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, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission file number 33-20083
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
in respect of
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Exact name of Registrant as specified in its charter)
New Jersey 22-1211670
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
751 Broad Street, Newark, New Jersey 07102-2992
(Address of principal executive offices) (Zip Code)
(800) 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____
THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY ACCOUNT
(Registrant)
INDEX
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Item Page
No. No.
- ---- ----
Cover Page
Index 2
PART I
1. Business 3
2. Properties 4
3. Legal Proceedings 4
4. Submission of Matters to a Vote of Security Holders 4
PART II
5. Market for the Registrant's Interests and Related Security Holder Matters 5
6. Selected Financial Data 5
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
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 19
12. Security Ownership of Certain Beneficial Owners and Management 19
13. Certain Relationships and Related Transactions 19
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 20
Exhibit Index 20
Signatures 22
2
PART I
Item 1. Business
The Prudential Variable Contract Real Property Account (the "Real Property
Account"), the Registrant, was established on November 20, 1986 by the
Prudential Insurance Company of America ("The Prudential"), as a separate
investment account, pursuant to New Jersey law. The Real Property Account was
established to provide a real estate investment option offered in connection
with the funding of benefits under certain variable life insurance and variable
annuity contracts (the "Contracts") issued by The Prudential.
The assets of the Real Property Account are invested in The Prudential Variable
Contract Real Property Partnership (the "Partnership"). The Partnership, a
general partnership organized under New Jersey law on April 29, 1988, was formed
through agreement among The Prudential Insurance Company of America, Pruco Life
Insurance Company, and Pruco Life Insurance Company of New Jersey, 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; Brentwood, Tennessee; and Beaverton, Oregon.
Total square footage owned is approximately 481,000 of which 77% or 373,000
square feet are leased between 1 and 10 years. The Partnership's
Morristown, New Jersey property, which had approximately 85,000 square
feet, was sold on October 26, 2000.
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 95% or 465 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
416 units or 91% 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 316,000 of
which 96% or 304,000 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, MO and KS areas. This joint venture investment has
approximately 488,000 of net rentable square feet of which 91% or 444,000
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
491,000 square feet are leased between 2 and 10 years.
Investment in Real Estate Trust - The Partnership owned 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 liquidated its entire investment
in ProLogis REIT shares during June 2000. The Partnership also owns
3
investments in various other REIT stocks. The Partnership made an
additional investment of $8,000,000 in various other REIT stocks in
November 2000.
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
Real estate market fundamentals improved in 2000. Much of this improvement came
in the first half of 2000, while the economy was growing at an unsustainable 5%
growth rate. Demand remains strong and new supply has been kept in check. The
uncertainty regarding the broader economy, however, has adversely affected
liquidity in the real estate investment market. Investors are positioning their
portfolios to weather any near-term volatility by shifting allocations to
investments with strong income returns and expected stable near-term cash flows.
However, we should all remember that any slowdown in activity is starting from a
point where occupancy for most property types is at historically high levels.
Debt Markets
Much of the stability that has characterized the real estate markets over the
past two years can be traced to the dynamics of the debt markets. The debt
markets play a central role in determining the outlook for real estate values
because the debt markets remain the industry's principal source of capital. Real
estate debt market fundamentals improved during 2000 despite a moderate increase
in interest rates during the first half of the year. Loan to value ratios
declined, debt coverage ratios moved up in the third quarter, and commercial
mortgage delinquencies remained negligible.
Property Markets
One of the more positive developments in 2000 was the improvement in the
property market fundamentals, at least at the national level. At the start of
2000, this seemed an improbable scenario, largely because conditions at this
time last year were already healthier than we could remember for some time. But
market fundamentals did improve in all sectors--except for retail, where vacancy
rose slightly due to continued oversupply. In fact, demand was so strong in
select markets, most notably in the cult markets of Boston, New York, San
Francisco and Washington, that rents and values spiked to new highs. Conditions
softened somewhat in the second half of the year, but overall still remain
robust as 2001 begins.
Fundamentals remained stable in the office sector. At the national level,
downtown office vacancy rates declined from 8.1% at the beginning of the year to
6.7% as of the third quarter. Nevertheless, there are still many secondary
markets with high downtown vacancy rates, and there are signs of loosening among
even the most robust markets--in particular, among several of the "cult" markets
where marginal demand has been driven largely by tech firms. This loosening is a
sign of a return to more sustainable vacancy levels, and does not seem to us a
sign of a pending crash.
One of the biggest stories in the office market in 2000 was the recovery of the
suburban sector, where a sharp decline in new construction and strong tenant
demand helped drive the national suburban office market vacancy rate to its
lowest level in over a decade. By the end of the third quarter, suburban office
vacancy stood at just under 9%, down from 10.4% at year end in 1999. However,
investors remain rightfully cautious about the sector, putting a ceiling on what
they will pay relative to replacement cost even though this results in first
year cap rates that are in the high 9% range, and often over 10%. This
phenomenon has resulted in a widening of the bid-ask spread for suburban office.
4
The favorite property types among institutional investors continue to be the
less cyclical sectors. The short lead-time on warehouse development allows the
sector to respond relatively quickly to changing market conditions. Torto
Wheaton Research (TWR) estimates that the overall availability rate for
industrial space as of third quarter 2000 was 6.6%, down from 7.2% one year
prior. The firm projects that industrial availability will begin to climb back
to 7.2% by the end of 2001, and then remain relatively stable in the near-term.
The apartment sector remains the favorite of institutional investors. Market
fundamentals have improved over the last year, and the longer-term demographic
trends bode well for demand. Pricing of these investments, however, has risen.
Development, which allows for investment at a price closer to cost, appears to
be the optimal way to participate in apartment investments.
Among institutional investors' least favored sectors are hotels and retail. Both
property types are notoriously sensitive to economic downturns, which does not
bode well heading into uncertain economic times. Looking ahead, retail will
remain a challenging property type in which to avoid mistakes. Stress in the
economy affects retail real estate when it leads to a shake out in the retail
industry. Sears recently announced the closures of some eighty plus stores.
Recent failures of such national names as Bradlees and Montgomery Ward suggests
that retail may be about to experience one of its periodic waves of
restructuring. That these announcements come just as consumer spending seems to
be slowing, rather than into a slowdown or recession, underscores how
competitive the retailing environment is in the United States.
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 December 31, 2000, there were approximately 41,872 contract owners of
record investing in the Real Property Account.
Item 6. Selected Financial Data
Year Ended December 31,
-----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------- ------------ ------------ -------------
RESULTS OF OPERATIONS:
Total Investment Income $ 26,387,938 $ 24,835,049 $ 27,163,552 $ 24,481,812 $ 25,540,638
============ ============= ============ ============ =============
Net Investment Income $ 13,638,117 $ 13,279,589 $ 15,833,513 $ 13,789,747 $ 15,419,518
Net Realized and Unrealized Gain
(Loss) on Investment in Partnership 4,487,022 (7,217,046) 4,795,111 8,485,232 (4,784,583)
------------ ------------- ------------ ------------ -------------
Net Increase in Net Assets
Resulting From Operations $ 18,125,139 $ 6,062,543 $ 20,628,624 $ 22,274,979 $ 10,634,935
============ ============= ============ ============ =============
FINANCIAL POSITION:
December 31,
-----------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------- ------------ ------------ -------------
Total Assets $221,512,296 $ 225,142,653 $244,249,272 $222,745,135 $ 204,156,040
============ ============= ============ ============ =============
Long Term Lease Obligation $ 0 $ 0 $ 0 $ 0 $ 4,072,677
============ ============= ============ ============ =============
Mortgage Loan Payable $ 10,092,355 $ 10,184,662 $ 0 $ 0 $ 0
============ ============= ============ ============ =============
6
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
All of the assets of The Prudential Variable Contract Real Property Account (the
"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, 2000, the Partnership's liquid assets consisting of cash,
cash equivalents and marketable securities were $15.5 million, a decrease of
$1.3 million from December 31, 1999. This decrease was due primarily to
distributions to Partners of $22 million, coupled with the investment of
available cash in real estate assets. Offsetting these cash outflows was $12.9
million in proceeds received from the sale of one of the Partnership's office
properties, $8.2 million in proceeds from the sale of the Partnership's entire
investment in ProLogis REIT shares, and net cash flow from property operations.
Other sources of liquidity include 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, 2000, 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 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 $206
million in net assets, the commitment has been automatically reduced to $80
million. As of December 31, 2000, Prudential's equity interest in the
Partnership under this commitment, on a cost basis, was $44 million. Prudential
does not intend to make contributions during the 2001 fiscal year and will begin
to phase out this commitment over the next several years.
As discussed previously, the Partnership made $22 million in distributions to
the Partners during 2000 from excess cash. Additional distributions may be made
to the Partners during 2001 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 2000, the Partnership spent approximately $4.2 million in additions to
real estate properties. Approximately $1.7 million was associated with the
renovation of the apartment complex located in Jacksonville, FL. The remaining
$2.2 million balance was primarily associated with capital expenditures in
relation to leasing activity at the office properties located in Brentwood, TN,
Morristown, NJ and Beaverton, OR.
7
(b) Results of Operations
The following is a brief discussion of the Partnership's results of operations
for the years ended December 31, 2000, 1999, and 1998.
2000 vs. 1999
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, 2000 and December 31, 1999.
Twelve Months Ended December 31,
2000 1999
------------ ------------
Net Investment Income:
Office properties $ 5,356,934 $ 7,133,356
Apartment complexes 3,446,245 2,556,743
Retail property 2,772,438 2,676,387
Industrial properties 1,257,146 894,258
Equity in income of real estate partnership 791,596 98,375
Dividend income from real estate investment trust 1,744,611 1,221,843
Other (including interest income, investment mgt fee, etc.) (1,730,853) (1,301,373)
------------ ------------
Total Net Investment Income $ 13,638,117 $ 13,279,589
============ ============
Unrealized Gain (Loss) on Investments:
Office properties (2,434,245) $ (3,267,264)
Apartment complexes 2,717,915 607,234
Retail property (264,300) (1,770,462)
Industrial properties (935,721) 209,503
Interest in properties 140,614 (680,870)
Real estate investment trusts 2,618,815 (2,282,044)
------------ ------------
Realized Gain (Loss) on Investments 1,843,078 (7,183,903)
============ ============
Office properties 186,920 --
Apartment complexes -- --
Industrial properties -- (1,485)
Interest in properties -- 45,126
Real estate investment trust 2,457,024 (76,784)
------------ ------------
2,643,944 (33,143)
------------ ------------
------------ ------------
Total Realized and Unrealized Gain
(Loss) on Investments $ 4,487,022 $ (7,217,046)
============ ============
The Partnership's net investment income in 2000 was $13.6 million, an increase
of $0.3 million from net investment income of $13.3 million in 1999.
Equity in income of real estate partnership increased $0.7 million, or 704.7%,
in 2000 due to the acquisition of an equity investment interest in the retail
portfolio located in the Kansas City, MO area. This interest was not acquired
until September 30,
8
1999. Therefore, equity in income of real estate partnerships for the period
ended December 31, 1999 represents only three months of activity, while activity
for the period ended December 31, 2000 represents a full year of activity.
Dividend income from real estate investment trusts was $1.7 million for the year
ended December 31, 2000, an increase of $0.5 million or 42.8% from the
corresponding period in 1999. This increase was primarily due to higher amounts
invested in real estate investment trusts. Amounts invested in REIT shares
averaged approximately $28.6 million during 2000 compared to approximately $22.4
million during 1999.
Interest on short-term investments decreased approximately $0.4 million or 25.0%
for the twelve months ended December 31, 2000 due primarily to a significantly
lower average cash balance. Cash and cash equivalents during 2000 averaged
approximately $16.6 million compared to approximately $32.0 million during 1999.
Operating expenses increased $0.6 million or 15.7% to $4.4 million during the
period ended December 31, 2000 when compared to the corresponding period in
1999. This increase was primarily a result of the Partnership's acquisition of a
controlling interest in the apartment complex located in Jacksonville, FL.
Interest expense increased $0.6 million, or 404.1%, in 2000 when compared to the
corresponding periods in 1999. This increase was due to the Partnership's
acquisition on September 30, 1999 of a controlling interest in the apartment
complex located in Jacksonville, FL, which was acquired subject to $10.2 million
in debt.
Office Properties
Net investment income from property operations for the office sector decreased
approximately $1.8 million, or 24.9%, in 2000 when compared to 1999. This
decrease was primarily due to lower revenue levels experienced by the Oakbrook
Terrace, IL office complex during 2000 as a result of the lease termination fee
received during 1999 coupled with a corresponding decrease in occupancy. A 36%
decrease in occupancy at one of the Brentwood, TN office properties also
contributed to the decrease.
The office properties owned by the Partnership experienced a net unrealized loss
of approximately $2.4 million during 2000 compared to a net unrealized loss of
$3.3 million in 1999.
During 2000, the Oakbrook Terrace, IL property decreased $1.6 million in value
due to a lease termination associated with 45% of the space and weaker market
conditions. One of the Brentwood, TN office properties also experienced a net
unrealized loss of approximately $0.8 million primarily due to capital
expenditures on the property that were not reflected as an increase in market
value.
Approximately half of the $3.3 million net unrealized loss in 1999 was
attributable to the office building located in Oakbrook Terrace, IL, which
experienced costs associated with re-leasing and expected vacancy resulting from
the lease termination exercised by a tenant. The Beaverton, OR office property
also experienced a net unrealized loss of approximately $0.8 million. This
decline in value was partially attributable to an anticipated reduction in
investor demand for suburban office properties. 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 Morristown, NJ office property was sold on October 26, 2000 and resulted in
a realized gain of approximately $0.2 million.
Occupancy at the Lisle, IL office property increased from 88% at December 31,
1999 to 94% at December 31, 2000. Occupancy at one of the Brentwood, TN office
complexes decreased from 95% to 59% from December 31, 1999 to December 31, 2000,
while occupancy at the other Brentwood, TN office property remained unchanged at
100%. Occupancy at the Oakbrook Terrace, IL office complex decreased from 100%
at December 31, 1999 to 52% at December 31, 2000, while occupancy at the
Beaverton, OR office complex decreased from 100% at December 31, 1999 to 95% at
December 31, 2000. As of December 31, 2000 all vacant spaces were being
marketed.
Apartment Complexes
Net investment income from property operations for the apartment sector was $3.4
million in 2000, an increase of $0.9 million or 34.8% compared with 1999. This
increase was primarily due to the acquisition of the controlling interest in the
apartment complex located in Jacksonville, FL.
9
The apartment complexes owned by the Partnership experienced a net unrealized
gain of $2.7 million and $0.6 million in 2000 and 1999, respectively. The
largest share of the unrealized gain for 2000 or $1.7 million was experienced by
the apartment complex located in Atlanta, GA primarily due to increases in
rental rates, stabilized occupancy, and lower operating expense estimates. The
apartment complex located in Raleigh, NC also experienced a net unrealized gain
of $0.2 million due to increases in rental rates.
The net unrealized gain of $0.6 million during 1999 was primarily experienced by
the Atlanta, GA apartment complex which increased in value due to improved
market conditions which resulted in higher rent levels.
The occupancy at the Atlanta, GA complex remained unchanged at 98% as of
December 31, 1999 and December 31, 2000. Occupancy at the apartment complex in
Raleigh, NC also remained unchanged at 92% as of December 31, 1999 and December
31, 2000. Occupancy at the Jacksonville, FL apartment complex increased from 89%
as of December 31, 1999 to 91% as of December 31, 2000. This increase is largely
a result of renovations completed at the project. As of December 31, 2000, all
available vacant units were being marketed.
Retail Property
Net investment income for the twelve months ended December 31, 2000 and 1999 for
the Partnership's retail property located in Roswell, GA was approximately $2.7
million for both periods.
The retail property experienced a net unrealized loss of $0.3 million and $1.8
million in 2000 and 1999, respectively. The unrealized loss experienced by the
property in 2000 was due to lower projected income growth, coupled with capital
expenditures which did not increase the market value of the property. The
decrease in value in 1999 was attributable to a declining position of the
property in the market.
Occupancy at the shopping center located in Roswell, GA decreased from 97% as of
December 31, 1999 to 96% as of December 31, 2000. As of December 31, 2000, all
vacant space was being marketed.
Industrial Properties
Net investment income from property operations for the industrial properties
increased from $0.9 million in 1999 to $1.3 million in 2000. The majority of the
increase was a result of increased occupancy throughout 2000 at the property
located in Aurora, CO.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $0.9 million and a net unrealized gain of $0.2
million in 2000 and 1999, respectively. The majority of the decrease for 2000
was attributable to the Aurora, CO industrial property, which had a loss of
approximately $0.7 million due to more conservative assumptions regarding rental
rates, lease-up time and terminal capitalization rates used by the appraiser. In
addition, capital expenditures were incurred at the property which were not
reflected as an increase in market value. The industrial property located in
Bolingbrook, IL experienced an unrealized loss of $0.4 million in 2000. This
loss was due to the expiration of the single tenant lease with no replacement
tenant being signed as of yet. A portion of the space was temporarily leased
during the fourth quarter of 2000.
The occupancy at the Bolingbrook, IL property decreased from 100% at December
31, 1999 to 45% at December 31, 2000. As of December 31, 2000 the Salt Lake
City, Utah was 50% leased with two tenants. However, one tenant for
approximately 33% of the space was bankrupt and had moved out of the space by
year-end. The Salt Lake City, UT property had an occupancy rate of 34% at
December 31, 1999. The Aurora, Co property's occupancy rate remained unchanged
at 75% from December 31, 1999 to December 31, 2000. As of December 31, 2000, all
vacant spaces were being marketed.
Equity in Income of Real Estate Partnership
On September 30, 1999, the Partnership invested in an equity joint venture of
retail centers located in the Kansas City, MO area. During the twelve months
ended December 31, 2000, income from this investment amounted to $0.8 million
compared to $0.1 million for the corresponding period in 1999. The increase in
income was attributable to the Partnership holding the investment for a full
year during 2000 as opposed to only three months during 1999. This investment
experienced a net unrealized gain in 2000 of $0.1 million. During 1999, the
investment experienced a net unrealized loss of $0.7 million, primarily due to
capital expenditures on the properties that were not reflected as an increase in
market value.
The retail portfolio located in the Kansas City, MO area had an average
occupancy of 91% as of December 31, 2000 compared to an average occupancy of 90%
as of December 31, 1999. As of December 31, 2000, all vacant spaces were being
marketed.
10
Real Estate Investment Trusts
The Partnership recognized a net realized gain from real estate investment
trusts of $2.5 million in 2000 primarily due to the sale of the Partnership's
remaining investment in ProLogis REIT shares and sales of other REIT
investments.
The Partnership's investment in REIT shares experienced an unrealized gain of
$2.6 million and an unrealized loss of $2.3 million for the twelve months ended
December 31, 2000 and 1999, respectively. These changes in unrealized gain and
loss reflect changes in the market value of REIT shares held by the Partnership.
Other
Other net investment income decreased $0.5 million during 2000 compared to the
corresponding period last year. Other net investment income includes interest
income from short-term investments, investment management fees, and expenses not
related to property activities. The decrease in 2000 was primarily due to lower
interest income on short-term investments primarily as a result of the
Partnership maintaining a significantly lower cash balance as noted previously.
1999 vs. 1998
The following table presents a comparison of the Partnership's property results
of operations, 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 2000
-------------- ------------
Net Investment Income:
Office properties $ 7,133,356 $ 7,269,613
Apartment complexes 2,556,743 4,493,384
Retail property 2,676,387
Industrial properties 894,258 1,325,320
Equity in income of real estate partnership 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 trusts (2,282,044) (969,156)
------------ ------------
(7,183,903) 1,743,732
------------ ------------
11
Twelve Months Ended December 31,
--------------------------------------
1999 1998
----------- -----------
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) --
----------- -----------
(33,143) 3,051,379
----------- -----------
Total Realized and Unrealized (Loss)
Gain on Investments ($7,217,046) $ 4,795,111
----------- -----------
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 and improvements 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 $10,942,566, and cash of
$1,013,796 (or total fair value of $11,956,362) 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
12
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.
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.
Occupancy at the shopping center located in Roswell, GA decreased from 98% at
December 31, 1998 to 97% 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, 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.
13
Equity in Income of Real Estate Partnership
On September 30, 1999, the Partnership invested in a retail portfolio located in
the 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 $0.7 million primarily due to capital expenditures on the property that were
not reflected as an increase in market value.
The retail portfolio located in Kansas City, MO and Kansas City, KS had an
average occupancy of 90% at December 31, 1999. As of December 31, 1999, all
vacant spaces were being marketed.
Real Estate Investment Trusts
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.
14
(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:
01/01/2000 01/01/1999 01/01/1998
to to to
12/31/2000 12/31/1999 12/31/1998
------------ ------------ ------------
Revenue from real estate and improvements $ 2.49 $ 2.16 $ 2.07
Equity in income of real estate partnership $ 0.09 $ 0.01 $ 0.00*
Dividend income from real estate investment trusts $ 0.19 $ 0.12 $ 0.06
Interest on short-term investments $ 0.14 $ 0.17 $ 0.16
---------- ---------- ----------
TOTAL INVESTMENT INCOME $ 2.91 $ 2.46 $ 2.29
---------- ---------- ----------
Investment management fee $ 0.30 $ 0.27 $ 0.25
Real estate taxes $ 0.28 $ 0.26 $ 0.20
Administrative expense $ 0.27 $ 0.22 $ 0.17
Operating expense $ 0.48 $ 0.38 $ 0.34
Interest expense $ 0.08 $ 0.02 $ 0.00
Minority interest in consolidated partnership $ 0.00* $ 0.00* $ 0.00
---------- ---------- ----------
TOTAL INVESTMENT EXPENSES $ 1.41 $ 1.15 $ 0.96
---------- ---------- ----------
NET INVESTMENT INCOME $ 1.50 $ 1.31 $ 1.33
---------- ---------- ----------
Net realized gain (loss) on real estate
investments sold or converted $ 0.29 $ (0.00)* $ 0.26
---------- ----------
Change in unrealized gain (loss) on real estate investments $ 0.25 $ (0.72) $ 0.15
Minority interest in unrealized gain (loss) on investments $ (0.05) $ (0.00)* $ 0.00
---------- ---------- ----------
Net unrealized gain (loss) on real estate investments $ 0.20 $ (0.72) $ 0.15
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON $ 0.49 $ (0.72) $ 0.41
INVESTMENTS ========== ========== ==========
Net change in share value $ 1.88 $ 0.59 $ 1.74
Share value at beginning of period $ 20.86 $ 20.27 $ 18.53
---------- ---------- ----------
Share value at end of period $ 22.74 $ 20.86 $ 20.27
========== ========== ==========
Ratio of expenses to average net assets 6.07% 5.33% 4.99%
Ratio of net investment income to average net assets 6.49% 6.12% 6.97%
Number of shares outstanding at end of period (000's) 9,076 10,079 11,848
All calculations are based on average month-end shares outstanding where
applicable.
* Per Share amount less than $0.01 (rounded)
15
(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
Interest Rate Risk. The Partnership's exposure to market rate risk for changes
in interest rates relates to about 12% of its investment portfolio consisting
primarily of short-term fixed rate commercial paper and variable interest rate
debt. The Partnership does not use derivative financial instruments. 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.
The table below presents the amounts and related weighted interest rates of the
Partnership's cash equivalents and short-term investments at December 31, 2000:
Estimated
Market Value Average
Maturity (in $ millions) Interest Rate
-------- --------------- -------------
Cash equivalents 0-3 months $8.9 6.55%
Short-term investments 3-12 months $4.9 6.57%
The table below discloses the Partnership's variable rate debt as of December
31, 2000. The interest rate on the debt 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
interest rate on the variable rate debt as of December 31, 2000 was 7.915%.
December 31, 2000
- --------------------------------------------------------------------------------------------------
Debt (in $ thousands), Estimated
including current portion 2001 2002 2003 2004 2005 Thereafter Total Fair Value
- --------------------------------------------------------------------------------------------------
Variable Rate $83 $90 $98 $104 $114 $9,603 $10,092 $10,092
- --------------------------------------------------------------------------------------------------
While the Partnership has not experienced any significant credit losses, in the
event of a significant rising interest rate environment and/or economic
downturn, defaults could increase and result in losses to the Partnership which
adversely affect its operating results and liquidity.
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.
16
PART III
Item 10. Directors and Executive Officers of the Registrant
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
DIRECTORS
FRANKLIN E. AGNEW--Director since 1994 (current term expires April, 2006).
Member, Committee on Finance & Dividends; Member, Corporate Governance
Committee. Business consultant since 1987. Chief Financial Officer, H.J. Heinz
from 1971 to 1986. Mr. Agnew is also a director of Bausch & Lomb, Inc. Age 66.
Address: 600 Grant Street, Suite 660, Pittsburgh, PA 15219.
FREDERIC K. BECKER--Director since 1994 (current term expires April, 2005).
Member, Auditing Committee; Member, Corporate Governance Committee. President,
Wilentz Goldman & Spitzer, P.A. (law firm) since 1989, with firm since 1960. Age
65. Address: 90 Woodbridge Center Drive, Woodbridge, NJ 07095.
GILBERT F. CASELLAS--Director since 1998 (current term expires April, 2003).
Member, Compensation Committee. President and Chief Executive Officer, Q-Linx
Inc. since 2001. President and Chief Operating Officer, The Swarthmore Group,
Inc. from 1999-2000. Partner, McConnell Valdes, LLP in 1998. Chairman, U.S.
Equal Employment Opportunity Commission from 1994 to 1998. Age 48. Address: 1025
Connecticut Avenue, N.W., Suite 1012, Washington, D.C. 20036.
JAMES G. CULLEN--Director since 1994 (current term expires April, 2001). Member,
Compensation Committee; Member, Committee on Business Ethics. Retired since
2000. President & Chief Operating Officer, Telecom Group, Bell Atlantic
Corporation, from 1998-2000. President & Chief Executive Officer, Telecom Group,
Bell Atlantic Corporation, from 1997 to 1998. Vice Chairman, Bell Atlantic
Corporation from 1995 to 1997. President, Bell Atlantic Corporation from 1993 to
1995. Mr. Cullen is also a director of Agilient Technologies, Inc., Quantum
Bridge Communications and Johnson & Johnson. Age 58. Address: 751 Broad Street,
21st Floor, Newark, NJ 07102-3777.
CAROLYNE K. DAVIS--Director since 1989 (current term expires April, 2001).
Member, Committee on Business Ethics; Member, Compensation Committee.
Independent Health Care Advisor since 1997. Health Care Advisor, Ernst & Young,
LLP from 1985 to 1997. Dr. Davis is also a director of Beckman Coulter
Instruments, Inc., Minimed Incorporated, Science Applications International
Corporation, and Beverley Enterprises. Age 69. Address: 751 Broad Street, 21st
Floor, Newark, NJ 07102-3777.
ALLAN D. GILMOUR--Director since 1995 (current term expires April, 2003).
Member, Investment Committee; Member, Committee on Finance & Dividends. Retired
since 1995. Vice Chairman, Ford Motor Company, from 1993 to 1995. Mr. Gilmour
originally joined Ford in 1960. Mr. Gilmour is also a director of Whirlpool
Corporation, The Dow Chemical Company and DTE Energy Company. Age 66. Address:
751 Broad Street, 21st Floor, Newark, NJ 07102-3777.
WILLIAM H. GRAY III--Director since 1991 (current term expires April, 2004).
Chairman, Committees on Nominations & Corporate Governance. Member, Executive
Committee; Member, Committee on Business Ethics. President and Chief Executive
Officer, The College Fund/UNCF since 1991. Mr. Gray served in Congress from 1979
to 1991. Mr. Gray is also a director of Chase Manhattan Bank, JP Morgan Chase &
Co., Municipal Bond Investors Assurance Corporation, Rockwell International
Corporation, Dell Computer Corporation, Pfizer, Inc., Viacom, Inc., Visteon
Corporation, Electronic Data Systems, and Ezgov.com, Inc. Age 59. Address: 8260
Willow Oaks Corp. Drive, Fairfax,VA 22031-4511.
17
JON F. HANSON--Director since 1991 (current term expires April, 2003). Member,
Investment Committee; Member, Committee on Finance & Dividend. Chairman,
Hampshire Management Company since 1976. Mr. Hanson is also a director of James
E. Hanson Management Company, Hampshire Management Company and CDL, Inc.. Age
64. Address: 235 Moore Street, Suite 200, Hackensack, NJ 07601.
GLEN H. HINER--Director since 1997 (current term expires April, 2001). Member,
Compensation Committee. Chairman and Chief Executive Officer, Owens Corning
since 1992. Senior Vice President and Group Executive, Plastics Group, General
Electric Company from 1983 to 1991. Mr. Hiner is also a director of Dana
Corporation, Owens Corning, and Kohler, Co. Age 66. Address: One Owens Corning
Parkway, Toledo, OH 43659.
CONSTANCE J. HORNER--Director since 1994 (current term expires April, 2002).
Member, Compensation Committee; Member, Committees on Nominations & Corporate
Governance. Guest Scholar, The Brookings Institution since 1993. Ms. Horner is
also a director of Foster Wheeler Corporation, Ingersoll-Rand Company, and
Pfizer, Inc. Age 59. Address: 751 Broad Street, 21st Floor, Newark, NJ
07102-3777.
GAYNOR N. KELLEY--Director since 1997 (current term expires April, 2001).
Member, Auditing Committee. Retired since 1996. Chairman and Chief Executive
Officer, The Perkin Elmer Corporation from 1990 to 1996. Mr. Kelley is also a
director of Hercules Incorporated and Alliant Techsystems. Age 69. Address: 751
Broad Street, 21st Floor, Newark, NJ 07102-3777.
BURTON G. MALKIEL--Director since 1978 (current term expires April, 2002).
Chairman, Investment Committee; Member, Executive Committee; Member, Committee
on Finance & Dividends. Professor of Economics, Princeton University, since
1988. Professor Malkiel is also a director of Baker Fentress & Company, The
Jeffrey Company, NeuVis, Inc. and Vanguard Group, Inc. Age 68. Address:
Princeton University, Department of Economics, 110 Fisher Hall, Prospect Avenue,
Princeton, NJ 08544-1021.
ARTHUR F. RYAN--Chairman of the Board, Chief Executive Officer and President of
Prudential since 1994. President and Chief Operating Officer, Chase Manhattan
Bank from 1990 to 1994, with Chase since 1972. Age 58. Address: 751 Broad
Street, Newark, NJ 07102-3777.
IDA F.S. SCHMERTZ--Director since 1997 (current term expires April, 2004).
Member, Auditing Committee. Principal, Investment Strategies International since
1994. Age 66. Address: 751 Broad Street, 21st Floor, Newark, NJ 07102-3777.
CHARLES R. SITTER--Director since 1995 (current term expires April, 2003).
Member, Committee on Finance & Dividends; Member, Investment Committee. Retired
since 1996. President, Exxon Corporation from 1993 to 1996. Mr. Sitter began his
career with Exxon in 1957. Age 70. Address: 5959 Las Colinas Boulevard, Irving,
TX 75039-2298.
DONALD L. STAHELI--Director since 1995 (current term expires April, 2003).
Member, Compensation Committee; Member, Auditing Committee. Retired since 1996.
Chairman and Chief Executive Officer, Continental Grain Company from 1994 to
1997. President and Chief Executive Officer, Continental Grain Company from 1988
to 1994. Age 69 Address: 47 East South Temple, #501, Salt Lake City, UT 84150.
RICHARD M. THOMSON--Director since 1976 (current term expires April, 2004).
Chairman, Executive Committee; Chairman, Compensation Committee. Retired since
1998. Chairman of the Board, The Toronto-Dominion Bank from 1997 to 1998.
Chairman and Chief Executive Officer from 1978 to 1997. Mr. Thomson is also a
director of INCO, Limited, S.C. Johnson & Son, Inc., The Thomson Corporation,
The Toronto-Dominion Bank, Ontario Power Generation, Inc., Stuart Energy
Systems, Inc., Nexen Inc., Canada Pension Plan Investment Board, and TrizecHahn
Corporation. Age 67. Address: 11th Floor TD Tower, Toronto Dominion Centre,
Toronto, ON, M5K 1A2, Canada.
JAMES A. UNRUH--Director since 1996 (current term expires April, 2004). Member,
Committees on Nominations & Corporate Governance; Member, Auditing Committee.
Founding Principal, Alerion Capital Group,
18
LLC since 1998. Chairman and Chief Executive Officer, Unisys Corporation, from
1990 to 1997. Mr. Unruh is also a director of Moss Software, Inc. and Apex
Microtechnology Corporation. Age 59. Address: 7600 Double Tree Ranch Road, Suite
240, Scottsdale, AZ 95258.
P. ROY VAGELOS, M.D.--Director since 1989 (current term expires April, 2001).
Chairman, Auditing Committee; Member, Executive Committee; Member, Committees on
Nominations & Corporate Governance. Chairman, Regeneron Pharmaceuticals since
1995. Chairman, Advanced Medicines, Inc. since 1997. Chairman, Chief Executive
Officer and President, Merck & Co., Inc. from 1986 to 1995. Dr. Vagelos
originally joined Merck in 1975. Dr. Vagelos is also a director of Advanced
Medicine, Inc. and Regeneron Pharmaceuticals, Inc. Age 71. Address: One
Crossroads Drive, Building A, 3rd Floor, Bedminster, NJ 07921.
STANLEY C. VAN NESS--Director since 1990 (current term expires April, 2002).
Chairman, Committee on Business Ethics; Member, Executive Committee; Member,
Auditing Committee. Partner, Herbert, Van Ness, Cayci & Goodell (law firm) since
1998. Counselor at Law, Picco Herbert Kennedy (law firm) from 1990 to 1998. Mr.
Van Ness is also a director of Jersey Central Power & Light Company. Age 67.
Address: 22 Chambers Street, Princeton, NJ 08542.
PAUL A. VOLCKER--Director since 1988 (current term expires April, 2004).
Chairman, Committee on Finance & Dividends; Member, Executive Committee; Member,
Committee on Nominations & Corporate Governance. Consultant since 1997. Chairman
and Chief Executive Officer, Wolfensohn & Co., Inc. 1995 to 1996. Chairman,
James D. Wolfensohn, Inc. 1988 to 1995. Mr. Volcker is also a director of
Genosys Technology Management Inc. and as well as a Member of the Board of
Overseers of TIAA-CREF. Age 72. Address: 610 Fifth Avenue, Suite 420, New York,
NY 10020.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
PRINCIPAL OFFICERS
ARTHUR F. RYAN--Chairman of the Board, Chief Executive Officer, and President
since 1994; prior to 1994, President and Chief Operating Officer, Chase
Manhattan Corporation. Age 58.
MICHELE S. DARLING--Executive Vice President, Corporate Governance, Human
Resources and Community Resources since 2000; Executive Vice President, Human
Resources from 1997 to 2000; prior to 1997, Executive Vice President, Human
Resources, Canadian Imperial Bank of Commerce. Age 46.
ROBERT C. GOLDEN--Executive Vice President, Operations and Systems since 1997;
prior to 1997, Executive Vice President, Prudential Securities. Age 54.
MARK B. GRIER--Executive Vice President, Financial Management, Government
Affairs and Demutualization since 2000; Executive Vice President, Corporate
Governance from 1998 to 2000; Executive Vice President, Financial Management
from 1997 to 1998; Chief Financial Officer from 1995 to 1997; prior to 1995,
Executive Vice President, Chase Manhattan Corporation. Age 48.
JEAN D. HAMILTON--Executive Vice President, Prudential Institutional since 1998;
President, Diversified Group from 1995 to 1998; prior to 1995, President,
Prudential Capital Group. Age 53.
RODGER A. LAWSON--Executive Vice President, International Investments & Global
Marketing Communications since 1998; Executive Vice President, Marketing and
Planning from 1996 to 1998; President and CEO, Van Eck Global, from 1994 to
1996; prior to 1994, President and CEO, Global Private Banking, Bankers Trust
Company. Age 54.
19
KIYOFUMI SAKAGUCHI--Executive Vice President, International Insurance since
1998; President, International Insurance Group from 1995 to 1998; prior to 1995,
Chairman and CEO, The Prudential Life Insurance Co., Ltd., Japan. Age 57.
JOHN R. STRANGFELD--Executive Vice President, Global Asset Management and
Prudential Securities since 2000; Executive Vice President, Global Asset
Management since1998 and Prudential Securities since 2000; Chief Executive
Officer, Private Asset Management Group (PAMG) from 1996 to 1998; President,
PAMG, from 1994 to 1996; prior to 1994, Senior Managing Director. Age 47.
VIVIAN BANTA--Executive Vice President, Individual Financial Services, US
Consumer Group since 2000; Consultant, Individual Financial Services from 1998
to 1999; Consultant, Morgan Stanley from 1997 to 1998; Executive Vice President,
Global Investor Service, The Chase Manhattan Bank from 1991 to 1997. Age 50.
RICHARD J. CARBONE--Senior Vice President and Chief Financial Officer since
1997; Controller, Salomon Brothers, from 1995 to 1997; prior to 1995,
Controller, Bankers Trust. Age 53.
ANTHONY S. PISZEL--Senior Vice President and Comptroller since 2000; Vice
President and Comptroller from 1998 to 2000. Vice President, Enterprise
Financial Management from 1997 to 1998; prior to 1997, Chief Financial Officer,
Individual Insurance Group. Age 46.
C. EDWARD CHAPLIN--Senior Vice President and Treasurer since 2000; Vice
President and Treasurer 1995 to 2000; prior to 1995, Managing Director and
Assistant Treasurer. Age 44.
SUSAN J. BLOUNT--Vice President, Corporate Counsel and Secretary since 2000;
Vice President and Secretary 1995 to 2000; prior to 1995, Assistant General
Counsel. Age 43.
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-24.
20
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, 2000. The Registrant will
furnish a copy of any Exhibit listed below to any security holder of the
Registrant who requests it upon payment of a fee of 15 cents per page. All
Exhibits are either contained in this Annual Report on Form 10-K or are
incorporated by reference as indicated below.
3.1 Amended Charter of The Prudential Insurance Company of America, filed
as Exhibit 1.A.(6)(a) to Post-Effective Amendment No. 2 to Form S-6,
Registration Statement No. 33-19999, filed March 2, 1989, and
incorporated herein by reference.
3.2 Amended By-Laws of The Prudential Insurance Company of America, filed
as Exhibit 1.A.(6)(b) to Post-Effective Amendment No. 4 to Form S-6,
Registration Statement No. 33-19999, filed March 2, 1990, and
incorporated herein by reference.
3.3 Resolution of the Board of Directors establishing The Prudential
Variable Contract Real Property Account, filed as Exhibit (3C) to Form
S-1, Registration Statement No. 33-20083, filed February 10, 1988, and
incorporated herein by reference.
4.1 Revised Individual Variable Annuity Contract filed as Exhibit A(4)(w)
to Post-Effective Amendment No. 8 to Form N-4, Registration Statement
No. 2-80897, filed October 23, 1986, and incorporated herein by
reference.
4.2 Discovery Plus Contract, filed as Exhibit (4)(a) to Form N-4,
Registration Statement No. 33-25434, filed November 8, 1988, and
incorporated herein by reference.
4.3 Custom VAL (previously named Adjustable Premium VAL) Life Insurance
Contracts with fixed death benefit, filed as Exhibit 1.A.(5) to Form
S-6, Registration Statement No. 33-25372, filed November 4, 1988, and
incorporated herein by reference.
4.4 Custom VAL (previously named Adjustable Premium VAL) Life Insurance
Contracts with variable death benefit, filed as Exhibit 1.A.(5) to
Form S-6, Registration Statement No. 33-25372, filed November 4, 1988,
and incorporated herein by reference.
21
4.5 Variable Appreciable Life Insurance Contracts with fixed death
benefit, filed as Exhibit 1.A.(5) to Pre-Effective Amendment No. 1 to
Form S-6, Registration Statement No. 33-20000, filed June 15, 1988,
and incorporated herein by reference.
4.6 Variable Appreciable Life Insurance Contracts with variable death
benefit, filed as Exhibit 1.A.(5) to Pre-Effective Amendment No. 1 to
Form S-6, Registration Statement No. 33-20000, filed June 15, 1988,
and incorporated herein by reference.
9. None.
10.1 Investment Management Agreement between The Prudential Insurance
Company of America and The Prudential Variable Contract Real Property
Partnership, filed as Exhibit (10A) to Pre-Effective Amendment No. 1
to Form S-1, Registration Statement No. 33-20083, filed May 2, 1988,
and incorporated herein by reference.
10.2 Service Agreement between The Prudential Insurance Company of America
and The Prudential Investment Corporation, filed as Exhibit (10B) to
Form S-1, Registration Statement No. 33-8698, filed September 12,
1986, and incorporated herein by reference.
10.3 Partnership Agreement of The Prudential Variable Contract Real
Property Partnership filed as Exhibit (10C) to Pre-Effective Amendment
No. 1 to Form S-1, Registration Statement No. 33-20083, filed May 2,
1988, and incorporated herein by reference.
11. Not applicable.
12. Not applicable.
13. None.
18. None.
21. Not applicable.
22. Not applicable.
23. None.
24. Power of Attorney: F. Agnew, F. Becker, J. Cullen, C. Davis, A.
Gilmour, W. Gray III, J. Hanson, G. Hiner, C. Horner, G. Kelley, B.
Malkiel, A. Ryan, I. Schmertz, C. Sitter, D. Staheli, R. Thomson, J.
Unruh, P. Vagelos, S. Van Ness, P. Volcker, incorporated by reference
to Post-Effective Amendment No. 10 to Form S-1, Registration No.
33-20083, filed April 9, 1998 on behalf of The Prudential Variable
Contract Real Property Account. G. Casellas incorporate by reference
to Form S-6, Registration No. 333-64957, filed September 30, 1998 on
behalf of The Prudential Variable Appreciable Account. R. Carbone
incorporated by reference to Post-Effective Amendment No. 3 to Form
N-4, Registration No. 333-23271, filed October 16, 1998 on behalf of
The Prudential Discovery Select Group Variable Contract Account. A.
Piszel incorporated by reference to Post-Effective Amendment No. 4 to
Form N-4, Registration No. 333-23271, filed February 23, 1999 on
behalf of The Prudential Discovery Select Group Variable Contract
Account.
27. Not applicable.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
in respect of
The Prudential Variable Contract Real Property Account
(Registrant)
Date: March 30, 2001 By: /s/
---------------------- ---------------------------------------------
William J. Eckert, IV
Vice President and Chief Accounting Officer
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 Chief Executive Officer March 30, 2001
- ---------------------
Arthur F. Ryan
* Chief Financial Officer March 30, 2001
- ---------------------
Richard Carbone
*By: /s/
---------------------
Thomas C. Castano
(Attorney-in-Fact)
23
Signature Title Date
- --------- ----- ----
* Director March 30, 2001
- ---------------------
Franklin E. Agnew
* Director March 30, 2001
- ---------------------
Frederic K. Becker
* Director March 30, 2001
- ---------------------
Gilbert F. Casellas
* Director March 30, 2001
- ---------------------
James G. Cullen
* Director March 30, 2001
- ---------------------
Carolyne K. Davis
* Director March 30, 2001
- ---------------------
Allan D. Gilmour
* Director March 30, 2001
- ---------------------
William H. Gray, III
* Director March 30, 2001
- ---------------------
Jon F. Hanson
* Director March 30, 2001
- ---------------------
Glen H. Hiner, Jr.
* Director March 30, 2001
- ---------------------
Constance J. Horner
* Director March 30, 2001
- ---------------------
Gaynor N. Kelley
* Director March 30, 2001
- ---------------------
Burton G. Malkiel
By: *
--------------------
Thomas C. Castano
(Attorney-in-Fact)
24
Signature Title Date
- --------- ----- ----
* Director March 30, 2001
- ---------------------
Ida F. S. Schmertz
* Director March 30, 2001
- ---------------------
Charles R. Sitter
* Director March 30, 2001
- ---------------------
Donald L. Staheli
* Director March 30, 2001
- ---------------------
Richard M. Thomson
* Director March 30, 2001
- ---------------------
James A. Unruh
* Director March 30, 2001
- ---------------------
P. Roy Vagelos, M.D.
* Director March 30, 2001
- ---------------------
Stanley C. Van Ness
* Director March 30, 2001
- ---------------------
Paul A. Volcker
By: *
----------------------
Thomas C. Castano
(Attorney-in-Fact)
25
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(Registrant)
INDEX
Page
----
A. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Financial Statements:
Report of Independent Accountants F-2
Statements of Net Assets - December 31, 2000 and 1999 F-3
Statements of Operations - Years Ended December 31, 2000, 1999, 1998 F-3
Statements of Changes in Net Assets - Years Ended December 31, 2000,
1999, 1998 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, 2000 and 1999 F-10
Statements of Operations - Years Ended December 31, 2000, 1999 and
1998 F-11
Statements of Changes in Net Assets - Years Ended December 31, 2000,
1999 and 1998 F-12
Statements of Cash Flows - Years Ended December 31, 2000, 1999 and
1998 F-13
Schedule of Investments - December 31, 2000 and 1999 F-14
Notes to Financial Statements F-19
Financial Statement Schedules:
For the period ended December 31, 2000
Schedule III - Real Estate Owned: Properties F-25
Schedule III - Real Estate Owned: Interest in Properties F-26
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 Prudential Variable Contract Real Property Account
and the Board of Directors of
The Prudential Insurance Company of America
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets present fairly, in all
material respects, the financial position of The Prudential Variable Contract
Real Property Account at December 31, 2000, and the results of each of their
operations and the changes in each of their net assets for each of the three
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America. 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 financial
statements in accordance with auditing standards generally accepted in the
United States of America, 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 at December 31, 2000 for The
Prudential Variable Contract Real Property Partnership, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 30, 2001
F-2
FINANCIAL STATEMENTS OF
PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 2000 and 1999
2000 1999
------------- -------------
ASSETS
Investment in The Prudential Variable Contract
Real Property Partnership (Note 3) $ 84,632,071 $ 83,423,562
------------- -------------
Net Assets $ 84,632,071 $ 83,423,562
============= =============
NET ASSETS, representing:
Equity of contract owners (Note 4) $ 55,428,143 $ 55,398,590
Equity of The Prudential Insurance Company of America (Note 2D) 29,203,928 28,024,972
------------- -------------
$ 84,632,071 $ 83,423,562
============= =============
STATEMENTS OF OPERATIONS
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
INVESTMENT INCOME
Net investment income from Partnership operations $ 5,516,671 $ 5,209,408 $ 7,324,915
------------- ------------- -------------
EXPENSES
Charges to contract owners for assuming mortality risk and
expense risk and for administration (Note 5) 441,647 470,772 492,841
------------- ------------- -------------
NET INVESTMENT INCOME 5,075,024 4,738,636 6,832,074
------------- ------------- -------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership 779,624 (2,888,812) 806,156
Realized gain (loss) on sale of investments in Partnership 1,069,485 (13,002) 1,411,632
------------- ------------- -------------
NET GAIN (LOSS) ON INVESTMENTS 1,849,109 (2,901,814) 2,217,788
------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 6,924,133 $ 1,836,822 $ 9,049,862
============= ============= =============
STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
OPERATIONS
Net investment income $ 5,075,024 $ 4,738,636 $ 6,832,074
Net change in unrealized gain (loss) on investments in Partnership 779,624 (2,888,812) 806,156
Net realized gain (loss) on sale of investments in Partnership 1,069,485 (13,002) 1,411,632
------------- ------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 6,924,133 1,836,822 9,049,862
------------- ------------- -------------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners (Note 7) (4,226,534) (6,004,411) (3,853,980)
Net contributions (withdrawals) by The Prudential Insurance Company of America (1,489,090) (23,524,817) 4,651,822
------------- ------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (5,715,624) (29,529,228) 797,842
------------- ------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 1,208,509 (27,692,406) 9,847,704
NET ASSETS
Beginning of year 83,423,562 111,115,968 101,268,264
------------- ------------- -------------
End of year $ 84,632,071 $ 83,423,562 $ 111,115,968
============= ============= =============
F-3
NOTES TO THE FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
December 31, 2000
Note 1: General
The Prudential Variable Contract Real Property Account ("Real Property Account")
was established on November 20, 1986 by resolution of the Board of Directors of
The Prudential Insurance Company of America ("Prudential"), as a separate
investment account pursuant to New Jersey law. The assets of the Real Property
Account are segregated from Prudential's other assets. The Real Property Account
is used to fund benefits under certain variable life insurance and variable
annuity contracts issued by Prudential. These products are Variable Appreciable
Life ("PVAL and PVAL $100,000+ Face Value"), Discovery Plus ("PDISCO+"), and
Variable Investment Plan ("VIP").
The assets of the Real Property Account are invested in The Prudential Variable
Contract Real Property Partnership (the "Partnership"). The Partnership is
organized under New Jersey law and is registered under the Securities Act of
1933. The Partnership is the investment vehicle for assets allocated to the real
estate investment option under certain variable life insurance and variable
annuity contracts. The Real Property Account, along with the Pruco Life Variable
Contract Real Property Account and The Pruco Life of New Jersey Variable
Contract Real Property Account, are the sole investors in the Partnership.
The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.
Note 2: Summary of Significant Accounting Policies
A. Basis of Accounting
The accompanying financial statements are prepared in conformity with 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, 2000
and 1999 the Real Property Account's interest in the Partnership was 41.0% or
3,722,415 shares and 39.7% or 3,999,656 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 The Prudential Insurance Company of America
Prudential 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, 2000 and 1999 were as follows:
December 31, 2000 December 31, 1999
----------------- -----------------
Number of Shares (rounded): 3,722,415 3,999,656
Net Asset Value per Share (rounded): $22.74 $20.86
Cost: $30,948,923 $34,095,895
Note 4: Contract Owner Unit Information
Outstanding contract owner units, unit values and total value of contract owner
equity at December 31, 2000 and December 31, 1999 by product, were as follows:
2000:
- ---- PVAL
$100,000+
PDISCO+ VIP PVAL face value TOTAL
------- --- ---- ---------- ------
Contract Owner Units Outstanding: 1,549,865 1,369,900 11,181,146 16,345,520
Unit Value: $ 1.75676 $ 1.75676 $ 1.86582 $ 1.80091
---------- ---------- ----------- -----------
Total Contract Owner Equity: $2,722,742 $2,406,586 $20,862,005 $29,436,810 $55,428,143
========== ========== =========== =========== ===========
1999:
- ---- PVAL
$100,000+
PDISCO+ VIP PVAL face value TOTAL
------- --- ---- ---------- ------
Contract Owner Units Outstanding: 1,995,047 1,615,727 12,132,067 17,168,176
Unit Value: $ 1.63083 $ 1.63083 $ 1.72201 $ 1.66695
---------- ---------- ----------- -----------
Total Contract Owner Equity: $3,253,583 $2,634,976 $20,891,540 $28,618,491 $55,398,590
========== ========== =========== =========== ===========
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 1.0%, 0.6%, 0.9% and 1.2% for PDISCO+, PVAL, PVAL $100,000 + face
value, and VIP, respectively. Mortality risk is that life insurance 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 Prudential.
B. Administrative Charges
Administrative charges are determined daily using an effective annual rate of
0.2% applied daily against the net assets representing equity of PDISCO+
contract owners held in each subaccount. 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 PVAL and PVAL $100,000
+ face value are (1) state premium taxes; (2) sales charges which are deducted
in order to compensate Prudential for the cost of selling the contract and (3)
transaction costs which 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 Prudential for the
guaranteed minimum death benefit risk.
F-5
D. Deferred Sales Charge
A deferred sales charge, applicable to PVAL and PVAL $100,000 + face value, is
imposed upon surrenders of certain variable life insurance contracts to
compensate Prudential 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 tenth year of the
contract. No sales charge will be imposed on death benefits.
Also a deferred sales charge is imposed upon the withdrawals of certain purchase
payments to compensate Prudential for sales and other marketing expenses for
PDISCO+ and VIP. The amount of any sales charge will depend on the amount
withdrawn and the number of contract years that have elapsed since the contract
owner or annuitant made the purchase payments deemed to be withdrawn. No sales
charge is made against the withdrawal of investment income. A reduced sales
charge is imposed in connection with the withdrawal of a purchase payment to
effect an annuity if three or more contract years have elapsed since the
contract date, unless the annuity effected is an annuity certain. No sales
charge is imposed upon death benefit payments or upon transfers made between
subaccounts.
E. Partial Withdrawal Charge
A charge is imposed by Prudential on partial withdrawals of the cash surrender
value for PVAL and PVAL $100,000 + face value. 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.
F. Annual Maintenance Charge
An annual maintenance charge, applicable to PDISCO+ and VIP, of $30 will be
deducted if and only if the contract fund is less than $10,000 on a contract
anniversary or at the time a full withdrawal is effected, including a withdrawal
to effect an annuity. The charge is made by reducing accumulation units credited
to a contract owner's account.
Note 6: Taxes
Prudential is taxed as a "life insurance company" as defined by the Internal
Revenue Code. 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 Prudential's
variable insurance and variable annuity products for the years ended December
31, 2000, 1999 and 1998 were as follows:
2000:
- ----
PVAL & PVAL
PDISCO+ VIP $100,000+ face value TOTAL
--------- --------- -------------------- -----------
Contract Owner Net Payments: $ 5,159 $ 19,990 $ 5,269,026 $ 5,294,175
Policy Loans: 0 0 (1,571,876) (1,571,876)
Policy Loan Repayments and Interest: 0 0 1,091,619 1,091,619
Surrenders, Withdrawals, and Death Benefits: (552,602) (287,552) (2,902,456) (3,742,610)
Net Transfers To Other Subaccounts
or Fixed Rate Option: (189,118) (138,910) (1,747,680) (2,075,708)
Administrative and Other Charges: (2,200) (3,126) (3,216,808) (3,222,134)
--------- --------- ----------- -----------
Net Withdrawals by Contract Owners $(738,761) $(409,598) $(3,078,175) $(4,226,534)
========= ========= =========== ===========
F-6
1999:
- ----
PVAL & PVAL
PDISCO+ VIP $100,000+ face value TOTAL
--------- --------- -------------------- -----------
Contract Owner Net Payments: $ 9,535 $ 15,687 $ 4,396,224 $ 4,421,446
Policy Loans: 0 0 (1,809,781) (1,809,781)
Policy Loan Repayments and Interest: 0 0 1,465,114 1,465,114
Surrenders, Withdrawals, and Death Benefits: (1,121,210) (549,361) (2,894,300) (4,564,871)
Net Transfers To Other Subaccounts
or Fixed Rate Option: (304,042) (103,565) (1,593,233) (2,000,840)
Administrative and Other Charges: (1000) (3,837) (3,510,642) (3,515,479)
----------- --------- ----------- -----------
Net Withdrawals by Contract Owners $(1,416,717) $(641,076) $(3,946,618) $(6,004,411)
=========== ========= =========== ===========
1998:
- ----
PVAL & PVAL
PDISCO+ VIP $100,000+ face value TOTAL
--------- --------- -------------------- -----------
Contract Owner Net Payments: $ 34,192 $ 64,722 $ 7,093,241 $ 7,192,155
Policy Loans: 0 0 (1,904,723) (1,904,723)
Policy Loan Repayments and Interest: 0 0 1,227,793 1,227,793
Surrenders, Withdrawals, and Death Benefits: (488,508) (1,009,902) (3,536,617) (5,035,027)
Net Transfers From(To) Other Subaccounts
or Fixed Rate Option: 159,601 (12,601) (1,618,529) (1,471,529)
Administrative and Other Charges: (16) (3,869) (3,858,764) (3,862,649)
--------- ----------- ----------- -----------
Net Withdrawals by Contract Owners $(294,731) $ (961,650) $(2,597,599) $(3,853,980)
========= =========== =========== ===========
Note 8: Unit Activity
Transactions in units for the years ended December 31, 2000, 1999 and 1998 were
as follows:
2000:
- ----
PVAL $100,000+
PDISCO+ VIP PVAL face value
--------- --------- ---- ----------
Contract Owner Contributions: 44,707 46,444 10,576,369 5,685,549
Contract Owner Redemptions: (489,889) (292,270) (11,527,290) (6,508,205)
1999:
- ----
PVAL $100,000+
PDISCO+ VIP PVAL face value
--------- --------- ---- ----------
Contract Owner Contributions: 50,450 31,056 1,515,288 1,972,941
Contract Owner Redemptions: (929,192) (427,232) (2,599,816) (3,249,603)
1999:
- ----
PVAL $100,000+
PDISCO+ VIP PVAL face value
--------- --------- ---- ----------
Contract Owner Contributions: 613,206 186,504 2,480,913 3,131,058
Contract Owner Redemptions: (802,674) (817,519) (3,103,092) (4,155,819)
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, 2000 were as follows:
Purchases: $ 0
Sales: $ (6,157,271)
F-7
Report of Independent Accountants
To the Partners of The 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 The Prudential
Variable Contract Real Property Partnership (the "Partnership") at December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. 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 of America, 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 our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 28, 2001
F-8
Report of Independent Accountants on
Financial Statement Schedules
To the Partners of The Prudential
Variable Contract Real Property Partnership:
Our audits of the consolidated financial statements referred to in our report
dated February 28, 2001 appearing in this Annual Report on Form 10-K also
included an audit of the financial statement schedules listed in Item 14(a)(2)
of this Form 10-K. 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 28, 2001
F-9
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2000 December 31, 1999
----------------- -----------------
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 12/31/2000 -- $173,748,950; 12/31/1999 -- $190,007,568) $162,213,095 $171,154,516
Real estate partnership (cost: 12/31/2000 -- $5,985,783;
12/31/1999 -- $5,187,126) 5,445,528 4,506,257
Real estate investment trusts (cost: 12/31/2000 -- $31,896,908;
12/31/1999 -- $32,535,158) 35,224,737 29,727,085
------------ ------------
Total real estate investments 202,883,360 205,387,858
MARKETABLE SECURITIES - At estimated market value
(cost: 12/31/2000 -- $4,916,327; 12/31/1999 -- $2,805,493) 4,916,494 $ 2,797,008
CASH AND CASH EQUIVALENTS 10,543,821 13,972,669
DIVIDEND RECEIVABLE 242,341 131,542
OTHER ASSETS (net of allowance for uncollectible
accounts: 12/31/2000 -- $91,000; 12/31/1999 -- $179,000) 2,926,280 2,853,576
------------ ------------
Total assets 221,512,296 225,142,653
------------ ------------
LIABILITIES
MORTGAGE LOAN PAYABLE 10,092,355 10,184,662
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2,517,818 2,967,614
DUE TO AFFILIATES 887,434 869,477
OTHER LIABILITIES 669,209 525,892
MINORITY INTEREST 997,401 372,068
------------ ------------
Total liabilities 15,164,217 14,919,713
------------ ------------
PARTNERS' EQUITY 206,348,079 210,222,940
------------ ------------
Total liabilities and partners' equity $221,512,296 $225,142,653
============ ============
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 9,075,913 10,078,921
============ ============
SHARE VALUE AT END OF PERIOD $ 22.74 $ 20.86
============ ============
The accompanying notes are an integral part of these financial statements.
F-10
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------------------------------------
2000 1999 1998
------------ ------------ ------------
INVESTMENT INCOME:
Revenue from real estate and improvements $ 22,570,851 $ 21,807,346 $ 24,572,642
Equity in income of real estate partnership 791,596 98,375 33,462
Dividend Income 1,744,611 1,221,843 669,100
Interest on short-term investments 1,280,880 1,707,485 1,888,348
------------ ------------ ------------
Total investment income 26,387,938 24,835,049 27,163,552
------------ ------------ ------------
EXPENSES:
Investment management fee 2,705,589 2,730,713 2,900,445
Real estate taxes 2,498,065 2,616,553 2,406,624
Administrative 2,411,390 2,234,949 1,951,235
Operating 4,390,001 3,794,081 4,071,735
Interest 732,991 145,418 0
Minority interest 11,785 33,746 0
------------ ------------ ------------
Total investment expenses 12,749,821 11,555,460 11,330,039
------------ ------------ ------------
NET INVESTMENT INCOME 13,638,117 13,279,589 15,833,513
------------ ------------ ------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:
Net proceeds from real estate investments
sold 46,617,017 21,649,562 37,443,762
Less: Cost of real estate investments sold 55,269,357 19,602,032 37,361,533
Realization of prior years' unrealized
(loss) gain on real estate investments sold (11,296,284) 2,080,673 (2,969,150)
------------ ------------ ------------
Net gain (loss) realized on real estate
investments sold 2,643,944 (33,143) 3,051,379
------------ ------------
Change in unrealized gain (loss) on real estate
investments 2,297,429 (7,145,372) 1,743,732
Minority interest in unrealized gain on investments (454,351) (38,531) 0
------------ ------------ ------------
Net unrealized gain (loss) on real estate investments 1,843,078 (7,183,903) 1,743,732
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 4,487,022 (7,217,046) 4,795,111
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 18,125,139 $ 6,062,543 $ 20,628,624
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-11
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Year Ended December 31,
--------------------------------------------------------
2000 1999 1998
------------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS:
Net investment income $ 13,638,117 $ 13,279,589 $ 15,833,513
Net gain (loss) realized on real estate
investments sold 2,643,944 (33,143) 3,051,379
Net unrealized gain (loss) from real estate
investments 1,843,078 (7,183,903) 1,743,732
------------- ------------- -------------
Net increase in net assets resulting from
operations 18,125,139 6,062,543 20,628,624
------------- ------------- -------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(2000 -- 1,003,008, 1999 -- 1,769,354, and
1998 -- 0 shares, respectively) (22,000,000) (36,000,000) 0
------------- ------------- -------------
Net decrease in net assets resulting from
capital transactions (22,000,000) (36,000,000) 0
------------- ------------- -------------
NET (DECREASE) INCREASE IN NET ASSETS (3,874,861) (29,937,457) 20,628,624
NET ASSETS - Beginning of year 210,222,940 240,160,397 219,531,773
------------- ------------- -------------
NET ASSETS - End of year $ 206,348,079 $ 210,222,940 $ 240,160,397
============= ============= =============
The accompanying notes are an integral part of these statements.
F-12
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 18,125,139 $ 6,062,543 $ 20,628,624
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Net realized and unrealized loss (gain) on
investments (4,487,022) 7,217,046 (4,795,111)
Equity in income of real estate partnership's
operations in excess of distributions (791,596) (98,376) 0
Minority interest from operating activities 11,785 33,746 0
Bad debt expense 96,785 124,059 28,264
Decrease (increase) in:
Dividend receivable (110,799) 35,733 (20,276)
Other assets (169,489) 645,878 (1,704,926)
(Decrease) increase in:
Accounts payable and accrued expenses (449,796) 982,214 143,373
Due to affiliates 17,957 (729,058) 765,613
Other liabilities 143,316 20,952 (33,473)
------------ ------------ ------------
Net cash flows from operating activities 12,386,280 14,294,737 15,012,088
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 46,617,017 10,706,996 37,443,762
Acquisition of real estate property 0 (7,200,743) 0
Acquisition of real estate partnership 0 (5,088,750) 0
Acquisition of real estate investment trust (34,157,332) (31,239,744) 0
Improvements and additional costs on prior purchases:
Additions to real estate property (4,215,157) (2,516,645) (5,736,333)
Additions to real estate partnership (7,060) 0 0
Sale (purchase) of marketable securities, net (2,119,486) 12,153,517 (1,021,229)
------------ ------------ ------------
Net cash flows from investing activities 6,117,982 (23,185,369) 30,686,200
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals by partners (22,000,000) (36,000,000) 0
Principal payments on mortgage loans payable (92,307) (15,338) 0
Distributions to minority interest partners 0 (93,425) 0
Contributions from minority interest partners 159,197 393,216 0
------------ ------------ ------------
Net cash flows from financing activities (21,933,110) (35,715,547) 0
------------ ------------ ------------
NET CHANGE IN CASH AND CASH
EQUIVALENTS (3,428,848) (44,606,179) 45,698,288
CASH AND CASH EQUIVALENTS - Beginning of year 13,972,669 58,578,848 12,880,560
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - End of year $ 10,543,821 $ 13,972,669 $ 58,578,848
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for interest $ 732,991 $ 145,418 $ 0
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Assumption of Mortgage Loan Payable $ 0 $ 10,200,000 $ 0
============ ============ ============
The accompanying notes are an integral part of these financial statements.
F-13
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
December 31, 2000 December 31, 1999
--------------------------- --------------------------
Estimated Estimated
Market Market
Cost Value Cost Value
-------------------------------------------------------
REAL ESTATE AND IMPROVEMENTS (Percent of Net Assets) 78.6% 81.4%
Location Description
- ----------------------------------------------------------------------------------------------------------------------------
Lisle, IL Office Building $ 22,267,422 $ 14,134,722 $ 22,075,782 $ 13,895,122
Atlanta, GA Garden Apartments 15,667,354 17,800,002 15,646,846 16,104,268
Roswell, GA Retail Shopping Center 32,533,052 26,874,838 32,394,853 27,000,939
Morristown, NJ Office Building 0 0 20,116,694 12,337,499
Bolingbrook, IL Warehouse 9,012,838 6,664,810 8,948,028 7,000,000
Raleigh, NC Garden Apartments 15,847,460 17,200,000 15,833,928 17,004,623
Brentwood, TN Office Building 9,657,787 10,396,565 8,509,908 10,000,000
Oakbrook Terrace, IL Office Complex 13,021,251 12,716,910 12,945,366 14,200,000
Beaverton, OR Office Complex 11,225,040 10,623,809 10,768,811 10,400,866
Salt Lake City, UT Industrial Building 5,640,709 5,900,050 5,640,709 5,703,419
Aurora, CO Industrial Building 10,131,358 9,800,714 10,119,072 10,520,780
Brentwood, TN Office Complex 9,609,133 9,600,675 9,606,828 9,537,000
Jacksonville, FL Garden Apartments 19,135,546 20,500,000 17,400,743 17,450,000*
-------------------------------------------------------
Total Real Estate and Improvements $173,748,950 $162,213,095 $190,007,568 $171,154,516
-------------------------------------------------------
REAL ESTATE PARTNERSHIP (Percent of Net Assets) 2.6% 2.1%
Location Description
- ----------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------
Kansas City, KS; MO Retail Shopping Center $ 5,985,783 $ 5,445,528 $ 5,187,126 $ 4,506,257
-------------------------------------------------------
* Real estate partnership accounted for by the consolidated method.
The accompanying notes are an integral part of these financial statements.
F-14
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
December 31, 2000
-------------------------
Estimated
Market
Cost Value
-------------------------
REAL ESTATE INVESTMENT TRUSTS (Percent of Net Assets) 17.1%
- --------------------------------------------------------------------------------------------------
Alexandria Real Est Equities (5,000 shares) $ 181,188 $ 185,938
AMB Property Corporation (30,000 shares) 706,770 774,375
AMLI Residential Properties (30,000 shares) 706,800 740,625
Apartment Inv & Mgmt Co, Class A (28,900 shares) 1,218,828 1,443,194
Archstone Communities Trust (25,000 shares) 592,188 643,750
Avalonbay Communities Inc (15,000 shares) 683,900 751,875
Boston Properties Inc (25,000 shares) 995,339 1,087,500
Brandywine Realty Trust (15,000 shares) 321,338 310,313
CBL & Associates Prop (30,800 shares) 741,988 779,625
Cabot Industrial Trust (40,000 shares) 820,726 767,500
Centerpoint Properties Corp. (18,600 shares) 632,302 878,850
Cousins Properties (20,000 shares) 551,200 558,750
Crescent Real Estate Eqt Co (25,000 Shares) 565,563 556,250
Duke - Weeks Realty Corporation (47,000 shares) 1,070,320 1,157,375
Equity Office Properties Trust (77,400 shares) 2,215,533 2,525,175
Equity Residential Property Trust (30,000 shares) 1,450,732 1,659,375
Essex Property Trust, Inc (15,000 shares) 593,700 821,250
First Industrial Realty Trust (25,000 shares) 781,100 850,000
Franchise Finance Cp Amer (51,300 shares) 1,228,281 1,195,931
Gables Residential Trust (25,000 shares) 632,750 700,000
General Growth Properties (22,000 shares) 714,894 796,125
Highwoods Properties Inc (30,000 shares) 758,832 746,250
Host Marriot Corp (105,000 shares) 1,114,575 1,358,438
Innkeepers USA Trust (50,000 shares) 512,375 553,125
IRT Property (45,000 shares) 406,395 365,625
Kilroy Realty Corp. (30,000 shares) 746,886 856,875
Kimco Realty (15,000 shares) 612,612 662,813
Liberty Property LP (35,000 shares) 899,563 999,688
Macerich Co (30,000 shares) 670,490 575,625
MeriStar Hospitality Corp (37,500 shares) 636,151 738,281
Mission West Properties (88,200 shares) 697,122 1,223,775
Parkway Properties Inc (25,000 shares) 782,750 742,188
Public Storage Inc (5,000 shares) 113,763 121,563
Reckson Assoc Realty Corp. (32,500 shares) 805,150 814,531
Regency Realty Corp (25,000 shares) 576,600 592,188
Saul Centers Inc (1,700 shares) 29,085 31,663
Shurgard Storage Centers (20,000 shares) 478,500 488,750
Simon Property Group Inc (45,000 shares) 1,032,357 1,080,000
Spieker Properties (27,000 shares) 1,197,078 1,353,375
Summit Properties Inc (12,000 shares) 292,832 312,000
Vornado Realty Trust (29,800 shares) 1,028,569 1,141,713
Washington Reit (40,000 shares) 759,220 945,000
Public Storage Inc, Preferred Stock (15,000 shares) 340,569 337,500
----------- -----------
Total Real Estate Investment Trusts $31,896,908 $35,224,737
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-15
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
December 31, 1999
---------------------------------
Estimated
Market
Cost Value
---------------------------------
REAL ESTATE INVESTMENT TRUSTS (Percent of Net Assets) 14.1%
- ---------------------------------------------------------------------------------------------------------------------------
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
---------------------------------
Total Real Estate Investment Trusts $32,535,158 $29,727,085
=================================
The accompanying notes are an integral part of these financial statements.
F-16
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
December 31, 2000
--------------------------------------------------------------
Net Estimated
Face Amount Cost Market Value
------------------ ----------------- ------------------
MARKETABLE SECURITIES (Percent of Net Assets) 2.4%
Associates First Capital B.V., 6.55%, January 29, 2001 699,000 687,681 687,681
New Center Asset Trust, 6.52%, January 30, 2001 1,614,000 1,587,692 1,587,692
Lasalle National Bank, 6.71%, February 1, 2001 969,000 968,792 968,959
B-One Australia Ltd., 6.55%, February 13, 2001 1,700,000 1,672,162 1,672,162
----------- ----------- -----------
Total Marketable Securities $ 4,982,000 $ 4,916,327 $ 4,916,494
=========== =========== ===========
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 5.1%
J.P. Morgan & Co, 6.55%, January 2, 2001 $ 546,000 $ 545,603 $ 545,603
Alcoa Inc., 6.55%, January 4, 2001 634,000 633,193 633,193
Merrill Lynch & Co., 6.53%, Inc., January 10, 2001 300,000 299,347 299,347
Bankamerica Corp., 6.55%, January 11, 2001 680,000 678,020 678,020
General Motors Acceptance Corp., Inc., 6.60%, January 17, 2001 600,000 597,910 597,910
Paccar Financial Corp., 6.67%, January 18, 2001 661,000 657,693 657,693
General Electric Capital Corp., 6.55%, January 22, 2001 700,000 691,085 691,085
Countrywide Home Loans, 6.60%, January 25, 2001 560,000 556,201 556,201
Duke Energy Corp., 6.50%, January 25, 2001 682,000 678,552 678,552
Caterpillar Financial Svcs Corp., 6.50%, January 26, 2001 625,000 621,727 621,727
Verizon Global Funding Corp., 6.55%, January 26, 2001 500,000 496,179 496,179
Ciesco L.P., 6.54%, January 30, 2001 1,675,000 1,652,178 1,652,178
Eastman Kodak Co., 6.53%, February 9, 2001 800,000 787,230 787,230
----------- ----------- -----------
Total Cash Equivalents 8,963,000 8,894,919 8,894,919
Cash 1,648,902 1,648,902 1,648,902
----------- ----------- -----------
Total Cash and Cash Equivalents $10,611,902 $10,543,821 $10,543,821
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-17
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 150,000 151,779 150,653
CIT Group Inc., 6.80%, April 17, 2000 500,000 503,765 501,487
Associates Corp of North America, 6.71%, June 1, 2000 1,160,000 1,169,939 1,164,858
----------- ----------- -----------
Total Marketable Securities $ 2,805,000 $ 2,805,493 $ 2,797,008
=========== =========== ===========
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 6.6%
Duke Energy Corp., 5.00%, January 3, 2000 $ 550,000 $ 549,771 $ 549,771
Bell Atlantic Financial Services, 5.20%, January 7, 2000 672,000 671,321 671,321
Household Finance Corp, 5.93%, January 18, 2000 990,000 983,314 983,314
Ford Motor Credit Co., 6.00%, January 21, 2000 847,000 840,789 840,789
American Express Cr. Corp., 6.02%, January 26, 2000 999,000 990,981 990,981
Procter & Gamble Co., 6.00%, January 26, 2000 200,000 197,867 197,867
Goldman Sachs Group L.P., 6.43%, January 31, 2000 1,000,000 991,963 991,963
Countrywide Home Loans, 6.00%, February 3, 2000 990,000 980,595 980,595
Merrill Lynch & Co., Inc., 5.98%, February 3, 2000 990,000 980,626 980,626
Unifunding Inc., 6.05%, February 3, 2000 900,000 892,135 892,135
Metlife Funding Inc., 5.90%, February 4, 2000 841,000 832,730 832,730
General Electric Cap Corp., 5.95%, February 10, 2000 350,000 346,182 346,182
GTE Funding, Inc., 6.10%, February 10, 2000 1,000,000 990,681 990,681
E.I. Du Pont De Nemours & Co. Inc., 6.00%, February 11, 2000 250,000 246,667 246,667
General Electric Capital Corp., 5.92% March 1, 2000 406,000 400,258 400,258
----------- ----------- -----------
Total Cash Equivalents 10,985,000 10,895,880 10,895,880
Cash 3,076,789 3,076,789 3,076,789
----------- ----------- -----------
Total Cash and Cash Equivalents $14,061,789 $13,972,669 $13,972,669
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-18
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Years Ended December 31, 2000, 1999 and 1998
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 The Prudential Variable Contract Real
Property Account, Pruco Life Variable Contract Real Property Account and Pruco
Life of New Jersey Variable Contract Real Property Account (the "Real Property
Accounts") 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.
Prudential Real Estate Investors ("PREI") is part of the Prudential Global Asset
Management unit (`PGAM") and is a division of Prudential Investment Corp. PREI
provides investment advisory services to the Partnership's Partners pursuant to
the terms of the Advisory Agreement.
Note 2: Summary Of Significant Accounting Policies
A: Basis of Presentation - The accompanying consolidated financial
statements are presented on the accrual basis of accounting. 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 Real
Estate Appraiser of PGAM's Risk Management Unit is responsible to
assure that the valuation process provides objective and accurate
market value estimates. American Appraisal Associates (the "Appraisal
Management Firm"), an entity not affiliated with Prudential, has been
appointed by PGAM to assist the Chief Real Estate Appraiser in
maintaining and monitoring the objectivity and accuracy of the
appraisal process. The Appraisal Management Firm, under the
supervision of the Chief Real Estate Appraiser, approves the selection
and scheduling of external appraisals; engages all external
appraisers; reviews and provides comments on all external appraisals;
prepares all
F-19
quarterly update appraisals; assists in developing policies and
procedures; and assists in the evaluation of the performance and
competency of external appraisers, among other responsibilities.
Effective July 1, 2000, the Chief Real Estate Appraiser retired.
During the third and fourth quarters of 2000, the responsibilities of
the Chief Real Estate Appraiser were performed by another officer of
PGAM, who was advised by an independent real estate valuation
consulting firm. The consulting firm performed valuation review
services in connection with the valuation management activities/work
performed by the Appraisal Management Firm but was not involved in the
determination of estimated market value of real estate investments.
PGAM hired a new Chief Real Estate Appraiser effective February 12,
2001.
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 for a 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. 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, 2000 and 1999.
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 relating to
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
Chief Real Estate Appraiser. 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. 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.
F-20
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, as lease
arrangements vary as to responsibility for payment of these expenses
between tenants and the Partnership. Since real estate is stated at
estimated market value, net income is not reduced by depreciation or
amortization expense. Dividend income is accrued at the ex-dividend
date.
E: Equity in Income of Real Estate Partnership - 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: 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 Consolidated
Statements of Cash Flows, all short-term investments with an original
maturity of three months or less are considered to be cash
equivalents.
Cash of $79,300 and $72,861 at December 31, 2000 and 1999,
respectively, was maintained by the properties for tenant security
deposits and is included in Other Assets on the Consolidated
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 accounting
principles generally accepted in the United States of America 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-21
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 in Note 2B above. The partnership's financial position at December 31,
2000 and 1999, and results of operations for the years ended December 31, 2000,
1999, and 1998 are summarized as follows:
December
2000 1999
----------- -----------
Partnership Assets and Liabilities
Real Estate at estimated market value $27,080,000 $26,350,000
Other Assets 1,470,801 1,685,059
----------- -----------
Total Assets 28,550,801 28,035,059
----------- -----------
Mortgage loans payable 20,669,422 20,889,792
Other Liabilities 665,365 1,250,146
----------- -----------
Total Liabilities 21,334,787 22,139,928
----------- -----------
Net Assets $ 7,216,014 $ 5,895,131
=========== ===========
Partnership Share of Net Assets $ 5,445,528 $ 4,506,257
=========== ===========
Year Ended December 31,
2000 1999 1998
------------------------------------------------
Partnership Operations
Rental Revenue $4,223,801 $ 926,283 $ 33,462
Real Estate Expenses and Taxes 3,292,500 795,115 0
---------- ---------- ----------
Net Investment Income $ 931,301 $ 131,168 $ 33,462
========== ========== ==========
Partnership's Share of Net Investment Income $ 791,596 $ 98,375 $ 33,462
========== ========== ==========
F-22
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, 2000 and 1999, the rate was 7.915% and 6.845%,
respectively.
As of December 31, 2000, the mortgage loan payable was payable as follows:
Year Ending December 31, 000's
------------------------ --------------------
2001 $ 83
2002 90
2003 98
2004 104
2005 114
Thereafter 9,603
-------
Total $10,092
=======
The mortgage payable is secured by a real estate investment with an estimated
market value of $20,500,000.
Based on borrowing rates available to the Partnership at December 31, 2000 for
loans with similar terms and average maturities, the carrying value of the
Partnership's mortgage on the consolidated partnership approximates its
estimated fair value. Different assumptions or changes in future market
conditions could significantly affect estimated market value.
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 2001 to 2010. At December 31, 2000, the aggregate
future minimum base rental payments under non-cancelable operating leases by
year and in the aggregate are as follows:
Year Ending December 31, 000's
------------------------ --------------------
2001 $ 9,189
2002 8,200
2003 5,683
2004 3,923
2005 3,447
Thereafter 11,683
-------
Total $42,125
=======
The above future minimum base rental payments exclude residential lease
agreements which accounted for 33% of the Partnership's 2000 annual rental
income.
F-23
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 $206
million in net assets, the commitment has been automatically reduced to $80
million. As of December 31, 2000, Prudential's equity interest in the
Partnership under this commitment, on a cost basis, was $44 million. Prudential
does not intend to make contributions during the 2001 fiscal year and will begin
to phase out this commitment over the next several years.
Note 7: Related Party Transactions
Pursuant to an investment management agreement, Prudential charges the
Partnership a daily investment management fee at an annual rate of 1.25% of the
average daily gross asset valuation of the Partnership. For the years ended
December 31, 2000, 1999 and 1998 management fees incurred by the Partnership
were $2.7 million; $2.7 million; and $2.9 million, respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the years ended December 31,
2000, 1999 and 1998 were $116,630; $116,463; and $116,128, respectively, and are
classified as administrative expenses in the Consolidated Statements of
Operations.
On June 28, 2000, the Partnership made an $8 million distribution to the
Partners. On November 30, 2000, the Partnership made an additional $14 million
distribution to the Partners.
During 1999, distributions were made to the Partners of $30 million on February
1, 1999 and $6 million on December 23, 1999.
Note 8: Impact of Recently-Issued Accounting Standards
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, Accounting for Derivative Instruments and Hedging Activities ("FASB No.
133"). FASB No. 133 is effective for all fiscal quarters of all fiscal years
beginning after June 15, 1999. In June 1999, the FASB delayed the implementation
date of FASB No. 133 by one year (January 1, 2001 for the Partnership). FASB No.
133 requires that all derivative instruments including certain embedded
derivatives, be recorded on the balance sheet at their fair value. Changes in
the fair value of derivatives are recorded each period in current earnings or
other comprehensive income, depending on whether a derivative is designated as
part of a hedge transaction and, if it is, the type of hedge transaction.
Management of the Partnership has determined that, due to its limited use of
derivative instruments, the adoption of FASB No.133 will not have a significant
effect on the Partnership's financial position at January 1, 2001, nor is it
expected to materially impact future results of operations.
Note 9: Subsequent Events
On February 15, 2001, the Partnership purchased a joint venture interest in an
apartment portfolio located in Gresham, Oregon for a purchase price of $8.6
million.
F-24
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: PROPERTIES
DECEMBER 31, 2000
----------------------------------------------------------
Intial Costs to the Partnership
---------------------------------------------------
Costs
Capitalized
Building & Subsequent to
Description Encumbrances Land Improvements Acquisition
- ---------------------- ------------ ---- ------------ -----------
Properties:
Office Building
Lisle, IL None 1,780,000 15,743,881 4,743,541
Garden Apartments
Atlanta, GA None 3,631,212 11,168,904 867,238 (b)
Retail Shopping Center
Roswell, GA None 9,454,622 21,513,677 1,564,753
Office Building
Morristown, NJ None 2,868,660 12,958,451 4,646,664
Office/Warehouse
Bolingbrook, IL None 1,373,199 7,302,518 337,121
Garden Apartments
Raleigh, NC None 1,623,146 14,135,553 88,761
Office Building
Brentwood, TN None 1,797,000 6,588,451 1,272,336
Office Park
Oakbrook Terrace, IL None 1,313,310 11,316,883 391,058
Office Building
Beaverton, OR None 816,415 9,897,307 511,318
Industrial Building
Salt Lake City, UT None 582,457 4,805,676 252,576
Industrial Building
Aurora, CO None 1,338,175 7,202,411 1,590,772
Office Complex
Brentwood, TN None 2,425,000 7,063,755 120,378
---------- ----------- ----------
29,003,196 129,697,467 16,386,516
========== =========== ==========
Gross Amount at Which
Carried at Close of Year
----------------------------------------------------------------------------------------------
Building & 2000 Year of Date
Land Improvements Sales Total (a)(b)(c) Construction Acquired
---- ------------ ----- --------------- ------------ --------
Office Building
Lisk, IL 1,780,000 20,487,422 22,267,422 1985 Apr., 1988
Garden Apartments
Atlanta, GA 3,631,212 12,036,142 15,667,354 1987 Apr., 1988
Retail Shopping Center
Roswell, GA 9,500,725 23,032,328 32,533,052 1988 Jan., 1989
Office Building
Morristown, NJ 2,868,660 17,605,115 (20,473,775) (0) 1981 Aug., 1988
Office/Warehouse
Bolingbrook, IL 1,373,199 7,639,639 9,012,838 1989 Feb., 1990
Garden Apartments
Raleigh, NC 1,623,146 14,224,314 15,847,460 1995 Jun., 1995
Office Building
Brentwood, TN 1,797,377 7,860,410 9,657,787 1982 Oct., 1995
Office Park
Oakbrook Terrace, IL 1,313,821 11,707,430 13,021,251 1988 Dec., 1995
Office Building
Beaverton, OR 844,751 10,380,289 11,225,040 1995 Dec., 1996
Industrial Building
Salt Lake City, UT 702,323 4,938,386 5,640,709 1997 Jul., 1997
Industrial Building
Aurora, CO 1,415,159 8,716,199 10,131,358 1997 Sep., 1997
Office Complex
Brentwood, TN 2,453,117 7,156,016 9,609,133 1987 Oct., 1997
---------- ----------- ----------- -----------
29,303,489 145,783,690 (20,473,775) 154,613,404
========== =========== =========== ============
2000 1999 1998
------------ ------------ -----------
(a) Balance at beginning of year 172,606,825 170,045,055 201,670,248
Additions:
Acquistions 0 0 0
Improvements, etc 2,480,354 2,561,770 5,827,888
Deletions:
Sale (20,473,775) 0 (37,453,081)
------------ ------------ -----------
Balance at end of year 154,613,404 172,606,825 170,045,055
============ ============ ===========
(b) Net of $1,000,000 settlement received from lawsuit.
F-25
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE III - REAL ESTATE OWNED: PROPERTIES
DECEMBER 31, 2000
----------------------------------------------------------
Intial Costs to the Partnership
---------------------------------------------------
Costs
Capitalized
Building & Subsequent to
Description Encumbrances Land Improvements Acquisition
- ---------------------- ------------ ---- ------------ -----------
Interest in Properties:
Garden Apartments
Jacksonville, FL 10,092,355 2,750,000 14,650,743 1,734,803
Retail Shopping Center
Kansas City MO and KS* 15,597,146 5,710,916 15,211,504 660,508
---------- --------- ---------- ---------
25,689,500 8,460,916 29,862,247 2,395,311
========== ========= ========== =========
Gross Amount at Which
Carried at Close of Year
--------------------------------------------------------------------------------------------
Building & 2000 Year of Date
Land Improvements Sales Total (a)(b)(c) Construction Acquired
---- ------------ ----- --------------- ------------ --------
Description
- ----------------------
Interest in Properties:
Garden Apartments
Jacksonville, FL 2,750,000 16,385,546 19,135,546 1973 Sept., 1999
Retail Shopping Center
Kansas City MO and KS* 5,637,699 15,406,191 21,043,890 Various Ranging Sept., 1999
From 1972-1992
------------ ------------- --------- ------------
8,387,699 31,791,737 0 40,179,436
============ ============= ========= ============
2000 1999 1998
------------ ------------ ----------
(a) Balance at beginning of year 22,587,869 0 0
Additions:
Acquistions 0 38,556,018 0
Improvements, etc. 2,162,457 0 0
Deletions:
Sale 0 0 0
Encumbrances on Joint Ventures
accounted for by the equity method 371,003 (15,968,149) 0
------------ ------------ ------------
Balance at end of year 25,121,329 22,587,869 0
============ ============ ============
* Partnership interest accounted for by the equity method.
F-26