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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
-----------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 33-20018
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
IN RESPECT OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY 22-2426091
- ------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102-2992
----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 778-2255
----------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
--- ---
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(REGISTRANT)
INDEX
ITEM PAGE
NO. NO.
- ---- ----
COVER PAGE
INDEX 2
PART I
1. BUSINESS 3
2. PROPERTIES 5
3. LEGAL PROCEEDINGS 5
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5
PART II
5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY
HOLDER MATTERS 6
6. SELECTED FINANCIAL DATA 6
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 7
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 15
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 15
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 16
11. EXECUTIVE COMPENSATION 17
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 17
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 18
EXHIBIT INDEX 18
SIGNATURES 20
2
PART I
ITEM 1. BUSINESS
Pruco Life of New Jersey Variable Contract Real Property Account (the "Real
Property Account"), the Registrant, was established on October 30, 1987 by Pruco
Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), as a separate
investment account, pursuant to New Jersey law. The Real Property Account was
established to provide a real estate investment option offered in connection
with the funding of benefits under certain variable life insurance and variable
annuity contracts (the "Contracts") issued by Pruco Life of New Jersey.
The assets of the Real Property Account are invested in The Prudential Variable
Contract Real Property Partnership (the "Partnership"). The Partners in the
Partnership are The Prudential Insurance Company of America, Pruco Life
Insurance Company, and Pruco Life Insurance Company of New Jersey (collectively,
the "Partners"). The Partnership, a general partnership organized under New
Jersey law on April 29, 1988, was formed through agreement among the Partners,
to provide a means for assets allocated to the real estate investment option
under certain variable life insurance and variable annuity contracts issued by
the respective companies to be invested in a commingled pool.
The Partnership has an investment policy of investing at least 65% of its assets
in direct ownership interests in income-producing real estate and participating
mortgage loans. The largest portion of these real estate investments are direct
ownership interests in income-producing real estate, such as office buildings,
shopping centers, hotels, apartments, or industrial properties. Approximately
10% of the Partnership's assets are generally held in cash or invested in liquid
instruments and securities although the Partners reserve discretion to increase
this amount to meet partnership liquidity requirements. The remainder of the
Partnership's assets are invested in other types of real estate-related
investments, including real estate investment trusts.
Office Properties - The Partnership owns office properties in Lisle and
Oakbrook Terrace, Illinois; Morristown, New Jersey; Brentwood, Tennessee;
and Beaverton, Oregon. Total square footage owned is approximately 577,000
of which 96% or 553,000 square feet are leased between 1 and 10 years.
Apartment Complexes - The Partnership owns apartment complexes in Atlanta,
Georgia and Raleigh, North Carolina. There are a total of 490 apartment
units available of which 97% or 475 units are leased. Lease terms range
from monthly to one year. In addition, on September 17, 1999, the
Partnership invested in an apartment complex located in Jacksonville, FL.
This joint venture investment has a total of 458 units available of which
408 units or 89% are occupied. Lease terms range from monthly to one year.
Retail Property - The Partnership owns a shopping center in Roswell,
Georgia. The property is located approximately 22 miles north of downtown
Atlanta on a 30 acre site. The square footage is approximately 297,000 of
which 97% or 288,000 square feet is leased between 1 and 10 years. On
September 30, 1999 the Partnership invested in a retail portfolio located
in the Kansas City, KS and Kansas City, MO areas. This joint venture
investment has approximately 476,000 of net rentable square feet of which
90% or 427,000 square feet is leased between 1 and 20 years.
Industrial Properties - The Partnership owns warehouses and distribution
centers in Bolingbrook, Illinois; Aurora, Colorado; and Salt Lake City,
Utah. Total square footage owned is approximately 685,000 of which 72% or
494,238 square feet are leased between 2 and 10 years.
3
Investment in Real Estate Trust - The Partnership owns 386,208 shares of
ProLogis REIT. ProLogis is a self administered and self-managed equity
real estate investment trust engaged in owning, operating, marketing and
leasing high quality, industrial distribution facilities throughout North
America and Europe, and developing master-planned distribution parks and
corporate distribution facilities. The Partnership also owns smaller
individual investments in various other REIT stocks.
The Partnership's investments are maintained so as to meet the diversification
requirements set forth in Treasury Regulations issued pursuant to Section 817(h)
of the Internal Revenue Code relating to the investments of variable life
insurance and variable annuity separate accounts. Section 817(h), requires among
other things that the partnership will have no more than 55% of the assets
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. To comply with 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 the Partnership's gross assets as of
the prior fiscal year.
REAL ESTATE MARKET
1999 was a year of stability for the U.S. real estate market. Throughout the
year, most areas witnessed only slight declines in conditions, as new supply
remained in check and demand continued to increase.
OFFICE MARKET
The office market is still healthy. Construction has continued, but demand has
almost kept up pace. Downtown markets look particularly healthy. Suburban areas
present more risk.
Preliminary data from CB Richard Ellis / Torto Wheaton Research (TWR) indicates
that the year end 1999 national average office vacancy rate was 9.8%, up from a
low 9% as of year end 1998. The average downtown vacancy rate was 8.4% and the
suburban rate reached 10.4% as of year end 1999.
APARTMENT MARKET
The U.S. apartment market remains close to a state of equilibrium. Demand has
been solid, and supply has stayed in check. Average vacancy rates are still low,
with only submarket-specific evidence of potential overbuilding. F.W. Dodge
reported year end 1999 occupancy was 93.0%, in-line with 1997 and 1998.
Indicative of the overall stability of the market, apartment occupancy has
remained between 92.5% and 93.2% since 1990.
The outlook for the foreseeable future remains equally solid.
Investment capital continued to flow into the sector in 1999, but there is
evidence that underwriting has become slightly more conservative. Growth in
rents has slowed, thus reducing the upward pressure on prices. In general,
underlying assumptions about future conditions that are imbedded in purchase
prices today look fairly reasonable. Rising mortgage rates negatively impact
housing affordability and should generally favor the rental markets and the
apartment sector.
RETAIL MARKET
Amid much concern over the impact of e-commerce on traditional retailers, the
retail sector enjoyed a strong year in 1999. Retail sales growth soared to a
fifteen-year high. U.S. retail sales for the year rose 8.9%, the biggest annual
increase since 1984. This strong annual growth was capped by a sales growth
surge of 1.25% in December.
As far as retail real estate is concerned, the sector remains relatively weak
compared with other property types. The growth in sales price per square foot
remained flat to modest in 1999, and rent growth was less that half of 1998's
estimate. Retail will remain a challenging sector in 2000 as new construction,
or rather a lack of demolition, continues to plague the outlook for retail
property.
4
INDUSTRIAL MARKET
The industrial real estate sector appears to have peaked. Average availability
has begun to tick upward. CB Richard Ellis/Torto Wheaton Research (TWR) estimate
that approximately 173 million square feet of industrial space was completed in
the U.S. during 1999, up substantially from the 123 million which came on line
during 1998. The pipeline for delivery of new product in 2000 indicates the rate
of construction will decline. Projections indicate that around 150 million
square feet of new space will become available during the next year.
TWR estimates that the overall vacancy rate for industrial space as of year end
1999 was 8.2%, up from a low of 6.9% reached one year prior. The firm projects
that industrial vacancy will continue to trend slowly upward in 2000, rising
about 0.3 percentage points.
PUBLIC REAL ESTATE SECURITIES
1999 represented another disappointing year for the REIT market. For the second
consecutive year REIT share prices declined, with the Morgan Stanley REIT Index
ending the year 4.6% lower than its 12/31/98 level. This was in sharp contrast
to the S&P 500 and NASDAQ which gained 19.5% and 85.6% respectively. REIT shares
traded at steep discounts to NAV, approaching 20% overall, and earnings
multiples reached historically low levels. While there were occasional glimmers
of hope throughout the year, fueled in part by Warren Buffet's forays into the
market, momentum could not be sustained. Outflows from REIT mutual funds topped
$1.3 billion for the year with the 12/31/99 value of all REIT mutual funds
equaling $7.75 billion, nearly 16% below 1998 and 35% below the 1997 value.
The CMBS market proved remarkably resilient after the market collapsed in the
fall of 1998. While substantially below the record setting level of $78.3
billion in 1998, total issuance for 1999 was $67.3 billion, with approximately
one-fourth of the year's production being registered in the last three months.
For information regarding the Partnership's investments, operations, and other
significant events, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, and Item 8, Financial Statements
and Supplementary Data.
ITEM 2. PROPERTIES
Not Applicable.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Contract owners participating in the Real Property Account have no voting rights
with respect to the Real Property Account.
5
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY HOLDER
MATTERS
Owners of the Contracts may participate by allocating all or part of the net
premiums or purchase payments to the Real Property Account. Contract values will
vary with the performance of the Real Property Account's investments through the
Partnership. Participating interests in the Real Property Account are not traded
in any public market, thus a discussion of market information is not relevant.
As of March 24, 2000, there were approximately 3,118 contract owners of record
investing in the Real Property Account.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data of the Real Property Partnership:
Year Ended December 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
RESULTS OF OPERATIONS:
Net investment income $ 13,279,589 $ 15,833,513 $ 13,789,747 $ 15,419,518 $ 14,720,271
Net realized and unrealized gain
(loss) on investment in Partnership (7,217,046) 4,795,111 8,485,232 (4,784,583) 661,623
--------------- --------------- --------------- --------------- ---------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 6,062,543 $ 20,628,624 $ 22,274,979 $ 10,634,935 $ 15,381,894
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
FINANCIAL POSITION:
December 31,
-----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
Total Assets $ 225,142,653 $ 244,249,272 $ 222,745,135 $ 204,156,040 $ 196,993,758
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
Long-Term Lease Obligation $ 0 $ 0 $ 0 $ 4,072,677 $ 3,882,421
--------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- ---------------
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of Pruco Life of New Jersey Variable Contract Real Property
Account (the "Account") are invested in the Prudential Variable Contract Real
Property Partnership (the "Partnership"). Correspondingly, the liquidity,
capital resources and results of operations for the Real Property Account are
contingent upon the Partnership. Therefore, all of management's discussion of
these items is at the Partnership level. The Partners in the Partnership are The
Prudential Insurance Company of America, Pruco Life Insurance Company, and Pruco
Life Insurance Company of New Jersey (collectively, the "Partners").
The following analysis of the liquidity and capital resources and results of
operations of the Partnership should be read in conjunction with the Financial
Statements and the related Notes to the Financial Statements included elsewhere
herein.
(a) LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Partnership's liquid assets consisting of cash,
cash equivalents and marketable securities were $16.8 million, a decrease of
$56.7 million from December 31, 1998. This decrease was due primarily to
distributions to Partners of $30 million on February 2, 1999 and $6 million on
December 23, 1999. In addition, the acquisition of two additional real estate
investments in September 1999 required funding of approximately $12.6 million.
Sources of liquidity include net cash flow from property operations, interest
from short-term investments, and dividends from REIT shares.
The Partnership's investment policy allows up to 30% investment in cash and
short-term obligations, although the Partnership generally holds approximately
10% of its assets in cash or liquid instruments. At December 31, 1999, 7% of the
Partnership's assets consisted of cash, cash equivalents and marketable
securities.
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment have been utilized for property acquisitions, and returned
to Prudential on an ongoing basis from contract owners' net contributions and
other available cash. The amount of the commitment is reduced by $10 million for
every $100 million in current value net assets of the Partnership. Thus, with
$225 million in net assets, the commitment has been automatically reduced to $80
million. As of December 31, 1999, Prudential's equity interest in the
Partnership under this commitment was $45 million. Prudential does not intend to
make any contributions during the 2000 fiscal year and will begin to phase out
this commitment over the next several years.
As discussed previously, the Partners made $36 million in withdrawals during
1999 from excess cash. Additional withdrawals may be made by the Partners during
2000 based upon the percentage of assets invested in short-term obligations,
taking into consideration anticipated cash needs of the Partnership including
potential property acquisitions, property dispositions and capital expenditures.
Management anticipates that its current liquid assets and ongoing cash flow from
operations will satisfy the Partnership's needs over the next twelve months and
the foreseeable future.
During 1999, the Partnership spent $2.6 million in capital expenditures for
tenant alterations and improvements. The majority of the capital expenditures
was associated with leasing activity at the industrial property located in
Aurora, CO and the office complex located in Morristown, NJ.
7
(b) RESULTS OF OPERATIONS
The following is a brief discussion of the Partnership's results of operations
for the years ended December 31, 1999, 1998, and 1997.
1999 VS. 1998
The following table presents a comparison of the Partnership's sources of net
investment income, and realized and unrealized gains or losses by investment
type, for the twelve months ended December 31, 1999 and December 31, 1998.
TWELVE MONTHS ENDED DECEMBER 31,
1999 1998
---------------- ----------------
NET INVESTMENT INCOME:
Office properties $7,133,356 $7,269,613
Apartment complexes 2,556,743 4,493,384
Retail property 2,676,387 2,702,234
Industrial properties 894,258 1,325,320
Income from interest in properties 98,375 33,462
Dividend income from real
estate investment trust 1,221,843 669,100
Other (including interest income,
investment mgt fee, etc.) (1,301,373) (659,600)
---------------- ----------------
TOTAL NET INVESTMENT INCOME $13,279,589 $15,833,513
---------------- ----------------
---------------- ----------------
UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Office properties ($3,267,264) $3,034,542
Apartment complexes 607,234 657,012
Retail property (1,770,462) (1,312,296)
Industrial properties 209,503 333,630
Interest in properties (680,870) -
Real estate investment trust (2,282,044) (969,156)
REALIZED GAIN (LOSS) ON INVESTMENTS
Apartment complexes - 1,730,042
Industrial properties (1,485) 1,229,799
Interest in properties 45,126 91,538
Real estate investment trust (76,784) -
TOTAL REALIZED AND UNREALIZED (LOSS) ---------------- ----------------
GAIN ON INVESTMENTS ($7,217,046) $4,795,111
---------------- ----------------
---------------- ----------------
8
The Partnership's net investment income for 1999 was $13.3 million, a decrease
of $2.5 million from the prior year. This was primarily the result of the sales
of an industrial property in Pomona, CA and an apartment complex in Farmington
Hills, MI, offset by the acquisition of an apartment complex in Jacksonville,
FL. These transactions generated a reduction of $3.0 million in real estate
revenues but only $400,000 in expenses. As a result, investment income decreased
while investment expenses remained relatively flat.
Revenue from real estate properties was $21.8 million in 1999, a decrease of
$2.8 million, or 11.3%, from $24.6 million in 1998 mainly as a result of the
sales of the industrial property and apartment complex discussed previously.
Income from interest in properties increased $64,913, or 194.0%, from $33,462 in
1998 to $98,375 in 1999 primarily as a result of the Partnership investing in a
retail portfolio located in Kansas City, KS and Kansas City, MO.
On March 30, 1999, the Partnership converted 506,894 shares of Meridian REIT to
557,583 shares of ProLogis REIT, with a fair value of $10.9 million, and cash of
$1.0 million (or total fair value of $11.9 million) as a result of ProLogis'
acquisition of Meridian Industrial Trust. The conversion resulted in a realized
gain of $401,713. Dividend income from real estate investment trusts amounted to
$1.2 million for the year ended December 31, 1999, an increase of $0.6 million,
or 82.6%, compared to the corresponding period in 1998. This increase was
primarily due to an increase in the amount invested in REIT stocks.
Administrative expenses increased $283,714, or 14.5%, during 1999. This increase
was primarily due to the acquisition of the apartment complex located in
Jacksonville, FL coupled with higher expense levels experienced by the Westpark
office property located in Brentwood, TN.
Interest expense increased $145,418, or 100%, in 1999 as a result of the
Partnership's investment in the apartment complex located in Jacksonville, FL,
which was acquired subject to $10.2 million in debt.
Minority interest in consolidated partnership increased $33,746, or 100%, as a
result of the Partnership's joint venture investment in the apartment complex
located in Jacksonville, FL.
OFFICE PROPERTIES
Net investment income from property operations for the office sector decreased
approximately $136,000, or 2%, for the year ended December 31, 1999 when
compared to the corresponding period in 1998.
The six office properties owned by the Partnership experienced a net unrealized
loss of approximately $3.3 million during 1999 compared to a net unrealized gain
of $3.0 million in 1998. The largest share of this net unrealized loss was due
to the office property located in Oakbrook Terrace, IL. This $1.6 million value
decrease was due to changes in anticipated costs associated with assumed
re-leasing of the facility which were used in valuing the property. The
Beaverton, OR office property also experienced a net unrealized loss of
approximately $0.8 million. This decline in value was due to a change in
discounted cash flow assumptions resulting from the large amount of Class "A"
space under construction in the local market. In addition, a lower renewal
probability in determining the valuation of the property was utilized for a
major tenant expected to be vacating their space upon expiration. The Lisle, IL
office property also experienced a net unrealized loss of approximately $0.7
million primarily due to capital expenditures on the property that were not
reflected as an increase in market value.
The office complex located in Morristown, NJ is expected to be marketed for sale
during 2000.
Occupancy at the Beaverton, OR, Oakbrook Terrace, IL, and one of the Brentwood,
TN properties remained unchanged from December 31, 1998 at 100%. Occupancy at
the Morristown, NJ property increased from 86% at December 31, 1998 to 100% at
December 31, 1999 while occupancy at the Lisle, IL office property decreased
from 96% at December 31, 1998 to 88% at December 31, 1999. Occupancy at the
other Brentwood, TN property owned by the Partnership decreased from 100% at
December 31, 1998 to 95% at December 31, 1999. As of December 31, 1999 all
vacant spaces were being marketed.
9
APARTMENT COMPLEXES
Net investment income from property operations for the apartment sector was $2.6
million in 1999, a decrease of $1.9 million, or 43.1%, when compared to 1998.
This decrease was primarily due to the sale of the apartment complex located in
Farmington Hills, MI in 1998.
The apartment complexes owned by the Partnership experienced a net unrealized
gain of $0.6 million for both years ended December 31, 1999 and 1998. The net
realized gain of $1.7 million experienced in 1998 was due to the Farmington
Hill, MI apartment complex which was sold on October 8, 1998 for $16.9 million.
On September 17, 1999, the Partnership invested in an apartment complex located
in Jacksonville, FL, This joint venture investment required the Partnership to
contribute $7.5 million and the partner to contribute $0.4 million. There is
$10.2 million in debt on this garden apartment complex.
The occupancy at the Atlanta, GA complex increased from 96% at December 31, 1998
to 98% at December 31, 1999. Occupancy at the apartment complex in Raleigh, NC
decreased from 93% at December 31, 1998 to 92% at December 31, 1999. Occupancy
at the Jacksonville, FL apartment complex was 89% at December 31, 1999. As of
December 31, 1999, all available vacant spaces were being marketed.
RETAIL PROPERTY
Net investment income for the Partnership's retail property located in Roswell,
GA was approximately $2.7 million for the twelve months ended December 31, 1999
and 1998.
The retail property experienced a net unrealized loss of $1.8 million and $1.3
million in 1999 and 1998, respectively. The decrease in value in 1999 was
attributable to a declining position of the property in the market, while the
decrease in 1998 was a reflection of lower rents. The complex is no longer being
actively marketed for sale.
On September 30, 1999, the Partnership invested in a retail portfolio located in
the Kansas City, KS and Kansas City, MO area. This joint venture investment
required the Partnership to contribute $5.1 million to the investment and the
partner to contribute $1.7 million. There is $21.0 million in debt on this
retail portfolio. During the twelve months ended December 31, 1999, income from
interest in this investment amounted to $98,375. This investment experienced a
net unrealized loss in 1999 of $0.6 million primarily due to capital
expenditures on the property that were not reflected as an increase in market
value.
Occupancy at the shopping center located in Roswell, GA decreased from 98% at
December 31, 1998 to 97% at December 31, 1999. The retail portfolio located in
Kansas City, KS and Kansas City, MO had an average occupancy of 90% at December
31, 1999. As of December 31, 1999, all vacant spaces were being marketed.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
decreased from $1.3 million in 1998 to $0.9 million in 1999. The majority of
this 32.5% decrease was a result of the sale of Pomona Industrial Park,
including the land, offset by an increase in net investment income for the
industrial properties located in Aurora, CO and Salt Lake City, UT due to
increased occupancy.
The three industrial properties owned by the Partnership experienced a net
unrealized gain of approximately $210,000 and $334,000 in 1999 and 1998,
respectively. The majority of the increase for 1999 was attributable to the
Aurora, CO industrial property due to improved market conditions, higher market
rental rates, and the absorption of vacant space. The Pomona, CA property was
sold on December 17, 1998 for $21.4 million and resulted in a realized gain of
$1.2 million.
The occupancy at the Bolingbrook, IL property was 100% at December 31, 1999 and
1998. The occupancy at the Salt Lake City, Utah property increased to 34% at
December 31, 1999 from 0% at December 31, 1998. The Aurora,
10
CO property's occupancy rate increased from 46% at December 31, 1998 to 75% at
December 31, 1999. As of December 31, 1999, all vacant spaces were being
marketed.
REAL ESTATE INVESTMENT TRUST
During 1999, the Partnership recognized a realized gain of $401,713 from the
conversion of 506,894 shares of Meridian REIT to 557,583 shares of ProLogis
REIT. This was offset by a realized loss of $478,497 primarily as a result of
the sale of 171,375 ProLogis REIT shares and other investments in REIT stocks.
Management continued applying a 3% discount to the market value of the ProLogis
REIT shares through June 29, 1999 because of a restriction which limits the
number of shares that can be publicly traded during any six month period. The
application of the 3% discount was discontinued on June 30, 1999 because this
restriction no longer applied.
OTHER
Other net investment income decreased $0.6 million during 1999 when compared to
the corresponding period in 1998. Other net investment income includes interest
income from short-term investments, investment management fees, and expenses not
related to property activities.
1998 VS. 1997
The following table presents a comparison of the Partnership's sources of net
investment income, and realized and unrealized gains or losses by investment
type, for the twelve months ended December 31, 1998 and December 31, 1997.
YEAR ENDED DECEMBER 31,
1998 1997
------------------- --------------------
NET INVESTMENT INCOME:
Office properties $ 7,269,613 $ 5,499,107
Apartment complexes 4,493,384 3,891,465
Retail property 2,702,234 2,856,357
Industrial properties 1,325,320 2,138,111
Income from interest in properties 33,462 435,296
Dividend income from real
estate investment trust 669,100 158,184
Other (including interest income,
Investment management fee, etc.) (659,600) (1,188,773)
------------------- --------------------
TOTAL NET INVESTMENT INCOME $ 15,833,513 $ 13,789,747
------------------- --------------------
------------------- --------------------
11
YEAR ENDED DECEMBER 31,
1998 1997
------------------- --------------------
REALIZED AND UNREALIZED GAIN(LOSS)
ON INVESTMENTS:
Office properties $ 3,034,542 $ 1,897,749
Apartment complexes 2,387,054 1,053,061
Retail property (1,312,296) 1,109,099
Industrial properties 1,563,429 1,616,942
Interest in properties 91,538 284,581
Real estate investment trust (969,156) 2,523,800
------------------- --------------------
TOTAL REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS $ 4,795,111 $ 8,485,232
------------------- --------------------
------------------- --------------------
The Partnership's net investment income for 1998 was $15.8 million, an increase
of $2.0 million from the prior year. This increase was primarily the result of
increased revenues from real estate and improvements partially offset by
increased operating expenses.
Revenue from real estate and improvements was $24.6 million in 1998, an increase
of $3.0 million, or 13.9%, from 1997. This increase was primarily due to higher
occupancy at the Lisle, IL office building and the Aurora, CO distribution
center coupled with increased rental rates on other properties.
Interest on short-term investments decreased $0.4 million from 1997. This was
primarily due to lower average cash and cash equivalent balances during 1998
compared to the prior year. Cash and cash equivalents through the third quarter
of 1998 averaged approximately $30 million, but increased significantly in the
last quarter of 1998 due to the sales of two properties in Pomona, CA and
Farmington Hills, MI.
Property operating expenses increased $0.8 million, or 23.5%, from 1997. This
increase was due primarily to a full year's operating costs (i.e. electricity,
repair and maintenance, water, etc.) for one of the Brentwood, TN properties,
which was acquired in late 1997 in addition to operating expenses incurred by
the Partnership on vacant properties.
Administrative expenses decreased $0.3 million or 16.1%. This decrease was due
primarily to a reduction in legal expenses.
There was no interest expense during 1998 due to the Partnership exercise of its
purchase option under the capital lease obligation.
OFFICE PROPERTIES
In 1998, net investment income from property operations for the office
properties increased $1.8 million, or 32.2%, from prior year. The increase was
primarily due to a full year's net investment income for one of the Brentwood,
TN properties which was acquired in late 1997, as well as the leasing of vacant
space in the Lisle, IL office property.
Office properties experienced a net unrealized gain of $3.0 million in 1998 due
to improving office market conditions in most of the geographical areas where
the Partnership has office properties, particularly, the Oakbrook Terrace, IL
office property in suburban Chicago.
12
Occupancy at the Beaverton, OR; Oakbrook Terrace, IL; and Brentwood, TN
properties remained at 100% as of December 31, 1998 while occupancy at the
Lisle, IL office property increased from 37% to 96% at December 31, 1998.
Occupancy at the Morristown, NJ property decreased from 99% to 86%.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment complexes
increased $0.6 million, or 15.5%, from 1997. The majority of this increase was
due to increased rental rates at the Atlanta, GA apartment complex.
Holdings in the Partnership's two apartment complexes experienced a net
unrealized gain of $0.6 million during 1998. The Atlanta, GA property was the
largest contributor to the gain as it appreciated $0.4 million. The gain was
attributable to increased rental rates at the property. The Raleigh, NC property
experienced a net unrealized gain of $0.2 million due to increased occupancy
rates. The Farmington Hills, MI property was sold on October 7, 1998 for a price
of $16.9 million, which resulted in a realized gain of $1.7 million.
At the end of December 31, 1998, occupancy at the Atlanta, GA and Raleigh, NC
apartment complex was 96% and 93%, respectively.
RETAIL PROPERTY
In 1998, the retail center experienced a net unrealized loss of $1.3 million, a
reflection of lower rents. Occupancy at the shopping center was 98% at December
31, 1998, which is an increase of 2% from the prior year.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
decreased $0.8 million, or 38.0%, from 1997. The decrease was attributable to
the sale of Pomona Industrial Park, which accounted for 82% of the decrease.
The three industrial properties experienced a net unrealized gain of $0.3
million during 1998. The Pomona, CA property was sold on December 17, 1998 for
$21.4 million, which resulted in a realized gain of $1.2 million.
Occupancy at the Bolingbrook, IL property remained unchanged at 100%. Occupancy
at the Salt Lake City, UT and Aurora, CO property increased to 33.6% and 46%,
respectively from prior year.
REAL ESTATE INVESTMENT TRUST
On September 24, 1997 the Partnership acquired 506,894 shares of Meridian
Industrial REIT. Dividend income from the REIT increased $0.5 million from 1997.
The Partnership held 506,894 shares of Meridian Industrial REIT throughout 1998.
As of December 31, 1998, these REIT shares experienced an unrealized loss of
$1.0 million. The Valuation Unit of Prudential applies a 3% discount to the
market value of the REIT shares. This discount is applied because of the
restriction which limits the number of shares that can be publicly traded during
any six month period to 30% of the total shares originally acquired.
OTHER
Other net investment loss, which includes interest income from short-term
investments, investment management fees, and expenses not related to property
activities narrowed by $0.5 million. The improved result was due to increased
investment management fee in addition to a reduction in administrative expenses.
13
(c) PER SHARE INFORMATION
Following is an analysis of the Partnership's net investment income and net
realized and unrealized gain (loss) on investments, presented on a per share
basis:
01/01/99 01/01/98 01/01/97
to to to
12/31/99 12/31/98 12/31/97
-------- -------- --------
Revenue from real estate and improvements $ 2.16 $ 2.07 $ 1.82
Equity in income of real estate partnership $ 0.01 $ 0.00* $ 0.04
Dividend income from real estate investment trusts $ 0.12 $ 0.06 $ 0.01
Interest on short-term investments $ 0.17 $ 0.16 $ 0.20
------- ------- -------
TOTAL INVESTMENT INCOME $ 2.46 $ 2.29 $ 2.07
------- ------- -------
Investment management fee $ 0.27 $ 0.25 $ 0.22
Real estate taxes $ 0.26 $ 0.20 $ 0.19
Administrative expense $ 0.22 $ 0.17 $ 0.20
Operating expense $ 0.38 $ 0.34 $ 0.28
Interest expense $ 0.02 $ 0.00 $ 0.02
Minority interest in consolidated partnership $ 0.00* $ 0.00 $ 0.00
-------- ------- -------
TOTAL INVESTMENT EXPENSES $ 1.15 $ 0.96 $ 0.91
------- ------- -------
NET INVESTMENT INCOME $ 1.31 $ 1.33 $ 1.16
------- ------- -------
Net realized gain (loss) on real estate investments sold
or converted ($ 0.00)* $ 0.26 $ 0.03
--------- ------- -------
Change in unrealized gain (loss) on real estate investments ($ 0.72) $ 0.15 $ 0.69
Minority interest in unrealized gain (loss) on investments ($ 0.00)* $ 0.00 $ 0.00
--------- ------- -------
Net unrealized gain (loss) on real estate investments ($ 0.72) $ 0.15 $ 0.69
-------- ------- -------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS ($ 0.72) $ 0.41 $ 0.72
-------- ------- -------
-------- ------- -------
Net change in share value $ 0.59 $ 1.74 $ 1.88
Share value at beginning of period $ 20.27 $ 18.53 $ 16.65
------- ------- -------
Share value at end of period $ 20.86 $ 20.27 $ 18.53
------- ------- -------
------- ------- -------
Ratio of expenses to average net assets 5.33% 4.99% 5.16%
Ratio of net investment income to average net assets 6.12% 6.97% 6.66%
Number of shares outstanding at end of period (000's) 10,079 11,848 11,848
ALL CALCULATIONS ARE BASED ON AVERAGE MONTH-END SHARES OUTSTANDING WHERE
APPLICABLE.
* Per Share amount less than $0.01 (rounded)
14
(d) INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in Management's Discussion and Analysis may
be considered forward-looking statements. Words such as "expects," "believes,"
"anticipates," "intends," "plans," or variations of such words are generally
part of forward-looking statements. Forward-looking statements are made based
upon management's current expectations and beliefs concerning future
developments and their potential effects upon the Partnership. There can be no
assurance that future developments affecting the Partnership will be those
anticipated by management. There are certain important factors that could cause
actual results to differ materially from estimates or expectations reflected in
such forward-looking statements including without limitation, changes in general
economic conditions, including the performance of financial markets and interest
rates; market acceptance of new products and distribution channels; competitive,
regulatory or tax changes that affect the cost or demand for the Partnership's
products; and adverse litigation results. While the Partnership reassesses
material trends and uncertainties affecting its financial position and results
of operations, it does not intend to review or revise any particular
forward-looking statement referenced in this Management's Discussion and
Analysis in light of future events. The information referred to above should be
considered by readers when reviewing any forward-looking statements contained in
this Management's Discussion and Analysis.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Account and the Partnership are not subject to significant exposure to
market rate risk for changes in interest rates because the Partnership's
financial instruments consist primarily of short-term fixed rate commercial
paper and neither the Account nor the Partnership use derivative financial
instruments. Further, by policy, the Partnership places its investments with
high quality debt security issuers, limits the amount of credit exposure to any
one issuer, limits duration by restricting the term, and holds investments to
maturity except under rare circumstances.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are listed in the accompanying
Index to the Financial Statements and Supplementary Data on F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
15
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS AND OFFICERS
The directors and major officers of Pruco Life of New Jersey, listed with their
principal occupations during the past 5 years, are shown below.
DIRECTORS OF PRUCO LIFE OF NEW JERSEY
JAMES J. AVERY, JR., CHAIRMAN AND DIRECTOR - President, Prudential Individual
Life Insurance since 1998; 1997 to 1998: Senior Vice President, Chief Actuary
and CFO, Prudential Individual Insurance Group; 1995 to 1997: President,
Prudential Select. Age 48.
WILLIAM M. BETHKE, DIRECTOR - Chief Investment Officer, Prudential since 1997;
prior to 1997: President, Prudential Capital Markets Group. Age 53.
IRA J. KLEINMAN, DIRECTOR - Executive Vice President, Prudential International
Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product
Development Officer, Prudential Individual Insurance Group. Age 53.
ESTHER H. MILNES, PRESIDENT AND DIRECTOR - Vice President and Chief Actuary,
Prudential Individual Life Insurance since 1999; prior to 1999: Vice President
and Actuary, Prudential Individual Insurance Group. Age 49.
I. EDWARD PRICE, VICE CHAIRMAN AND DIRECTOR - Senior Vice President and Actuary,
Prudential Individual Life Insurance since 1998; 1995 to 1998: Senior Vice
President and Actuary, Prudential Individual Insurance Group. Age 57.
DAVID R. ODENATH, JR, DIRECTOR - President, Prudential Investments since
1999; prior to 1999: Senior Vice President and Director of Sales, Investment
Consulting Group at Paine Webber. Age 43.
OFFICERS WHO ARE NOT DIRECTORS
C. EDWARD CHAPLIN, TREASURER - Vice President and Treasurer, Prudential since
1995. Age 43.
JAMES C. DROZANOWSKI, SENIOR VICE PRESIDENT - Vice President, Operations and
Systems, Prudential Individual Financial Services since 1998; 1996 to 1998: Vice
President and Operations Executive, Prudential Individual Insurance Group; 1995
to 1996: President, Credit Card Division, Chase Manhattan Bank. Age 57.
CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER AND SECRETARY - Chief Counsel, Variable
Products, Prudential Law Department since 1995. Age 40.
EDWARD A. MINOGUE, SENIOR VICE PRESIDENT - Senior Vice President, Operations and
Systems, Prudential Group Insurance since 1999; 1997 to 1999: Vice President,
Annuity Services, Prudential Investments; prior to 1997: Director, Merrill
Lynch. Age 57.
IMANTS SAKSONS, SENIOR VICE PRESIDENT - Vice President, Prudential Select
Brokerage, Individual Financial Services since 1999; 1998 to 1999: Vice
President, Compliance, Prudential Individual Financial Services; prior to 1998:
Vice President, Market Conduct, U.S. Operations, Manulife Financial. Age 49.
16
SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY - Vice President and
Associate Actuary, Prudential since 1996; prior to 1996: Vice President and
Assistant Actuary, Prudential Corporate Risk Management. Age 45.
DENNIS G. SULLIVAN, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER - Vice President
and Deputy Controller, Prudential since 1998; 1997 to 1998: Vice President and
Controller, ContiFinancial Corporation; prior to 1997: Director, Salomon
Brothers. Age 44.
The business address of all directors and officers of Pruco Life of New Jersey
is 213 Washington Street, Newark, New Jersey 07102-2992. Pruco Life of New
Jersey directors and officers are elected annually.
ITEM 11. EXECUTIVE COMPENSATION
The Real Property Account does not pay any fees, compensation or reimbursement
to any Director or Officer of the Registrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Related Transactions in note 7 of Notes to Financial Statements of the
Partnership on page F - 21.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
See the Index to Financial Statements and Supplementary Data on
page F-1.
2. Financial Statement Schedules
The following financial statement schedules of The Prudential
Variable Contract Real Property Partnership should be read in
conjunction with the financial statements in Item 8 of this Annual
Report on Form 10-K:
Schedule III. Real Estate Owned: Properties
Schedule III. Real Estate Owned: Interest in Properties
See the Index to Financial Statements and Supplementary Data on
page F-1.
3. Documents Incorporated by Reference
See the following list of exhibits.
4. Exhibits
See the following list of exhibits.
(b) None.
(c) The following is a list of Exhibits to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999. The Registrant
will furnish a copy of any Exhibit listed below to any security holder of
the Registrant who requests it upon payment of a fee of 15 cents per
page. All Exhibits are either contained in this Annual Report on
Form 10-K or are incorporated by reference as indicated below.
3.1 Amended Articles of Incorporation of Pruco Life Insurance Company
of New Jersey filed as Exhibit 1.A.(6)(a) to Post Effective
Amendment No. 17 to Form S-6, Registration Statement No. 2-89780,
filed March 1, 1991, and incorporated herein by reference.
3.2 Amended By-Laws of Pruco Life Insurance Company of New Jersey,
filed as Exhibit 1.A.(6)(b) to Post-Effective Amendment No. 17 to
Form S-6, Registration Statement No. 2-89780, filed March 1, 1991,
and incorporated herein by reference.
3.3 Resolution of the Board of Directors establishing the Pruco Life of
New Jersey Variable Contract Real Property Account, filed as
Exhibit (3C) to Form S-1, Registration Statement No. 33-20018,
filed February 5, 1988, and incorporated herein by reference.
4.1 Variable Life Insurance Contract filed as Exhibit A(5) to
Form N-8B-2, Registration Statement No. 2-81243, filed January 10,
1983, and incorporated herein by reference.
4.2 Revised Variable Appreciable Life Insurance Contract with fixed
death benefit, filed as Exhibit 1.A.(5)(c) to Post-Effective
Amendment No. 5 to Form S-6, Registration Statement No. 2-89780,
filed July 11, 1986, and incorporated herein by reference.
4.3 Revised Variable Appreciable Life Insurance Contract with variable
death benefit, filed as Exhibit 1.A.(5)(d) to Post-Effective
Amendment No. 5 to Form S-6, Registration Statement No. 2-89780,
filed July 11, 1986,
18
and incorporated herein by reference.
4.4 Single Premium Variable Annuity Contract, filed as Exhibit 4(i) to
Form N-4, Registration Statement No. 2-99616, filed August 13,
1985, and incorporated herein by reference.
4.5 Flexible Premium Variable Life Insurance Contract, filed as
Exhibit 1.A.(5) to Form S-6, Registration Statement No. 2-99537,
filed August 8, 1985, and incorporated herein by reference.
9. None.
10.1 Investment Management Agreement between The Prudential Insurance
Company of America and The Prudential Variable Contract Real
Property Partnership filed as Exhibit (10A) to Post- Effective
Amendment No. 2 to Form S-1, Registration Statement No. 33-20018,
filed April 6, 1990, and incorporated herein by reference.
10.2 Service Agreement between The Prudential Insurance Company of
America and The Prudential Investment Corporation, filed as
Exhibit (10B) to Form S-1, Registration Statement No. 33-8698,
filed September 12, 1986, and incorporated herein by reference.
10.3 Partnership Agreement of The Prudential Variable Contract Real
Property Partnership filed as Exhibit (10C) to Post-Effective
Amendment No. 2 to Form S-1, Registration Statement No. 33-20018,
filed April 6, 1990, and incorporated herein by reference.
11. Not applicable.
12. Not applicable.
13. None.
18. None.
21. Not applicable.
22. Not applicable.
23. None.
24. Power of Attorney: W. Bethke, I. Kleinman, and I. Price
incorporated by reference to Form N-4, Registration No. 333-18117,
filed December 18, 1996 on behalf of the Pruco Life of New Jersey
Flexible Premium Variable Annuity Account. J. Avery incorporated by
reference to Form S-1, Registration No. 33-20018, filed April 9,
1998 on behalf of the Pruco Life of New Jersey Variable Contract
Real Property Account.
27. Not applicable.
19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
IN RESPECT OF
PRUCO LIFE OF NEW JERSEY VARIABLE
CONTRACT REAL PROPERTY ACCOUNT
(REGISTRANT)
Date: March 29, 2000 By: /s/
---------------------- ----------------------
Esther H. Milnes
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
* Chairman and Director March 29, 2000
---------------------------
James J. Avery, Jr.
* Director March 29, 2000
---------------------------
William M. Bethke
* Director March 29, 2000
---------------------------
Ira J. Kleinman
/s/ President and Director March 29, 2000
---------------------------
Esther H. Milnes
* Vice Chairman and Director March 29, 2000
---------------------------
I. Edward Price
/s/ Vice President and Chief March 29, 2000
--------------------------- Accounting Officer
Dennis G. Sullivan
* Director March 29, 2000
- ---------------------------
David R. Odenath, Jr
*By: /s/
---------------------
Thomas C. Castano
(Attorney-in-Fact)
20
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(REGISTRANT)
INDEX
PAGE
----
A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Financial Statements:
Report of Independent Accountants F-2
Statements of Net Assets - December 31, 1999 and 1998 F-3
Statements of Operations - Years Ended December 31, 1999, 1998, 1997 F-3
Statements of Changes in Net Assets - Years Ended December 31, 1999, 1998, 1997 F-3
Notes to Financial Statements F-4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Financial Statements:
Report of Independent Accountants F-8
Report of Independent Accountants on Financial Statement Schedules F-9
Statements of Assets and Liabilities - December 31, 1999 and 1998 F-10
Statements of Operations - Years Ended December 31, 1999, 1998 and 1997 F-11
Statements of Changes in Net Assets - Years Ended December 31, 1999, 1998 and 1997 F-12
Statements of Cash Flows - Years Ended December 31, 1999, 1998 and 1997 F-13
Schedule of Investments - December 31, 1999 and 1998 F-14
Notes to Financial Statements F-17
Financial Statement Schedules:
For the period ended December 31, 1999
Schedule III - Real Estate Owned: Properties F-22
Schedule III - Real Estate Owned: Interest in Properties F-23
All other schedules are omitted because they are not applicable, or because the
required information is included in the financial statements or notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Contract Owners of the
Pruco Life of New Jersey Variable Contract Real Property Account
and the Board of Directors of
Pruco Life Insurance Company of New Jersey
In our opinion, the accompanying statements of net assets and the related
statements of operations and changes in net assets present fairly, in all
material respects, the financial position of Pruco Life of New Jersey
Variable Contract Real Property Account at December 31, 1999 and 1998,
and the results of its operations and the changes in its net assets for
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. These
financial statements are the responsibility of Pruco Life Insurance
Company of New Jersey's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with auditing
standards generally accepted in the United States, 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 audits, which included confirmation of shares owned in The Prudential
Variable Contract Real Property Partnership at December 31, 1999 and
1998, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 17, 2000
F-2
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1999 and 1998
1999 1998
----------- ------------------
ASSETS
Investment in The Prudential Variable Contract
Real Property Partnership (Note 3) $ 9,074,151 $ 9,260,250
----------- ------------------
Net Assets $ 9,074,151 $ 9,260,250
----------- ------------------
----------- ------------------
NET ASSETS, representing:
Equity of contract owners (Note 4) $ 5,925,394 $ 6,428,170
Equity of Pruco Life Insurance Company of New Jersey (Note 2D) 3,148,757 2,832,080
----------- ------------------
$ 9,074,151 $ 9,260,250
----------- ------------------
----------- ------------------
STATEMENTS OF OPERATIONS
For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------------ ----------------
INVESTMENT INCOME
Net investment income from Partnership operations $ 579,075 $ 611,358 $ 550,770
------------ ------------------ ----------------
EXPENSES
Charges to contract owners for assuming mortality risk and
expense risk and for administration (Note 5) 35,718 38,644 38,614
------------ ------------------ ----------------
NET INVESTMENT INCOME 543,357 572,714 512,156
------------ ------------------ ----------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership (308,127) 67,858 326,681
Realized gain (loss) on sale of investments in Partnership (1,445) 117,819 12,223
------------ ------------------ ----------------
NET GAIN (LOSS) ON INVESTMENTS (309,572) 185,677 338,904
------------ ------------------ ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 233,785 $ 758,391 $ 851,060
------------ ------------------ ----------------
------------ ------------------ ----------------
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------------ ----------------
OPERATIONS
Net investment income $ 543,357 $ 572,714 $ 512,156
Net change in unrealized gain (loss) on investments in Partnership (308,127) 67,858 326,681
Net realized gain (loss) on sale of investments in Partnership (1,445) 117,819 12,223
------------ ------------------ ----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 233,785 758,391 851,060
------------ ------------------ ----------------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners (Note 7) (642,611) (759,469) (524,157)
Net contributions by Pruco Life Insurance Company of New Jersey 222,727 493,113 562,771
------------ ------------------ ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (419,884) (266,356) 38,614
------------ ------------------ ----------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (186,099) 492,035 889,674
NET ASSETS:
Beginning of year 9,260,250 8,768,215 7,878,541
------------ ------------------ ----------------
End of year $ 9,074,151 $ 9,260,250 $ 8,768,215
------------ ------------------ ----------------
------------ ------------------ ----------------
F-3
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
DECEMBER 31, 1999
NOTE 1: GENERAL
Pruco Life of New Jersey Variable Contract Real Property Account ("Real Property
Account") was established on October 30, 1987 by resolution of the Board of
Directors of Pruco Life Insurance Company of New Jersey ("Pruco Life of New
Jersey"), an indirect wholly-owned subsidiary 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
Pruco Life of New Jersey's other assets. The Real Property account is used to
fund benefits under certain variable life insurance and variable annuity
contracts issued by Pruco Life of New Jersey. These products are Appreciable
Life ("VAL"), Variable Life ("VLI"), Discovery Plus ("SPVA"), and Discovery Life
Plus ("SPVL").
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
estate investment option under certain variable life insurance and annuity
contracts. The Real Property Account, along with the Pruco Life Variable
Contract Real Property Account and The Prudential 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 accounting
principles generally accepted in the United States ("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, 1999
and 1998 the Real Property Account's interest in the Partnership was 4.3% or
435,051 shares and 3.9% or 456,853 shares respectively.
C. INCOME RECOGNITION
Net investment income and realized and unrealized gains and losses are
recognized daily. Amounts are based upon the Real Property Account's
proportionate interest in the Partnership.
D. EQUITY OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
Pruco Life of New Jersey maintains a position in the Real Property Account for
property acquisitions and capital expenditure funding needs. The position is
also utilized for liquidity purposes including unit purchases and redemptions,
Partnership share transactions, and expense processing. The position does not
have an effect on the contract owner's account or the related unit value.
F-4
NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL
PROPERTY PARTNERSHIP
The number of shares (rounded) held by the Real Property Account in the
Partnership, the Partnership net asset value per share (rounded) and the
aggregate cost of investments in the Real Property Accounts' shares held at
December 31, 1999 and December 31, 1998 were as follows:
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
NUMBER OF SHARES (ROUNDED): 435,051 456,853
NET ASSET VALUE PER SHARE (ROUNDED): $20.86 $20.27
COST: $5,058,737 $5,311,507
NOTE 4: CONTRACT OWNER UNIT INFORMATION
Outstanding contract owner units, unit values and total value of contract owner
equity at December 31, 1999 and December 31, 1998 by product, were as follows:
1999:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
CONTRACT OWNER UNITS OUTSTANDING: 2,497,281 446,482 57,529 66,927
UNIT VALUE: $ 1.92825 $ 1.99254 $ 1.77073 $ 1.77073
---------- ---------- ---------- ----------
TOTAL CONTRACT OWNER EQUITY: $4,815,383 $ 889,633 $ 101,868 $ 118,510 $5,925,394
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
1998:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
CONTRACT OWNER UNITS OUTSTANDING: 2,800,465 475,689 62,086 66,824
UNIT VALUE: $ 1.88513 $ 1.94314 $ 1.74229 $ 1.74229
---------- ---------- ---------- ----------
TOTAL CONTRACT OWNER EQUITY: $5,279,240 $ 924,330 $ 108,772 $ 116,428 $6,428,170
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
NOTE 5: CHARGES AND EXPENSES
A. MORTALITY RISK AND EXPENSE RISK CHARGES
Mortality risk and expense risk charges are determined daily using an effective
annual rate of 0.6%, 0.35%, 0.9% and 0.9% for VAL, VLI, SPVA, SPVL,
respectively. Mortality risk is that life insurance and annuity contract owners
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 related charges by Pruco Life of New Jersey.
B. ADMINISTRATIVE CHARGES
Administrative charges are determined daily using an effective annual rate of
0.35% applied daily against the net assets representing equity of contract
owners held in each subaccount for SPVA and SPVL. Administrative charges include
costs associated with issuing the contract, establishing and maintaining
records, and providing reports to contract owners.
C. COST OF INSURANCE AND OTHER RELATED CHARGES
Contract owner contributions are subject to certain deductions prior to being
invested in the Real Property Account. The deductions for VAL and VLI are (1)
state premium taxes; (2) sales charges which are deducted in order to compensate
Pruco Life of New Jersey for the cost of selling the contract and (3)
transaction costs, applicable to VAL, are deducted from each premium payment to
cover premium collection and processing costs. Contracts are also subject to
monthly charges for the costs of administering the contract to compensate Pruco
Life of New Jersey for the guaranteed minimum death benefit risk.
F-5
D. DEFERRED SALES CHARGE
Subsequent to a contract owner redemption, a deferred sales charge is imposed
upon surrenders of certain variable life insurance contracts to compensate Pruco
Life of New Jersey for sales and other marketing expenses. The amount of any
sales charge will depend on the number of years that have elapsed since the
contract was issued. No sales charge will be imposed after the sixth and tenth
year of the contract for SPVL and VAL, respectively. No sales charge will be
imposed on death benefits.
E. PARTIAL WITHDRAWAL CHARGE
A charge is imposed by Pruco Life of New Jersey on partial withdrawals of the
cash surrender value for VAL. A charge equal to the lesser of $15 or 2% will be
made in connection with each partial withdrawal of the cash surrender value of a
contract.
NOTE 6: TAXES
Pruco Life of New Jersey is taxed as a "life insurance company" as defined by
the Internal Revenue Code and the results of operations of the Real Property
Account form a part of Prudential's consolidated federal tax return. Under
current federal law, no federal income taxes are payable by the Real Property
Account. As such, no provision for the tax liability has been recorded in these
financial statements.
NOTE 7: NET WITHDRAWALS BY CONTRACT OWNERS
Contract owner activity for the real estate investment option in Pruco Life of
New Jersey's variable insurance and variable annuity products for the years
ended December 31, 1999, 1998 and 1997 were as follows:
1999:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
Contract Owner Net Payments: $ 133,235 $ 44,778 $ 0 $ (9) $ 178,004
Policy Loans: (206,458) (11,382) 0 (1,005) (218,845)
Policy Loan Repayments and Interest: 295,414 10,661 0 2,140 308,215
Surrenders, Withdrawals, and Death Benefits: (278,883) (57,044) (7,957) 0 (343,884)
Net Transfers From(To) Other Subaccounts
or Fixed Rate Option: (288,687) (14,518) 0 0 (303,205)
Administrative and Other Charges: (232,010) (29,982) 43 (947) (262,896)
---------- ---------- ---------- ---------- ----------
NET WITHDRAWALS BY CONTRACT OWNERS $(577,389) $ (57,487) $ (7,914) $ 179 $(642,611)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
1998:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
Contract Owner Net Payments: $ 457,528 $ 83,120 $ 0 $ 70 $ 540,718
Policy Loans: (415,907) (12,329) 0 (26,073) (454,309)
Policy Loan Repayments and Interest: 147,539 21,940 0 2,028 171,507
Surrenders, Withdrawals, and Death Benefits: (289,995) (60,417) (32,020) (11) (382,443)
Net Transfers From(To) Other Subaccounts
or Fixed Rate Options: (319,287) (17,694) 0 0 (336,981)
Administrative and Other Charges: (264,212) (32,789) (36) (924) (297,961)
---------- ---------- ---------- ---------- ----------
NET WITHDRAWALS BY CONTRACT OWNERS $(684,334) $ (18,169) $ (32,056) $ (24,910) $(759,469)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
F-6
1997:
- -----
VAL VLI SPVA SPVL TOTAL
--- --- ---- ---- -----
Contract Owner Net Payments: $ 533,340 $ 88,026 $ (5) $ 37 $ 621,398
Policy Loans: (171,484) (14,313) 0 (2,456) (188,253)
Policy Loan Repayments and Interest: 136,212 14,124 0 1,104 151,440
Surrenders, Withdrawals, and Death Benefits: (336,616) (74,935) (5,395) 0 (416,946)
Net Transfers From(To) Other Subaccounts
or Fixed Rate Options: (304,993) (20,526) 0 (17,463) (342,982)
Administrative and Other Charges: (315,155) (32,755) 0 (904) (348,814)
---------- ---------- ---------- ---------- ----------
NET WITHDRAWALS BY CONTRACT OWNERS $(458,696) $ (40,379) $ (5,400) $ (19,682) $(524,157)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
NOTE 8: UNIT ACTIVITY
Transactions in units for the years ended December 31, 1999, 1998, 1997 were as
follows:
1999:
- -----
VAL VLI SPVA SPVL
--- --- ---- ----
Contract Owner Contributions: 223,951 29,238 26 1,215
Contract Owner Redemptions: (527,135) (58,445) (4,583) (1,112)
1998:
- -----
VAL VLI SPVA SPVL
--- --- ---- ----
Contract Owner Contributions: 428,040 59,733 3 1,240
Contract Owner Redemptions: (808,537) (69,561) (19,312) (16,223)
1997:
VAL VLI SPVA SPVL
--- --- ---- ----
Contract Owner Contributions: 477,493 4,305 0 758
Contract Owner Redemptions: (757,408) (88,132) (3,635) (13,874)
NOTE 9: PURCHASES AND SALES OF INVESTMENTS
The aggregate costs of purchases and proceeds from sales of investments in the
Partnership for the year ended December 31, 1999 were as follows:
Purchases: $ 0
Sales: $ (455,602)
F-7
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Prudential
Variable Contract Real Property Partnership:
In our opinion, the accompanying consolidated statements of assets and
liabilities, including the schedule of investments, and the related consolidated
statements of operations, of changes in net assets and of cash flows present
fairly, in all material respects, the financial position of Prudential Variable
Contract Real Property Partnership (the "Partnership") at December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. These financial statements
are the responsibility of the management of The Prudential Insurance Company of
America; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audits 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 audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
February 17, 2000
F-8
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Partners of Prudential
Variable Contract Real Property Partnership:
Our audit of the consolidated financial statements referred to in our report
dated February 17, 2000 also included an audit of the accompanying financial
statement schedules. In our opinion, these financial statement schedules present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 17, 2000
F-9
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 12/31/99 -- $190,007,568; 12/31/98 -- $170,045,055) $171,154,516 $155,374,462
Real estate partnership (cost plus equity in undistributed
earnings: 12/31/99 -- $5,187,126; 12/31/98 -- $0) 4,506,257 0
Real estate investment trusts (cost: 12/31/99 -- $32,535,158;
12/31/98 -- $10,000,005) 29,727,085 11,554,649
----------------- -----------------
Total real estate investments 205,387,858 166,929,111
MARKETABLE SECURITIES - At estimated market value
(cost: 12/31/99 -- $2,805,493; 12/31/98 -- $14,967,236) 2,797,008 14,950,525
CASH AND CASH EQUIVALENTS 13,972,669 58,578,848
DIVIDEND RECEIVABLE 131,542 167,275
OTHER ASSETS (net of allowance for uncollectible
accounts: 12/31/99 -- $179,000; 12/31/98 -- $66,000) 2,853,576 3,623,513
----------------- -----------------
Total assets 225,142,653 244,249,272
----------------- -----------------
LIABILITIES
MORTGAGE LOAN PAYABLE 10,184,662 0
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2,967,614 1,985,400
DUE TO AFFILIATES 869,477 1,598,535
OTHER LIABILITIES 525,892 504,940
MINORITY INTEREST 372,068 0
----------------- -----------------
Total liabilities 14,919,713 4,088,875
----------------- -----------------
Partners' equity 210,222,940 240,160,397
----------------- -----------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $225,142,653 $244,249,272
----------------- -----------------
----------------- -----------------
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 10,078,921 11,848,275
----------------- -----------------
----------------- -----------------
SHARE VALUE AT END OF PERIOD $20.86 $20.27
----------------- -----------------
----------------- -----------------
SEE NOTES TO FINANCIAL STATEMENTS
F-10
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999 1998 1997
----------- ----------- -----------
INVESTMENT INCOME:
Revenue from real estate and improvements $21,807,346 $24,572,642 $21,582,968
Equity in income of real estate partnership 98,375 33,462 435,296
Dividend income from real estate investment trusts 1,221,843 669,100 158,184
Interest on short-term investments 1,707,485 1,888,348 2,305,364
----------- ----------- -----------
Total investment income 24,835,049 27,163,552 24,481,812
----------- ----------- -----------
EXPENSES:
Investment managment fee 2,730,713 2,900,445 2,640,470
Real estate taxes 2,616,553 2,406,624 2,208,972
Administrative 2,234,949 1,951,235 2,326,155
Operating 3,794,081 4,071,735 3,296,350
Interest 145,418 0 220,118
Minority interest in consolidated partnership 33,746 0 0
----------- ----------- -----------
Total investment expenses 11,555,460 11,330,039 10,692,065
----------- ----------- -----------
NET INVESTMENT INCOME 13,279,589 15,833,513 13,789,747
----------- ----------- -----------
REALIZED AND UNREALIZED (LOSS) GAIN
ON INVESTMENTS
Net proceeds from real estate investments
sold or converted 21,649,562 37,443,762 6,297,422
Less: Cost of real estate investments sold
or converted 19,602,032 37,361,533 6,274,539
Realization of prior periods' unrealized
gain (loss) on real estate investments
sold or converted 2,080,673 (2,969,150) (283,157)
----------- ----------- -----------
Net (loss) gain realized on real estate
investments sold or converted (33,143) 3,051,379 306,040
----------- ----------- -----------
Change in unrealized (loss) gain on real estate
investments (7,145,372) 1,743,732 8,179,192
Minority interest in unrealized gain on investments (38,531) 0 0
----------- ----------- -----------
Net unrealized (loss) gain on real estate investments (7,183,903) 1,743,732 8,179,192
----------- ----------- -----------
NET REALIZED AND UNREALIZED (LOSS)
GAIN ON INVESTMENTS (7,217,046) 4,795,111 8,485,232
----------- ----------- -----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $6,062,543 $20,628,624 $22,274,979
----------- ----------- -----------
----------- ----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
F-11
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income $13,279,589 $15,833,513 $13,789,747
Net (loss) gain realized on real estate
investments sold (33,143) 3,051,379 306,040
Net unrealized (loss) gain from real estate
investments (7,183,903) 1,743,732 8,179,192
------------ ------------ ------------
Net increase in net assets resulting from
operations 6,062,543 20,628,624 22,274,979
------------ ------------ ------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(1999 -- 1,769,354, 1998 -- 0, and 1997 -- 0
shares, respectively) (36,000,000) 0 0
------------ ------------ ------------
Net decrease in net assets resulting from
capital transactions (36,000,000) 0 0
------------ ------------ ------------
NET INCREASE IN NET ASSETS (29,937,457) 20,628,624 22,274,979
NET ASSETS - Beginning of year 240,160,397 219,531,773 197,256,794
------------ ------------ ------------
NET ASSETS - End of year $210,222,940 $240,160,397 $219,531,773
------------ ------------ ------------
------------ ------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS
F-12
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $6,062,543 $20,628,624 $22,274,979
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 7,217,046 (4,795,111) (8,485,232)
Equity in income of real estate partnership's
operations in excess of distributions (98,376) 0 0
Minority interest from operating activities 33,746 0 0
Bad debt expense 124,059 28,264 99,929
Decrease (increase) in:
Dividend receivable 35,733 (20,276) (146,999)
Other assets 645,878 (1,704,926) 20,136
(Decrease) increase in:
Obligation under capital lease 0 0 (72,677)
Accounts payable and accrued expenses 982,214 143,373 201,667
Due to affiliates (729,058) 765,613 113,722
Other liabilities 20,952 (33,473) 71,404
----------- ----------- -----------
Net cash flows from operating activities 14,294,737 15,012,088 14,076,929
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 10,706,996 37,443,762 6,297,422
Acquisition of real estate property (7,200,743) 0 (23,417,474)
Acquisition of real estate partnership (5,088,750) 0 0
Acquisition of real estate investment trust (31,239,744) 0 (10,000,005)
Improvements and additional costs on prior purchases:
Additions to real estate owned (2,516,645) (5,736,333) (1,311,864)
Sale (purchase) of marketable securities, net 12,153,517 (1,021,229) 10,497,348
----------- ----------- -----------
Net cash flows from investing activities (23,185,369) 30,686,200 (17,934,573)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals by partners (36,000,000) 0 0
Principal payments on mortgage loans payable (15,338) 0 0
Distributions to minority interest partners (93,425) 0 0
Contributions from minority interest partners 393,216 0 0
Principal payments on capital lease obligation 0 0 (4,000,000)
----------- ----------- -----------
Net cash flows from financing activities (35,715,547) 0 (4,OO0,000)
----------- ----------- -----------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (44,606,179) 45,698,288 (7,857,644)
CASH AND CASH EQUIVALENTS - Beginning of year 58,578,848 12,880,560 20,738,204
----------- ----------- -----------
CASH AND CASH EQUIVALENTS - End of year $13,972,669 $58,578,848 $12,880,560
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest $145,418 $0 $220,118
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Assumption of Mortgage Loan Payable $10,200,000 $0 $0
----------- ----------- -----------
----------- ----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS
F-13
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
DECEMBER 31,1999 DECEMBER 31,1998
---------------------------------- ----------------------------
ESTIMATED ESTIMATED
COST MARKET VALUE COST MARKET VALUE
-----------------------------------------------------------------------
REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 81.4% 64.7%
Location Description
- --------------------------------------------------------------------------------------------------------------------------------
Lisle, IL Office Building $22,075,782 $13,895,122 $21,634,707 $14,123,742
Atlanta, GA Garden Apartments 15,646,846 16,104,268 15,601,495 15,651,216
Roswell, GA Retail Shopping Center 32,394,853 27,000,939 32,272,627 28,649,176
Morristown, NJ Office Building 20,116,694 12,337,499 19,409,490 11,596,138
Bolingbrook, IL Warehouse 8,948,028 7,000,000 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,833,928 17,004,623 15,822,682 16,804,570
Nashville, TN Office Building 8,509,908 10,000,000 8,448,026 10,152,399
Oakbrook Terrace, IL Office Complex 12,945,366 14,200,000 12,945,366 15,750,000
Beaverton, OR Office Complex 10,768,811 10,400,866 10,728,618 11,200,000
Salt Lake City, UT Industrial Building 5,640,709 5,703,419 5,388,134 5,450,000
Aurora, CO Industrial Building 10,119,072 10,520,780 9,304,171 9,497,221
Brentwood, TN Office Complex 9,606,828 9,537,000 9,541,711 9,500,000
Jacksonville, FL Garden Apartments 17,400,743 17,450,000 0 0
----------------------------------------------------------------------
$190,007,568 $171,154,516 $170,045,055 $155,374,462
----------------------------------------------------------------------
----------------------------------------------------------------------
REAL ESTATE PARTNERSHIPS (PERCENT OF NET ASSETS) 2.1%
Location Description
- --------------------------------------------------------------------------------------------------------------------------------
Kansas City, KS; MO Retail Shopping Center $5,187,126 $4,506,257 $0 $0
----------------------------------------------------------------------
----------------------------------------------------------------------
REAL ESTATE INVESTMENT TRUSTS (PERCENT OF NET ASSETS) 14.1% 4.8%
- --------------------------------------------------------------------------------------------------------------------------------
Prologis REIT Shares (386,208 shares) $7,579,332 $7,434,504 - -
AMB Property Corp (42,100 shares) 933,851 839,369 - -
Alexandria Real Est Equities (30,800 shares) 874,221 979,825 - -
Apartment Inv & Mgmt Co - Class A (16,500 shares) 672,953 656,906 - -
Centerpoint Properties Corp (16,200 shares) 544,308 581,175 - -
Cousins Properties (24,800 shares) 890,459 841,650 - -
Equity Office Properties Trust (32,400 shares) 901,571 797,850 - -
Equity Residential Property Trust (13,100 shares) 623,573 559,206 - -
Excel Legacy Corp (322,300 shares) 1,479,431 1,067,619 - -
Franchise Finance Cp Amer (25,500 shares) 620,027 610,406 - -
General Growth Properties (13,600 shares) 512,353 380,800 - -
Intrawest Corporation (76,100 shares) 1,258,575 1,317,481 - -
MeriStar Hotels & Resorts Inc. (239,100 shares) 875,818 851,794 - -
Mission West Properties (116,800 shares) 938,124 905,200 - -
Philips International Realty (63,700 shares) 1,052,331 1,047,069 - -
Prime Hospitality Corp. (112,500 shares) 1,320,524 991,406 - -
Public Storage (45,100 shares) 1,269,884 1,023,206 - -
Reckson Service Industries (18,200 shares) 221,041 1,135,225 - -
Reckson Assoc Realty Corp (52,200 shares) 1,299,227 1,070,100 - -
Spieker Properties (12,000 shares) 426,078 437,250 - -
Starwood Hotels and Resorts (87,200 shares) 3,027,806 2,049,200 - -
Sun Communities Inc. (16,700 shares) 606,047 537,531 - -
Vornado Realty Trust (51,800 shares) 1,930,911 1,683,500 - -
Sun International Hotels Ltd (30,900 shares) 1,116,266 598,688 - -
Boardwalk Equities, Inc. (146,800.shares) 1,560,447 1,330,125 - -
Meridian REIT Shares (506,894 shares) - - 10,000,005 11,554,649
----------------------------------------------------------------------
$32,535,158 $29,727,085 $10,000,005 $11,554,649
----------------------------------------------------------------------
----------------------------------------------------------------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.3% 6.2%
Description (See next page for details)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL MARKETABLE SECURITIES $2,805,493 $2,797,008 $14,967,236 $14,950,525
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 6.6% 24.4%
Description (See next page for details)
- -------------------------------------------------------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENT $13,972,669 $13,972,669 $58,578,848 $58,578,848
----------------------------------------------------------------------
----------------------------------------------------------------------
*Real estate partnership accounted for by the consolidated method.
SEE NOTES TO FINANCIAL STATEMENTS
F-14
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999
-----------------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
-------------- ----------- -------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.3%
J.P. Morgan and Co., Inc., 5.96%, March 13, 2000 $ 995,000 980,010 $ 980,010
Ford Motor Credit Co., 7.50%, April 6, 2000 150,000 151,779 150,654
CIT Group Inc., 6.80%, April 17, 2000 500,000 503,765 501,487
Associates Corp of North America, 6.71 %, June 1, 2000 1,160,000 1,169,939 1,164,857
-------------- ----------- -------------
TOTAL MARKETABLE SECURITIES $ 2,805,000 $ 2,805,493 $ 2,797,008
-------------- ----------- -------------
-------------- ----------- -------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 6.6%
Duke Energy Corp., 5.00%, January 3, 2000 550,000 549,771 549,771
Bell Atlantic Financial Services, 5.20%, January 7, 2000 672,000 671,321 671,321
Household Finance Corp, 5.93%, January 18, 2000 990,000 983,314 983,314
Ford Motor Credit Co., 6.00%, January 21, 2000 847,000 840,789 840,789
American Express Cr. Corp., 6.02%, January 26, 2000 999,000 990,981 990,981
Procter & Gamble Co., 6.00%, January 26, 2000 200,000 197,867 197,867
Goldman Sachs Group L.P., 6.43%, January 31, 2000 1,000,000 991,963 991,963
Countrywide Home Loans, 6.00%, February 3, 2000 990,000 980,595 980,595
Merrill Lynch & Co., Inc., 5.98%, February 3, 2000 990,000 980,626 980,626
Unifunding Inc., 6.05%, February 3, 2000 900,000 892,135 892,135
Metlife Funding Inc., 5.90%, February 4, 2000 841,000 832,730 832,730
General Electric Cap Corp., 5.95%, February 10 2000 350,000 346,182 346,182
GTE Funding, Inc., 6.10%, February 10, 2000 1,000,000 990,681 990,681
E.I. Du Pont De Nemours & Co. Inc., 6.00%, February 11, 2000 250,000 246,667 246,667
General Electric Capital Corp., 5.92% March 1, 2000 406,000 400,258 400,258
-------------- ----------- -------------
TOTAL CASH EQUIVALENTS 10,985,000 10,895,880 10,895,880
CASH 3,076,789 3,076,789 3,076,789
-------------- ----------- -------------
TOTAL CASH AND CASH EQUIVALENTS $14,061,789 $13,972,669 $13,972,669
-------------- ----------- -------------
-------------- ----------- -------------
SEE NOTES TO FINANCIAL STATEMENTS
F-15
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
DECEMBER 31,1998
--------------------------------------------
NET ESTIMATED
FACE AMOUNT COST MARKET VALUE
----------- ----------- -------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 6.2%
General Motors Acceptance Corp., 5.26%, January 26, 1999 $830,000 $817,556 $817,556
American Express Credit Corp., 7.375%, February 1, 1999 325,000 329,342 325,418
Canadian Imperial Bank of Commerce, 5.55%, February 10, 1999 1,000,000 999,520 999,947
Federal National Mortgage Assoc., 5.33%, February 12, 1999 100,000 99,703 99,703
Salomon Smith Barney Holdings, Inc., 5.38%, February 16, 1999 1,720,000 1,695,137 1,695,397
General Motors Acceptance Corp., 5.29 %, February 17, 1999 650,000 641,501 641,501
Chrysler Financial Company LLC , 5.26%, February 22, 1999 2,400,000 2,365,700 2,365,700
International Lease Finance Corp. 7.50% March 1, 1999 500,000 508,250 501,367
Federal Home Loan Mortgage Corp., 5.505%, March 12, 1999 1,000,000 1,000,856 1,000,630
General Motors Acceptance Corp., 6.04%, March 19, 1999 1,000,000 1,003,480 1,000,707
Merrill Lynch & CO., Inc. 5.23%, March 19, 1999 1,790,000 1,758,820 1,758,820
Canadian Wheat Board, 5.14%, April 1, 1999 2,000,000 1,962,406 1,962,406
International Lease Finance Corp., 6.625%, April 1, 1999 375,000 377,419 375,721
CIT Group Holdings, Inc, 6.375%, May 21, 1999 400,000 402,120 400,873
Federal National Mortgage Assoc., 6.07%, July 1, 1999 1,000,000 1,005,426 1,004,779
----------- ----------- -------------
TOTAL MARKETABLE SECURITIES $15,090,000 $14,967,236 $14,950,525
----------- ----------- -------------
----------- ----------- -------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 24.4%
Countrywide Home Loans, 5.403%, January 4, 1999 $1,000,000 $999,400 $999,400
Fortune Brands Inc. 5.05%, January 4, 1999 3,463,000 3,461,057 3,461,057
Xerox Capital (Europe) PLC 5.303%, January 4, 1999 3,483,000 3,480,949 3,480,949
Federal National Mortgage Assoc, 5.77%, January 5, 1999 10,401,000 10,000,000 10,000,000
Ford Motor Credit Co, 5.454%, January 5, 1999 500,000 499,622 499,622
Pioneer Hi-BRED International, 5.665%, January 7, 1999 1,000,000 997,332 997,332
Ford Motor Credit Co., 6.11%, January 8, 1999 167,000 166,717 166,717
Deere & Co., 5.372 %, January 13, 1999 2,520,000 2,509,514 2,509,514
E.I. Du Pont De Nemours & Co., Inc. 5.277%, January 13, 1999 648,000 644,598 644,598
Household Finance Corp., 5.356 %, January 13, 1999 175,000 174,119 174,119
Household Finance Corp., 5.355%, January 15, 1999 2,343,000 2,331,899 2,331,899
Potomac Electric Power Co., 5.569%, January 15, 1999 3,122,000 3,110,930 3,110,930
Chrysler Financial Corp., 5.537%, January 25, 1999 1,164,000 1,158,121 1,158,121
Eastman Kodak Co., 5.232%, January 26, 1999 2,518,000 2,502,360 2,502,360
Cigna Corp., 5.559%, January 27, 1999 1,819,000 1,809,220 1,809,220
Cigna Group Holdings, Inc. 5.334%, January 27, 1999 1,851,000 1,835,496 1,835,496
Countrywide Home Loan, Inc. 5.506%, January 27, 1999 1,342,000 1,333,028 1,333,028
Countrywide Home Loan, Inc. 5.587%, January 27, 1999 1,177,000 1,169,197 1,169,197
General RE Corp., 5.187%, January 29, 1999 542,000 538,046 538,046
PNC Funding Corp. 5.728%, January 29, 1999 2,500,000 2,487,729 2,487,729
GTE Funding, Inc, Inc, 5.211%, February 1, 1999 2,526,000 2,506,048 2,506,048
Norwest Financial, Inc. 5.536%, February 3, 1999 3,563,000 3,539,593 3,539,593
CIGNA Corp., 5.233%, February 4, 1999 1,745,000 1,730,660 1,730,660
General Electric Capital Corp. 5.537%, February 4, 1999 3,563,000 3,539,049 3,539,049
Associates First Capital Corp., 5.241%, February 8, 1999 2,519,000 2,498,988 2,498,988
GTE Funding, Inc., 5.304%, February 11, 1999 1,000,000 993,413 993,413
----------- ----------- -------------
TOTAL CASH EQUIVALENTS 56,651,000 56,017,086 56,017,086
CASH 2,561,762 2,561,762 2,561,762
----------- ----------- -------------
TOTAL CASH AND CASH EQUIVALENTS $59,212,762 $58,578,848 $58,578,848
----------- ----------- -------------
----------- ----------- -------------
SEE NOTES TO FINANCIAL STATEMENTS
F-16
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
NOTE 1: ORGANIZATION
On April 29, 1988, The Prudential Variable Contract Real Property Partnership
(the "Partnership"), a general partnership organized under New Jersey law, was
formed through an agreement among The Prudential Insurance Company of America
("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's policy is to invest at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.
The estimated market value of the Partnership's shares is determined daily,
consistent with the Partnership Agreement. On each day during which the New York
Stock Exchange is open for business, the net asset value of the Partnership is
estimated using the estimated market value of its assets, principally as
described in Notes 2A and 2B below, reduced by any liabilities of the
Partnership. The periodic adjustments to property values described in Notes 2A
and 2B below and other adjustments to previous estimates are made on a
prospective basis. There can be no assurance that all such adjustments to
estimates will be made timely.
Shares of the Partnership are held by 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") and may be purchased and sold at the then 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 above by the number
of shares outstanding. A Contract owner participates in the Partnership through
interests in the Real Property Accounts.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A: BASIS OF PRESENTATION - It is the Partnership's policy to
consolidate those real estate partnerships in which it has a
controlling financial interest. All significant intercompany
balances and transactions have been eliminated in the
consolidation.
B: REAL ESTATE INVESTMENTS - The Partnership's investments in real
estate 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 or an
equivalent organization) within a reasonable amount of time
following acquisition of the real estate and no less frequently
than annually thereafter. The Chief Appraiser of Prudential
Insurance Company's Valuation Unit (Valuation Unit) is responsible
to assure that the valuation process provides independent and
accurate market value estimates. In the interest of maintaining
and monitoring the independence and accuracy of the appraisal
process, the Comptroller of Prudential has appointed a third party
firm to act as the Appraisal Management Firm. The Appraisal
Management Firm, among other responsibilities, approves the
selection and scheduling of external appraisals; engages all
external appraisers; reviews and provides comments on all external
appraisals; prepares all quarterly update appraisals; assists in
developing policies and procedures and assists in the evaluation
of the performance and competency of external appraisers.
F-17
The purpose of an appraisal is to estimate the market value of
real estate as of a specific date. Market value has been defined
as the most probable price for which the appraised real estate
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.
The 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 the real estate 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 space. In the reconciliation of these
three approaches, the one most heavily relied upon is the one
then recognized as the most appropriate by the independent
appraiser for the type of real estate in the market.
Real estate partnerships are valued at the Partnership's equity in
net assets as reflected in the partnership's financial statements
with properties valued as described above.
The market value of real estate and real estate partnerships does
not reflect transaction costs which may be incurred at
disposition.
As described above, the estimated market value of real estate and
real estate related assets 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 these estimated market values are reasonable
approximations of market prices and the aggregate value of
investments in real estate is fairly presented as of December 31,
1999 and 1998.
C: INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS - Shares of real
estate investment trusts (REITs) are generally valued at their
quoted market price. These values may be adjusted for discounts
resulting from restrictions, if any, on the future sale of these
shares, such as lockout periods or limitations on the number of
shares which may be sold in a given time period. Any such
discounts are determined by the Valuation Unit. On March 30, 1999,
the Partnership converted 506,894 shares of Meridian REIT to
557,583 shares of ProLogis REIT, fair value of $10,942,566, and
cash of $1,013,796 (or total fair value of $11,956,362) as a
result of ProLogis' acquisition of Meridian. Management continued
applying a 3% discount to the market value of the ProLogis REIT
shares through June 29, 1999 because of the restriction which
limits the number of shares that can be publicly traded during any
six month period to 30% of the total shares originally acquired.
The application of the 3% discount was discontinued on June 30,
1999 because this restriction no longer applied.
D: REVENUE RECOGNITION - Rent from real estate is recognized when
billed. Revenue from certain real estate investments is net of all
or a portion of related real estate expenses and taxes. Since real
estate is stated at estimated market value, net income is not
reduced by depreciation and amortization expense. Dividend income
is accrued at the ex-dividend date.
E: EQUITY IN INCOME OF REAL ESTATE PARTNERSHIPS - Equity in income
from real estate partnership operations represents the
Partnership's share of the current year's partnership income as
provided for under the terms of the partnership agreements. As is
the case with wholly-owned real estate, partnership net income is
not reduced by depreciation or amortization expense. Frequency of
distribution of income is determined by formal agreements or by
the executive committees of the partnerships.
F-18
F: MORTGAGE LOAN PAYABLE - Mortgage loan payable is stated at the
principal amount of the obligation outstanding.
G: CASH AND CASH EQUIVALENTS - For purposes of the Statement of Cash
Flows, all short-term investments with an original maturity of
three months or less are considered to be cash equivalents.
Cash of $72,861 and $114,745 at December 31, 1999 and 1998,
respectively, was maintained by the properties for tenant security
deposits and is included in Other Assets on the Statements of
Assets and Liabilities.
H: MARKETABLE SECURITIES - Marketable securities are highly liquid
investments with maturities of more than three months when
purchased and are carried at estimated market value.
I: 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.
J: MANAGEMENT'S USE OF ESTIMATES IN THE FINANCIAL STATEMENTS - 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.
F-19
NOTE 3: REAL ESTATE PARTNERSHIP
Real estate partnership is valued at the Partnership's equity in net assets as
reflected by the partnership's financial statements with properties valued as
indicated above. The partnership's financial position at December 31, 1999 and
1998, and results from operations for the years then ended are summarized as
follows:
December 31,
1999 1998
---------------------------------------
Partnership Assets and Liabilities
Real Estate at estimated market value $26,350,000 $0
Other Assets 1,685,059 0
----------- ---------
Total Assets 28,035,059 0
----------- ---------
Mortgage loans payable 20,889,782 0
Other Liabilities 1,250,146 0
----------- ---------
Total Liabilities 22,139,928 0
----------- ---------
Net Assets $5,895,131 $0
----------- ---------
----------- ---------
Partnership's Share of Net Assets $4,506,257 $0
----------- ---------
----------- ---------
December 31,
1999 1998
---------------------------------------
Partnership Operations
Rental Revenue $926,283 $33,462
Other Revenue 0 0
----------- ---------
Total Revenue 926,283 33,462
----------- ---------
Real Estate Expenses and Taxes 795,115 0
----------- ---------
Net Investment Income $131,168 $33,462
----------- ---------
----------- ---------
Partnership's Share of Net Investment Income $98,375 $33,462
----------- ---------
NOTE 4: DEBT
The mortgage loan has a variable interest rate which is adjusted annually. The
rate is equal to the 6-month Treasury rate plus 1.565%. It is subject to a
maximum of 11.345% and a minimum of 2.345%. The change from year to year may not
be more than 2%. At December 31, 1999, the rate was 6.845%.
As of December 31, 1999, the mortgage loan payable was payable as follows:
Year Ending
December 31, (000's)
------------ ----------
2000 $ 96
2001 105
2002 112
2003 120
2004 127
Thereafter 9,625
--------
Total $ 10,185
--------
--------
The mortgage payable is secured by a real estate investment with an estimated
market value of $17,450,000.
F-20
NOTE 5: 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 2000 to 2009. At December 31, 1999, the aggregate
future minimum base rental payments under non-cancelable operating leases by
year and in the aggregate are as follows (excluding apartment leases):
Year Ending
December 31, (000's)
------------ ----------
2000 $ 11,918
2001 10,543
2002 8,984
2003 5,718
2004 3,687
Thereafter 10,186
--------
Total $ 51,036
--------
NOTE 6: COMMITMENT FROM PARTNER
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment are utilized for property acquisitions, and returned to
Prudential on an ongoing basis from Contract owners' net contributions and other
available cash. The amount of the commitment is reduced by $10 million for every
$100 million in current value net assets of the Partnership. Thus, with $225
million in net assets, the commitment has been automatically reduced to $80
million. As of December 31, 1999, Prudential's equity interest in the
Partnership under this commitment was $45 million. Prudential does not intend to
make any contributions during the 2000 fiscal year and will begin to phase out
this commitment over the next several years.
NOTE 7: RELATED TRANSACTIONS
Pursuant to an investment management agreement, Prudential charges the
Partnership a daily investment management fee at an annual rate of 1.25% of the
average daily gross asset valuation of the Partnership. For the years ended
December 31, 1999, 1998 and 1997 management fees incurred by the Partnership
were $2.7 million; $2.9 million; and $2.6 million, respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the years ended December 31,
1999, 1998 and 1997 were $116,463; $116,128; and $115,346, respectively, and are
classified as administrative expenses in the Statements of Operations.
On February 1, 1999, Prudential and its partners withdrew $30 million from the
Partnership. On December 23, 1999, Prudential and its partners withdrew $6
million from the Partnership.
The Partnership owned a 50% interest in four warehouse/distribution buildings in
Jacksonville, Florida (the Unit warehouses). The remaining 50% interest was
owned by Prudential and one of its subsidiaries. In September 1997, the Unit
warehouses were sold as part of an industrial package for cash of $12.5 million.
The partnership's share of the proceeds was $6.3 million.
F-21
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: PROPERTIES
DECEMBER 31, 1999
-----------------------------------------------------------------------------------
GROSS AMOUNT AT
WHICH CARRIED
INITIAL COSTS TO THE PARTNERSHIP AT CLOSE OF YEAR
---------------------------------------------- COSTS -------------------------------
CAPITALIZED
BUILDING & SUBSEQUENT TO BUILDING &
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS
- ---------------------------- -------------- -------------- -------------- --------------- ------------- --------------
Properties:
Office Building
Lisle, IL None 1,780,000 15,743,881 4,551,901 1,780,000 20,295,782
Garden Apartments
Atlanta, GA None 3,631,212 11,168,904 846,730 (b) 3,631,212 12,015,634
Retail Shopping Center
Roswell, GA None 9,454,622 21,513,677 1,426,554 9,500,725 22,894,128
Office Building
Morristown, NJ None 2,868,660 12,958,451 4,289,583 2,868,660 17,248,034
Office/Warehouse
Bolingbrook, IL None 1,373,199 7,302,518 272,311 1,373,199 7,574,829
Garden Apartments
Raleigh, NC None 1,623,146 14,135,553 75,229 1,623,146 14,210,782
Office Building
Nashville, TN None 1,797,000 6,588,451 124,457 1,797,377 6,712,531
Office Park
Oakbrook Terrace, IL None 1,313,310 11,316,883 315,173 1,313,821 11,631,545
Office Building
Beaverton, OR None 816,415 9,897,307 55,089 844,751 9,924,060
Industrial Building
Salt Lake City, UT None 582,457 4,805,676 252,576 594,780 5,045,929
Industrial Building
Aurora, CO None 1,338,175 7,202,411 1,578,486 1,415,159 8,703,913
Office Complex
Brentwood, TN None 2,425,000 7,063,755 118,073 2,453,117 7,153,711
-------------- -------------- --------------- ------------- --------------
29,003,196 129,697,467 13,906,162 29,195,947 143,410,878
-------------- -------------- --------------- ------------- --------------
-------------- -------------- --------------- ------------- --------------
GROSS AMOUNT AT
WHICH CARRIED
AT CLOSE OF YEAR
--------------------------------------------------------
1999 YEAR OF DATE
DESCRIPTION SALES TOTAL (a)(b)(c) CONSTRUCTION ACQUIRED
- ---------------------------- ------- ----------------- -------------- ------------
Properties:
Office Building
Lisle, IL 22,075,782 1985 Apr., 1988
Garden Apartments
Atlanta, GA 15,646,846 1987 Apr., 1988
Retail Shopping Center
Roswell, GA 32,394,853 1988 Jan., 1989
Office Building
Morristown, NJ 20,116,694 1981 Aug., 1988
Office/Warehouse
Bolingbrook, IL 8,948,028 1989 Feb., 1990
Garden Apartments
Raleigh, NC 15,833,928 1995 Jun., 1995
Office Building
Nashville, TN 8,509,908 1982 Oct., 1995
Office Park
Oakbrook Terrace, IL 12,945,366 1988 Dec., 1995
Office Building
Beaverton, OR 10,768,811 1995 Dec., 1996
Industrial Building
Salt Lake City, UT 5,640,709 1997 Jul., 1997
Industrial Building
Aurora, CO 10,119,072 1997 Sep., 1997
Office Complex
Brentwood, TN 9,606,828 1987 Oct., 1997
------- -----------------
0 172,606,825
------- -----------------
------- -----------------
1999 1998 1997
-------------- --------------- -------------
(a) Balance at beginning of year 170,045,055 201,670,248 177,082,291
Additions:
Acquisitions 0 0 23,417,474
Improvements, etc. 2,561,770 5,827,888 1,170,483
Deletions:
Sale 0 (37,453,081) 0
-------------- --------------- -------------
Balance at end of year 172,606,825 170,045,055 201,670,248
-------------- --------------- -------------
-------------- --------------- -------------
(b) Net of $1,000,000 settlement received from lawsuit.
F-22
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: INTEREST IN PROPERTIES
DECEMBER 31, 1999
-------------------------------------------------------------------------------------
GROSS AMOUNT AT
WHICH CARRIED
INITIAL COSTS TO THE PARTNERSHIP AT CLOSE OF YEAR
-------------------------------- COSTS -------------------------------------
CAPITALIZED
ENCUMBRANCES BUILDING & SUBSEQUENT TO BUILDING & 1999
DESCRIPTION AT 12/31/99 LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS SALES
- ------------------------- --------------- ------------ ----------------- ------------- ----------- -------------- -------
Interest in Properties:
Garden Apartments
Jacksonville, FL 10,184,662 2,750,000 14,650,743 0 2,750,000 14,650,743
Retail Shopping Center
Kansas City MO and KS * 15,968,149 5,710,916 15,211,504 232,855 5,710,916 15,444,359
--------------- ------------ ----------------- ------------- ----------- -------------- -------
26,152,811 8,460,916 29,862,247 232,855 8,460,916 30,095,102 0
--------------- ------------ ----------------- ------------- ----------- -------------- -------
--------------- ------------ ----------------- ------------- ----------- -------------- -------
GROSS AMOUNT AT
WHICH CARRIED
AT CLOSE OF YEAR
----------------------------------------------------
YEAR OF DATE
DESCRIPTION TOTAL (a)(b)(c) CONSTRUCTION ACQUIRED
- ------------------------- ----------------- ----------------- -------------
Interest in Properties:
Garden Apartments
Jacksonville, FL 17,400,743 1973 Sept., 1999
Retail Shopping Center
Kansas City MO and KS * 21,155,275 Various Ranging Sept., 1999
From 1972-1992
-----------------
38,556,018
-----------------
-----------------
1999 1998 1997
----------------- ------------- -----------
(a) Balance at beginning of year 0 0 6,133,157
Additions:
Acquisitions 38,556,018 0 0
Improvements, etc. 0 0 0
Deletions:
Sale 0 0 (6,133,157)
Encumbrances on Joint
Ventures accounted for by
the equity method (15,968,149) 0 0
----------------- ------------- -----------
Balance at end of year 22,587,869 0 0
----------------- ------------- -----------
* Partnership interest accounted for by the equity method.
F-23