600,000 604,766
Bank One Columbus, 5.58%, July 1, 1997 1,110,000 1,108,812
Associates Corp of North America, 5.88%, August 15, 1997 1,230,000 1,230,744
Key Bank of New York, 4.82%, September 4, 1997 1,300,000 1,298,740
Bank One Milwaukee, NA, 5.26%, October 8, 1997 1,000,000 1,002,870
Morgan Guaranty TRust Co., 5.38%, November 14, 1997 1,000,000 999,271
Norwest Financial Inc., 6.50%, November 15, 1997 300,000 302,286
Norwest Corp., 5.55%, November 21, 1997 2,000,000 2,001,920
------------- -------------
TOTAL MARKETABLE SECURITIES $ 24,345,000 $ 24,426,644
------------- -------------
------------- -------------
<CAPTION>
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 10.5%
Estimated
Face Market
DESCRIPTION Amount Value
- ----------------------------------------------------- -------------- --------------
<S> <C> <C>
Commercial Paper (with stated rate and maturity date)
Gateway Fuel Corp, 7.15%, January 2, 1997 $ 2,177,000 $ 2,176,135
Bell Atlantic Financial Services, 5.50%, January 14, 1997 2,650,000 2,638,664
Pioneer Hi-Bred Intl, 5.47%, January 15, 1997 1,200,000 1,194,712
Bank of Montreal, 5.43%, January 27, 1997 2,300,000 2,300,000
Canadian Imperial Bank, 5.39%, January 27, 1997 2,400,000 2,400,000
HJ Heinz Co., 5.46%, January 29, 1997 2,370,000 2,354,184
General Electric Capital Corp, 5.34%, February 3, 1997 2,300,000 2,279,871
Bankers Trust Co., 5.35%, February 20, 1997 2,000,000 2,007,723
Colonial PL Co Note, 5.60%, February 21, 1997 800,000 792,658
Colonial PL Co Note, 5.35%, March 4, 1997 783,000 773,109
General Electric Capital Corp., 5.45%, March 14, 1997 300,000 296,322
------------- -------------
TOTAL COMMERCIAL PAPER 19,280,000 19,213,378
TOTAL CASH 1,524,826 1,524,826
------------- -------------
TOTAL CASH AND CASH EQUIVALENTS $ 20,804,826 $ 20,738,204
------------- -------------
------------- -------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B8 THROUGH B11
B6 - Real Property
<PAGE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31, 1995
--------------------------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 5.6%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------- ------------- -------------
<S> <C> <C>
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 MARKETABLE SECURITIES $ 10,480,000 $ 10,532,155
------------- -------------
------------- -------------
<CAPTION>
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 7.5%
Estimated
Face Market
DESCRIPTION Amount Value
- ---------------------------------------------------------- ------------- -------------
<S> <C> <C>
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
------------ ------------
------------ ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES B8 THROUGH B11
B7 - Real Property
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
GENERAL
ON APRIL 29, 1988, PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP (THE
"PARTNERSHIP"), A GENERAL PARTNERSHIP ORGANIZED UNDER NEW JERSEY LAW, WAS FORMED
THROUGH AN AGREEMENT AMONG PRUDENTIAL INSURANCE COMPANY OF AMERICA
("PRUDENTIAL"), PRUCO LIFE INSURANCE COMPANY ("PRUCO LIFE"), AND PRUCO LIFE
INSURANCE COMPANY OF NEW JERSEY ("PRUCO LIFE OF NEW JERSEY"). THE PARTNERSHIP
WAS ESTABLISHED AS A MEANS BY WHICH ASSETS ALLOCATED TO THE REAL ESTATE
INVESTMENT OPTION UNDER CERTAIN VARIABLE LIFE INSURANCE AND VARIABLE ANNUITY
CONTRACTS ISSUED BY THE RESPECTIVE COMPANIES COULD BE INVESTED IN A COMMINGLED
POOL. THE PARTNERS IN THE PARTNERSHIP ARE PRUDENTIAL, 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
ESTIMATED MARKET 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 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 ESTIMATED MARKET 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, REAL ESTATE
INVESTMENTS ARE REPORTED AT THEIR ESTIMATED MARKET VALUES BASED UPON
APPRAISAL REPORTS PREPARED BY INDEPENDENT REAL ESTATE APPRAISERS
(MEMBERS OF THE APPRAISAL INSTITUTE) WHICH ARE ORDINARILY OBTAINED ON
AN ANNUAL BASIS. THE PROPERTY VALUATIONS ARE REVIEWED INTERNALLY AT
LEAST EVERY THREE MONTHS AND ADJUSTED IF THERE HAS BEEN A CHANGE IN
THE VALUE OF THE PROPERTY SINCE THE LAST VALUATION.
THE CHIEF APPRAISER OF PRUDENTIAL COMPTROLLER'S DEPARTMENT VALUATION
UNIT IS RESPONSIBLE TO ASSURE THAT THE VALUATION PROCESS PROVIDES
INDEPENDENT AND ACCURATE ESTIMATED MARKET VALUE ESTIMATES. IN THE
INTEREST OF MAINTAINING AND MONITORING THE INDEPENDENCE AND THE
ACCURACY OF THE APPRAISAL PROCESS, THE COMPTROLLER OF PRUDENTIAL HAS
APPOINTED A THIRD PARTY FIRM TO ACT AS THE APPRAISAL MANAGEMENT
B8 - Real Property
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
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
PRUDENTIAL COMPTROLLER'S DEPARTMENT VALUATION UNIT AND THE CHIEF
APPRAISER AND ADJUSTED IF THERE HAS BEEN ANY SIGNIFICANT CHANGES
RELATED TO THE PROPERTY SINCE THE MOST RECENT INDEPENDENT APPRAISAL.
THE PURPOSE OF AN APPRAISAL IS TO ESTIMATE THE MARKET VALUE OF A
PROPERTY AS OF A SPECIFIC DATE. ESTIMATED MARKET VALUE HAS BEEN
DEFINED AS THE MOST PROBABLE PRICE FOR WHICH THE APPRAISED PROPERTY
WILL SELL IN A COMPETITIVE MARKET UNDER ALL CONDITIONS REQUISITE TO
FAIR SALE, WITH THE BUYER AND SELLER EACH ACTING PRUDENTLY,
KNOWLEDGEABLY, AND FOR SELF INTEREST, AND ASSUMING THAT NEITHER IS
UNDER UNDUE DURESS. THIS ESTIMATE OF MARKET VALUE GENERALLY IS A
CORRELATION OF THREE APPROACHES, ALL OF WHICH REQUIRE THE EXERCISE OF
SUBJECTIVE JUDGMENT. THE THREE APPROACHES ARE: (1) CURRENT COST OF
REPRODUCING A PROPERTY LESS DETERIORATION AND FUNCTIONAL AND ECONOMIC
OBSOLESCENCE; (2) DISCOUNTING OF A SERIES OF INCOME STREAMS AND
REVERSION AT A SPECIFIED YIELD OR BY DIRECTLY CAPITALIZING A SINGLE -
YEAR INCOME ESTIMATE BY AN APPROPRIATE FACTOR; AND (3) VALUE
INDICATED BY RECENT SALES OF COMPARABLE PROPERTIES IN THE MARKET. IN
THE RECONCILIATION OF THESE THREE APPROACHES, THE ONE MOST HEAVILY
RELIED UPON IS THE ONE GENERALLY RECOGNIZED FOR THE TYPE OF PROPERTY
IN THE MARKET.
AS DESCRIBED ABOVE, THE ESTIMATED MARKET VALUE OF REAL ESTATE IS
DETERMINED THROUGH AN APPRAISAL PROCESS. THESE ESTIMATED MARKET
VALUES MAY VARY SIGNIFICANTLY FROM THE PRICES AT WHICH THE REAL ESTATE
INVESTMENTS WOULD SELL SINCE MARKET PRICES OF REAL ESTATE INVESTMENTS
CAN ONLY BE DETERMINED BY NEGOTIATION BETWEEN A WILLING BUYER AND
SELLER. ALTHOUGH THE ESTIMATED MARKET VALUES REPRESENT SUBJECTIVE
ESTIMATES, MANAGEMENT BELIEVES THAT ESTIMATED MARKET VALUES ARE
REASONABLE APPROXIMATIONS OF MARKET PRICES AND THE AGGREGATE VALUE OF
INVESTMENTS IN REAL ESTATE FAIRLY REPRESENT THEIR ESTIMATED MARKET
VALUES AS OF DECEMBER 31, 1996 AND 1995.
B: 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.
C: 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 MARKET VALUE.
D: MARKETABLE SECURITIES - MARKETABLE SECURITIES ARE HIGHLY LIQUID
INVESTMENTS WITH MATURITIES OF MORE THAN THREE MONTHS WHEN
PURCHASED AND ARE CARRIED AT MARKET VALUE.
B9 - Real Property
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
E: 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.
F: RECLASSIFICATIONS - CERTAIN RECLASSIFICATIONS WERE MADE TO THE
1995 AND 1994 BALANCES TO CONFORM WITH THE 1996 PRESENTATION.
G: THE PREPARATION OF FINANCIAL STATEMENTS IN CONFORMITY WITH
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES REQUIRES MANAGEMENT TO
MAKE ESTIMATES AND ASSUMPTIONS THAT AFFECT THE REPORTED AMOUNTS
OF ASSETS AND LIABILITIES AT THE DATE OF THE FINANCIAL STATEMENTS
AND THE REPORTED AMOUNTS OF REVENUES AND EXPENSES DURING THE
REPORTING PERIOD. ACTUAL RESULTS COULD DIFFER FROM THOSE
ESTIMATES.
NOTE 2: 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 . IN 1995, THE ANNUAL GROUND LEASE PAYMENT
INCREASED $126,450 TO $376,450. THE GROUND LEASE CONTAINS A PURCHASE OPTION
EXERCISABLE AT A FIXED PRICE OF $4,000,000 FROM NOVEMBER 1994 TO NOVEMBER 1997,
WHICH THE PARTNERSHIP INTENDS TO EXERCISE IN 1997. FUTURE MINIMUM GROUND LEASE
PAYMENTS UNDER CAPITAL LEASE AT DECEMBER 31, 1996 THRU THE EXERCISE DATE OF
NOVEMBER 1997 IS $4,349,158.
NOTE 3: 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 1997 TO 2010. AT DECEMBER 31, 1996, 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.
YEAR ENDING
DECEMBER 31, (000'S)
------------ ---------
1997 $ 12,294
1998 10,365
1999 9,563
2000 8,089
2001 6,818
THEREAFTER 17,125
--------
TOTAL $ 64,254
--------
--------
B10 - Real Property
<PAGE>
NOTES TO FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
NOTE 4: COMMITMENT FROM PARTNER
ON JANUARY 9, 1990, PRUDENTIAL COMMITTED TO FUND UP TO $100 MILLION TO ENABLE
THE PARTNERSHIP TO TAKE ADVANTAGE OF OPPORTUNITIES TO ACQUIRE ATTRACTIVE REAL
PROPERTY INVESTMENTS WHOSE COST IS GREATER THAN THE PARTNERSHIP'S 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 COMMITMENT IS
REDUCED BY $10 MILLION FOR EVERY $100 MILLION IN ESTIMATED MARKET VALUE NET
ASSETS OF THE PARTNERSHIP. THE AMOUNT AVAILABLE UNDER THIS COMMITMENT FOR
PROPERTY PURCHASES AS OF DECEMBER 31, 1996 IS APPROXIMATELY $50.2 MILLION.
NOTE 5: OTHER TRANSACTIONS WITH AFFILIATES
PURSUANT TO AN INVESTMENT MANAGEMENT AGREEMENT, PRUDENTIAL CHARGES THE
PARTNERSHIP A DAILY INVESTMENT MANAGEMENT FEE AT AN ANNUAL RATE OF 1.25% OF THE
AVERAGE DAILY GROSS ASSET VALUATION OF THE PARTNERSHIP. FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 AND 1994 MANAGEMENT FEES INCURRED BY THE PARTNERSHIP
WERE $2,494,229, $2,341,878 AND $2,287,816, RESPECTIVELY.
THE PARTNERSHIP ALSO REIMBURSES PRUDENTIAL FOR CERTAIN ADMINISTRATIVE SERVICES
RENDERED BY PRUDENTIAL. THE AMOUNTS INCURRED FOR THE YEARS ENDED DECEMBER 31,
1996, 1995 AND 1994 WERE $116,818; $123,919; AND $95,015, RESPECTIVELY, AND ARE
CLASSIFIED AS ADMINISTRATIVE EXPENSES IN THE STATEMENTS OF OPERATIONS.
THE PARTNERSHIP OWNS A 50% INTEREST IN FOUR WAREHOUSE/DISTRIBUTION BUILDINGS IN
JACKSONVILLE, FLORIDA (THE UNIT WAREHOUSES). THE REMAINING 50% INTEREST IS
OWNED BY PRUDENTIAL AND ONE OF ITS SUBSIDIARIES. AT DECEMBER 31, 1996, THESE
PROPERTIES HAD TOTAL ASSETS OF $17,668,652 AND LIABILITIES OF $60,987. FOR THE
YEAR ENDED DECEMBER 31, 1996, THE UNIT WAREHOUSES HAD REVENUES OF $1,516,876
AND EXPENSES OF $303,754.
THE PARTNERSHIP HAS CONTRACTED WITH PREMISYS REAL ESTATE SERVICES, INC.
(PREMISYS), AN AFFILIATE OF PRUDENTIAL, TO PROVIDE PROPERTY MANAGEMENT SERVICES
AT THE UNIT WAREHOUSES, AND THROUGH 1994 AT THE BOLINGBROOK, IL WAREHOUSE.
THE PROPERTY MANAGEMENT FEE EARNED BY PREMISYS, INCURRED BY THE PARNERSHIP AND
PRUDENTIAL FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 WAS $36,000;
$31,360 AND; $92,382, RESPECTIVELY.
B11 - Real Property
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of The Prudential
Variable Contract Real Property Partnership
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations, of changes in net assets and of cash flows and
the schedule of investments present fairly, in all material respects, the
financial position of The Prudential Variable Contract Real Property Partnership
(the "Partnership") at December 31, 1996, the results of its operations, the
changes in its net assets and its cash flows for the year then ended and its
investments at December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which 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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
New York, New York
March 25, 1997
B12 - Real Property
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
The Prudential Variable Contract Real Property Partnership
Newark, New Jersey
We have audited the accompanying statement of assets and liabilities
including the schedule of investments, of the Prudential Variable Contract
Real Property Partnership as of December 31, 1995, and the related statements
of operations, changes in net assets and cash flows for each of the two years
in the period ended December 31, 1995 (collectively referred to as the
financial statements). Our audit also included the financial statement
schedules listed in the index at Item 14 for each of the two years in the
period ended December 31, 1995.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
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, 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1995 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.
Investments in properties and interest in properties are stated at current
value at December 31, 1995, as discussed in Note 1 to the financial
statements. Determination of current value involves subjective judgment
because the actual market value of real estate can be determined only by
negotiation between the parties in a sales transaction.
Deloitte & Touche LLP
Parsippany, NJ
March 1, 1996
B13 - Real Property
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<PAGE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Prudential Directors' and Officers' Liability and Corporation Reimbursement
Insurance program, purchased by Prudential from Aetna Casualty & Surety Company,
CNA Insurance Companies, Lloyds of London, Great American Insurance Company,
Reliance Insurance Company, Corporate Officers & Directors Assurance Ltd.,
A.C.E. Insurance Company, Ltd., XL Insurance Company, Ltd., and Zurich-American
Insurance Company, provides reimbursement for "Loss" (as defined in the
policies) which the Company pays as indemnification to its directors or officers
resulting from any claim for any actual or alleged act, error, misstatement,
misleading statement, omission, or breach of duty by persons in the discharge of
their duties in their capacities as directors or officers of Prudential, any of
its subsidiaries, or certain investment companies affiliated with Prudential.
Coverage is also provided to the individual directors or officers for such Loss,
for which they shall not be indemnified. Loss essentially is the legal liability
on claims against a director or officer, including adjudicated damages,
settlements and reasonable and necessary legal fees and expenses incurred in
defense of adjudicatory proceedings and appeals therefrom. Loss does not include
punitive or exemplary damages or the multiplied portion of any multiplied damage
award, criminal or civil fines or penalties imposed by law, taxes or wages, or
matters which are uninsurable under the law pursuant to which the policies are
construed.
There are a number of exclusions from coverage. Among the matters excluded are
Losses arising as the result of (1) claims brought about or contributed to by
the criminal, dishonest or fraudulent acts or omissions or the willful violation
of any law by a director or officer, (2) claims based on or attributable to
directors or officers gaining personal profit or advantage to which they were
not legally entitled, and (3) claims arising from actual or alleged performance
of, or failure to perform, services as, or in any capacity similar to, an
investment adviser, investment banker, underwriter, broker or dealer, as those
terms are defined in the Securities Act of 1933, the Securities Exchange Act of
1934, the Investment Advisers Act of 1940, the Investment Company Act of 1940,
any rules or regulations thereunder, or any similar federal, state or local
statute, rule or regulation.
The limit of coverage under the program for both individual and corporate
reimbursement coverage is $150,000,000. The retention for corporate
reimbursement coverage is $10,000,000 per loss.
The relevant provisions of New Jersey law permitting or requiring
indemnification, New Jersey being the state of organization of Prudential, can
be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text of
Prudential's by-law 26, which relates to indemnification of officers and
directors, is incorporated by reference to Exhibit 3B to this Registration
Statement.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 15. NOT APPLICABLE
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
(1A) Distribution Agreement between Filed Herewith.
Pruco Securities Corporation and The
Prudential Insurance Company of
America with respect to the
Prudential Individual Variable
Contract Account.
(1B) Distribution Agreement between Incorporated by reference to
Pruco Securities Corporation and The Post-Effective Amendment No. 4 to
Prudential Insurance Company of Form S-6, Registration Statement No.
America with respect to The 33-20000, filed March 2, 1990, on
Prudential Variable Appreciable behalf of The Prudential Variable
Account. Appreciable Account.
II-1
<PAGE>
(3A) Charter of The Prudential Filed Herewith.
Insurance Company of America, as
amended November 14, 1995.
(3B) By-Laws of The Prudential Incorporated by reference to
Insurance Company of America, as Post-Effective Amendment No. 1 to
amended August 8, 1995. Form S-6, Registration No. 33-
61079, filed April 25, 1996, on
behalf of The Prudential Variable
Appreciable Account.
(3C) Resolution of the Board of Filed Herewith.
Directors establishing The
Prudential Variable Contract Real
Property Account.
(4A)(i) Revised Individual Variable Filed Herewith.
Annuity Contract.
(4A)(ii) Discovery Plus Contract. Filed Herewith.
(4B)(i) Variable Appreciable Life Incorporated by reference to
Insurance Contract with fixed death Pre-Effective Amendment No. 1 to
benefit. Form S-6, Registration Statement No.
33-20000, filed June 15, 1988, on
behalf of The Prudential Variable
Appreciable Account.
(4B)(ii) Variable Appreciable Life Incorporated by reference to
Insurance Contract with variable Pre-Effective Amendment No. 1 to
death benefit. Form S-6, Registration Statement No.
33-20000, filed June 15, 1988, on
behalf of The Prudential Variable
Appreciable Account.
(4C)(i) Custom VAL Life Insurance Incorporated by reference to Form
Contract with fixed death benefit. S-6, Registration Statement No.
33-25372, filed November 4, 1988, on
behalf of The Prudential Variable
Appreciable Account.
(4C)(ii) Custom VAL Life Insurance Incorporated by reference to Form
Contract with variable death S-6, Registration Statement No.
benefit. 33-25372, filed November 4, 1988, on
behalf of The Prudential Variable
Appreciable Account.
(5) Opinion and Consent of Clifford Filed herewith.
E. Kirsch, Esq., as to the legality
of the securities being registered.
(10A) Investment Management Filed Herewith.
Agreement between The Prudential
Insurance Company of America and The
Prudential Variable Contract Real
Property Partnership.
(10B) Service Agreement between The Filed Herewith.
Prudential Insurance Company of
America and The Prudential
Investment Corporation.
(10C) Partnership Agreement of The Filed Herewith.
Prudential Variable Contract Real
Property Partnership.
(22) Subsidiaries of The Prudential Incorporated by reference to
and short descriptions of each. Post-Effective Amendment No. 28 to
Form N-1A, Registration Statement
No. 2-80896, filed February 1, 1995,
on
II-2
<PAGE>
behalf of The Prudential Series
Fund, Inc.
(23A) Written consent of Price Filed herewith.
Waterhouse LLP, independent
accountants.
(23B) Written consent of Deloitte & Filed herewith.
Touche LLP, independent auditors.
(24B) Written consent of Clifford E. Incorporated by reference to Exhibit
Kirsch, Esq. (5) hereto.
(25A) Powers of Attorney: F. Agnew, Incorporated by reference to
F. Becker, M. Berkowitz, J.Cullen, Pre-Effective Amendment No. 1 to
C. Davis, R. Enrico, A. Gilmour, W. Form S-6, Registration Statement No.
Gray, III, M. Grier, J. Hanson, C. 333-01031, filed August 22, 1996, on
Horner, B. Malkiel, A. Ryan, C. behalf of The Prudential Variable
Sitter, D. Staheli, R. Thomson, J. Contract Account GI-2.
Unruh, P. Vagelos, S. Van Ness, P.
Volcker, J. Williams
(27) Financial Data Schedules Filed herewith.
(b) Financial Statement Schedules
-----------------------------
Schedule III-Real Estate Owned by Filed herewith.
The Prudential Variable Contract
Real Property Partnership.
Schedule IV-Mortgage Loans on Real Not Applicable.
Estate for The Prudential Variable
Contract Real Property Partnership.
ITEM 17. UNDERTAKINGS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that Section.
The undersigned Registrant hereby undertakes (a) to file any prospectuses
required by Section 10(a) (3) of the Securities Act of 1933 as Post-Effective
Amendments to this Registration Statement, (b) that for the purposes of
determining any liability under the 1933 Act, each such Post-Effective Amendment
may be deemed to be a new Registration Statement relating to the securities
offered therein and the offering of such securities at that time may be deemed
to be in the initial bona fide offering thereof, (c) to reflect in the
prospectus any facts or events after the effective date of the registration
statement (or the most recent Post-Effective Amendment thereof) which,
individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement, (d) to include any material
information with respect to the plan of distribution not previously disclosed in
the registration statement or any material change to such information in the
registration statement, (e) to remove from registration by means of a
Post-Effective Amendment any of the securities being registered which remain
unsold at such time as the offering of such securities may be terminated.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, The Prudential
Insurance Company of America has duly caused this Post-Effective Amendment No. 9
to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Newark, State of New Jersey on the 8th
day of April, 1997.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
In Respect of
THE PRUDENTIAL
VARIABLE CONTRACT REAL PROPERTY ACCOUNT
By: /s/ Esther H. Milnes
----------------------------------
Esther H. Milnes
Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 9 to the Registration Statement has been signed below by the
following Directors and Officers of The Prudential Insurance Company of America
in the capacities indicated on this 8th day of April, 1997.
SIGNATURE AND TITLE
/s/ *
- -------------------------------------
Arthur F. Ryan
Chairman of the Board, President,
and Chief Executive Officer
/s/ *
- -------------------------------------
Martin A. Berkowitz
Senior Vice President and Comptroller
/s/ * *By: /s/ Thomas C. Castano
- ------------------------------------- ---------------------
Mark B. Grier Thomas C. Castano
Principal Financial Officer (Attorney-in-Fact)
/s/ *
- -------------------------------------
Franklin E. Agnew
Director
/s/ *
- -------------------------------------
Frederic K. Becker
Director
/s/ *
- -------------------------------------
James G. Cullen
Director
/s/ *
- -------------------------------------
Carolyne K. Davis
Director
/s/ *
- -------------------------------------
Roger A. Enrico
Director
/s/*
- -------------------------------------
Allan D. Gilmour
Director
II-4
<PAGE>
/s/ *
- -------------------------------------
William H. Gray, III
Director
/s/ *
- -------------------------------------
Jon F. Hanson
Director
- -------------------------------------
Glen H. Hiner, Jr.
Director
/s/ *
- -------------------------------------
Constance J. Horner
Director
- -------------------------------------
Gaynor N. Kelley
Director
/s/ *
- ------------------------------------- *By: /s/ Thomas C. Castano
Burton G. Malkiel ----------------------
Director Thomas C. Castano
(Attorney-in-Fact)
/s/*
- -------------------------------------
Charles R. Sitter
Director
/s/*
- -------------------------------------
Donald L. Staheli
Director
/s/ *
- -------------------------------------
Richard M. Thomson
Director
/s/ *
- -------------------------------------
James A. Unruh
Director
/s/ *
- -------------------------------------
P. Roy Vagelos, M.D.
Director
/s/ *
- -------------------------------------
Stanley C. Van Ness
Director
/s/ *
- -------------------------------------
Paul A. Volcker
Director
/s/ *
- -------------------------------------
Joseph H. Williams
Director
II-5
<PAGE>
EXHIBIT INDEX
(a)(1A) Distribution Agreement between Pruco Page II-7
Securities Corporation and The Prudential
Insurance Company of America with respect to
the Prudential Individual Variable Contract
Account.
(a)(3A) Charter of The Prudential Insurance Company Page II-14
of America, as amended November 14, 1995.
(a)(3C) Resolution of the Board of Directors Page II-15
establishing The Prudential Variable
Contract Real Property Account.
(a)(4A)(i) Revised Individual Variable Annuity Page II-35
Contract.
(a)(4A)(ii) Discovery Plus Contract. Page II-53
(a)(5) Opinion and Consent of Clifford E. Kirsch, Page II-70
Esq. as to the legality of the securities
being registered.
(a)(10A) Investment Management Agreement between The Page II-71
Prudential Insurance Company of America and
The Prudential Variable Contract Real
Property Partnership.
(a)(10B) Service Agreement between The Prudential Page II-76
Insurance Company of America and The
Prudential Investment Corporation.
(a)(10C) Partnership Agreement of The Prudential Page II-78
Variable Contract Real Property Partnership.
(a)(23A) Written consent of Price Waterhouse LLP, Page II-99
independent accountants.
(a)(23B) Written consent of Deloitte & Touche LLP, Page II-100
independent auditors.
(b) Financial Statement Schedules
Schedule III-Real Estate Owned by The Page II-101
Prudential Variable Contract Real Property
Partnership.
(27.1) Financial Data Schedule for The Prudential Page II-103
Real Property Account.
(27.2) Financial Data Schedule for The Prudential Page II-104
Real Property Partnership.
II-6
EXHIBIT 1A
DISTRIBUTION AGREEMENT
AGREEMENT made this 4th day or March, 1983, by and between The Prudential
Insurance Company of America, a New Jersey corporation ("Company"); on its own
behalf and on behalf of The Prudential Individual Variable Contract Account
and The Prudential Qualified Individual Variable Contract Account ("Accounts"),
and Pruco Securities Corporation, a New Jersey corporation ("Distributor").
WITNESSETH:
WHEREAS, the Company has established and maintains the Accounts, separate
investment accounts, pursuant to the laws of New Jersey for the purpose of
selling variable annuity contracts ("Contracts"), to commence after the
effectiveness or the respective Registration Statement for each Account filed
with the Securities and Exchange Commission on Form S-6 pursuant to the
Securities Act of 1933, as amended (the "1933 Act"); and
WHEREAS, each Account is registered as a unit investment trust under the
Investment Company Act or 1940 (the "1940 Act"); and
WHEREAS, Distributor is registered as a broker-dealer under the Securities
Exchange Act or 1934 (the "Securities Exchange Act") and is a member of the
National Association or Securities Dealers, Inc. ("NASD"); and
WHEREAS, the Company and the Distributor wish to enter into an agreement to
have the Distributor act as the Company's principal underwriter for the sale of
the Contracts through the Accounts;
NOW, THEREFORE, the parties agree as follows:
II-7
<PAGE>
-2-
1. Appointment of the Distributor
------------------------------
The Company agrees that during the term of this agreement it will take all
action which is required to cause the Contracts to comply with all applicable
federal securities and state insurance laws and regulations. The Company
appoints the Distributor and the Distributor agrees to act as the principal
underwriter for the sale of Contracts to the public, during the term of this
Agreement, in each state and other jurisdiction in which such Contracts may
lawfully be sold. Distributor shall offer the Contracts for sale and
distribution pursuant to terms set by the Company. Applications for the
Contracts shall be solicited only by representatives duly and appropriately
licensed and otherwise qualified for the sale of such Contracts in each state or
other jurisdiction as representatives of Distributor or a Broker as defined in
paragraph 2 hereof and as agents of Company. Completed applications for
Contracts shall be transmitted directly to the Company for acceptance or
rejection in accordance with underwriting rules established by the Company.
Initial payments under the Contracts shall be made by check payable to the
Company and shall be transmitted promptly by Distributor or its representatives
to the Company, as will any other payments received by Distributor or its
representatives.
2. Sales Agreements
----------------
Distributor is hereby authorized to enter into separate written agreements,
on such terms and conditions as Distributor may determine not inconsistent with
this Agreement, with one or more organizations which agree to participate in the
distribution of Contracts. Any such organization (hereafter "Broker") shall be
both registered as a broker/dealer under the Securities Exchange Act and a
member of NASD.
II-8
<PAGE>
-3-
Broker and its agents or representatives soliciting applications for Contracts
shall be duly and appropriately licensed, registered or otherwise qualified for
the sale of such Contracts under the insurance laws and any applicable blue-sky
laws of each state or other jurisdiction in which the Company is licensed to
sell the Contracts.
Distributor shall have the responsibility for ensuring that Broker
supervises its representatives. Any agreement as described in this Section shall
provide that Broker shall assume any legal responsibilities of the Company for
the acts, commissions or defalcations of such representatives insofar as they
relate to the sale of the Contracts. Applications for Contracts solicited by
such Broker through its agents or representatives shall be transmitted directly
to the Company, and if received by Distributor, shall be forwarded to Company.
All payments under the Contracts shall be made by check to Company and remitted
promptly to Company.
3. Life Insurance Agents
---------------------
Company shall be responsible for insuring that Brokers are duly qualified,
under the insurance laws of the applicable jurisdictions, to sell the Contracts.
4. Suitability
-----------
Company wishes to ensure that Contracts sold by Distributor will be issued
to purchasers for whom the Contract will be suitable. Distributor shall take
reasonable steps to ensure that the various representatives appointed by it
shall not make recommendations to an applicant to purchase a Contract in the
absence of reasonable grounds to
II-9
<PAGE>
-4-
believe that the purchase of the Contract is suitable for such applicant.
While not limited to the following, a determination of suitability shall be
based on information furnished to a representative after reasonable inquiry of
such applicant concerning the applicant's insurance and investment objectives
and financial situation and needs.
5. Promotion Materials
-------------------
Company shall have the responsibility for furnishing to Distributor and its
representatives sales promotion materials and individual sales proposals related
to the sale of the Contracts. Distributor shall not use any such materials that
have not been approved by Company.
6. Compensation
------------
Company shall arrange for the payment of commission directly to those
registered representatives of Distributor who are entitled thereto in connection
with the sale of the Contracts on behalf of Distributor, in the amounts and on
such terms and conditions as Company and Distributor shall determine; provided
that such terms, conditions and commissions shall be as are set forth in or as
are not inconsistent with the Prospectus included as part of the respective
Registration Statement for of each Account and effective under the 1933 Act.
Company shall arrange for the payments of commissions directly to those
Brokers who sell Contracts under agreements entered into pursuant to paragraph
2. hereof, in amounts as may be agreed to among the parties and specified in
such written agreements.
II-10
<PAGE>
-5-
Company shall reimburse Distributor for the costs and expenses incurred by
Distributor in furnishing or obtaining the services, materials and supplies
required by the terms of this Agreement in the initial sale efforts and the
continuing obligations hereunder.
7. Records
-------
Distributor shall have the responsibility for maintaining the records of
representatives licensed, registered and otherwise qualified to sell the
Contracts. Distributor shall maintain such other records as are required of it
by applicable laws and regulations. The books, accounts and records of Company,
the Accounts and Distributor shall be maintained so as to clearly and accurately
disclose the nature and details of the transactions.
8. Investigation and Proceeding
----------------------------
(a) Distributor and Company agree to cooperate fully in any insurance
regulatory investigation or proceeding or judicial proceeding arising in
connection with the Contracts distributed under this Agreement. Distributor and
Company further agree to cooperate fully in any securities regulatory
investigation or proceeding or judicial proceeding with respect to Company,
Distributor, their affiliates and their agents or representatives to the extent
that such investigation or proceeding is in connection with Contracts
distributed under this Agreement.
(b) In the case of a substantive customer complaint, Distributor and
Company will cooperate in investigating such complaint and any response to such
complaint will be sent to the other party to this Agreement for approval not
less than five business days prior to its being sent to the
II-11
<PAGE>
-6-
customer or regulatory authority, except that if a more prompt response is
required, the proposed response shall be communicated by telephone or telegraph.
9. Termination
-----------
This Agreement shall terminate automatically upon its assignment without
the prior written consent of both parties. This Agreement may be terminated at
any time by either party on 60 days' written notice to the other party, without
the payment of any penalty. Upon termination of the this Agreement all
authorizations, rights and obligations shall cease except the obligation to
settle accounts hereunder, including commissions on payments subsequently
received for Contracts in effect at the time of termination, and the agreements
contained in paragraph 8. hereof.
10. Regulation
----------
This Agreement shall be subject to the provisions of the 1940 Act and the
Securities Exchange Act and the rules, regulations, and rulings thereunder and
of the applicable rules and regulations of the NASD, from time to time in
effect, and the terms hereof shall be interpreted and construed in accordance
therewith.
11. Severability
------------
If any provision of this Agreement shall be held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement shall not
be affected thereby.
II-12
<PAGE>
-7-
12. App1icab1e Law
--------------
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of New Jersey.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Attest: THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
/s/ By /s/
- ------------------------------ ------------------------------
Secretary Senior Vice President
Attest: PRUCO SECURITIES CORPORATION
/s/ By /s/
- ------------------------------ ------------------------------
Secretary President
II-13
Exhibit 3A
CHARTER
OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
The Prudential Insurance Company of America, a Corporation created as a stock
life insurance corporation by Chapter 521 of the Private Laws of the year 1873
of the State of New Jersey, the charter of which thereby granted was amended by
Chapter 40 of the Private Laws of the year 1975 and from time to time further
amended by action of directors and stockholders as authorized by the general
laws of the State of New Jersey, which corporation became a mutual life
insurance corporation by virtue of the provisions of Article Eight of Chapter
Thirty-four of Title 17 of the Revised Statutes and did adopt, pursuant to the
provisions of Chapter 14 of the Laws of New Jersey of the year 1943, an amended
charter, does hereby adopt, pursuant to the provisions of Subtitle 3 of Title
17B, of the New Jersey Statutes, this Amended Charter setting forth fully and
completely all of the terms and conditions of the Charter under which the
corporation shall hereafter transact business.
1. The name of the corporation shall continue to be "The Prudential Insurance
Company of America."
2. The principal office of the corporation in the State of New Jersey shall be
located at 745 Broad Street in the City of Newark, County of Essex, and the
name of the agent in and in charge of such principal office upon whom
process against the corporation may be served is Susan L. Blount.
3. The business of the corporation shall be that of a mutual life insurance
corporation, with all of the rights, privileges and powers conferred upon
such corporation by the general laws of New Jersey and such as may from time
to time be conferred by law upon such corporations. The kinds of insurance,
reinsurance and annuities to be written by the corporation shall be "Life
Insurance" as defined in Section 17B:17-3 of Subtitle 3 of Title 17B of the
New Jersey Statutes, "Health insurance" as defined in Section 17B:17-4 of
said Subtitle 3, "Annuity" as defined in Section 17B:17-5 of said Subtitle
3, "Legal services insurance" as defined in and authorized by Section
17:46C-l of Title 17 of the New Jersey Statutes, "Reinsurance" as defined in
and authorized by Section 17B:18-62 and 17B:18-63 of said Subtitle 3,
"Extended reinsurance" as defined in and authorized by Section 17B:18-65 of
said Subtitle 3, and such other insurance and reinsurance as may be
permitted under the laws of the State of New Jersey to be written by an
insurer authorized to do the kinds of business described in Sections
17B:17-3, 17B:17-4 and 17B:17-5 of said Subtitle 3. Independently of any
insurance or annuity contract, the corporation may provide Services of the
kinds authorized for a domestic life insurance corporation by Section
17B:18-43 of said Subtitle 3, subject to the provisions of said Section, and
such as may from time to time be authorized for a domestic life insurance
corporation by the laws of New Jersey.
4. The corporation shall continue to be a mutual life insurance corporation.
5. The duration of the life of the corporation shall be unlimited.
6. The Board of Directors shall exercise all of the corporate powers of the
corporation except as otherwise provided by law and shall manage all of the
property, business and affairs of the corporation.
7. The Board of Directors shall be of the number and shall be chosen in the
manner set forth in Sections 17B:18-19 to 17B:18-28 inclusive, of Subtitle
3 of Title 17B, of the New Jersey Statutes.
8. Any vacancy in the Board of Directors shall he filled in the manner provided
in Section 17B:18-19 to 17B:18-28 inclusive, of Subtitle 3 of Title 17B, of
the New Jersey Statutes.
9. The Board of Directors shall have full power from time to time to make,
alter, amend and rescind by-laws, rules and regulations for the conduct of
the business and affairs of the corporation in conformity with the
provisions of this Amended Charter, and to employ such officers and agents
as the Board of Directors in its discretion may determine for the conduct of
such business and affairs.
10. No Director or officer of the corporation shall be personally liable to the
corporation or its policyholders for damages for breach of any duty owed to
the corporation or its policyholders, except that this provision shall not
relieve any such Director or officer of liability for any act or omission
for which such relief cannot be granted under the laws of the State of New
Jersey, as they exist on the date hereof or as they may hereafter be
amended. Neither the amendment or repeal of this Article nor the adoption of
any provision of this Amended Charter which is inconsistent with this
Article shall apply to or have any effect on the liability or alleged
liability of any Director or officer of the corporation for or with respect
to any act or omission of such Director or officer occurring prior to such
amendment, repeal or adoption.
II-14
EXHIBIT 3C
Extract from Minutes of Meeting of
Finance Committee
November 25, 1986
----------------------------------
Senior Vice President (Bob) Hill, reviewed with the Committee, management's
recommendation for the establishment of The Prudential Variable Contract Real
Property Account. He explained:
1. That the objective of the Account is to:
a. preserve and protect the Account's capital;
b. provide for compounding of income as a result of reinvestment of cash
flow from investments, and
c. provide for increases over time in the amount of such income through
appreciation in the value of its assets.
2. Its strategy is to purchase interests in The Prudential Real Property
Account of Pruco Life Insurance Company, a separate account of the
Company's wholly-owned subsidiary, Pruco Life Insurance Company. After
discussion, the Committee, on motion, duly made and seconded, adopted the
following resolution:
RESOLVED, that, subject to the approval of the Commissioner of Insurance of
the State of New Jersey and to such conditions as said Commissioner may
impose, pursuant to Section 17B:28-7 of the Revised Statutes of New Jersey,
a new commingled variable contract real property account be established, to
be designated The Prudential Variable Contract Real Property Account and to
be used for variable contracts under which values or payments, or a portion
thereof, vary to reflect the investment results of said account, and
RESOLVED, that the Objective and Policy applicable to the purchase and sale
of investments for said new account shall be as described in a memorandum,
which has been submitted to this meeting, and
II-15
<PAGE>
-2-
RESOLVED, that proper officers of the Company be and hereby are authorized
to take all necessary and appropriate action to register interests in the
Account (i.e., the variable contracts) under the Securities Act of 1933, to
take all necessary and appropriate steps to couply with or seek regulatory
relief from the requirements of the Securities Exchange Act of 1934, if
any, that may be applicable to the Account, and to take all necessary and
appropriate steps to comply with or seek "no-action" or exeuptive relief
from the requirements of the Investment Company Act of 1940, if any, that
may be applicable to the Account, including but not limited to the
execution and filing of registration statements and amendments thereto,
"no-action" requests, applications for exemption, and agreements relating
to the management of the Account and for the distribution of Variable
Contracts that invest in the Account.
Prucapital, Inc. reported the following transactions under authority
delegated to it on October 31, 1984:
1. Purchased, for Prudential, $15,000,000, 8.72%, Eight-Year Notes of Kellwood
Company, at 100.
2. Purchased, for Prudential, $15,000,000, 8.31% Notes due 1992, of Northeast
Nuclear Energy Company, at 100, severally and unconditionally guaranteed
81% and 19%, respective1y, by The Connecticut Light and Power Company and
Western Massachusetts Electric Company.
3. Entered into a Seven-Year $2,300,000, 9.10% Lease and Security Agreement
for truck trailer equipment with National Transport Services, Inc.,
guaranteed by Wakefern Food Corp.
II-16
<PAGE>
-3-
Acting on behalf of Prudential, as sole stockholder of Pruco, Inc.,
authorized Pruco, with respect to its subsidiary, PruCapital, Inc., to approve
PruCapital:
Purchasing of ASR Holdings, Inc. (which would be renamed American Safety
Razor Company), for an aggregate consideration of $90,300,000, the following
securities:
1. $60,300,000 Eighteen-Month Senior Revolving Notes with interest at 3.75%
over Prudential Funding Corporation's 30 day dealer-placed commercial paper
rate, and $30,000,000 Eighteen-Month Subordinated Floating Rate Notes with
interest at 4.25%, increasing to 4.50% after nine months, over Prudential
Funding Corporation's 30 day dealer-placed commercial paper rate.
2. Any portion of the New Revolving Notes and/or the Subordinated Floating
Rate Notes would be convertible, at the Company's option, into Fixed-Rate
Term Notes with a maturity not to exceed the maturity of the applicable
commitment period, and with interest at 3.75% over Prucapital's cost of
funds for the designated maturity, in the case of the Senior Revolving
Notes, and 4.50% over PruCapital's cost of funds for the designated
maturity in the case of the Subordinated Floating Rate Notes, in each case,
as determined by the Chairman of Prucapital.
3. At the Company's option, at any time within eighteen months of issuance,
the Senior Revolving Notes and the Subordinated Floating Rate Notes may be
prepaid and, in the event of such prepayment, not more than $40,300,000 of
the senior Revolving Notes may be converted into Six-Year Revolving Notes
with interest at 4.00% over Prudential Funding Corporation's 30-day
dealer-placed commercial paper rate.
4. If the Company shall elect not to prepay the Senior Revolving Notes and the
Subordinated Floating Rate Notes, then the Company may elect, at any time
within eighteen months of issuance, to retire such notes in connection with
the issuance to PruCapital, of:
i. not more than $35,300,000 Five-Year Revolving Notes with interest at
4.00% over Prudential Funding Corporation's 30-day dealer-placed
commercial paper rate (New Revolving Notes);
ii. not more than $25,000,000 Fifteen-vear Senior Fixed-Rate Notes, with
interest at 4.00% over PruCapital's cost of funds for the designated
maturity, as determined by the Chairman of Prucapital; and
II-17
<PAGE>
-4-
iii. not more than $30,000,000 Subordinated Fixed-Rate Notes with a
maturity not to exceed the fifteen years, with interest at 5.00% over
PruCapital's cost of funds for the designated maturity, as determined
by the Chairman of PruCapital.
5. For nominal consideration, shares of the Company's non-voting Class B
Common Stock, equal to 2.5% of the total common shares to be outstanding
initially and, upon the happening of certain contingencies and the issuance
of the notes referred to in paragraph (4) above, up to 26% of the Class B
Common Stock.
The Finance Committee was informed that Prudential-Bache Securities, Inc.
will be retained to represent the Company in connection with the future issuance
of high-yield debt securities (of which Prudential-Bache would be the
underwriter) the proceeds of which could be used to retire the Senior Revolving
Notes and Subordinated Floating Rate Notes. The Committee was further informed
that the commitment of PruCapital to purchase the securities described above is
not contingent either on the retention of Prudential-Bache or on its ability to
effect an underwritten offering of the Company's high-yield debt securities.
Acting on behalf of Prudential, as sole stockholder of PRUCO, Inc.,
authorized PRUCO, with respect to its subsidiary, PruCapital, Inc., to approve
PruCapital:
1. Purchasing of HAC Acquisition Corp. (which would be renamed Hoffman-Atchley
Cabinets, Inc.) an aggregate of up to $13,352,000 of securities consisting
of:
a. $1,000,000 Demand Notes with interest at 4.00% over Prudential Funding
Corporation's 30 day dealer-placed commercial paper rate;
b. $5,000,000 Seven-Year Rpvolvinq Notes, with interest at 4.00% over
Prudential Funding Corporation's 30 day dealer-placed commercial paper
rate;
c. $5,820,000 Ten-Year Fixed Rate Term Notes with interest fixed at or
prior to closing at 4.00% over PruCapital's cost of funds for similar
maturities, as determined bv the Chairman of PruCapital;
d. $1,020,000 of non-voting 12% Cumulative Preferred Stock; and
e. $512,000 of non-voting Class B Common Stock.
II-18
<PAGE>
-5-
2. a. Selling to PINNACLE Funding Corp. (PINNACLE) up to $159,000,000 of
participations, at par, in the utility lease programs, including those
described below in the amounts specified therein:
PruCapital Leases Included in Sale of Participations
to
PINNACLE Funding Corp.
Maximum
PruCapital Participation
Lessee Commitment Amount
------ ---------- -------------
($000's) ($000's)
Fleet Baltimore Gas & Electric Co.* $ 10,000 $ 2,000
Leases Columbus & Southern Ohio Co.* 12,000 2,000
Detroit Edison Co.** 42,500 18,000
El Paso Natural Gas Co.* 19,800 5,200
Kansas City Power & Light Co. 10,000 6,000
Kansas Gas & Electric Co. 4,500 2,000
Mississippi Power & Light Co. 3,000 2,400
Monongahela Power Co. 7,500 7,500
Penn Power & Light Co.** 45,000 18,000
Potomac Edison Co. 6,750 6,000
San Diego Gas & Electric Co.* 19,000 8,800
Southern California Edison Co. 26,000 20,000
Texas Utilities Electric Co. 4,500 3,300
Weat Penn Power Co. 8,500 6,700
-------- --------
Sub-Total $219,050 $107,900
-------- --------
Nuclear Alabama Power Co.*** $ 50,000 $ 15,000
Fuel Indiana & Michigan Electric Co.*** 175,000 18,000
Leases Jersey Central Power & Light Co.*** 60,000 18,000
-------- --------
Sub-Total $285,000 $ 51,000
-------- --------
Total $504,050 $158,900
======== ========
* Programs ostensibly in run-off mode where Maximum Participation Amounts
approximate current outstanding:.
** Programs in which PruCapital is required to keep a minimum 10% interest.
*** Programs in which PruCapital is required to keep a minimum 20% interest.
II-19
<PAGE>
-6-
b. Entering into a subordinated revolving credit facility for up to
$750,000 with PINNACLE, with interest at the prime rate of Barclays
Bank PLC (Barc1ays) with advances to be repaid within four years of
the initiation of the facility or, if later, by the termination date
of a letter of credit and line of credit facility being provided by
Barclays to PINNACLE; and
c. From time to time, selling to PINNACLE up to an additional
$141,000,000 of participations, at par, in such utility lease programs
as the Chairman of PruCapital may approve and increasing the
subordinated revolving credit facility up to an additional $650,000 in
connection with such sales.
PruCapital will subnit a quarterly summary report to the Committee within
four weeks of the close of the calendar guarter for which the report is being
rendered, setting forth additional participations sold pursuant to the
authority requested in paragraph (c) and identifying the lease programs
involved.
This new authority supplements the existing authority to sell
participations in floating and fixed rate assets previously granted by the
Finance Committee.
The Capital Markets Group reported the following transactions under
authority delegated to it on October 31, 1984:
Purchased:
1. $12,000,000 par amount of 12.52% United States Government Guaranteed Ship
Financing Bonds of Fifth Tug/Barge Corporation, due 2009 at 112.75. The
Bonds are fully guaranteed with respect to both principal and interest by
the United States Government, represented by the Secretary of
Transportation, pursuant to Title XI of the Merchant Marine Act, 1930, as
amended.
2. Marine insurance of $1.5 million on the integrated tug/barge from Marsh &
McLennan Marine and Energy Services, Inc. at a cost of $28,700 for the
first year.
Authorized the purchase of the following securities:
1. $66,000,000 Gold Kist, Inc., 9.375%, Ten-Year Notes, at a price of 100.
II-20
<PAGE>
-7-
2. of Vintage Petroleum, Inc.:
a. $20,000,000 11.0% Ten-Year Subordinated Notes (accompanied by
detachable warrants to purchase 300,000 shares, 4.4% fully diluted
ownership, of common stock at an exercise price equivalent to the
common share price), at 100; and
b. Non-voting common stock representing a 7.3% fully-diluted equity
interest for a purchase price of $5,000,000.
In connection with Prudential's holdings of Tilden Mining Company and
Empire Iron Mining Partnership, authorized the deferring of principal payments
aggregating $6,808,000 (including $390,000 due PRIVEST) due on December 1, 1986
for a period up to six months for the five debt issues listed below:
1. $527,000 for the 8.95% First Mortgage Notes, Series B, due 1992 of Tilden
Iron Ore Partnership;
2. $1,005,000 (including $57,000 due PRIVEST) for the 10.35% Guaranteed Notes,
Series E, due 1996 of TIOP Financing Corporation;
3. $260,000 for the 9 1/2% Secured Notes, Series B, due 1992 of Jay & Sea
Corporation;
4. $524,000 (including $19,000 due PRIVEST) for the 10.35% Secured Notes,
Series E, due 1996 of Jay & Sea Corporation; and
5. $4,492,000 (including $314,000 due PRIVEST) for the 9.55% Guaranteed
Secured Notes, due 1996 of Empire Iron Mining Partnership.
The actual amounts deferred and their deferral periods would be reported to
the Finance Committee in conjunction with our future request for authority to
approve a debt restructuring plan for Tilden and Empire or by June 1, 1987, if
no such plan is negotiated.
(Mr. Foley stepped down as Chairman and Mr. Yunich assumed the Chairmanship
of the meeting for the next item.)
Authorized:
1. The sale of Prudential's holdings of S17,000,000, 15 1/4% Senior Notes,
$17,000,000, 15 1/4% Subordinated Notes and 600,000 shares of Common Stock
of Plastics Specialties and Technologies, Inc. for an aggregate price of
approximately $94,000,000; and
II-21
<PAGE>
-8-
2. The payment of Prudential's pro rata share of any investment banking or
other transaction expenses arising from the sale of the company's
securities.
Mr. Foley resumed the Chairmanship at this point.
Authorized the sale of 1,375,000 shares of Common Stock of Dunlop Tire
Corporation at a price of $17.25 per share.
The Finance Committee authorized:
1. Amending paragraph 1(c) of Part A of the Delegation of Authority effective
October 31, 1984 with respect to investments originated by the Capital
Markets Group and PruCapital to increase the aggregate authorization limit
for Hydro-Quebec from $300,000,000 to $600,000,000; and
2. Amending paragraph 1(f) of Part E of the Delegation of Authority effective
October 31, 1984 with respect to investments originated by the Capital
Markets Group to increase the reporting limit for Hydro-Ouebec from
$400,000,000 to $600,000,000.
Authorized Prudential to:
IA. Enter into a partnership to be called Hambro International Venture Fund II
as a limited partner with Hambros Bank Group, Anders K. Brag, Richard A.
D'Amore, Edwin A. Goodman, Robert S. Sherman and Arthur C. Spinner acting
as general partners; and
lB. Make capital contributions to the partnership of up to $2,000,000 in four
installments.
2. Invest up to L170,000 in ordinary shares of Hambros Advanced Technoloy
Trust PLC.
3A. Enter into a partnership to be called Euroventures Germany C.V., a
Netherlands based limited partnership, as a limited partner with
Euroventures Management B.V. as the general partner.
3B. Make capital contributions to the partnership of up to DM 2,000,000.
Approved changing the existing authority for a three-year subordinated loan
in the amount of $l25 million from a loan by Prudential Funding Corporation to
Prudential-Bache Securities Inc. to authority for a three-year loan in the
amount of $125 million from Prudential Funding Corporation to Prudential
Securities Group, Inc., which will, in turn, invest the funds in
Prudential-Bache Securities Inc. as SlOO million paid-in capital and $25 million
subordinated debt.
II-22
<PAGE>
-9-
Granted approval for:
1. The repurchase by Prudential Funding or another Prudential affiliate in the
open market of up to $80 million face amount of PRS Ill's 11 7/8% sinking
fund bonds due 1992, and up to $80 million face amount of PRS Ill's 12 1/8%
sinking fund bonds due 1995, provided that the yield spreads over U.S.
Treasuries on these bonds are greater than the estimated yield spreads
(including all issuance costs) on the Prudential Funding debt to be issued
to refund the repurchase of the PRS III bonds;
2. The short-term funding of this repurchase through the issuance by
Prudential Funding of commercial paper or other short term debt
obligations, if necessary;
3. The hedging of the repurchased bonds with U.S. Treasury futures contracts;
4. The issuance by Prudential Funding of obligations maturing in 1992 in an
amount not to exceed the amount (including the cost, if any, of the hedge)
of PRS III bonds maturing in 1992 which are repurchased;
5. The issuance by Prudential Funding of obligations maturing in 1995 in an
amount not to exceed the amount (including the cost, if any, of the hedge)
of PRS III bonds maturing in 1995 which are repurchased;
6. The expenditure by Prudential Funding of the amounts hereby authorized
either for the direct purchase of PRS III bonds or as an advance to another
Prudential affiliate in connection with its purchase of PRS III bonds;
7. The expenditure of such sums as may be necessary for legal and other
expenses incidental to the closing of this transaction; and
8. The proper officers of The Prudential to execute any and all such actions
necessary to consummate this transaction, including but not limited to
execution of such documents as are necessary in connection with the
repurchase and refinancing of the PRS III bonds, modification of the PRS II
notes, and/or issuance of debt or assumption of liability for the
repurchased PRS III bonds by affiliates of The Prudential.
The Committee approved exceeding the stated limits should the opportunity
for repurchasing in excess of such limits be available.
Approved Prudential/Prudential Funding:
1. Entering into a four-year revolving credit facility in an amount not to
exceed $500 million, which would be syndicated among approximately 18
non-U.S. banks. The facility would be available on a fully revolving basis
throughout its term of four years and any borrowings thereunder would be at
a rate of .175% over LIBOR (London Interbank Offering Rate). The pricing on
the proposed facility, which includes all fees for arranging, agency,
commitment and management, would provide an all-in-cost to
Prudential/Prudential Funding of .089% per year, not including leqal and
miscellaneous expenses.
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<PAGE>
- 10 -
2. The proper officers of Prudential takinq such actions as are necessary to
accomplish this transaction including, but not limited to, negotiation and
execution of required documentation.
All of the foregoing The Prudential Capital Markets Group and The
Prudential Realty Group transactions which were authorized or approved were
conditioned on the Law Department approving same.
Received the following (copies of the written reports on file in the
Secretary's Department):
1. Oral report by Senior Managing Director Zinbarg on the activities of
Prudential Equity Management Associates since the November 10, 1986
meeting.
2. Third Quarter report -- Jennison Associates (Mr. Hobbs).
3. Report of the miscellaneous transactions by the Prudential Capital Markets
Group under delegated authority for the period November 5, 1986 through
November 18, 1986.
4. Report of real estate investments and transactions made pursuant to
delegated authority.
5. Treasurer's:
a. Report as of October 31, 1986 on the General Account net short-term
position and long-term and short-term debt outstanding, and
b. Third Quarter Interest Rate Swap Report.
/s/
----------------------------
Secretary
II-24
<PAGE>
September 22, 1987
A regular meeting of the Finance Committee was held on the above date.
Present: Adrian M. Foley, Jr., James G. Affleck, Raymond H. Bateman, Robert
J. Boutihier, Brendan T. Byrne, James C. Kellogg, Burton G. Malkiel, Roger H.
McGlynn, Donald E. Procknow, Robert M. Schaeberle, David L. Yunich and the
Chairman of the Board. Director Byrne was a temporary member appointed to serve
in the absence of Director Bennett. (Also present the following members of
management: Ball, Keith, Murch, Wittich, Hall, Koester, Simonson, Stewart,
Knapp, Zinbarg, Stamberger, Price, Gillen, Fulford, Zinngrabe, Brookmeyer,
Stearns, Southwe1l, Briley, Reynolds, McCann, Haubenstricker, Loomis, O'Hara,
Auth, Snow, Gaston, Hawk, Kelly, McGee, Heimberg, MacWilliams, Strum.)
The minutes of the September 9, 1987 meeting, previously mailed to the
Committee members were approved.
The Committee was advised that the Common Stock of
Centronics Corporation
CityFed Financial Corporation
Lorimar-Telepictures Corporation
(companies which do not meet the criteria for automatic addition to the Approved
List) had been purchased for one or more of our accounts.
On motion, the Committee approved the addition of the Common Stock of
Centronics Corporation
CityFed Financial Corporation
Lorimar-Telepictures Corporation
to the U.S. Approved List.
President, Pruco Life Insurance Company, Kelly presented management's
recommendation for the amendment of the Objective and Policy applicable to the
purchase and sale of investments for The Prudential Variable Contract Real
Property Account authorized by the Committee on November 25, 1986. He advised
that the shared real property account as originally provided for, wherein
Prudential and Pruco Life could both invest directly, was not feasible from a
tax standpoint. Under the new structure, a general partnership would be formed
with Prudential, Pruco Life Insurance Company and Pruco Life Insurance Company
of New Jersey participating as general partners. The partnership interests would
be held by separate accounts of each company established for the purpose of
making the real property investment option available under their respective
contracts. After discussion, the Committee, on motion, approved and substituted
the following Objective and Policy for that approved November 25, 1986;
II-25
<PAGE>
-2-
OBJECTIVE AND POLICY APPLICABLE TO THE PURCHASE AND
SALE OF INVESTMENTS FOR THE PRUDENTIAL VARIABLE
CONTRACT REAL PROPERTY ACCOUNT
The objective of The Prudential Variable Contract Real Property Account is
to (i) preserve and protect the Account's capital; (ii) provide for compounding
of income as a result of reinvestment of cash flow from investments, and (iii)
provide for increases over time in the amount of such income through
appreciation in the value of its assets. The account's strategy is for The
Prudential to enter into a general partnership formed to acquire manage and sell
real properties and other investments. The Prudential and its wholly-owned
subsidiaries, Pruco Life Insurance Company and Pruco Life Insurance Company of
Mew Jersey would be general partners of the partnership. The partnership
interests would be held in separate accounts of each company established for the
purpose of making the real property investment option available to their
contract owners. Pursuant to an investment advisory agreement, the Company will
act as investment manager for the partnership.
II-26
<PAGE>
-3-
PruCapital reported the following transactions under authority delegated to
it on October 31, 1984:
1. Purchased, for Prudential, $20,000,000 Floating Rate Term Notes of
Mortgage and Realty Trust, due 1990, at 100, with interest at 0.27%
over three-month LIBOR.
2. Purchased, for Prudential, $19,000,000 9.41% Notes of B.C.I.
Associates, due 1994, at 100. The Notes will be secured by a first
mortgage on the Chateau Plaza, a 168,000 square foot office building
located in Dallas, Texas. C. Itoh & Co., Ltd. and C.H. Beazer
(Holdings) PLC, will each severally and unconditionally guarantee
payment of 50% of the principal and interest on the Notes.
Authorized the purchase, for Prudential, at 100, of Meridian Trust Company,
as owner-trustee, of up to $45,000,000 Secured Term Notes, due 2003, with
interest to be fixed on or before funding at 2.65% over the rate on Treasury
Notes having a maturity approximately equal to the average life of the Notes.
The Notes would be secured by a mortgage on the real estate and improvements, a
first lien on all machinery and equipment, an assignment of the power purchase
agreement with Central Maine Power (CMP), an assignment of the lease, and
assignment of all other rights, permits and easements necessary to operate the
Project (hydroelectric facility at an existing dam site on the Androscoggin
River near Topsham, Maine).
Acting on behalf of Prudential, as sole stockholder of Pruco, Inc.
authorized Pruco with respect to its subsidiary PruCapital, Inc., to approve Pru
Capital:
Purchasing the following securities:
(a) $15,000,000 Three-Year Seasonal Notes of Choctaw Maid Farms, Inc.,
with interest at 4.50% over Prudential Funding Corporation's 30-day
yield-adjusted commercial paper rate;
(b) $20,000,000 Seven-Year Revolving Notes of Choctaw Maid Farms, Inc.,
with interest at 4.50% over Prudential Funding Corporation's 30-day
yield-adjusted commercial paper rate, convertible at the company's
option during the first two years to Fixed Rate Term Notes with
maturities not to exceed the remaining term of the Revolving Credit
Agreement, with interest at 4.50% over PruCapital's cost of funds for
similar maturities as determined by the President and CEO of
PruCapital;
(c) $20,500,000 Twelve-Year Term Notes of Choctaw Maid Farms, Inc., at
100, with interest fixed at or prior to closing at 4.50% over the rate
on Treasury Notes for a maturity, of up to 7.5 years, to be selected
by the company, and at the end of such fixed rate period, at the
company's option, at
II-27
<PAGE>
-4-
either (i) 4.50% over PruCapital's cost of funds, as determined by the
President and CEO of PruCapital, for maturities not to exceed the
remaining term of the Notes or (ii) at 4.50% over Prudential Funding
Corporation's 30-day yield-adjusted commercial paper rate; and
(d) $3,000,000 non-voting Common Stock of CMF Investors Inc.
Director Yunich not participating in the discussion nor voting on the
issue.
Director Foley stepped down as Chairman of the Committee prior to the
presentation of the following two items. Mr. McGlynn assumed the Chair.
The Committee authorized:
(1) the purchase of $60,000,000 Borden Chemicals and Plastics Operating
Limited Partnership 11.10% Twelve-Year senior Notes at 100;
Director Foley not participating in the discussion nor voting on the issue.
(2) the sale of 100 shares of Class B Common Stock of Bermans for an
aggregate price of $14,712.
Directors Foley and Yunich not participating in the discussion nor voting
on the issue.
Director Foley assumed the Chairmanship for the balance of the meeting.
The Committee authorized the purchase of the following:
(1) of Air Express International Corporation:
(a) $25,000,000 12.10% Six-Year Senior Notes, and
(b) $20,000,000 11.15% Twelve-Year Convertible Subordinated Notes
convertible into common stock of Air Express International
Corporation at $22 per share, both at 100;
(2) up to $2,000,000 of 6.5% Ten-Year Participation Certificate Notes of
the Local Initiatives Management Assets Corporation (formerly the
Community Investment and Mortgage Acceptance Corporation) at 100;
In connection herewith, the Committee cancelled its authorization of
August 12, 1986.
II-28
<PAGE>
-5-
Authorized:
(1) the exchange of our entire holding of preference and ordinary shares
of Haden Group plc for cash and/or shares (ordinary and/or preference)
of MacLellan plc having an aggregate fair market value of not less
than (British Pounds) 17,000,000 (reduced by the amount of proceeds
received by Prudential upon redemption, in full or in part, of the
preference shares), subject to an escrow arrangement;
(2) entry into an escrow arrangement whereby up to (British Pounds)
5,400,000 of Prudential's share of the proceeds shall be held in
escrow pending the receipt of proceeds from the termination of Haden
Group plc's pension plan; and
(3) the sale of any preference and ordinary shares of MacLellan plc
received in connection with the sale of our share holding of Haden
Group plc from time to time at prices not less than the fair market
value of such shares.
Authorized:
(1) the sale of 1,040 shares of Class B Common Stock of Texas Bottling
Group, Inc., at $100 per share, and
(2) the granting of an option on 1,040 shares of Class B Common Stock of
Texas Bottling Group, Inc., exercisable at $100 per share between
September 1989 and September 1994.
Ratified the purchase of $250,000,000 Asset Backed Securities Corporation
Series-4 7.40% Class 4-A Notes due 1989 at a price of 99.92 to yield 7.54%,
secured by (i) a pool of installment sales contracts, (ii) security interests in
the vehicles financed, and (iii) an obligation on the part of GMAC to repurchase
defaulted contracts up to 5% of the outstanding principal balance of the
Obligations, secured by an irrevocable letter of credit issued by Credit Suisse.
The Committee took the actions listed below:
(A) V-511--Southfield (Metropolitan Detroit) Michigan
Authorized The Prudential to:
1. Enter into a limited partnership (PMTC) with The State Treasurer of
The State of Michigan as custodian for a number of State pension funds
(The State) for the purpose of owning and operating 2000, 3000,
4000/4400 Town Center, RTC Joint Venture (82%), and the to-be-built
1000 Town Center;
II-29
<PAGE>
-6-
2. Contribute to PMTC 2000, 3000, 4000/4400 Town Center and the 82%
interest in the RTC Joint venture in return for a distribution equal
to 50% of the agreed value of the contributed properties ($95,000,000
less up to $4,500,000 for future lease-up costs);
3. Enter into the necessary contracts for the development of a shell
complete office building and parking garage (1000 Town Center),
provided the investment does not exceed $60,000,000 (including
$4,220,000 previously authorized), and expend up to an additional
$10,000,000, for tenant improvements, leasing commissions, marketing,
and start-up costs;
4. Contribute (within 5 years) to PMTC the shell complete 1000 Town
Center in return for a distribution equal to:
(a) 50% of the agreed shell value ($30,000,000) and
(b) 50% of the amount (up to $10,000,000 including interest) spent
for tenant improvements, leasing commissions, marketing, and
start-up costs;
5. Contribute to PMTC up to $10,000,000 (less the amount, if any,
distributed to Prudential under 4b. above) for tenant improvements,
leasing commissions, marketing, and start-up costs at 1000 Town Center
which contribution is to be matched by The State;
6. Fund an escrow agreement for $250,000 to be applied, if necessary,
towards providing an 8% return to The State during the fist year of
PMTC;
7. Agree that PMTC borrow on a non-recourse basis up to $62,500,000 (25%
of current agreed value) to fund operations and/or leasing costs
including tenant finish, if necessary, on a short-term basis at
prevailing rates;
8. Provide services as general partner for reimbursed costs during the
first five years of partnership operations and thereafter for an
annual fee of 25 basis points times total capital contributions
adjusted annually by the CPI.
(B) PRISA 360 One Beacon Street, Boston, Massachusetts
Authorized The Prudential (for PRISA) to enter into a lease agreement with
Palmer and Dodge, a major Boston law firm, for approximately 120,609
square feet, expanding to 182,071 square feet in 1988, for a term
commencing on June 1, 1987 and terminating on December 31, 2001, with three
five-year renewal options and expansion options for approximately 120,400
square feet.
II-30
<PAGE>
-7-
(C) PRISA 00 281 PRISA 00 509
PRISA 00 383 PRISA 00 520
PRISA 00 403
Arlington Heights and Villa Park, Illinois; Cincinnati, Ohio; Bismarck,
North Dakota and Orlando, Florida
Authorized The Prudential (for PRISA) to sell three regional and two
enclosed community shopping centers for $156,251,000, all cash.
(D) #7 501 488 and #7 501 489 Indianapolis, Indiana; Swatara Township
(metropolitan Harrisburg), Pennsylvania and Atlanta, Georgia
Authorized:
(a) The Prudential to purchase or fund the following two zero coupon
commercial mortgage loans at a purchase price which will produce a
combined bond-equivalent yield to maturity of a minimum of 140 basis
points over the five-year Treasury:
1) #7 501 488; compound interest accruing at a rate not to exceed
11.62%; balance at maturity not to exceed $9,000,000;
2) #7 501 489; compound interest accruing at 10.92%; balance at
maturity--$94,719,904.
Each of the above loans would be secured by mortgages on properties in
Indianapolis, Indiana; Swartara Township, Pennsylvania; and Atlanta,
Georgia; the loans would have a combined loan-to-value ratio of 63%
based on the combined face amount (including the remaining balance of
the two existing mortgages at the maturity of the zero coupon notes).
(b) The Prudential Realty Group may purchase Loan #7 501 489 without
purchasing or funding Loan #7 501 488, or at an earlier date than it
purchases or funds Loan #7 501 488.
(E) Sale of a Pool of Residential Mortgages
Authorized The Prudential to:
1) Sell on a servicing-released basis a pool of up to 8,600 residential
mortgages with an aggregate principal balance of approximately
$66,840,000, at a price of not less than 85% of par.
2) Incur all necessary and appropriate legal and other expenses in
connection with the sale.
II-31
<PAGE>
-8-
(F) #7 501 393 Westbury and Long Island City, New York
Authorized The Prudential to:
1) purchase $22,000,000 Revenue Bonds of the Nassau County Industrial
Development Agency secured by a first leasehold mortgage on land and
an office building; and
2) make a loan in the approximate amount of $9,500,000 (the difference
between $31,500,000 and the amount of the Bonds); 9.50%, seven-year;
interest only during the first 60 months, (to be coterminous with the
Revenue Bonds) and to be secured by a second leasehold interest in the
same land and office building securing the Revenue Bonds and a fee
interest in a 40,000 square foot industrial building. The mortgages
would be cross-defaulted.
As to items (A), (B), (C) and (D)(a) above, the Committee also authorized
the expenditure of such sums as may be necessary for legal and other expenses
incidental to the closing of the transaction.
The Prudential Realty Group reported on the following real estate
transaction under authority delegated to it on October 31, 1984 in which the
amount involved exceeded $5,000,000.
PRISA 00 320 Dallas, Texas
Sold an undivided 50% interest in the Dallas Hilton Hotel and garage for
$7,600,000, all cash.
Under authority delegated to it on October 31, 1984, The Prudential Realty
Group authorized the following term loan (in excess of $5,000,000) secured by a
mortgage on the indicated property, which loan bears the ratio to appraisal as
shown:
#7 501 275 Pike Creek Valley (Metropolitan Wilmington), Delaware
$12,850,000; 9.75% 8.5 years; interest only, payable monthly during the
first 48 months; loan on a shopping center--72%.
The Prudential Realty Group reported for the General Account net new
business authorized under authority delegated to it of $117,539,775 and net new
business authorized today by the Finance Committee of $339,707,000 and for the
various Mortgage and Property Separate accounts net new business authorized
under delegated authority of $13,718,578 and net new business authorized today
of $133,939,000.
All of the foregoing The Prudential Capital Markets Group and The
Prudential Realty Group transactions which were authorized or approved were
conditioned on the Law Department approving same.
II-32
<PAGE>
-9-
The Treasurer reviewed with the Committee our current investment strategy
with respect to matching of assets and liabilities indicating we have started to
employ various methods for extending or shortening asset durations, as needed.
She reviewed various alternatives now being used which, in addition to providing
greater flexibility in duration management, may be more economical and less
disruptive to our commercial paper program. These transactions, although not
involving an explicit borrowing of funds, in many cases create leverage on
Prudential's balance sheet. Counting the leverage implicit in these transactions
as borrowings would result in a temporary bulge in General Account borrowings;
currently about $400 million, with the potential to exceed our $700 million
borrowing authority within the next several weeks. She requested authorization
to, (1) expand the borrowing authority to encompass the type of balance sheet
leveraging transactions that might be pursued and (2) increase the borrowing
limits for the General Account from $700 million to $1.5 billion. After
discussion the Committee, on motion, authorized the expansion of the borrowing
authority and an increase in the borrowing limit for the General Account.
The Treasurer reported:
(1) on the current status of the repurchase program by Prudential Funding
of certain of its Eurodollar sinking fund bonds, the PRS III Bonds
(formerly the Prudential Realty Securities III 11 7/8% sinking fund
bonds due 1992 and the 12 1/8% sinking fund bonds due 1995). She
indicated that $73,850,000 face amount of such bonds, maturing in
1992, have been repurchased at a total dollar price of $79,810,402 and
$63,500,000 face amount of such bonds maturing in 1995 had been
repurchased at a total dollar price of $71,561,625. The before-tax
present value savings of the repurchases completed to date is
approximately $2.438 million for the 1991 bonds and approximately
$1.889 million for the 1995 bonds, which assumes we will be able to
refund the bonds at rates of 55 basis points over Treasuries for the
1992 maturity and 70 basis points over Treasuries for the 1995
maturity. She further indicated as the bonds have been repurchased,
they had been hedged with U.S. Treasury futures contracts in order to
lock-in the yield spread over U.S. Treasuries;
(2) that, pursuant to the Committee's authorization of April 14, 1987, a
credit facility in the amount of $500 million for The Prudential
Securities Group had been successfully syndicated with a broad group
of international banks (35 banks in 9 countries).
On motion, duly made and seconded, the Committee adopted the following
resolution:
RESOLVED, that the Treasurer is hereby authorized to open and maintain
accounts in the name of the Company at the Guaranty Trust Company of Canada,
Toronto.
II-33
<PAGE>
- 10 -
Received the following (copies of the written reports on file in the
Secretary's Department):
1. Oral report by Managing Director Zinbarg on the activities of Prudential
Equity Management Associates since the September 8, 1987 meeting.
2. Report on the current status of our investment in Public Service of New
Hampshire.
3. Report of the miscellaneous transactions by the Prudential Capital Markets
Group under delegated authority for the period September 2, 1987 through
September 15, 1987.
4. Report of real estate investments and transactions made pursuant to
delegated authority.
5. Treasurer's report as of August 31, 1987 on the General Account net
short-term position and long-term and short-term debt outstanding.
On motion, adjourned.
/s/
----------------------------
Secretary
II-34
EXHIBIT (4A)(i)
The Prudential Insurance Company of America
PRUDENTIAL [LOGO] a mutual life insurance company
Corporate Office, Newark, New Jersey
- --------------------------------------------------------------------------------
Annuitant(s) Contract Number
Annuity Date Contract Date
Agency
We will make monthly annuity payments starting on the Annuity Date we show
above. We make this promise subject to all the provisions of this contract.
Please read this contract with care. A guide to its contents is on the last
page before the back cover. A summary is on page 5. If there is ever a
question about it, or if there is a claim, just see one of our
representatives or get in touch with one of our offices.
Benefits and values under this contract may be on a variable basis. Amounts
directed Into one or more of the variable subaccounts will reflect the
investment experience of those subaccounts. They are subject to change both
up and down and are not guaranteed as to dollar amount except as provided
under the Death Of Annuitant and Payout Provisions sections.
RIGHT TO CANCEL CONTRACT.--Not later than ten days after you get this
contract, you may return it to us. All you have to do is take it or mail it
to one of our offices or to the agent who sold it to you. We will cancel
the contract and promptly give you its net asset value, less the net asset
value of any amount we add to the contract fund (see page 8) determined as
of the date your request is received, without redemption charge.
The provisions on this and the following pages of this contract comprise
the entire contract. The contract was signed for Prudential on the contract
date, which is the date of issue.
Signed for Prudential.
[SPECIMEN] [SPECIMEN]
Secretary President
Variable Annuity Contract with Flexible Purchase Payments--Monthly annuity
payments starting on Annuity Date. Payment as stated upon death before Annuity
Date. Purchase payments payable during lifetime(s) of annuitant(s) until Annuity
Date. Cash value reflect investment results.
VIP--86
II-35
<PAGE>
ENDORSEMENTS
(Only we can endorse this contract.)
Page 2 (VIP--86)
II-36
<PAGE>
CONTRACT DATA
ANNUITANT(S) JOHN DOE XX XXX XXX CONTRACT NUMBER
MARY DOE
ANNUITY DATE JULY 25, 2016 JULY 25, 1986 CONTRACT DATE
AGENCY R-NK 1
FIRST ANNUITANT:
NAME JOHN DOE
SEX AND ISSUE AGE M-35
DATE OF BIRTH 6/10/51
CO-ANNUITANT:
NAME MARY DOE
SEX AND ISSUE AGE F-32
DATE OF BIRTH 10/1/54
BENEFICIARY: CLASS 1--ROBERT DOE
SON OF ANNUITANT
CLASS 2--BARBARA SMITH
SISTER OF CO-ANNUITANT
ALLOCATION OF INITIAL PURCHASE PAYMENT
BOND 20%
MONEY MARKET 20%
COMMON STOCK 20%
AGGRESSIVELY MANAGED FLEXIBLE 10%
CONSERVATIVELY MANAGED FLEXIBLE 10%
FIXED ACCOUNT 20%
THE MAINTENANCE CHARGE IS UP TO $30.00 ANNUALLY. WE EXPLAIN THIS ON PAGE 12.
SERVICE OFFICE--PLEASE DIRECT ANY COMMUNICATION ABOUT THIS CONTRACT TO: THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, P.O. BOX 2925, PROENIX, ARIZONA 85062.
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<PAGE>
ENDORSEMENTS
(Only we can endorse this contract.)
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<PAGE>
CONTRACT SUMMARY
We offer this summary to help you understand this contract. We do not intend
that it change any of the provisions of the contract.
Beginning on the Annuity Date we will use your contract fund to provide an
income, as we explain on page 13, to the Annuitant named on page 3 (the First
Annuitant named there if two annuitants are named) if he or she is then living
and entitled to payment. But if two annuitants are named on page 3 and (1) the
First Annuitant is not living on the Annuity Date or (2) both annuitants are
living and you ask us to do so, we will make payment to the Co-Annuitant named
on page 3 if he or she is then living. If, on the Annuity Date, no other
settlement has been chosen, we will make monthly payments under the Interest
Payment Option. But if the amount of the initial payment would be less than
$50, the Company reserves the right to, instead, pay the cash value in one sum.
We describe the other options we offer on page 13.
Purchase payments may be made at any time until the Annuity Date. There are no
scheduled amounts or due dates. We explain this on page 8. The purchase
payments, minus any deductions for state and/or local premium taxes, will be
allocated as you direct to one or more of the subaccounts of The Prudential
Individual Variable Contract Account and/or the fixed account. Additional
amounts may also be credited to your contract fund as we describe on page 8.
We describe on page 10 the amount payable, if any; at the death of an annuitant.
If there are two annuitants and one annuitant dies before the Annuity Date, here
is what we will do. We will use any excess of minimum proceeds (the sum of all
purchase payments minus any withdrawal made) over the contract fund to
increase the value of the contract for the surviving annuitant. Otherwise, it
may be paid to the beneficiary in cash; or it may be applied by the beneficiary
to either of the payout options we offer an annuitant under this contract.
You and we may agree on a change in the ownership of this contract. Also, unless
we endorse it to say otherwise, the contract gives you these rights, among
others:
o You may change the beneficiary(ies) under it.
o You may surrender it for its cash value.
o You may make withdrawals.
o You may transfer amounts among the subaccounts and the fixed account.
O You may remove one annuitant if two are named.
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<PAGE>
GENERAL PROVISIONS
DEFINITIONS.--We define here some of, the words and phrases used all through
this contract. We explain others, not defined here, in other parts of the text.
WE, OUR AND US.--Prudential.
YOU AND YOUR.--The owner of the contract.
ANNUITANT(S).--The person or persons named on the first page. If more than one
person is so named, one of the two is named on Page 3 as First Annuitant, the
other as Co-Annuitant. And, in this case, the Beneficiary provisions of the
contract will be based on the death of the last survivor of the persons so
named. The owner need not be an annuitant.
PAYEE.--A beneficiary who has a right to receive a settlement under this
contract.
SEC.--The Securities and Exchange Commission.
PIVCA.--The Prudential Individual Variable Contract Account.
CONTRACT DATE.--The date we receive the purchase payment at our Service Office.
We show the Contract Date on page 3.
ISSUE DATE.--The Contract Date.
ANNUITY DATE.--The date the first annuity payment is due. We show the Annuity
Date on page 3.
ANNIVERSARY OR CONTRACT ANNIVERSARY.--The same day and month as the Contract
Date in each later year.
Example: If the contract date is June 10, 1986, the first anniversary is June
10, 1987. The second is June 10, 1988, and so on.
CONTRACT YEAR.--A year which starts on the Contract Date or on an Anniversary.
Example: If the contract date is June 10, 1986, the first Contract Year starts
then and ends on June 9, 1987. The second starts on June 10, 1987 and ends on
June 9, 1988.
ATTAINED AGE.--An annuitant's attained age at any time is his or her issue age
plus the length of time since the contract date. You will find the issue age(s)
on page 3.
EARNINGS.--The excess, if any, of (1) the contract fund plus any amounts
previously withdrawn, over (2) total purchase payments to date plus any
additional amounts credited by the Company as a result of such purchase
payments.
SERVICE OFFICE.--The office designated by Prudential to service contracts such
as this. Its mailing address is the address shown on the Contract Data page,
unless Prudential specifies another address by notice to you.
ANNUAL REPORT.--Once each contract year after the first and before the Annuity
Date we will send you a report. It will show (1) the amount of the contract
fund; (2) the investment amount in each subaccount; (3) the amount in the fixed
account; (4) interest credited during the year; and (5) the interest rate that
will be credited until further notice to the amount in the fixed account. The
report will include any other data that may be currently required where this
contract is delivered. You may ask for a report like this at any time. But,
except for the report we send you once a year, we have the right to charge a fee
for each report.
CONTRACT MODIFICATIONS.--Only a Prudential officer may agree to modify this
contract, and then only in writing.
CHANGE OF ANNUITY DATE.--Not later than the present Annuity Date, you may ask
us to change that date to another date. We must have your request in writing at
our Service Office and in a form which meets our needs. You must send the
contract to us to be endorsed if we ask you to do so. We will change the date to
the one you ask for in your request. But, unless we consent, it may not be
before the later of (1) the third contract anniversary and (2) the first of the
next month after the date we receive your request. Also, unless we consent, it
may not be after the first of the next month after the 80th birthday of the
younger of the annuitants. Further, unless we consent, you may not make more
than one change in the Annuity Date.
REMOVAL OF AN ANNUITANT.--If a First Annuitant and a Co-Annuitant are named, we
will remove one from the contract upon: (1) receipt of your written request to
remove that annuitant; or (2) receipt of due proof that the Annuitant has died.
OWNERSHIP AND CONTROL.--Unless we endorse this contract to say otherwise: (1)
the owner of the contract is the Annuitant (the First Annuitant, if two are
named); (2) while any annuitant is living the owner alone is entitled to (a) any
contract benefit and value, and (b) the exercise of any right and privilege
granted by the contract or by us; and (3) if two annuitants are named and the
First Annuitant dies while the Co-Annuitant is living, the Co-Annuitant will
become the Owner.
CURRENCY.--Any money we pay, or which is paid to us, must be in United States
currency. Any amount we owe will be payable at our Service Office.
(Continued on Next Page)
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GENERAL PROVISIONS (Continued)
MISSTATEMENT OF AGE OR SEX.--If any annuitant's stated date of birth or sex or
both are not correct, we will change each benefit and the amount of each annuity
payment to that which the purchase payment would have bought for the correct
date of birth and sex. Also, we will adjust the amount of any payments we have
already made. Here is how we will do it: (1) We will deduct any overpayments,
with interest at 5% a year, from any payment(s) due then or later. (2) We will
add any underpayments, with interest at 5% a year, to the next payment we make
after we receive proof of the correct date of birth and sex.
INCONTESTABILITY.--We will not contest this contract except for non-payment of
the purchase payment due on the contract date.
PROOF OF SURVIVAL OR DEATH.--Before we make a payment, we have the right to
require proof of the life or death of any person whose life or death determines
whether or to whom we must make the payment.
ASSIGNMENT.--We will not be deemed to know of an assignment unless we receive
it, or a copy of it, at our Service Office. We are not obliged to see that an
assignment is valid or sufficient. If any annuitant is living on the Annuity
Date and an assignment is in effect on that date, we have the right to pay the
cash value in one sum. This contract may not be assigned to another insurance
company without our consent.
CHANGES BY PRUDENTIAL.--We reserve the right, upon 90 days notice to you to:
(1) change the minimum amount requirements specified for purchases, withdrawals
and transfers in the Contract Fund and Contract Value Options Provision;
(2) refuse to accept any request for purchase;
(3) add, change or discontinue subaccounts, change to or add a different
variable contract account, or substitute fund shares in the account (see page
9);
(4) change any or all terms and provisions of the Annuity Settlement Table on
page 15, but only with respect to any portion of an annuity settlement deriving
from purchase payments made on or after the effective date of the change and
earnings on those purchase payments; and
(5) make any changes required by law.
VOTING RIGHTS:
FUND.--We will send you a notice of any meeting at which Fund shares which
comprise the assets of a subaccount may be voted. We will provide a voting
instruction form for the number of Fund shares representing your proportional
interest. The instruction form may be signed and returned to us. If for any
meeting there are Fund shares for which we have not received voting
instructions, this is what we will do. We will vote Fund shares on each matter
in the same proportion as we vote the Fund shares held in the subaccount for
which we did receive instructions.
PRUDENTIAL.--We are a mutual life insurance company. Our principal office is in
Newark, New Jersey, and we are incorporated in that State. By law, we have 24
directors. This includes 16 elected by our policyholder's (four each year for
four year terms), two of our officers, and six public directors named by New
Jersey's Chief Justice.
The election is held on the first Tuesday in April from 10:00 a.m. to 2:00 p.m.
in our office at the Secretary's address shown here. After this contract has
been in force for one year, you may vote either in person or by mail. We will
send you a ballot if you ask for one. Just write to our Secretary at Prudential
Plaza, Newark, New Jersey 07101, at least 60 days before the election date. By
law, your request must show your name, address, contract number and date of
birth. If you are an individual, you must be at least 18 years old to vote.
PARTICIPATION (DIVIDENDS).--This contract is eligible to participate in the
divisible surplus of Prudential. We do not expect that any dividends will be
payable on or before the Annuity Date. While any annuity settlement is in
effect, the contract will share in our surplus to the extent and in the way we
decide.
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PURCHASE PAYMENTS
PURCHASE PAYMENTS.--An initial purchase payment of at least $1,000 is payable on
the Contract Date. Further purchase payments may be made at any time while an
annuitant is living and before the Annuity Date. The amount of each payment
after the first must be at least $100. We reserve the right to establish a
maximum amount.
The initial purchase payment, minus any deduction for state and/or local premium
taxes, will be allocated to the subaccounts and/or to the fixed account as you
instruct. The minimum amount of a first allocation to a subaccount and/or to the
fixed account is $300; the minimum for subsequent allocations is $100 unless we
consent to a smaller amount. If, after you have made at least one purchase, we
receive a purchase payment without instructions, we will make any deduction for
state and/or local premium taxes and allocate the balance in the same
proportions as the most recent purchase payment you made.
ADDITIONAL AMOUNTS.--During the first three contract years, and in contract
years thereafter at the discretion of the Company, we will credit an additional
1% to the amount of every purchase payment you make, The Company reserves the
right to limit such additional amounts to $1,000 in each contract year.
This additional amount will not be subject to state and/or local premium taxes.
The amount will be allocated to the subaccounts and/or to the fixed account in
the same proportions as the corresponding purchase payment.
Example 1: On the Contract Date you make a $1,500 purchase to be allocated
equally to subaccounts A, B and C. We will increase that amount by 1%, or $15,
and allocate $505 to each of Subaccounts A, B, and C. Later in the year you send
us a $900 purchase payment, but you don't tell us how it is to be applied. We
will increase that amount by 1% or $9 and, based on the most recent purchase,
the one made on the Contract Date, we would make a $303 purchase for each of
Subaccounts A, B, and C.
Example 2: If in the example above your second purchase payment had been $200
instead of $900, we would have the right not to make the purchase without first
contacting you to find out how the purchase payment is to be applied. This is
because the $200 purchase payment was not enough to make a minimum purchase of
$100 for each of the three subaccounts. The purchase would be made when we
receive your instructions at our Service Office.
BENEFICIARY
You may designate or change a beneficiary. Your request must be in writing and
in a form which meets our needs. It will take effect only when we file it at
our Service Office; this will be after you send the contract to us to be
endorsed, if we ask you to do so. Then any previous beneficiary's interest will
end as of the date of the request. It will end then even if no annuitant is
living when we file the request. Unless otherwise stated, we will make payment
to the beneficiary only if the last surviving or sole annuitant dies before the
Annuity Date. Any beneficiary's interest is subject to the rights of any
assignee of whom we know.
When a beneficiary is designated, any relationship shown is to the Annuitant
(First Annuitant if two annuitants are named on page 3) unless otherwise stated.
To show priority, we may use numbered classes, so that the class with first
priority is called class 1, the class with next priority is called class 2, and
so on. When we use numbered classes, these statements apply to beneficiaries
unless the form states otherwise: (In these provisions and in the Example, the
term annuitant refers, where two annuitants are named, to the last surviving
annuitant.)
1. One who survives the annuitant will have the right to be paid only if no one
in a prior class survives the annuitant.
2. One who has the right to be paid will be the only one paid if no one else in
the same class survives the annuitant.
3. Two or more in the same class who have the right to be paid will be paid in
equal shares.
4. If none survives the annuitant, we will pay in one sum to the annuitant's
estate.
Example: Suppose the class 1 beneficiary is Jane and the class 2 beneficiaries
are Paul and John. If the annuitant dies before the Annuity Date, we owe Jane
the proceeds if she is living at the annuitant's death. We owe Paul and John the
proceeds if they are living then but Jane is not. But if only one of them is
living, we owe him the proceeds. If none of them is living, we owe the
annuitant's estate.
Before we make a payment, we have the right to decide what proof we need of the
identity, age or any other facts about any persons designated as beneficiaries.
If beneficiaries are not designated by name and we make payment(s) based on that
proof, we will not have to make the payment(s) again.
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SEPARATE ACCOUNT
THE ACCOUNT.--The word Account, where we use it in this contract without
qualification, means the Prudential Individual Variable Contract Account (PIVCA)
and any other separate accounts that we establish. PIVCA is a unit investment
trust registered with the SEC under the Investment Company Act of 1940. It is
also subject to the laws of New Jersey. We own the assets of the Account; we
keep them separate from the assets of our general investment account. We
established the Account to support variable annuity contracts.
SUBACCOUNTS.--The PIVCA has several subaccounts. We list them on the Contract
Data page(s). You determine, using percentages, how the invested purchase amount
will be allocated among the subaccounts and/or to the fixed account. You may
choose to allocate nothing to a particular subaccount. But any allocation you
make must be at least 10%; you may not choose a fractional percent.
Example: You may choose a percentage of 0, or 100, or 10, 11, 12, and so on, up
to 90. But you may not choose a percentage of 1 through 9, or 91 through 99, or
any percent that is not a whole number.
THE FUND.--The word fund, where we use it in this contract without
qualification, means the fund we identify in the Contract Data pages. The fund
is registered with the SEC under the Investment Company Act of 1940 as an
open-end diversified management investment company. The fund has several
portfolios; there is a portfolio that corresponds to each of the subaccounts of
the PIVCA. We list these portfolios in the Contract Data pages.
ACCOUNT INVESTMENTS.--We use the assets of the PIVCA to buy shares in the fund.
Each subaccount is invested in a corresponding specific portfolio. Income and
realized and unrealized gains and losses from assets in each subaccount are
credited to, or charged against, the subaccount. This is without regard to
income, gains, or losses in our other investment accounts.
We will determine the value of the assets in the PIVCA at the end of each
business day. When we use the term business day, we mean a day when the New York
Stock Exchange is open for trading. We might need to know the value of an asset
on a day that is not a business day or on which trading in that asset does not
take place. In this case, we will use the value of that asset as of the end of
the last prior business day on which trading took place.
Example: If we need to know the value of an asset on a Sunday, we will normally
use the value of the asset as of the end of business on Friday.
We will always keep assets in the Account with a tota1 value at least equal to
the amount of the investment amounts under contracts like this one. (See page
11.) To the extent those assets do not exceed this amount, we use them only to
support those contracts; we do not use those assets to support any other
business we conduct. We may use any excess over this amount in any way we
choose.
CHANGE IN INVESTMENT POLICY.--A portfolio of the fund might make a material
change in its investment policy. In that case, we will send you a notice of the
change.
CHANGE OF FUND.--Portfolio might, in our judgment, become unsuitable for
investment by a subaccount. This might happen because of a change in investment
policy, or a change in the laws or regulations, or because the shares are no
longer available for investment, or for some other reason. If that occurs, we
have the right to substitute another portfolio of the fund, or to invest in a
fund other than the one we show on the Contract Data page(s). But we would first
seek approval from the SEC and, where required, the insurance regulator where
this contract is delivered.
FIXED ACCOUNT
THE FIXED ACCOUNT.--In addition to the subaccounts described above, there is a
fixed account to which you may direct all or part of your invested purchase
amount(s). The fixed account is funded by the general account of Prudential. The
fixed amount is credited with interest as described under Guaranteed Interest
on page 12 and Excess Interest on page 12.
FIXED ACCOUNT OPTIONS.--We may have more than one fixed account option. We list
the fixed account option(s) in the Contract Data pages.
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TRANSFERS
TRANSFERS AMONG SUBACCOUNTS AND INTO THE FIXED ACCOUNT.--You may transfer
amounts among subaccounts of PIVCA and into the fixed account as often as four
times in a contract year. In addition, the entire amount in all subaccounts may
be transferred to the fixed account at any time. if we establish new separate
accounts, transfers into or out of these separate accounts will be allowed only
with our consent. To make a transfer, you must notify us in writing in a form
that meets our needs. The transfer will take effect on the date we receive your
notice at our Service Office.
TRANSFERS AMONG FIXED ACCOUNT OPTIONS AND INTO THE SUBACCOUNTS.--You may
transfer amounts among the available Fixed Account Options and into the
subaccounts only with our consent.
DEATH OF ANNUITANT
SOLE ANNUITANT.--If we receive proof that an annuitant, who was the last
surviving or only annuitant named in the contract, died before the Annuity Date,
we will pay the beneficiary the proceeds promptly.
If the Annuitant dies before his or her 65th birthday, the proceeds will be the
greater of (a) minimum proceeds, which we define below, and (b) the contract
fund (which we define on page 11) as of the date we receive due proof of death.
Minimum proceed if no withdrawals have been made is the sum of all of the
purchase payments paid to us plus any additional percentage amounts of purchase
payments we credit. Any withdrawal reduces minimum proceeds on the date of the
withdrawal in the same proportion that it reduces your contract fund on that
date. Purchase payments made after a withdrawal increase minimum proceeds by the
amount of the purchase payments plus any additional percentage amounts of
purchase payments we credit.
Example: Assume a total of purchase payments and additional amounts of $10,000
and a subsequent withdrawal of $3,000 made when your contract fund amounts to
$12,000. The contract fund is reduced by one-fourth ($3,000 divided by
$12,000); therefore minimum proceeds, which was $10,000, is also reduced by
one-fourth, to $7,500. A subsequent purchase of $5,000 with an additional amount
credited of $50 would increase minimum proceeds to $12,550.
If the Annuitant dies on or after his or her 65th birthday, the proceeds will be
the contract fund as of the date we receive due proof of death.
If the Annuitant dies on or after the Annuity Date, the settlement then in
effect will govern whether and to whom we will make any payment(s).
MULTIPLE ANNUITANTS.--If two annuitants are named in the contract and we receive
due proof that one of them died before his or her 65th birthday and before the
Annuity Date, here is what we will do. We will compare minimum proceeds,
determined as described above for death of a sole annuitant, with the amount of
your contract fund. If minimum proceeds is greater than the amount of the
contract fund we will credit the difference to the contract fund, as a death
benefit. The death benefit, if any, will be distributed among the subaccounts
and/or the fixed account in the same proportions as the contract fund was
distributed before the crediting of the death benefit.
No death benefit is payable if the Annuitant who died did so before the Annuity
Date and either: (1) the Annuitant had reached his or her 65th birthday on or
before the date of his or her death; or (2) the amount of the contract fund on
the date we received due proof of the Annuitant's death was greater than or
equal to minimum proceeds determined as described above.
The surviving annuitant may withdraw all of the contract fund, within 30 days
following the date we receive due proof of the first annuitant's death, without
paying any sales charge that might otherwise be required for a withdrawal (see
Withdrawal Charges on page 11).
When only one of the annuitants named in the contract survives, the above
provisions for Sole Annuitant will apply to that surviving annuitant.
Where two annuitants named in the contract have died and there is not sufficient
evidence that they have died otherwise than simultaneously, the proceeds of the
contract will be distributed as if the First Annuitant had survived the
Co-Annuitant.
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CONTRACT FUND AND CONTRACT VALUE OPTIONS
Before the annuity date, you may be able to make withdrawals from the contract
fund and you may surrender this contract for its cash value.
CONTRACT FUND.--On the contract date the contract fund is equal to the invested
purchase amount (see below) minus any of the charges described in items (f)
through (i) below which may have been due on that date. On any day after that
the contract fund is equal to what it was on the previous day, plus these items:
(a) any increase due to investment results in the value of the subaccounts
to which that portion of the contract fund that is in the investment
amount is allocated (we explain investment amount below);
(b) guaranteed interest at 3% on that portion of the contract fund that is
in the fixed account;
(c) any excess interest on that portion of the contract fund that is in the
fixed account (see page 12); and
(d) any invested purchase amount resulting from additional purchase payments
minus these items:
(e) any decrease due to investment results in the value of the subaccounts
to which that portion of the contract fund that is in the investment
amount is allocated;
(f) a charge against the investment amount at a rate of up to .00326816% a
day (1.20% a year) for mortality and expense risks that we assume;
(g) any annual maintenance charge that we deduct (see page 12);
(h) any amount charged against that contract fund for Federal or State
income taxes; and
(i) any withdrawals, withdrawal charges, and recapture of additional
amounts.
INVESTED PURCHASE AMOUNT.--This is the portion of the purchase payments that we
add to the contract fund. It is equal to the purchase payments, plus any
additional amounts we have credited, minus any applicable deduction for state
and/or local premium taxes.
INVESTMENT AMOUNT.--The investment amount for this contract is the amount we use
to compute the investment results. The investment amount is allocated among the
subaccounts. The amount of the investment amount and its allocation to
subaccounts depend on (1) how you choose to allocate the invested purchase
amount; (2) whether or not you transfer amounts among subaccounts; (3) the
investment performance of the subaccounts to which amounts are allocated or
transferred; and (4) whether or not you make any withdrawals. The account,
subaccounts, and account investments are described on page 9. The investment
amount at any time is equal to the contract fund, minus the portion of the
contract fund that is in the fixed account
CASH VALUE.--The cash value of the contract at any time is the contract fund,
minus any withdrawal charges that apply, minus any Additional Amount which is
subject to recapture. See Withdrawal Charges below for the period of time during
which there may be a withdrawal charge.
WITHDRAWAL CHARGES (DEFERRED CONTINGENT SALES CHARGES).--Although no sales
charges are deducted from your purchase payments when they are made, your
purchase payments may be subject to a sales charge upon withdrawal or upon
surrender of this contract for its cash value. Earnings, defined on page 6, are
not subject to sales charges. Withdrawals are considered to consist of earnings,
if any, first, then of purchase payments on a first-in, first-out basis.
In each contract year, any purchase payments withdrawn which do not in total
exceed 10% of your contract fund valued as of the date of the first withdrawal
in that year, will not incur a sales charge. A sales charge may be imposed on
purchase payments withdrawn in excess of this 10% limitation.
The amount of any sales charge imposed on the withdrawal of a purchase payment
varies with the number of contract yearn that have elapsed since the purchase
payment was made.
When you make a withdrawal, the rate of sales charge applied against any
purchase payments or portion of a purchase payment that is subject to a charge
is determined in accord with the following:
If the contract year of purchase payment is the same as the contract year of
withdrawal, the rate is 8%.
If the duration from the start of the contract
year of purchase payment to the start of the
contract year of withdrawal is . . .
The rate is . . .
One year ................................................. 7%
Two years ................................................ 6%
Three years .............................................. 5%
Four years ............................................... 4%
Five years ............................................... 3%
Six years ................................................ 2%
Seven years .............................................. 1%
Eight years or more ...................................... 0%
In determining the amount of sales charge, if any, we will consider that any
purchase payment withdrawn is the first purchase payment made which has not
previously been withdrawn. This is so even if that purchase payment was
(Continued on Next Page)
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CONTRACT FUND AND CONTRACT VALUE OPTIONS (Continued)
allocated to a different subaccount (and/or the fixed account than that from
which withdrawal is being made or if the amount being withdrawn is no longer
subject to a withdrawal charge. Depending on the amount of the withdrawal. one
or more sales charge rates may be used if the withdrawal is of purchase payments
made in more than one contract year.
RECAPTURE OF ADDITIONAL AMOUNT.--When you make a withdrawal which consists
partially or fully of purchase payments, we may recapture additional amounts
(see page 8) which we credited to your contract fund. If the duration from the
start of the contract year of purchase payment to the start of the contract year
of withdrawal is less than eight years, we will recapture the exact amount of
any additional amounts credited as a result of such purchase payments. If the
duration from the start of the contract year of purchase payment to the start of
the contract year of withdrawal is eight years or more, we will not recapture
any additional amounts credited as a result of such purchase payments.
Example.--
Year Transaction
- ---- -----------
Contract year one --Payment of $1,000 (plus crediting
of $10 additional) in Subaccount A
Contract year two --Payment of $900 (plus crediting of
$9 additional) in Subaccount B
Contract year three --Payment of $1,500 (plus crediting
of $15 additional) in Subaccount C.
In contract year five the contractholder requests a partial withdrawal of
$1,600 from Subaccount C which has grown to $7,900. The amount of the contract
fund on the date of withdrawal is $3,900, $466 more than the total of the
purchase payments made to date plus the additional amounts credited to date.
Thus, for purposes of determining sales charges. the $1,600 withdrawal is
considered to consist of $466 of earnings and $1,134 of purchase payments. The
$466 of earnings are $390 of purchase payments (10% of the contract fund) may be
withdrawn without sales charge. A sales charge is required on the remaining
$744 of purchase payment being withdrawn.
To determine the sales charge we assume that $1,000 of purchase payment being
withdrawn is the payment made to Subaccount A in contract year one. The
remaining $134 of purchase payment being withdrawn is assumed to be a part of
the $900 payment made to Subaccount B in contract year two.
Of the first $1,000 purchase payment we have seen that $390 (10% of $3,900) may
be withdrawn without sales charge. A 4% sales charge is due on the withdrawal of
the other $610 of the payment (4% multiplied by $610 equals $24.40). The $134
portion being withdrawn from the second payment requires a 5% sales charge (5%
multiplied by $134 equals $6.70). Thus the total sales charge for withdrawing
$1,600 in year five is $31.10.
In addition, since $1,134 of purchase payments is being withdrawn and the
durations from the start of the contract years of these purchase payments to the
contract year of withdrawal is less than eight years, we will recapture
additional amounts equal to $11.34 (1% of $1,134).
ANNUAL MAINTENANCE CHARGE.--On each contract anniversary before the Annuity Date
or at the time of total withdrawal we will deduct a maintenance charge from your
contract fund. The maximum amount we will deduct is shown on page 3 of this
contract. If on any contract anniversary the contract fund is allocated to more
than one subaccount and/or to the fixed account, we will divide the charge on a
pro-rata basis, according to the value of each subaccount and/or the fixed
account.
CONDITIONS FOR WITHDRAWAL OR SURRENDER.--Our consent is needed for a withdrawal
if (1) its amount is less than $300; (2) it would reduce the contract fund to
less than $300; or (3) a withdrawal was made earlier in the same contract year.
To make a withdrawal or to surrender this contract for its cash value, you must
ask us in writing in a form that meets our needs. Also, to surrender the
contract, you must send it to us. Unless we consent, any amount withdrawn will
be taken from the subaccounts and/or the fixed account in proportion to the
amount in each as of the date of the withdrawal. After deducting the Annual
Maintenance Charge and the sales charges, and recaptures of Additional Amounts,
if any, we will pay the balance.
GUARANTEED INTEREST.--The guaranteed interest rate credited on that portion of
the contract fund in the fixed account is an effective rate of 3% a year.
EXCESS INTEREST.--Excess interest on that portion of the contract fund in the
fixed account may be credited in addition to the 3% guaranteed interest rate.
The rate of any excess interest is not guaranteed. It will be determined from
time to time and will continue thereafter until a new rate is determined. We may
use different rates of excess interest for different portions of the contract
fund that are in the fixed account.
Page 12 (VlP--86)
II-46
<PAGE>
PAYOUT PROVISIONS
CHOOSING AN OPTION.--You may have the amount of your contract fund on the
Annuity Date paid to the Annuitant(s) under one of the options we describe
below. If two annuitants are named in the contract, and both are living, you may
choose to have payments made to either. But, for any annuity settlement, we will
first deduct from your contract fund any charge for state and/or local premium
taxes, any recapture of additional amounts, and any withdrawal charges. We offer
the same annuity options to the Payee that we offer to an annuitant. And we
determine monthly payments for the Payee in the same way we do for an annuitant.
CONDLTIONS.--With respect to the option(s) you select, your right to make the
choice is subiect to all these conditions: (1) You must ask for the option in
writing and in a form which meets our needs. (2) You must send the contract to
us to be endorsed. (3) If we require it, you must give us proof of the date of
birth of the person on whose age an annuity payment is based. (4) We must have
your request, the contract and any required proof(s) of the date(s) of birth
before the Annuity Date.
Your choice of an option will take effect on the Annuity Date but only if: (1)
the person on whose life the annuity is to be based is living on that date; (2)
the first payment under the option will be at least $50; and (3) you do not void
the choice by making a later choice before the Annuity Date.
If two annuitants are named in the Contract and both are living, settlement will
be made on the life of the First Annuitant, as named on page 3.
WHEN NO OPTION CHOSEN.--If no choice takes effect on the Annuity Date,
settlement under the Interest Payment Option will become effective.
OPTIONS DESCRIBED.--When we use the word annuitant in the following paragraphs
we mean the annuitant for whom the annuity described was chosen and who is to
receive settlement under the annuity.
For an annuitant, the first payment under these options is due on the Annuity
Date.
For a Payee, unless a later date is requested, the first payment will be due on
the first day of the earliest calendar month on or after the day the Service
Office has received the request for the settlement and due proof of the
annuitant's death and such claim forms and other evidence as may be satisfactory
to us.
Here are the options we offer. We may also consent to other arrangements.
LIFE INCOME OPTION.--You may choose monthly payments for as long as the
annuitant lives, with 120 monthly payments certain.
INTEREST PAYMENT OPTION.--We will hold an amount at interest. We will pay
interest at an effective rate of at least 3% a year ($30.00 annually, $14.89
semi-annually, $7.42 quarterly or $2.47 monthly per $1,000). We may pay more
interest.
SUPPLEMENTAL LIFE ANNUITY OPTION.--You may choose to receive the proceeds of
this contract in the form of payments like those of any annuity or life annuity
we then regularly issue that (1) is based on United States Currency; (2) is
bought by a single sum; (3) does not provide for dividends; and (4) does not
normally provide for deferral of the first payment. For purposes of this option
only, the words we, our and us include our subsidiary company, Pruco Life
Insurance Company, which has agreed to make settlements under this option.
The proceeds of this contract might be subject to a withdrawal charge if paid as
a lump sum. If so, we will apply that charge pro-rata to any portion of the
proceeds not placed under this option. For the amount placed under this option
on any date, any annuity payment will be at least 100% of what we would pay
under the chosen kind of annuity with its first payment due on its contract
date. The phrase regularly issue does not include contracts that are used to
qualify for special federal income tax treatment as a retirement plan unless
this contract has been issued as part of such a plan. At least one of the
persons on whose life this option is based must be a Payee. This option cannot
be chosen more than 30 days before the due date of the first payment. On
request, we will quote the payment that would apply for any amount placed under
the option at that time.
RESIDUE DESCRIBED.--For the Life Income Option and the Supplemental Life Annuity
Option, residue on any date means the then present value of any unpaid payments
certain. It does not include the value of any payment that may become due after
the certain period. For the Life Income Option, we will compute it at an
effective interest rate of 3 1/2% a year. But we will use the interest rate we
used to compute the actual Life Income Option payments if they were not based
on the table in this contract. For the Supplemental Life Annuity Option, we will
use the interest rate we would use for the chosen kind of annuity with the same
provisions as to withdrawal.
Page 13 (VIP--86)
II-47
<PAGE>
PAYOUT PROVISIONS (Continued)
For the Interest Payment Option, residue on any date means any unpaid balance
with interest to that date.
WITHDRAWAL OF RESIDUE.--Unless otherwise stated when the option is chosen: (1)
under the Life Income Option and the Supplemental Life Annuity Option the
residue may be withdrawn; and (2) under the Interest Payment Option all, or any
part not less than $100, of the residue may be withdrawn. If the Interest
Payment Option residue is reduced to less than $1,000, we have the right to pay
it in one sum. Under the Life Income Option and the Supplemental Life Annuity
Option, withdrawal of the residue will not affect any payments that may become
due after the certain period; the value of those payments cannot be withdrawn.
Instead, the payments will start again if they were based on the life of a
person who lives past the certain period.
RECAPTURE OF ADDITIONAL AMOUNTS.--Before we make payments under any of the above
options, we will reduce the contract fund by the recapture of additional amounts
in the same way as we would if you had surrendered the contract for its cash
value (see page 12).
WITHDRAWAL CHARGES.--Before we make payments. under either the Life Income
Option or the Interest Payment Option, we will also reduce the contract fund by
a withdrawal charge in the same way we we would if you had surrendered the
contract for its cash value (see page 11).
ENDORSEMENTS
(Only we can endorse this contract.)
Page 14 (VIP--86)
II-48
<PAGE>
ANNUITY SETTLEMENT TABLE
AMOUNTS PAYABLE.--If the Annuity Date is a contract anniversary, for the Life
Income Option we will use the table below to compute the amount of the annuity
payment. The amounts we show are based on the Annuitant's sex and age last
birthday on the Annuity Date.
If the Annuity Date is not a contract anniversary, for each completed quarter
year after the most recent anniversary we will adjust the amounts.
When we computed the amounts we show in the tables, we adjusted the 1983 Table
A to an age last birthday basis, less three years; we used an interest rate of
3 1/2% a year. If the age is over 80, the rate for age 80 will be used. We will
let you know the amounts if you ask for them. Settlements under the Life Income
Option will share in our surplus to the extent and in the way we decide.
Other forms of annuity may be provided, subject to Prudential's consent, or as
may be required by any applicable law or regulation.
Amount of Annuity Payment under the Life Income Option
for each $1,000 applied on the Annuity Date
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
AGE MALE FEMALE AGE MALE FEMALE
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
41 $3.88 $3.67 61 $5.25 $4.79
42 3.92 3.70 62 5.36 4.89
43 3.97 3.74 63 5.48 4.98
44 4.01 3.78 64 5.60 5.09
45 4.06 3.82 65 5.73 5.20
46 4.12 3.86 66 5.87 5.31
47 4.17 3.90 67 6.01 5.43
48 4.23 3.94 68 6.15 5.56
49 4.28 3.99 69 6.30 5.70
50 4.35 4.04 70 6.46 5.84
51 4.41 4.09 71 6.62 5.99
52 4.48 4.15 72 6.79 6.15
53 4.55 4.21 73 6.96 6.31
54 4.62 4.27 74 7.13 6.49
55 4.70 4.33 75 7.30 6.67
56 4.78 4.40 76 7.48 6.85
57 4.86 4.47 77 7.66 7.04
58 4.95 4.54 78 7.83 7.24
59 5.05 4.62 79 8.00 7.44
60 5.15 4.71 80 8.17 7.64
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
ENDORSEMENTS
(Only we can endorse this contract.)
Page 15 (VIP--86)
II-49
<PAGE>
GUIDE TO CONTENTS
Page
Contract Data .......................................................... 3
Contract Summary ....................................................... 5
General Provisions ..................................................... 6
Definitions; Annual Report; Contract
Modifications; Change of Annuity Date;
Removal of an Annuitant;
Ownership and Control;
Currency; Misstatement of Age or Sex;
Incontestability; Proof of Survival or Death;
Assignment; Changes by Prudential;
Voting Rights
Purchase Payments ...................................................... 8
Additional Amounts
Beneficiary ............................................................ 3 & 8
Separate Account ....................................................... 9
The Account; Subaccounts; The Fund; Account
Investments; Change in
Investment Policy; Change of Fund
Fixed Account .......................................................... 9
The Fixed Account, Fixed Account Options
Death of Annuitant ..................................................... 10
Transfers .............................................................. 10
Transfers among Subaccounts and into
the Fixed Account; Transfers Among Fixed
Account Options and into the Subaccounts
Contract Fund and Contract Value Options ...............................11 & 12
Contract Fund; Invested Purchase Amount;
Investment Amount; Cash Value;
Withdrawal Charges (Deferred Contingent Sales
Charges); Recapture of Additional Amount;
Annual Maintenance Charge; Conditions
for Withdrawal or Surrender; Guaranteed
Interest; Excess Interest
Payout Provisions ...................................................... 13
Choosing an Option; Conditions;
When No Option Chosen; Options Described;
Life Income Option; Interest Payment Option;
Supplemental Life Annuity Option;
Residue Described; Withdrawal of Residue;
Recapture of Additional Amounts;
Withdrawal Charges
Annuity Settlement Table ............................................... 15
Page 16 (VIP--86)
II-50
<PAGE>
Page 17 (VIP--86)
II-51
<PAGE>
Page 18
VARIABLE ANNUITY CONTRACT WITH FLEXIBLE PURCHASE PAYMENTS--MONTHLY ANNUITY
PAYMENTS STARTING ON ANNUITY DATE. PAYMENT AS STATED UPON DEATH BEFORE ANNUITY
DATE. PURCHASE PAYMENTS PAYABLE DURING LIFETIME(S) OF ANNUITANT(S) UNTIL ANNUITY
DATE. CASH VALUES REFLECT INVESTMENT RESULTS.
VlP--86
II-52
EXHIBIT 4A(ii)
- --------------------------------------------------------------------------------
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
The Prudential [LOGO] a mutual life insurance company
PRUDENTIAL PLAZA, NEWARK, NEW JERSEY 07101
ANNUITANT(S) JOHN DOE XX XXX XXX CONTRACT NUMBER
MARY DOE NOV 1, 1988 CONTRACT DATE
ANNUITY DATE NOV 1, 2013
AGENCY R-NK 1
- --------------------------------------------------------------------------------
This is an annuity contract. Subject to the provisions of this contract, and in
consideration of your purchase payment(s), we will make annuity payments
starting on the Annuity Date we show above.
Please read this contract with care. If there is ever a question about it, or if
there is a claim, just see one of our representatives or get in touch with one
of our offices.
BENEFITS AND VALUES UNDER THIS CONTRACT MAY BE ON A VARIABLE BASIS. AMOUNTS
DIRECTED INTO ONE OR MORE OF THE VARIABLE INVESTMENT OPTIONS WILL REFLECT THE
INVESTMENT EXPERIENCE OF THOSE INVESTMENT OPTIONS. THEY ARE SUBJECT TO CHANGE
BOTH UP AND DOWN AND ARE NOT GUARANTEED AS TO DOLLAR AMOUNT EXCEPT AS PROVIDED
UNDER THE DEATH OF ANNUITANT AND PAYOUT PROVISIONS SECTIONS.
RIGHT TO CANCEL CONTRACT.--Not later than ten days after you get this contract,
you may return it to us. All you have to do is take it or mail it to one of our
offices or to the representative who sold it to you. The contract will be
cancelled and we will promptly give you the amount of your contract fund on the
date your request is received less any portion of the fund attributable to the
additional amounts we describe under Purchase Payments. We will also give back
any charges we made in accord with this contract.
Signed for Prudential.
/s/ SPECIMEN /s/ SPECIMEN
------------------ -------------------
Secretary President
VARIABLE ANNUITY CONTRACT WITH FLEXIBLE PURCHASE PAYMENTS.--MONTHLY ANNUITY
PAYMENTS STARTING ON ANNUITY DATE. PAYMENT AS STATED UPON DEATH BEFORE ANNUITY
DATE. PURCHASE PAYMENTS MAY BE MADE DURING LIFETIME(S) OF ANNUITANT(S) UNTIL
ANNUITY DATE. CONTRACT VALUES REFLECT INVESTMENT RESULTS.
- --------------------------------------------------------------------------------
VAC--89
II-53
<PAGE>
- --------------------------------------------------------------------------------
GUIDE TO CONTENTS
Page
Contract Data ........................................................ 3
Purchase Payments .................................................... 5
Purchase Payments; Invested Purchase
Payment; Allocations; Additional Amounts;
Purchase Payments Specifications
Contract Fund ........................................................ 6
Contract Fund; Guaranteed Interest; Excess
Interest; Earnings; Annual Maintenance Charge;
Cash Value; Contract Fund Specifications
Withdrawals .......................................................... 7 & 8
Conditions for Withdrawal; Withdrawal Charges;
Charge-Free Withdrawal of Earnings; Other
Charge-Free Withdrawals; Application of
Withdrawal Charge; Recapture of Additional
Amount; Withdrawals Specifications
Separate Accounts .................................................... 8
Separate Account; Variable Investment Options;
Separate Account Investments
Fixed Rate Options ................................................... 8
Transfers ............................................................ 9
Death of Annuitant ................................................... 9
Before the Annuity Date; After the Annuity
Date; If Two Annuitants Die
Beneficiary .......................................................... 9 & 10
Payout Provisions ................................................... 10 & 11
Choosing an Option; Conditions; Options
Described; Life Income Option; Interest
Payment Option; Other Options; When No
Option Chosen; Residue Described; Withdrawal
of Residue; Recapture of Additional Amounts;
Withdrawal Charges
Annuity Settlement Table ............................................ 12
Amounts Payable
Definitions ......................................................... 13
General Provisions .................................................. 13--15
Annual Report; The Contract; Contract
Modifications; Change of Annuity Date;
Removal of an Annuitant; Ownership and
Control; Currency; Misstatement of Age or Sex;
Incontestability; Proof of Life or Death;
Assignment; Changes by Prudential; Requested
Transactions; Participation (Dividends)
(VAC--89)
Page 2
II-54
<PAGE>
CONTRACT DATA
ANNUITANT(S) JOHN DOE XX XXX XXX CONTRACT NUMBER
MARY DOE NOV. 1, 1988 CONTRACT DATE
ANNUITY DATE NOV. 1, 2013
AGENCY R-NK 1
FIRST ANNUITANT:
NAME JOHN DOE
SEX AND ISSUE AGE M-35
DATE OF BIRTH 3-15-53
CO-ANNUITANT:
NAME MARY DOE
SEX AND ISSUE AGE F-32
DATE OF BIRTH 10-1-55
BENEFICIARY: CLASS 1--ROBERT DOE
SON OF ANNUITANTS
CLASS 2--BARBARA SMITH
SISTER OF CO-ANNUITANT
PURCHASE PAYMENT
THE PURCHASE PAYMENT IS $10,000.00
INTEREST RATES
FOR THE PORTION OF THE CONTRACT FUND IN THE FIXED ACCOUNT: SEE GUARANTEED
INTEREST AND EXCESS INTEREST ON PAGE 6.
CONTRACT DATA CONTINUED ON NEXT PAGE
Page 3 (VAC--89)
II-55
<PAGE>
CONTRACT NO. XX XXX XXX
LIST OF INVESTMENT OPTIONS
I. THE PRUDENTIAL INDIVIDUAL VARIABLE CONTRACT ACCOUNT
This account is registered with the SEC under the Investment Company Act of
1940. Each investment option of this account invests in a specific
portfolio of The Prudential Series Fund. The fund is registered with the
SEC under the Investment Company Act of 1940 as an open-end diversified
management investment company. The fund has several portfolios. We show
below the available investment options and the fund portfolios they invest
in.
INVESTMENT FUND
OPTION PORTFOLIO
---------- ---------
Money Market Money Market
Bond Bond
Common Stock Common Stock
Aggressively Managed Flx Aggressively Managed Flx
Conservative Managed Flx Conservative Managed Flx
High Yield Bond High Yield Bond
High Dividend Stock High Dividend Stock
Natural Resources Natural Resources
Stock Index Stock Index
II. THE PRUDLNTIAL REAL PROPERTY ACCOUNT
This account is not registered with the SEC under the Investment Company
Act of 1940. The following investment option is available.
INVESTMENT
OPTION
----------
Real Property
III. FIXED INVESTMENT OPTIONS
The fixed investment options are funded by the general account of the
Company. The following investment option is available.
INVESTMENT
OPTION
----------
Fixed Interest Rate
***** END OF LIST *****
SCHEDULE OF INITIAL ALLOCATION OF INVESTED PURCHASE PAYMENTS
Money Market 20%
Cornmon Stock 60%
Fixed Interest Rate 20%
***** END OF SCHEDULE *****
Page 3A (VAC--89)
II-56
<PAGE>
ENDORSEMENTS
(Only we can endorse this contract.)
page 4 (VAC--89)
II-57
<PAGE>
- --------------------------------------------------------------------------------
PURCHASE PAYMENTS
PURCHASE PAYMENTS
The purchase payment we show on page 3 is due on the contract date. Additional
purchase payments may be made at any time while an annuitant is living and
before the annuity date. The minimum amounts we will accept are shown under
Purchase Payments Specifications. We reserve the right to establish a maximum
amount.
INVESTED PURCHASE PAYMENT
This is the portion of a purchase payment that we add to the contract fund (See
Contract Fund). It is equal to the purchase payment plus any additional amounts,
minus any deduction for state and local premium taxes.
ALLOCATIONS
You may allocate all or a part of your invested purchase payment to the fixed
rate option or to one or more of the variable investment options listed in the
contract data pages. You may choose to allocate nothing to a particular option.
Any allocation you make must be at least 10%; you may not choose a fractional
percent. The initial allocation of invested purchase amounts is shown in the
contract data pages. If, after you have made at least one purchase payment, we
received a purchase payment without instructions, we will make any deduction for
state and local premium taxes and allocate the balance in the same proportions
as the most recent purchase payment you made. You may change the allocation for
future invested purchase payments at any time. The change will take effect on
the date we receive your notice at our Home Office.
ADDITIONAL AMOUNTS
During the first three contract years, and in later contract years at our
discretion, we will credit to every purchase payment you make an additional
amount equal to the amount of the purchase payment multiplied by the rate shown
under Purchase Payments Specifications. We reserve the right to limit such
additional amounts to $1,000 in each contract year. This additional amount will
not be subject to state or local premium taxes and will be allocated among the
fixed rate option and the variable investment options in the same proportions as
the corresponding purchase payment.
PURCHASE PAYMENTS SPECIFICATIONS
o Your minimum initial purchase payment is $10,000.
o Your minimum subsequent purchase payment is $5,000.
o Your additional amount rate is 1%.
(VAC--89)
Page 5
II-58
<PAGE>
- --------------------------------------------------------------------------------
CONTRACT FUND
CONTRACT FUND
On the contract date, the contract fund is equal to the invested purchase
payment minus any of the charges described in items (e) through (i) below which
may have been due on that date. On any day after that, the contract fund is
equal to what it was on the previous day, plus any invested purchase payments
credited that day, plus these items:
(a) any increase due to investment results in that portion of the contract
fund allocated to one or more variable investment options.
(b) guaranteed interest at the annual rate shown under Contract Fund
Specifications on that portion of the contract fund that is in a fixed
rate option; and
(c) any excess interest on that portion of the contract fund that is in a
fixed rate option minus these items:
(d) any decrease due to investment results in that portion of the contract
fund allocated to one or more variable investment options;
(e) a mortality and expense risk charge against that portion of the contract
fund allocated to one or more variable investment options at a rate shown
under Contract Fund Specifications;
(f) an administration charge against that portion of the contract fund
allocated to one or more of the variable investment options at a rate
shown under Contract Fund Specifications;
(g) any annual maintenance charge that we show under Contract Fund
Specifications;
(h) any amount charged against the contract fund for federal or state income
taxes; and
(i) any withdrawals, withdrawal charges, and recapture of additional amounts.
GUARANTEED INTEREST
On any portion of the contract fund in a fixed rate option, we will credit
interest each day at the daily equivalent of the guaranteed rate shown under
Contract Fund Specifications.
EXCESS INTEREST
We may credit excess interest in addition to the guaranteed interest on any
portion of the contract fund not in a variable investment option. The rate of
any excess interest will be determined from time to time and will continue
thereafter until a new rate is determined. We may use different rates of excess
interest for different portions of the contract fund.
EARNINGS
As of any date, earnings are the excess, if any, of (1) the contract fund plus
any amounts previously withdrawn, over (2) total invested purchase payments to
date.
ANNUAL MAINTENANCE CHARGE
On each contract anniversary before the Annuity Date, or at the time of a full
withdrawal, we may deduct a maintenance charge from your contract fund. The
amount we may deduct is shown under Contract Fund Specifications. If the
contract fund is allocated to more than one investrnent option, we will divide
the charge on a pro-rata basis, according to the value of each.
CASH VALUE
Your cash value (full withdrawal amount) at any time is the contract fund, minus
any withdrawal charges that apply, minus any additional amount which is subject
to recapture.
CONTRACT FUND SPECIFICATIONS
o Your guaranteed annual interest rate is 4% on the portion of your contract
fund in a fixed rate option.
o Your mortality and expense risk charge rate is no more than .00272616% a day
(1% a year).
o Your administration charge rate is no more than .00054740% a day (.2% a year).
o If your contract fund is less than $10,000 on a contract anniversary or at
the time of a full withdrawal, the annual maintenance charge is $30.
Otherwise, the annual maintenance charge is $0.
(VAC--89)
Page 6
II-59
<PAGE>
- --------------------------------------------------------------------------------
WITHDRAWALS
Before the annuity date, you may be able to make full or partial withdrawals.
CONDITIONS FOR WITHDRAWAL
You may make a full withdrawal at any time. You may make a partial withdrawal if
it is at least equal to the minimum withdrawal amount shown under Withdrawals
Specifications and if the remaining contract fund is at least equal to the
minimum contract fund after withdrawal shown under Withdrawals Specifications.
WITHDRAWAL CHARGES
When you make a withdrawal, it may be subject to a charge. To determine this
charge, we first remove from the amount of the withdrawal any amounts that are
not subject to a withdrawal charge.
CHARGE-FREE WITHDRAWAL OF EARNINGS
Earnings (see Contract Fund) are not subject to a withdrawal charge. Therefore,
before we compute any withdrawal charge we deduct any earnings not previously
withdrawn from the amount of the withdrawal.
OTHER CHARGE-FREE WITHDRAWALS
After we deduct earnings but before we compute any withdrawal charge, we then
deduct any charge-free withdrawal amount not previously withdrawn from any
remaining withdrawal amount. In any contract year, the charge-free withdrawal
amount equals the charge-free withdrawal rate shown under Withdrawal
Specifications times your contract fund valued as of the date of the first
withdrawal in that contract year. This amount is also not subject to a
withdrawal charge. Charge-free withdrawal amounts do not accumulate from
contract year to contract year.
APPLICATION OF WITHDRAWAL CHARGE
After making these deductions, any remaining withdrawal amount is subject to a
withdrawal charge. For the purpose of determining the charge, we consider any
remaining withdrawal to consist of purchase payment(s) not previously withdrawn.
The charge rate depends on the duration from the start of the contract year of
purchase payment to the start of the contract year of withdrawal. Therefore, we
may use different charge rates on different portions of the withdrawal if the
withdrawal is of two or more purchase payments made in more than one contract
year. We consider the first purchase payment not previously withdrawn to be
withdrawn first, the second next, and so on. The withdrawal charge rate for each
duration is shown in a chart under Withdrawals Specifications.
RECAPTURE OF ADDITIONAL AMOUNT
We may recapture additional amounts (see Purchase Payment) if you make a
withdrawal that consists partially or fully of one or more purchase payments. If
the duration from the start of the contract year when you made the purchase
payment being withdrawn to the start of the contract year when you withdraw it
is less than the additional amount recapture period shown under Withdrawals
Specifications, we will recapture the exact amount of any additional amounts
credited as a result of the purchase payment(s) you withdraw.
(VAC--89)
Page 7
II-60
<PAGE>
WITHDRAWALS SPECIFICATIONS
o Your withdrawal charge rates are as follows:
If the duration from the start of the contract year when you made
the purchase payment being withdrawn to the start of the contract
year when you withdrew it is . . .
The
rate is ...
Zero (Withdrawal made in the same contract year as the payment) .... 7%
One Year ........................................................... 7%
Two Years .......................................................... 7%
Three Years ........................................................ 6%
Four Years ......................................................... 5%
Five Years ......................................................... 4%
Six Years or more .................................................. 0%
o Your minimum withdrawal amount is $500.
o Your minimum contract fund after withdrawal is $500.
o Your charge-free withdrawal rate is 10%.
o Your additional amount recapture period is 6 years.
- --------------------------------------------------------------------------------
SEPARATE ACCOUNTS
SEPARATE ACCOUNT
The words "separate account" when we use them in this contract without
qualification, mean any separate account we establish to support variable
annuity contracts like this one. We list the separate accounts available to you
in the contract data pages. A separate account may or may not be registered with
the SEC under the Investment Company Act of 1940. The contract data pages will
tell you whether or not a particular separate account is so registered.
VARIABLE INVESTMENT OPTIONS
A separate account may offer one or more variable investment options. We list
them in the contract data pages. We may establish additional variable investment
options. We will notify you within one year if we do so. Income and realized and
unrealized gains and losses from assets in each variable investment option are
credited to, or charged against, that variable investment option.
SEPARATE ACCOUNT INVESTMENTS
We may invest the assets of different separate accounts in different ways. But
we will do so only with the consent of the SEC and, where required, of the
insurance regulator where this contract is delivered. We will always keep assets
in the separate accounts with a total value at least equal to the amount of the
variable investment options under contracts like this one. To the extent those
assets do not exceed that amount, we use them only to support those contracts we
do not use those assets to support any other business we conduct. We may use any
excess over that amount in any way we choose. We will determine the value of the
assets in each separate account and any variable investment option at regular
intervals.
FIXED RATE OPTIONS
You may allocate all or part of your invested purchase payment to a fixed rate
option listed in the contract data pages. Fixed rate options are credited with
interest as described under Contract Fund.
(VAC--89)
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<PAGE>
- --------------------------------------------------------------------------------
TRANSFERS
You may make four transfers in a policy year. There is no charge for these
transfers. You may transfer amounts into or out of variable investment options
of separate accounts registered under the Investment Company Act of 1940 and
into the fixed rate options at any time. Other transfers are allowed only with
our consent. Any transfer will take effect on the date we receive your request
at our Home Office.
- --------------------------------------------------------------------------------
DEATH OF ANNUITANT
BEFORE THE ANNUITY DATE
If a sole or last surviving annuitant dies before the Annuity Date, we will pay
the beneficiary the greater of (a) the contract fund and (b) minimum proceeds,
both determined as of the date we receive due proof of death. If no withdrawals
have been made, minimum proceeds is the sum of all invested purchase payments.
Any withdrawal reduces minimum proceeds in the same proportion as it reduces
your contract fund.
AFTER THE ANNUITY DATE
If the Annuitant dies on or after the Annuity Date, the settlement then in
effect will govern whether and to whom we will make any payment(s).
IF TWO ANNUITANTS DIE
If two annuitants named in the contract die and there is not sufficient evidence
that they died otherwise than simultaneously, the proceeds of the contract will
be distributed as if the First Annuitant had survived the Co-Annuitant.
- --------------------------------------------------------------------------------
BENEFICIARY
You may designate or change a beneficiary. Your request must be in writing and
in a form which meets our needs. It will take effect only when we file it at our
Home Office; this will be after you send the contract to us to be endorsed, if
we ask you to do so. Then any previous beneficiary's interest will end as of the
date of the request. It will end then even if no annuitant is living when we
file the request. Unless otherwise stated, we will make payment to the
beneficiary only if the last surviving or sole annuitant dies before the Annuity
Date. Any beneficiary's interest is subject to the rights of any assignee we
know of.
When a beneficiary is designated, any relationship shown is to the Annuitant
(First Annuitant if two annuitants are named on page 3) unless otherwise stated.
To show priority, we may use numbered classes, so that the class with first
priority is called class 1, the class with next priority is called class 2, and
so on. When we use numbered classes, these statements apply to beneficiaries
unless the form states otherwise: (In these provisions and in the Example, the
term "annuitant" refers, where two annuitants are named, to the last surviving
annuitant.)
1. One who survives the annuitant will have the right to be paid only if no
one in a prior class survives the annuitant.
2. One who has the right to be paid will be the only one paid if no one else
in the same class survives the annuitant.
(VAC--89)
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<PAGE>
3. Two or more in the same class who have the right to be paid will be paid in
equal shares.
4. If none survives the annuitant, we will pay in one sum to the annuitant's
estate.
Example: Suppose the class 1 beneficiary is Jane and the class 2 beneficiaries
are Paul and John. If the annuitant dies before the Annuity Date, we owe Jane
the proceeds if she is living at the annuitant's death. We owe Paul and John
the proceeds if they are living then but Jane is not. But if only one of them is
living, we owe him the proceeds. If none of them is living, we owe the
annuitant's estate.
Before we make a payment, we have the right to decide what proof we need of the
identity, age or any other facts about any persons designated as beneficiaries.
If beneficiaries are not designated by name and we make payment(s) based on that
proof, we will not have to make the payment(s) again.
- --------------------------------------------------------------------------------
PAYOUT PROVISIONS
CHOOSING AN OPTION
You may have the amount of your contract fund on the Annuity Date used to
provide an income to the Annuitant(s) under one of the options we describe
below. But, for any annuity settlement, we will first deduct from your contract
fund any charge for state and local premium taxes, any recapture of additional
amounts, and any withdrawal charges. We offer the same annuity options to the
Payee that we offer to an annuitant. And we determine monthly payments for the
Payee in the same way we do for an annuitant.
CONDITIONS
Your right to choose an option is subject to all these conditions: (1) You must
ask for the option in writing and in a form which meets our needs. (2) You must
send the contract to us to be endorsed. (3) If we require it, you must give us
proof of the date of birth of the person on whose life an annuity payment is
based. (4) We must have your request, the contract and any required proof(s) of
the date(s) of birth before the Annuity Date.
Your choice of an option will take effect on the Annuity Date but only if: (1)
the person on whose life the annuity is to be based is living on that date; (2)
the first payment under the option will be at least $50; and (3) you do not
void the choice by making a later choice before the Annuity Date.
If two annuitants are named in the Contract and both are living, settlement will
be made on the life of the First Annuitant, as named on page 3.
OPTIONS DESCRIBED
When we use the word annuitant in the following paragraphs we mean the annuitant
for whom the annuity described was chosen and who is to receive settlement under
the annuity.
For an annuitant, the first payment under these options is due on the Annuity
Date.
For a Payee, unless a later date is requested, the first payment will be due on
the first day of the earliest calendar month on or after the day the Home Office
has received the request for the settlement and due proof of the annuitant's
death and such claim forms and other evidence as may be satisfactory to us.
(VAC--89)
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<PAGE>
Here are the options we offer. We may also consent to other arrangements.
LIFE INCOME OPTION
You may choose monthly payments for as long as the annuitant lives, with 120
monthly payments certain.
INTEREST PAYMENT OPTION
We will hold an amount at interest. We will pay interest at an effective rate of
at least 3% a year ($30.00 annually, $14.89 semi-annually, $7.42 quarterly or
$2.47 monthly per $1,000). We may pay more interest.
OTHER OPTIONS
We may offer other options. Contact one of our representatives or get in touch
with one of our offices for information.
WHEN NO OPTION CHOSEN
If no choice takes effect on the Annuity Date, settlement under the Interest
Payment Option will become effective.
RESIDUE DESCRIBED
For the Life Income Option, residue on any date means the then present value of
any unpaid payments certain. It does not include the value of any payment that
may become due after the certain period. For the Life Income Option, we will
compute the residue at an effective interest rate of 3 1/2% a year. But we will
use the interest rate we used to compute the actual Life Income Option payments
if they were not based on the table in this contract.
For the Interest Payment Option, residue on any date means any unpaid balance
with interest to that date.
WITHDRAWAL OF RESIDUE
Unless otherwise stated when the option is chosen: (1) under the Life Income
Option the residue may be withdrawn; and (2) under the Interest Payment Option
all, or any part not less than $100, of the residue may be withdrawn. If the
Interest Payment Option residue is reduced to less than $1,000, we have the
right to pay it in one sum. Under the Life Income Option, withdrawal of the
residue will not affect any payments that may become due after the certain
period; the value of those payments cannot be withdrawn. Instead, the payments
will start again if they were based on the life of a person who lives past the
certain period.
RECAPTURE OF ADDITIONAL AMOUNTS
Before we make payments under any option, we will recapture additional amounts
as if you made a full withdrawal (see Withdrawals).
WITHDRAWAL CHARGES
Before we make payments under the Interest Payment Option, we will reduce the
contract fund by a withdrawal charge in the same way as we would if you had made
a full withdrawal (see Withdrawals).
(VAC--89)
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<PAGE>
- --------------------------------------------------------------------------------
ANNUITY SETTLEMENT TABLE
AMOUNTS PAYABLE
If the Annuity Date is a contract anniversary, for the Life Income Option we
will use the table below to compute the amount of the annuity payment. The
amounts we show are based on the Annuitant's sex and age last birthday on the
Annuity Date.
If the Annuity Date is not a contract anniversary, we will adjust the amounts
accordingly.
When we computed the amounts we show in the tables, we adjusted the 1983 Table
A to an age last birthday basis, less three years; we used an interest rate of
3 1/2% a year. If the age is over 80, the rate for age 80 will be used.
Settlements under the Life Income Option will share in our surplus to the extent
and in the way we decide.
AMOUNT OF ANNUITY PAYMENT UNDER THE LIFE INCOME OPTION FOR
EACH $1,000 APPLIED ON THE ANNUITY DATE
- --------------------------------------------------------------------------------
AGE MALE FEMALE AGE MALE FEMALE
================================================================================
41 $3.88 $3.67 61 $5.25 $4.79
42 3.92 3.70 62 5.36 4.89
43 3.97 3.74 63 5.48 4.98
44 4.01 3.78 64 5.60 5.09
45 4.06 3.82 65 5.73 5.20
46 4.12 3.86 66 5.87 5.31
47 4.17 3.90 67 6.01 5.43
48 4.23 3.94 68 6.15 5.56
49 4.28 3.99 69 6.30 5.70
50 4.35 4.04 70 6.46 5.84
51 4.41 4.09 71 6.62 5.99
52 4.48 4.15 72 6.79 6.15
53 4.55 4.21 73 6.96 6.31
54 4.62 4.27 74 7.13 6.49
55 4.70 4.33 75 7.30 6.67
56 4.78 4.40 76 7.48 6.85
57 4.86 4.47 77 7.66 7.04
58 4.95 4.54 78 7.83 7.24
59 5.05 4.62 79 8.00 7.44
60 5.15 4.71 80 8.17 7.64
- --------------------------------------------------------------------------------
(VAC--89)
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<PAGE>
- --------------------------------------------------------------------------------
DEFINITIONS
We define here some of the words and phrases used in this contract. We explain
others, not defined here, in other parts of the text.
WE, OUR AND US.--Prudential.
YOU AND YOUR.--The owner of the contract.
ANNUITANT(S).--The person or persons named on the first page. If two persons are
named, one of the two is named on Page 3 as First Annuitant, the other as
Co-Annuitant. In that case, the Beneficiary provisions of the contract will be
based on the death of the last survivor of the persons so named. The owner need
not be an annuitant.
PAYEE.--A beneficiary who has a right to receive a settlernent under this
contract.
SEC.--The Securities and Exchange Commission.
CONTRACT DATE.--The date we receive the purchase payment at our Home Office. We
show the Contract Date on page 3.
ISSUE DATE.--The Contract Date.
ANNUITY DATE.--The date the first annuity payment is due. We show the Annuity
Date on page 3.
ANNIVERSARY OR CONTRACT ANNIVERSARY.--The same day and month as the Contract
Date in each later year.
EXAMPLE: If the contract date is June 10, 1989, the first anniversary is June
10, 1990. The second is June 10, 1991, and so on.
CONTRACT YEAR.--A year which starts on the Contract Date or on an Anniversary.
Example: If the contract date is June 10, 1989, the first Contract Year starts
then and ends on June 9, 1990. The second starts on June 10, 1990 and ends on
June 9, 1991.
Attained Age.--An annuitant's attained age at any time is his or her issue age
plus the length of time since the contract date. You will find the issue age(s)
on page 3.
- --------------------------------------------------------------------------------
GENERAL PROVISIONS
ANNUAL REPORT
Once each contract year after the first and before the Annuity Date we will send
you a report. It will show (1) the amount of the contract fund in each
investment option; (2) purchase payments during the year; (3) investment
results; and (4) charges and withdrawals during the year. The report will
include any other data that may be currently required where this contract is
delivered. You may ask for a report like this at any time. But, except for the
report we send you once a year, we have the right to charge a fee for each
report.
(VAC--89)
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<PAGE>
THE CONTRACT
This document forms the whole contract. The consideration for the contract is
the purchase payment we show on page 3.
CONTRACT MODIFICATIONS
Only a Prudential officer may agree to modify this contract, and then only in
writing.
CHANGE OF ANNUITY DATE
You may be able to change your annuity date. But any change may be made only if
we consent, and will be subject to conditions that are then determined.
REMOVAL OF AN ANNUITANT
If a First Annuitant and a Co-Annuitant are named, we will remove one from the
contract upon: (1) receipt of your written request to remove that annuitant; or
(2) receipt of due proof that the Annuitant has died.
OWNERSHIP AND CONTROL
Unless we endorse this contract to say otherwise: (1) the owner of the contract
is the Annuitant (the First Annuitant, if two are named); (2) while any
annuitant is living the owner alone is entitled to (a) any contract benefit and
value, and (b) the exercise of any right and privilege granted by the contract
or by us; and (3) if two annuitants are named and the First Annuitant dies while
the Co-Annuitant is living, the Co-Annuitant will become the Owner.
CURRENCY
Any money we pay, or which is paid to us, must be in United States currency. Any
amount we owe will be payable at our Home Office.
MISSTATEMENT OF AGE OR SEX
If any annuitant's stated date of birth or sex or both are not correct, we will
change each benefit and the amount of each annuity payment to that which the
purchase payment would have bought for the correct date of birth and sex. Also,
we will adjust the amount of any payments we have already made. Here is how we
will do it: (1) We will deduct any overpayments, with interest at 5% a year,
from any payment(s) due then or later. (2) We will add any underpayments, with
interest at 5% a year, to the next payment we make after we receive proof of the
correct date of birth and sex.
INCONTESTABILITY
We will not contest this contract unless the purchase payment is not paid.
(VAC--89)
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<PAGE>
PROOF OF LIFE OR DEATH
Before we make a payment, we have the right to require proof of the life or
death of any person whose life or death determines whether or to whom we must
make the payment.
ASSIGNMENT
We will not be deemed to know of an assignment unless we receive it, or a copy
of it, at our Home Office. We are not obliged to see that an assignment is valid
or sufficient. If any annuitant is living on the Annuity Date and an assignment
is in effect on that date, we have the right to pay the full withdrawal in one
sum. This contract may not be assigned to another insurance company without our
consent.
CHANGES BY PRUDENTIAL
We reserve the right, upon 90 days notice to you to:
1. change the minimum amount requirements specified for payments, allocations,
withdrawals and transfers in the Purchase Payments, Withdrawals, and
Transfers sections;
2. restrict or refuse to accept any purchase payments;
3. change any or all terms and provisions of the Annuity Settlement Table, but
only with respect to any portion of an annuity settlement deriving from
purchase payments made on or after the effective date of the change and
earnings on those purchase payments; and
4. make any changes required by law.
REQUESTED TRANSACTIONS
On any requested transaction, we have the right to require that your request be
in writing. We may also ask for your contract to endorse it.
PARTICIPATION (DIVIDENDS)
This contract is eligible to participate in the divisible surplus of Prudential.
We do not expect that any dividends will be payable on or before the Annuity
Date. While any annuity settlement is in effect, the contract will share in our
surplus to the extent and in the way we decide.
(VAC--89)
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<PAGE>
VARIABLE ANNUITY CONTRACT WITH FLEXIBLE PURCHASE PAYMENTS.--MONTHLY ANNUITY
PAYMENTS STARTING ON ANNUITY DATE. PAYMENT AS STATED UPON DEATH BEFORE ANNUITY
DATE. PURCHASE PAYMENTS MAY BE MADE DURING LIFETIME(S) OF ANNUITANT(S) UNTIL
ANNUITY DATE. CONTRACT VALUES REFLECT INVESTMENT RESULTS.
(VA--89)
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Exhibit 5
April 8, 1997
The Prudential Insurance Company
of America
Prudential Plaza
Newark, New Jersey 07102-3777
Gentlemen:
In my capacity as Chief Counsel, Variable Products, Law Department of The
Prudential Insurance Company of America, I have reviewed the establishment of
The Prudential Variable Contract Real Property Account (the "Account") on
November 25, 1986 by the Finance Committee of the Board of Directors of The
Prudential Insurance Company of America ("Prudential") as a separate account for
assets applicable to certain variable life insurance contracts and variable
annuity contracts, pursuant to the provisions of Section 17B:28-7 of the Revised
Statutes of New Jersey. I was responsible for the oversight of the preparation
and review of the Registration Statement on Form S-1, as amended, filed by
Prudential with the Securities and Exchange Commission (Registration No.
33-20083) under the Securities Act of 1933 for the registration of the Account.
I am of the following opinion:
(1) Prudential was duly organized under the laws of New Jersey and is a
validly existing corporation.
(2) The Account has been duly created and is validly existing as a
separate account pursuant to the aforesaid provisions of New Jersey
law.
(3) The portion of the assets held in the Account equal to the reserves
and other liabilities for variable benefits under the variable life
insurance contracts and variable annuity contracts is not chargeable
with liabilities arising out of any other business Prudential may
conduct.
(4) The variable life insurance contracts and variable annuity contracts
are legal and binding obligations of Prudential in accordance with
their terms.
In arriving at the foregoing opinion, I have made such examination of law and
examined such records and other documents as I judged to be necessary or
appropriate.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement.
Very truly yours,
/s/
- ---------------------------------
Clifford E. Kirsch
II-70
EXHIBIT (10A)
INVESTMENT MANAGEMENT AGREEMENT
INVESTMENT MANAGEMENT AGREEMENT, dated as of April 29, 1988, between The
Prudential Insurance Company of America ("Prudential"), a mutual life insurance
company organized under the laws of New Jersey, and The Prudential Variable
Contract Real Property Partnership (the "Partnership"), a general partnership
organized under the laws of New Jersey.
WITNESSETH THAT:
WHEREAS, The Partnership has been established to provide a means for
investing and reinvesting the assets allocated to real estate investment options
under the variable life and variable annuity contracts issued by Prudential and
under such contracts issued by affiliated life insurance companies; and
WHEREAS, Prudential has extensive experience in the acquisition and
management of real estate equities, mortgages, land sale-leasebacks and other
investments (including short-term and intermediate-term debt instruments) that
satisfy the investment policies of the Partnership; and
WHEREAS, The Partnership desires that Prudential act as the Partnership's
investment manager; and
WHEREAS, Prudential desires to accept such appointment, on the terms and
conditions set forth herein.
NOW, THEREFORE, The Partnership and Prudential agree as follows:
II-71
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1. Prudential shall act as the investment manager of the Partnership for a
daily investment management fee equal to an aggregate 1.25% per year of the
average daily gross assets of the Partnership. The Partnership shall also bear
all of its actual operating expenses. The Partnership acknowledges that
Prudential engages in real estate investment activities on its own behalf and
manages other real estate investment portfolios for separate accounts,
subsidiaries, real estate investment trusts, limited partnerships, and other
entities, and further acknowledges that such activities may be in competition
with the Partnership for the acquisition and disposition of investments and the
time and services of Prudential's employees.
2. Prudential shall manage the investment and reinvestment of assets held
by the Partnership in a manner consistent with the prospectuses for the separate
accounts participating in the Partnership contained in the then-current
registration statements for such accounts on file with the Securities and
Exchange Commission. The Partnership has delivered or will deliver to Prudential
copies of such prospectuses and shall promptly furnish Prudential with a copy of
each amendment or supplement thereto.
3. The Partnership shall provide Prudential with instructions for
monitoring the composition of investments of the Partnership to ensure that, in
accordance with a "no-action" position taken by the staff of the Securities and
Exchange Commission, the separate accounts participating in the Partnership do
not become "investment companies" within the meaning of Section 3(a) of the
Investment Company Act of 1940. Prudential shall comply with
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those instructions.
4. Prudential will make such reports regarding the management of the
Partnership as the Partnership may from time to time require. In addition
Prudential shall furnish applicable federal and state regulatory authorities
with any information or reports in connection with its services under this
Agreement which such authorities may request in order to ascertain whether the
Partnership's operations are being conducted in a manner consistent with any
applicable law or regulation.
5. The Partnership shall be ultimately responsible for the management and
control of the Partnership's assets and in furtherance thereof, the Partnership
shall have the right (a) to interpret the investment objectives and policies and
restrictions of the Partnership and direct Prudential to comply therewith, (b)
to direct Prudential to pursue, or not pursue, any investment strategies for the
Partnership, and (c) to direct Prudential to purchase or sell any specific
investments for the Partnership. The Partnership shall also have the right to
change the Partnership's investment objectives, policies and restrictions.
6. Prudential shall maintain such records regarding its management of the
Partnership as the Partnership may require. All records maintained by Prudential
in connection with this Agreement shall be the property of the Partnership and
shall be returned to the Partnership upon termination of this Agreement, free
from any rights of retention. The Partnership shall have the right to inspect,
audit and copy all pertinent records pertaining to the performance of services
under this Agreement. Prudential shall keep
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confidential any information obtained pursuant to this Agreement and shall
disclose such information only if the Partnership has authorized such
disclosure, or if such disclosure is expressly required by applicable regulatory
authorities.
7. The Partnership acknowledges that, in addition to the management fee set
forth in paragraph one of this Agreement, Prudential's management of the
Partnership's assets may result in Prudential or its affiliates obtaining
substantial fee income from the Partnership's assets or from the cash flow of
the Partnership's investments for services rendered in connection with the
Partnership's operations, including, but not limited to, real estate brokerage
commissions and fees for property management services.
8. The term of this Agreement shall be one year, commencing as of the date
set forth above and continuing automatically from year to year thereafter;
provided, however, that this Agreement may be terminated by either party at any
time upon not less than 15 days' prior written notice to the other party.
9. This Agreement may not be assigned by either party without the prior
written consent of the other party.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by the undersigned, thereunto duly authorized as of the
date first written.
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<PAGE>
-5-
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
ATTEST:
/s/ By: /s/
- --------------------- ---------------------
Secretary Senior Vice President
and Actuary
THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY PARTNERSHIP
ATTEST: By: PRUCO LIFE INSURANCE COMPANY
(A Ceneral Partner)
/s/ By: /s/
- ----------------------- ---------------------
Assistant Secretary President
II-75
EXHIBIT (10B)
SERVICE AGREEMENT
This Agreement made as of the 31st day of December, 1984, by and between
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("PRUDENTIAL"), a New Jersey
Corporation, and THE PRUDENTIAL INVESTMENT CORPORATION (the "Company"), a New
Jersey Corporation.
WITNESSETH:
In consideration of the mutual promises of the parties hereto as
hereinafter set forth, the parties hereby agree as follows:
1. Company shall furnish to Prudential such services as Prudential may
require in connection with the investment of its own funds and in
connection with the performance of its obligations to provide investment
advisory services to clients which are not registered investment
companies.
2. Prudential desires that services hereunder be performed only by officers
and employees of Company who have appropriate qualifications. Company
agrees to provide to Prudential such information as Prudential may
reasonably request concerning the education and experience of
individuals who it proposes to assign to the performance of such
services and agrees, further, that it will make no such assignment if
such qualifications are not acceptable to Prudential.
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<PAGE>
- 2 -
3. Prudential shall reimburse Company for costs and expenses incurred by
Company in furnishing services hereunder, such costs and expenses to be
determined in a manner acceptable to Prudential. Bills shall be rendered
by Company at least quarterly and shall be paid by Prudential within
thirty (30) days after receipt thereof.
4. This Agreement may be terminated by either party at any time upon not
less than fifteen (15) days prior written notice to the other party.
IN WITNESS WHEREOF, the parties hereto have caused these presents to be
signed by their duly authorized officers and attested by their respective
secretaries or assistant secretaries under their respective seals, all as of the
date first written above.
(SEAL) (SEAL)
THE PRUDENTIAL INSURANCE THE PRUDENTIAL INVESTMENT
COMPANY OF AMERICA CORPORATION
By /s/ By /s/
------------------------------ -------------------------------
Attest: Attest:
/s/ /s/
------------------------------ -------------------------------
Asst. Secretary Secretary
II-77
EXHIBIT (10C)
THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY PARTNERSHIP
--------------------------------
PARTNERSHIP AGREEMENT
BETWEEN
THE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
AND
PRUCO LIFE INSURANCE COMPANY
AND
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
II-78
<PAGE>
PARTNERSHIP AGREEMENT
This PARTNERSHIP AGREEMENT made and entered into on April 29, 1988, by and
between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA ("Prudential"), a New Jersey
corporation, on behalf of The Prudential Variable Contract Real Property Account
("Prudential Account"), PRUCO LIFE INSURANCE COMPANY ("Pruco Life"), an Arizona
corporation authorized to do business in New Jersey, on behalf of the Pruco Life
Variable Contract Real Property Account ("Pruco Life Account") and PRUCO LIFE
INSURANCE COMPANY OF NEW JERSEY ("Pruco Life N.J."), a New Jersey corporation,
on behalf of the Pruco Life of New Jersey Variable Contract Real Property
Account ("New Jersey Account").
RECITALS
A. Pruco Life is the owner of, and holds in the Pruco Life Account, several
improved parcels of real property, loans secured by mortgages on real property
and other assets being more particularly described in the financial statements,
together with the accompanying Schedule of Investments, set forth in Exhibit A
attached hereto.
B. Pruco Life intends to contribute all of the assets held in the Pruco
Life Account at the close of business on April 29, 1988, subject to all the
liabilities of the Account other than the liabilities to variable life insurance
contract owners,
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to a partnership to be formed with Prudential and Pruco Life N.J. and
Prudential and Pruco Life N.J. each intend on April 29, 1988, to contribute
$100,000.00 in cash. The partnership will thereafter own, and will invest and
reinvest the assets contributed on such date together with such other assets as
the partnership may hereafter acquire by contribution from one or more of the
partners or by purchase or other means (collectively, the "Property").
C. Prudential, Pruco Life and Pruco Life N.J. desire to form a partnership
pertaining to the Property for the limited purposes and upon the terms and
conditions hereinafter specified.
NOW, THEREFORE, in order to carry out their intent as expressed above and
in consideration of the mutual agreements hereinafter contained, Prudential,
Pruco Life and Pruco Life N.J. hereby covenant and agree as follows:
ARTICLE 1. FORMATION OF VENTURE
1.1 Formation. Prudential, Pruco Life and Pruco Life N.J. (the "Partners")
hereby form a partnership (the "Partnership") for the limited purposes
hereinafter set forth.
1.2 Name. The name of the Partnership shall be "THE PRUDENTIAL VARIABLE
CONTRACT REAL PROPERTY PARTNERSHIP." The Partnership shall execute all assumed
or fictitious name certificates required by law to be published and filed, or
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either, in connection with the formation and operations of the Partnership.
1.3 Principal Office. The principal office of the Partnership shall be at
213 Washington Street, Newark, New Jersey 07102, or such other place as the
Partners may from time to time determine.
1.4 Partnership Act: Ownership. Except as otherwise stated herein, the
rights and obligations of the Partners and the administration and termination of
the Partnership shall be governed by the New Jersey Uniform Partnership Law,
N.J.S.A. ss.42:1-1, et. seq., as it may be amended from time to time, except as
the Partners may provide otherwise. The interest of each Partner in the
Partnership shall be personal property for all purposes. Legal title to real and
other property owned by the Partnership may be held in the name of either the
Partnership or any one or more of the Partners.
1.5 Purposes. The purposes of the Partnership shall be (1) to provide a
means for the investment of the assets held in the separate accounts of the
Partners in accordance with the investment policies and practices set forth in
the registration statements filed on behalf of those accounts; (2) to own,
operate, sell, lend money secured by an interest in real property and to acquire
additional real property; and (3) to engage in such other operations and
businesses as the Partners or the Investment Manager deem necessary or
appropriate to the foregoing
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purposes. The Partnership shall not engage in any other business.
1.6 No Individual Authority. Except as otherwise expressly provided in this
Agreement, no Partner, acting alone, shall have any authority to act for,
undertake or assume any obligations or responsibility on behalf of another
Partner or the Partnership.
1.7 No Restrictions. Nothing contained in this Agreement shall be construed
so as to prohibit any Partner or any firm or corporation controlled by or
controlling such Partner from owning, operating or investing in any real estate
or real estate development not owned or operated by the Partnership, wherever
located. Each Partner agrees that the other Partners, or any director, officer,
employee, partner or other person or entity related to any Partner may engage in
or possess an interest in another business venture or ventures of any nature and
description, independently or with others, including but not limited to the
ownership, financing, leasing, operation, management, syndication, brokerage and
development of real property, and no Partner nor the Partnership shall have any
rights by virture of this Agreement in and to said independent ventures or to
the income or profits derived therefrom.
1.8. Neither Responsible for Other's Commitments. No Partner nor the
Partnership shall be responsible or liable for any indebtedness or obligation of
any other Partner incurred
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either before or after the execution of this Agreement, except as to those
joint responsibilities, liabilities, debts or obligations incurred pursuant to
the terms of this Agreement, and each indemnifies and agrees to hold the others
harmless from such obligations and debts except as aforesaid.
1.9. Action by Subsidiaries. Any and all activities to be performed by
Prudential hereunder may be performed by officers or employees of one or more
direct or indirect subsidiaries of Prudential provided that all actions taken by
such persons on behalf of Prudential in connection with this Agreement shall be
binding upon Prudential.
ARTICLE 2. TERM
2.1. Term. The Partnership shall commence on the date first above written
and shall continue until the first to occur of the following:
(a) 99 years shall have elapsed since the commencement of the Partnership;
or
(b) Sale or other disposition of all or substantially all of the Property,
other than to a nominee or trustee of the Partnership for financial or
other business purposes; or
(c) Dissolution of the Partnership pursuant to the express provisions of
Article 8; or
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(d) Proceedings in bankruptcy, receivership, reorganization, conservation,
or liquidation are instituted with respect to any of the Partners.
ARTICLE 3. CAPITAL CONTRIBUTIONS OF THE PARTNERS
3.1 Capital of the Partnership. The initial capital of the Partnership
shall be the amounts contributed on April 29, 1988, by the Partners. Thereafter,
the capital shall be equal to the fair market value of the assets owned by it,
minus the liabilities of the Partnership plus such other assets as may hereafter
be contributed to the Partnership by any of the Partners as provided in Section
3.4.
3.2 Initial Contribution of Pruco Life. Pruco Life as its initial capital
contribution to the Partnership, will on April 29, 1988 convey or assign to the
Partnership, all of the assets held on the close of business on that date in the
Pruco Life Account, subject to the liabilities of the Account (other than the
liabilities to life insurance contract owners), which the Partnership hereby
agrees to assume. The amount of that contribution shall be the fair market value
of the net assets of the Pruco Life Account at the end of the day on April 29,
1988, determined in the manner set forth in the prospectus relating to interests
in the Pruco Life Account, dated January 1, 1988.
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3.3 Initial Contribution by Prudential and Pruco Life N.J. Upon the
contribution to the Partnership by Pruco Life on or before the date specified in
Section 3.2 and in the manner therein provided, Prudential and Pruco Life N.J.
will each, on the same date, make a cash contribution of $100,000.00 to the
Partnership, as their respective initial capital contribution.
3.4 Subsequent Contributions. Any Partner may, on any business day, make
additional cash contributions to the Partnership.
3.5 No Other Required Contributions. Except as expressly required by this
Article 3, no Partner shall have any obligation to make any contribution to the
Partnership nor to advance any funds thereto.
3.6 No Interest Payable. No Partner shall receive any interest on its
contributions to the capital of the Partnership.
3.7 Withdrawals. Any Partner may, on any business day, request the
withdrawal of cash from the Partnership, in any amount up to the value of the
Partner's interest in the Partnership in accordance with the provisions of
Article 4.1. Ordinarily payment of the amount requested will be made on the day
following the request. The Partnership reserves the right to defer such payments
for a period of up to six months if the Partners or the Investment Manager
determine that there is insufficient cash available and prompt disposition of
investments
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<PAGE>
-8-
held by the Partnership cannot be made on commercially reasonable terms.
ARTICLE 4. INTERESTS IN THE PARTNERSHIP
4.1 Partners' Percentage Interests in the Partnership. The value of each
partner's interest in the Partnership at the close of business on April 29,
1988, is equal to the net amount contributed by the Partner on that date. The
value of a Partner's interest on any subsequent day is determined by dividing
the value of the net assets of the Partnership at the end of that day (ignoring,
for these purposes, all contributions made on such day and all payments to be
made on that day to Partners as the result of requests for withdrawals) by the
value of the net assets of the Partnership at the end of the preceding business
day, multiplying the result by the value of the Partner's interest on the
preceding business day and then adding any contributions made by such Partner on
such day and subtracting any distributions made to such Partner on such day. The
Percentage Interest of each Partner on any day is equal to the value of such
Partner's interest in the Partnership on the preceding day divided by the
aggregate value of the interests of all the Partners on that day multiplied by
100.
4.2 Valuation of the Net Assets of the Partnership. The net assets of the
Partnership shall be valued in a manner determined by the Partners which will
conform to the
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manner of valuation set forth in the registration statements filed by each of
the Partners with respect to interests in each of their respective separate
accounts.
4.3. Capital Accounts. The capital account of each Partner on any business
day shall be equal to the value of such Partner's interest in the Partnership at
the end of such business day. The capital account of each Partner on any
non-business day shall be equal to its capital account on the next preceding
business day.
4.4 Allocation of Income, Gains and Losses. Except as the Partners may
determine otherwise in order to comply with the Internal Revenue Code and the
regulations thereunder, all items of Partnership income, gains, losses,
deductions and credits shall be allocated among the Partners on the day each
such item is actually received, accrued or realized by the Partnership in
accordance with each Partner's Percentage Interest on such date. The amount of
depreciation on property of the Partnership and taxable gain or loss upon the
sale of any property of the Partnership shall be allocated so as to take proper
account of the difference between the adjusted tax basis of the property to the
Partnership and the value of the property as determined under Article 4.2.
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ARTICLE 5. MANAGEMENT OF THE VENTURE
5.1 Rights and Procedures in Management. Each Partner shall have one vote
in the management of the affairs of the Partnership, irrespective of the amounts
which each Partner has contributed, or may contribute, to the Partnership. The
affirmative votes of two Partners shall be sufficient to authorize any action to
be taken by the Partnership or on behalf of the Partners. Each Partner may
designate any of its officers or employees or any of the officers or employees
of any partner to act as its agent and attorney in connection with the affairs
of the Partnership by naming such officer or employee in a written designation
of agent and power of attorney delivered to the other Partners. Such agent and
attorney may thereafter, without the necessity of further authorization, cast
the vote of such Partner in connection with the management of the Partnership,
otherwise bind such Partner in all matters pertaining to the Partnership, and
execute all documents pertaining to the affairs of the Partnership on behalf of
such Partner. A Partner may revoke or amend any such designation and power of
attorney in a writing delivered to the other Partners.
5.2. Management Agreement. The Partners hereby authorize any Partner, on
behalf of the Partnership, to enter into an Investment Management Agreement with
Prudential, pursuant to which Prudential or subsidiaries of Prudential selected
by it, shall serve as Investment Manager for the Partnership and, in that
capacity, invest and reinvest the assets of the Partnership
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-11-
in accordance with its investment objectives and practices and shall purchase
and sell the properties and securities owned by the Partnership.
5.3 Bank Accounts. The Partnership will maintain separate bank accounts in
such banks as the Partners may designate exclusively for the deposit and
disbursement of all funds of the Partnership. All funds of the Partnership shall
be promptly deposited in such accounts. The Partners from time to time shall
authorize signatories for such accounts.
5.4. Reimbursement for Costs and Expenses. The Partners will fix the
amounts, if any, by which the Partnership will reimburse each Partner for all
costs and expenses incurred by such Partner on behalf and for the benefit of the
Partnership; provided, however, that no overhead or general administrative
expenses of anyone other than the Partnership itself shall be allocated to the
operation of the Partnership, and no salaries, fees, commissions or other
compensations shall be paid by the Partnership to any Partner or to any officer,
employee or affiliate of any Partner for any services rendered to the
Partnership except as may be expressly provided herein or by other written
agreement.
ARTICLE 6. BOOKS AND RECORDS, AUDITS, TAXES, ETC.
6.1 Books; Statements. The Partnership shall keep such books and records as
the Partners shall determine. The
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books and records shall be prepared in accordance with generally accepted
accounting principles consistently applied, except to the extent provided for in
this Agreement or by the Partners. The Partners shall determine the methods to
be used in the preparation of financial statements.
Following the initial contributions to the Partnership pursuant to Article
3 hereof,
(a) on each business day during the term of this Agreement, the Partnership
shall maintain a record of the Percentage Interest of each Partner and of the
value of the interest of each Partner at the end of the day; the value of the
interest of each Partner shall be expressed in dollars and, in addition, in the
discretion of the Partner, in units of Partnership interest, the value of which
shall be determined on each business day.
(b) as soon as practicable after the end of each fiscal year of the
Partnership, a general accounting and audit shall be made by independent
certified public accountants of recognized standing, selected by the Partners
and retained by the Partnership, covering the assets, properties, liabilities
and net worth of the Partnership, and its dealings, transactions and operations
during such fiscal year, and all matters and things customarily included in such
accounts and audits, and such statement shall be furnished to each Partner
within 90 days after the end of such fiscal year, showing each Partner's capital
in
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the partnership, together with a report of the audit scope and audit
findings in the form of a management audit report with an internal control
memorandum.
6.2 Where Maintained. The books, accounts and records of the Partnership
shall be at all times maintained at its principal office.
6.3. Tax Returns. The Partnership shall be treated and shall file its tax
returns as a partnership for Federal, State, municipal and other governmental
income tax and other tax purposes. The Partnership shall cause to be prepared
all Federal, State and municipal partnership tax returns required to be filed.
The Partnership shall submit the returns to each Partner for review and approval
no later than thirty (30) days prior to the due date of the returns. Each
Partner shall notify the other Partners upon receipt of any notice of tax
examination of the Partnership by Federal, State or local authorities.
6.4. Tax Matters Partner. Prudential is hereby designated as the tax
matters partner, as defined in Section 6231(a)(7) of the Internal Revenue Code
of 1986, with respect to operations conducted by the Partnership during the
period that Prudential is a Partner. Prudential shall comply with the
requirements of Section 6221 through 6232 of the Code.
6.5 Tax Policy. The Partnership shall make any and all tax accounting and
reporting elections and adopt such procedures as Prudential may determine.
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6.6. Section 754 Election. The Partnership does not intend to make the
election permitted by Section 754 of the Code.
ARTICLE 7. FISCAL YEAR
7.1. Calendar Year. The fiscal year of the Partnership shall be the
calendar year, unless (subject to obtaining consent of the Internal Revenue
Service) the parties shall hereafter in writing agree otherwise.
ARTICLE 8. DISSOLUTION
8.1 Winding Up by Partners. Upon dissolution of the Partnership by
expiration of the term hereof, by operation of law, by any provision of this
Agreement or by agreement between the Partners, the Partnership's business shall
be wound up and all its assets distributed in liquidation. In such dissolution
the Partners shall be co-liquidating Partners. In such an event the Partners
shall proceed to cause the Partnership's property to be sold and to distribute
the proceeds of sale as provided in Section 8.3. Except in respect of (i) all
assets on which a single, non-severable mortgage or other lien will be in effect
after such distribution, and (ii) any assets which the Partners shall determine
are not readily severable or distributable in kind, the Partners, to the extent
that liquidation of such assets is not required to fulfill the payments, if any,
under subsections (a), (b), (c) and (d) of Section 8.3, shall, if they
II-92
<PAGE>
-15-
agree, have the right to distribute, in kind, all or a portion of the assets
of the Partnership to the Partners pro rata in accordance with their
respective Percentage Interest at the time of distribution.
8.2 Distributions of Operating Cash Flow. Upon the dissolution of the
Partnership for any reason, the Partners shall continue to share profits and
losses for all tax and other purposes as provided elsewhere in this Agreement
during the period of liquidation and until final termination of the Partnership.
8.3 Distributions of Proceeds of Liquidation. The proceeds of liquidation
shall be applied in the following order of priority:
(a) First. To the payment of:
(1) debts and liabilities of the Partnership except:
(x) loans that may have been made by any Partner to the
Partnership, and
(y) debts secured by lien on property sold subject thereto,
provided that neither the Partnership nor any Partner shall be
personally liable on, or they shall be released from such
debts, and
(2) expenses of liquidation;
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(b) Second. To the setting up of any reserves which the Partners may deem
necessary for any contingent or unforeseen liabilities or obligations
of the Partnership or of the Partners arising out of or in connection
with the Partnership. Said reserves may be deposited by the Partnership
in a bank or trust company acceptable to the Partners, as an escrow
agent, to be held by it for the purpose of disbursing such reserves in
payment of any of the aforementioned liabilities or obligations, and at
the expiration of such period as the Partners shall deem advisable,
distributing the balance, if any, thereafter remaining, in a manner
hereinafter provided;
(c) Third. To the repayment of any loans that may have been made by any of
the Partners.
(d) Fourth. Any balance remaining shall be distributed to the Partners in
proportion to their respective Percentage Interest.
8.4 Orderly Liquidation. A reasonable time shall be allowed for the orderly
liquidation of the assets of the Partnership and the discharge of liabilities to
creditors so as to enable the Partners to minimize the losses normally attendant
upon a liquidation.
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<PAGE>
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8.5 Financial Statements. During the period of winding up, the
Partnership's then independent certified public accountants shall prepare and
furnish to each of the Partners, until complete liquidation is accomplished, all
the financial statements provided for in Section 6.1.
ARTICLE 9. NOTICES
9.1 In Writing; Address. All notices, elections, offers, acceptances,
demands, consents and reports (collectively "notice") provided for in this
Agreement shall be in writing and shall be given to the Partnership, the
Partners or the other Partners at the addresses set forth below or at such other
address as the Partnership or any of the parties hereto may hereafter specify in
writing.
Prudential: The Prudential Insurance Company of America
Attention: Prudential Realty Group
Third Floor, Plaza Building
Newark, New Jersey 07101
Pruco Life & 213 Washington Street
Pruce Life N.J.: Newark, New Jersey 07101
Partnership: c/o The Prudential Insurance Company of America
Attention: Prudential Realty Group
Third Floor, Plaza Building
Newark, New Jersey 07101
A copy of any notice or any written communication from the Internal Revenue
Service to the Partnership shall be given to each Partner at the addresses
provided for above.
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<PAGE>
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9.2 Method. Such notice or other communication may be made in any suitable
way.
9.3 Copies. A copy of any notice, service of process, or other document in
the nature thereof, received by any Partner from anyone other than another
Partner, shall be delivered by the receiving Partner to the other Partners as
soon as practicable.
ARTICLE 10. MISCELLANEOUS
10.1 Additional Documents and Acts. In connection with this Agreement as
well as all transactions contemplated by this Agreement, each Partner agrees to
execute and deliver such additional documents and instruments, and to perform
such additional acts as may be necessary or appropriate to effectuate, carry out
and perform all of the terms, provisions and conditions of this Agreement, and
all such transactions. All approvals of any party hereunder shall be in writing.
10.2 Interpretation This Agreement and the rights and obligations of the
Partners hereunder shall be interpreted in accordance with the laws of the State
of New Jersey.
10.3 Entire Agreement. This instrument contains all of the understandings
and agreements of whatsoever kind and nature existing between the parties hereto
with respect to this Agreement and the rights, interests, understandings,
agreements and obligations of the respective parties pertaining to the
Partnership.
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10.4 References to This Agreement. Numbered or lettered articles, sections
and subsections herein contained refer to articles, sections and subsections of
this Agreement unless otherwise expressly stated.
10.5 Headings. All headings herein are inserted only for convenience and
ease of reference and are not to be considered in the construction or
interpretation of any provision of this Agreement.
10.6 Binding Effect. Except as herein otherwise expressly stipulated to the
contrary, this Agreement shall be binding upon and inure to the benefit of the
parties signatory hereto, and their respective distributees, successors and
assigns.
11.7 Amendments. This Agreement may not be amended, altered or modified
except by a written instrument signed by all parties.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement, as of
the day and year first above written.
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA
By: /s/ SPECIMEN
----------------------------
Senior Vice President
and Actuary
ATTEST:
SPECIMEN
- ------------------------
Secretary
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PRUCO LIFE INSURANCE COMPANY
By: /s/
-------------------------
President
ATTEST:
/s/
- --------------------------
Assistant Secretary
PRUCO LIFE INSURANCE COMPANY
OF NEW JERSEY
By: /s/
-------------------------
President
ATTEST:
/s/
- ---------------------------
Assistant Secretary
II-98
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Post-Effective Amendment No. 9 to the registration statement on Form S-1 (the
"Registration Statement") of our reports dated March 25, 1997, relating to the
financial statements of Prudential Variable Contract Real Property Account and
The Prudential Variable Contract Real Property Partnership, which appear in such
Prospectus. We also consent to the application of our report to the Financial
Statement Schedules of The Prudential Variable Contract Real Property
Partnership for the year ended December 31, 1996 listed under item 16(b) of this
Registration Statement when such schedules are read in conjunction with the
financial statements referred to in our report. The audit referred to in such
report also included these schedules. We also consent to the references to us
under the headings "Per Share Investment Income, Capital Changes and Selected
Ratios" and "Experts" in the Prospectus.
PRICE WATERHOUSE LLP
1177 Avenue of the Americas
New York, New York 10036
April 7, 1997
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EXHIBIT (a)(23B)
INDEPENDENT AUDITORS' CONSENT
We consent to (a) the use in this Post-Effective Amendment No. 9 on Form S-1 to
the Registration Statement No. 33-20083 of The Prudential Variable Contract Real
Property Account of our report dated March 1, 1996, relating to the financial
statements of The Prudential Variable Contract Real Property Account, and of our
report dated March 1, 1996, relating to the financial statements of The
Prudential Variable Contract Real Property Partnership appearing in the
Prospectus, which is part of such Registration Statement, (b) the use in Part II
of this Registration Statement of our report dated March 1, 1996 relating to the
financial statement schedules listed in Item 16(b) and the reference to us under
the heading "Experts" in such Prospectus.
Deloitte & Touche LLP
Parsippany, New Jersey
April 8, 1997
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<TABLE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: PROPERTIES
DECEMBER 31, 1996
-----------------------------------------------------------------------------------
<CAPTION>
GROSS AMOUNT AT WHICH
INTIAL COSTS TO THE PARTNERSHIP CARRIED AT CLOSE OF YEAR
-------------------------------------- COSTS ---------------------------------------------------------
CAPITALIZED
BUILDING & SUBSEQUENT TO BUILDING & TOTAL YEAR OF DATE
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS (A)(B)(C) CONSTRUCTION ACQUIRED
----------- ------------ ---- ------------ ----------- ---- ------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Properties:
Office Building
Lisle, IL None 1,780,000 15,743,881 540 1,780,000 15,744,421 17,524,421 1985 Sept., 1987
Garden Apartments
Atlanta, GA None 3,631,212 11,168,904 596,622(c) 3,631,212 11,765,526 15,396,738 1987 Oct., 1987
Warehouse
Pomona, CA None 3,412,636(b) 19,091,210 952,905 3,412,636 20,044,115 23,456,751 1984 Apr., 1988
Retail Shopping Center
Roswell, GA None 9,454,622 21,513,677 785,774 9,462,951 22,291,122 31,754,073 1988 Jan., 1989
Office Building
Morristown, NJ None 2,868,660 12,958,451 2,970,113 2,868,660 15,928,564 18,797,224 1981 Aug., 1988
Office/Warehouse
Bolingbrook, IL None 1,373,199 7,302,518 272,311 1,373,199 7,574,829 8,948,028 1989 Feb., 1990
Garden Apartments
Farmington Hills, MI None 1,550,000 11,744,571 329,381 1,583,320 12,040,632 13,623,952 1988 Jan., 1990
Garden Apartments
Raleigh, NC None 1,623,146 14,135,553 4,252 1,623,146 14,139,805 15,762,951 1995 Jun., 1995
Office Building
Nashville, TN None 1,797,000 6,588,451 (6,125) 1,797,327 6,581,999 8,379,326 1982 Oct., 1995
Office Park
Oakbrook Terrace, IL None 1,313,310 11,316,883 94,912 1,313,821 11,411,284 12,725,105 1988 Dec., 1995
Office Building
Beaverton, OR None 816,415 9,897,307 0 816,415 9,897,307 10,713,722 1995 Dec., 1996
---------- ----------- --------- ---------- ----------- -----------
29,620,200 141,461,406 6,000,685 29,662,687 147,419,604 177,082,291
========== =========== ========= ========== =========== ===========
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
(a) Balance at beginning of year 191,981,608 154,157,068 145,532,430
Additions:
Acquistions 10,713,722 36,774,343 7,463,414
Improvements, etc. 550,050 1,050,197 1,161,224
Deletions:
Sale (26,163,089) 0 0
----------- ----------- -----------
Balance at end of year 177,082,291 191,981,608 154,157,068
=========== =========== ===========
(b) Represents land under
capital lease.
(c) Net of $1,000,000 settlement
received from lawsuit.
</TABLE>
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<PAGE>
<TABLE>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: INTEREST IN PROPERTIES
DECEMBER 31, 1996
-----------------------------------------------------------------------------------
<CAPTION>
GROSS AMOUNT AT WHICH
INTIAL COSTS TO THE PARTNERSHIP CARRIED AT CLOSE OF YEAR
-------------------------------------- COSTS ---------------------------------------------------------
CAPITALIZED
BUILDING & SUBSEQUENT TO BUILDING & YEAR OF DATE
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS TOTAL (A) CONSTRUCTION ACQUIRED
----------- ------------ ---- ------------ ----------- ---- ------------ --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest in properties:
Warehouse/Distribution
Jacksonville, FL None $ 231,119 $ 1,073,849 $ 12,485 $ 231,119 $ 1,086,334 $ 1,317,453 1988 Jan., 1990
Warehouse/Distribution
Jacksonville, FL None 176,256 818,935 7,257 176,256 826,192 1,002,448 1986 Jan., 1990
Warehouse/Distribution
Jacksonville, FL None 255,545 1,187,335 14 255,545 1,187,349 1,442,894 1982 Jan., 1990
Warehouse/Distribution
Jacksonville, FL None 415,548 1,930,761 24,053 415,548 1,954,814 2,370,362 1979 Jan., 1990
----------- ----------- ----------- ----------- ----------- -----------
$ 1,078,468 $ 5,010,880 $ 43,809 $ 1,078,468 $ 5,054,689 $ 6,133,157
=========== =========== =========== =========== =========== ===========
<CAPTION>
1996 1995 1994
---------- ---------- ------------
<S> <C> <C> <C>
(a) Balance at beginning of year $6,133,157 $6,108,742 $ 26,348,882
Additions:
Acquistions 0 24,415 0
Improvements, etc. 0 0 12,087
Deletions:
Sale 0 0 (20,252,227)
---------- ---------- ------------
Balance at end of year $6,133,157 $6,133,157 $ 6,108,742
========== ========== ============
</TABLE>
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
Financial Data Schedule
Article 6 of Regulation S-X
The Prudential Variable Contract Real Property Account
</LEGEND>
<SERIES>
<NUMBER> 001
<NAME> The Prudential Variable Contract Real Property Account
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<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> 90,992,994
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 473,388
<NET-INVESTMENT-INCOME> 6,615,307
<REALIZED-GAINS-CURRENT> (723,211)
<APPREC-INCREASE-CURRENT> (1,474,373)
<NET-CHANGE-FROM-OPS> 4,417,723
<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> 4,891,111
<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>
<ARTICLE> 6
<LEGEND>
Financial Data Schedule
Article 6 of Regulation S-X
The Prudential Variable Contract Real Property Partnership
</LEGEND>
<SERIES>
<NUMBER> 002
<NAME> The Prudential Variable Contract Real Property Partnership
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 183,215,448
<INVESTMENTS-AT-VALUE> 156,924,276
<RECEIVABLES> 2,066,916
<ASSETS-OTHER> 45,164,848
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 204,156,040
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 6,899,246
<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> 204,156,040
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,134,386
<OTHER-INCOME> 23,406,252
<EXPENSES-NET> 10,121,120
<NET-INVESTMENT-INCOME> 15,419,518
<REALIZED-GAINS-CURRENT> (1,573,147)
<APPREC-INCREASE-CURRENT> (3,211,436)
<NET-CHANGE-FROM-OPS> 10,634,935
<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> 7,634,935
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,494,229
<INTEREST-EXPENSE> 489,434
<GROSS-EXPENSE> 10,121,120
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 15.754
<PER-SHARE-NII> 1.297
<PER-SHARE-GAIN-APPREC> (.402)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 16.649
<EXPENSE-RATIO> 5.26
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
