UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
OR
_ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 33-86780
PRUCO LIFE INSURANCE COMPANY
IN RESPECT OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ARIZONA 22-1944557
- ------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102-2992
----------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 778-2255
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
-
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(REGISTRANT)
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - March 31, 2001
and December 31, 2000 3
Statements of Operations - Three Months Ended
March 31, 2001 and 2000 3
Statements of Changes in Net Assets - Three Months
Ended March 31, 2001 and 2000 3
Notes to the Financial Statements of the Account 4
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Consolidated Statements of Assets and
Liabilities - March 31, 2001 and December 31, 2000 6
Consolidated Statements of Operations - Three Months Ended
March 31, 2001 and 2000 7
Consolidated Statements of Changes in Net Assets - Three
Months Ended March 31, 2001 and 2000 8
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 2001 and 2000 9
Consolidated Schedules of Investments - March 31, 2001
and December 31, 2000 10
Notes to the Financial Statements of the Partnership 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About Market Risks 21
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 6. Exhibits and Reports on Form 8-K 23
Signature Page 24
2
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
March 31, 2001 and December 31, 2000
March 31, 2001
(Unaudited) December 31, 2000
---------------------------- -----------------------------
ASSETS
Investment in The Prudential Variable Contract
Real Property Partnership (Note 2) $ 113,802,753 $ 112,527,164
---------------------------- -----------------------------
Net Assets $ 113,802,753 $ 112,527,164
============================ =============================
NET ASSETS, representing:
Equity of contract owners (Note 3) $ 78,315,451 $ 78,534,051
Equity of Pruco Life Insurance Company 35,487,302 33,993,113
---------------------------- -----------------------------
$ 113,802,753 $ 112,527,164
============================ =============================
STATEMENTS OF OPERATIONS
For the three months ended March 31, 2001 and 2000
1/1/2001-3/31/2001 1/1/2000-3/31/2000
(Unaudited) (Unaudited)
---------------------------- -----------------------------
INVESTMENT INCOME
Net investment income from Partnership operations $ 1,594,926 $ 1,986,366
---------------------------- -----------------------------
EXPENSES
Charges to contract owners for assuming mortality risk and
expense risk and for administration 119,767 121,525
---------------------------- -----------------------------
NET INVESTMENT INCOME 1,475,159 1,864,841
---------------------------- -----------------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net change in unrealized loss on investments in Partnership (264,298) (1,623,497)
Realized gain (loss) on sale of investments in Partnership (55,039) 59,710
---------------------------- -----------------------------
NET LOSS ON INVESTMENTS (319,337) (1,563,787)
---------------------------- -----------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,155,822 $ 301,054
============================ =============================
STATEMENTS OF CHANGES IN NET ASSETS
For the three months ended March 31, 2001 and 2000
1/1/2001-3/31/2001 1/1/2000-3/31/2000
(Unaudited) (Unaudited)
---------------------------- -----------------------------
OPERATIONS
Net investment income $ 1,475,159 1,864,841
Net change in unrealized loss on investments in Partnership (264,298) (1,623,497)
Realized gain (loss) on sale of investments in Partnership (55,039) 59,710
---------------------------- -----------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,155,822 301,054
---------------------------- -----------------------------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners (Note 4) (984,452) (1,583,256)
Net contributions by Pruco Life Insurance Company 1,104,219 1,704,781
---------------------------- -----------------------------
NET INCREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 119,767 121,525
---------------------------- -----------------------------
TOTAL INCREASE IN NET ASSETS 1,275,589 422,579
NET ASSETS
Beginning of period 112,527,164 117,725,227
---------------------------- -----------------------------
End of period $ 113,802,753 $ 118,147,806
============================ =============================
3
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
MARCH 31, 2001
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The Pruco Life Variable Contract Real Property Account ("Real Property Account")
is used to fund benefits under certain variable life insurance and variable
annuity contracts issued by Pruco Life Insurance Company. These products are
Variable Appreciable Life ("VAL"), Variable Life ("VLI"), Discovery Plus
("SPVA"), and Discovery Life Plus ("SPVL").
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and accounting
principles generally accepted in the United States of America for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001. For further information, refer to the financial
statements and notes thereto included in the Real Property Account's December
31, 2000 Annual Report on Form 10K.
NOTE 2: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT
REAL PROPERTY PARTNERSHIP
The investment in The Prudential Variable Contract Real Property Partnership
(the "Partnership") is based on the Real Property Account's proportionate
interest of the Partnership's market value. At March 31, 2001 and December 31,
2000, the Real Property Account's interest in the Partnership was 54.5% or
4,949,340 shares.
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 Account's shares held at
March 31, 2001 and December 31, 2000 were as follows:
March 31, 2001
(Unaudited) December 31, 2000
----------- -----------------
NUMBER OF SHARES (ROUNDED): 4,949,340 4,949,340
NET ASSET VALUE PER SHARE (ROUNDED): $22.99 $22.74
COST: $53,466,976 $53,466,976
NOTE 3: CONTRACT OWNER EQUITY INFORMATION
Contract owner equity at March 31, 2001 and December 31, 2000 by product, were
as follows:
March 31, 2001
(Unaudited) December 31, 2000
--------------- -----------------
VAL $68,612,418 $68,838,388
VLI 5,180,842 5,153,802
SPVA 481,439 496,904
SPVL 4,040,752 4,044,957
--------- ---------
TOTAL $78,315,451 $78,534,051
=========== ===========
4
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
MARCH 31, 2001
(UNAUDITED)
NOTE 4: NET WITHDRAWALS BY CONTRACT OWNERS
Net withdrawals by contract owners for the real estate investment option in
Pruco Life Insurance Company's variable insurance and variable annuity products
for the three months ended March 31, 2001 and 2000, were as follows:
MARCH 31,
2001 2000
---- (Unaudited) ----
VAL $900,793 $1,433,318
VLI 26,802 13,402
SPVA 19,475 18,800
SPVL 37,382 117,736
------ -------
TOTAL $984,452 $1,583,256
======== ==========
5
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 2001
(UNAUDITED) DECEMBER 31, 2000
------------------------- -------------------------
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 3/31/2001 -- $192,739,991; 12/31/2000 -- $173,748,950) $181,427,340 $162,213,095
Real estate partnership (cost: 3/31/2001 -- $6,097,978;
12/31/2000 -- $5,985,783) 5,799,851 5,445,528
Real estate investment trusts (cost: 3/31/2001 -- $32,612,009;
12/31/2000 -- $31,896,908) 34,948,594 35,224,737
------------------------- -------------------------
Total real estate investments 222,175,785 202,883,360
MARKETABLE SECURITIES - At estimated market value
(cost: 3/31/2001 -- $0; 12/31/2000 -- $4,916,327) 0 4,916,494
CASH AND CASH EQUIVALENTS 9,143,055 10,543,821
DIVIDEND RECEIVABLE 265,898 242,341
OTHER ASSETS (net of allowance for uncollectible
accounts: 3/31/2001 -- $92,400; 12/31/2000 -- $91,000) 2,449,259 2,926,280
------------------------- -------------------------
Total assets 234,033,997 221,512,296
------------------------- -------------------------
LIABILITIES
MORTGAGE LOAN PAYABLE 19,077,153 10,092,355
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,019,820 2,517,818
DUE TO AFFILIATES 888,072 887,434
OTHER LIABILITIES 834,200 669,209
MINORITY INTEREST 1,527,554 997,401
------------------------- -------------------------
Total liabilities 25,346,799 15,164,217
------------------------- -------------------------
PARTNERS' EQUITY 208,687,198 206,348,079
------------------------- -------------------------
Total liabilities and partners' equity $234,033,997 $221,512,296
========================= =========================
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 9,075,913 9,075,913
========================= =========================
SHARE VALUE AT END OF PERIOD $22.99 $22.74
========================= =========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2001 MARCH 31, 2000
---------------------- ---------------------
INVESTMENT INCOME:
Revenue from real estate and improvements $5,205,225 $5,861,463
Equity in income of real estate partnership 112,195 169,213
Dividend income 578,078 353,751
Interest on short-term investments 149,045 247,748
---------------------- ---------------------
Total investment income 6,044,543 6,632,175
---------------------- ---------------------
EXPENSES:
Investment management fee 669,914 668,314
Real estate taxes 601,753 657,399
Administrative 565,626 616,858
Operating 981,824 954,641
Interest 259,529 176,107
Minority interest 41,181 11,785
---------------------- ---------------------
Total investment expenses 3,119,827 3,085,104
---------------------- ---------------------
NET INVESTMENT INCOME 2,924,716 3,547,071
---------------------- ---------------------
REALIZED AND UNREALIZED (LOSS) GAIN ON
INVESTMENTS
Net proceeds from real estate investments sold 1,461,017 3,730,550
Less: Cost of real estate investments sold 1,557,239 4,543,603
Realization of prior periods' unrealized
(loss) gain on real estate investments
sold 4,708 (919,678)
---------------------- ---------------------
Net (loss) gain realized on real estate
investments sold (100,930) 106,625
---------------------- ------------------------
Change in unrealized loss on real estate
investments (521,204) (2,911,009)
Minority interest in unrealized loss on
investments 36,537 11,914
---------------------- ---------------------
Net unrealized loss on real estate investments (484,667) (2,899,095)
---------------------- ---------------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (585,597) (2,792,470)
---------------------- ---------------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $2,339,119 $754,601
====================== =====================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
7
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------------ ------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $2,924,716 $3,547,071
Net realized (loss) gain on real estate investments sold (100,930) 106,625
Change in unrealized loss on real estate investments (484,667) (2,899,095)
------------------------ ------------------------
Net increase in net assets resulting from operations 2,339,119 754,601
NET ASSETS - Beginning of period 206,348,079 210,222,940
------------------------ ------------------------
NET ASSETS - End of period $208,687,198 $210,977,541
======================== ========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
FINANCIAL STATEMENTS.
8
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2001 MARCH 31, 2000
------------------------ ------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $2,339,119 $754,601
Adjustments to reconcile net increase in net assets resulting
from operations to net cash flows from operating activities:
Net realized and unrealized loss on investments 585,597 2,792,470
Equity in income of real estate partnership's
operations in excess of distributions (112,195) (169,212)
Minority interest from operating activities 41,181 11,785
Bad debt expense 7,409 20,272
Decrease (Increase) in:
Dividend receivable (23,557) 16,957
Other assets 469,612 417,161
(Decrease) Increase in:
Accounts payable and accrued expenses 502,002 (343,441)
Due to affiliates 638 (3,332)
Other liabilities 164,991 193,371
------------------------ ------------------------
Net cash flows from operating activities 3,974,797 3,690,632
------------------------ ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Improvements and additional costs on prior purchases:
Net proceeds from real estate investments sold 1,461,017 3,730,550
Acquisition of real estate property (9,358,614) 0
Acquisition of real estate investment trusts (2,272,340) (3,400,186)
Additions to real estate owned (609,171) (1,408,439)
Sale of marketable securities, net 4,916,494 976,318
------------------------ ------------------------
Net cash flows from investing activities (5,862,614) (101,757)
------------------------ ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loan payable (38,458) (24,301)
Withdrawals by partners 0 0
Contributions from minority interest partners 525,509 110,083
------------------------ ------------------------
Net cash flows from financing activities 487,051 85,782
------------------------ ------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,400,766) 3,674,657
CASH AND CASH EQUIVALENTS - Beginning of period 10,543,821 13,972,669
------------------------ ------------------------
CASH AND CASH EQUIVALENTS - End of period $9,143,055 $17,647,326
======================== ========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the quarter for interest $259,529 $176,107
======================== ========================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Assumption of mortgage loan payable $9,023,256 $0
======================== ========================
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
March 31, 2001
(Unaudited) December 31, 2000
---------------------------------- ----------------------------------
Estimated Estimated
Market Market
Cost Value Cost Value
-----------------------------------------------------------------------
REAL ESTATE AND IMPROVEMENTS (Percent of Net Assets) 86.9% 78.6%
Location Description
- -------------------------------------------------------------------------------------------------------------------------------
Lisle, IL Office Building $22,267,422 $14,634,722 $22,267,422 $14,134,722
Atlanta, GA Garden Apartments 15,667,354 17,900,002 15,667,354 17,800,002
Roswell, GA Retail Shopping Center 32,541,674 26,408,583 32,533,052 26,874,838
Bolingbrook, IL Warehouse 9,012,838 6,600,000 9,012,838 6,664,810
Raleigh, NC Garden Apartments 15,854,622 17,207,162 15,847,460 17,200,000
Brentwood, TN Office Building 9,783,285 10,692,780 9,657,787 10,396,565
Oakbrook Terrace, IL Office Complex 13,021,251 12,500,000 13,021,251 12,716,910
Beaverton, OR Office Complex 11,508,404 11,383,366 11,225,040 10,623,809
Salt Lake City, UT Industrial Building 5,640,709 5,500,050 5,640,709 5,900,050
Aurora, CO Industrial Building 10,131,358 9,900,000 10,131,358 9,800,714
Brentwood, TN Office Complex 9,609,133 9,600,675 9,609,133 9,600,675
Jacksonville, FL Garden Apartments 19,320,071 20,900,000 19,135,546 20,500,000*
Gresham, OR Garden Apartments 18,381,870 18,200,000 - -*
-----------------------------------------------------------------------
$192,739,991 $181,427,340 $173,748,950 $162,213,095
=======================================================================
REAL ESTATE PARTNERSHIP (PERCENT OF NET ASSETS) 2.8% 2.6%
Location Description
- -------------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------
Kansas City, KS; MO Retail Shopping Center $6,097,978 $5,799,851 $5,985,783 $5,445,528
=======================================================================
* Real estate partnership accounted for by the consolidated method.
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THE FINANCIAL STATEMENTS.
10
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
MARCH 31, 2001
-------------------------------------------
Estimated
Market
Cost Value
-------------------------------------------
REAL ESTATE INVESTMENT TRUST (PERCENT OF NET ASSETS) 16.7%
---------------------------------------------------------------------------------------------------------------------
AMB Property Corporation (30,000 Shares) $706,770 $738,000
AMLI Residential Properties (30,000 Shares) 706,800 669,000
Alexanderia Real Est Equities (5,000 Shares) 181,188 188,750
Apartment Invt & Mgmt Co., (28,900 Shares) 1,218,828 1,284,605
Archstone Communities Trust (25,000 Shares) 592,188 615,000
Avalonbay Communities Trust (15,000 Shares) 683,900 687,150
Boston Properties Inc (25,000 Shares) 995,339 961,250
CBL & Associates Prop (30,800 Shares) 741,988 819,280
Cabot Industrial Trust (40,000 Shares) 820,726 776,000
Centerpoint Properties Corp (18,600 Shares) 632,302 867,690
Cousins Porperties (10,000 Shares) 275,600 250,100
Crescent Real Estate Eqt Co (35,000 Shares) 779,433 794,500
Duke - Weeks Realty Corp (47,000 Shares) 1,070,320 1,088,050
Equity Office Properties Trust (82,400 Shares) 2,358,005 2,307,200
Equity Residential Property Trust (30,000 Shares) 1,450,732 1,560,900
Essex Property Trust Inc.(15,000 Shares) 593,700 720,750
Felcor Lodging Trust (10,000 Shares) 239,626 229,500
First Industrial Realty Trust (25,000 Shares) 781,100 791,000
Franchise Financial Cp Amer (51,300 Shares) 1,228,281 1,278,396
Gables Residential Trust (25,000 Shares) 632,750 725,250
General Growth Properties (22,000 Shares) 714,894 768,900
Highwoods Properties Inc (30,000 shares) 758,832 739,500
Host Marriott Corp (115,000 Shares) 1,232,442 1,343,200
IRT Property (45,000 Shares) 406,395 414,000
Innkeepers USA Trust (50,000 Shares) 512,375 560,000
Kilroy Realty Corp (30,000 Shares) 746,888 804,300
Kimco Realty (15,000 Shares) 612,612 645,000
Liberty Property LP (35,000 Shares) 899,563 988,400
Macerich Co (30,000 Shares) 670,489 658,500
Meristar Hospitality Corp (37,500 Shares) 636,150 750,000
Mission West Properties (88,200 Shares) 697,122 1,120,140
New Plan Excel Realty Trust (25,000 Shares) 342,633 400,000
Parkway Properties Inc (25,000 Shares) 782,750 717,500
Prentiss Properties Trust (20,000 Shares) 495,762 493,000
Regency Realty Corp (25,000 Shares) 576,600 625,000
Shurgard Storage Centers (20,000 Shares) 478,500 528,000
Simon Property Group Inc (45,000 Shares) 1,032,157 1,152,000
Spieker Properties (27,000 Shares) 1,197,073 1,480,950
Summit Properties Inc (12,000 Shares) 292,832 294,000
Ventas Inc. (45,000 Shares) 381,400 382,500
Vornado Realty Trust (29,800 Shares) 1,028,569 1,067,733
Washington Reit (40,000 Shares) 759,220 933,600
Apartment Invt & Mgmt Co. - Preferred Stock (10,000 Shares) 212,844 234,000
Public Storage Inc - Preferred Stock (20,000 Shares) 454,331 496,000
----------------------------------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS $32,612,009 $34,948,594
==============================================
THE ACCOMPANYING NOTES ARE AN
INTEGRAL PART OF THE FINANCIAL STATEMENTS.
11
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.
12
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
March 31, 2001
(Unaudited)
----------------------------------------------------------------
Net Estimated
Face Amount Cost Market Value
------------------- ----------------- -------------------
MARKETABLE SECURITIES (Percent of Net Assets) 0.0%
- - -
------------------- ----------------- -------------------
TOTAL MARKETABLE SECURITIES $0 $0 $0
=================== ================= ===================
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 4.4%
Sonoco Products Co, 5.55%, April 2, 2001 $178,000 $177,918 $177,918
Verizon Global Funding Corp., 5.60%, April 2, 2001 485,000 484,774 484,774
American Express Credit Corp., 5.20%, April 4, 2001 151,000 150,433 150,433
Walt Disney Co., 5.00%, April 4, 2001 200,000 199,583 199,583
CIT Group Inc., 5.37%, April 5, 2001 676,000 670,252 670,252
General Electric Capital Corp., 5.33%, April 5, 2001 360,000 357,282 357,282
National Rural Utilities, 5.10%, April 5, 2001 176,000 175,601 175,601
Ciesco L.P., 5.30%, April 6, 2001 500,000 499,485 499,485
Eastman Kodak Co., 5.37%, April 6, 2001 450,000 447,047 447,047
H.J. Heinz Co., 5.42%, April 6, 2001 424,000 421,191 421,191
Pitney Bowes Inc., 5.10%, April 11, 2001 200,000 199,150 199,150
E.I. Du Pont De Nemours & Co. Inc, 4.95%, April 12, 2001 306,000 305,074 305,074
General Motors Acceptance Corp., 5.35%, April 12, 2001 290,000 287,931 287,931
International Lease Finance, 5.03%, April 16, 2001 500,000 497,625 497,625
First Data Corp, 5.25%, April 17, 2001 213,000 211,447 211,447
Nike Inc., 4.92%, April 17, 2001 300,000 298,893 298,893
General Electric Capital Corp., 4.92%, April 18, 2001 100,000 99,617 99,617
General Re Corp., 4.92%, April 24, 2001 500,000 497,678 497,678
May Department Stores Co., 4.90%, April 24, 2001 250,000 248,911 248,911
Duke Energy Corp., 5.00%, April 25, 2001 370,000 367,893 367,893
Paccar Financial Corp., 5.10%, April 25, 2001 475,000 471,097 471,097
Household Finance Crop., 4.90%, April 27, 2001 277,000 275,681 275,681
------------------- ----------------- -------------------
TOTAL CASH EQUIVALENTS 7,381,000 7,344,563 7,344,563
CASH 1,798,492 1,798,492 1,798,492
------------------- ----------------- -------------------
TOTAL CASH AND CASH EQUIVALENTS $9,179,492 $9,143,055 $9,143,055
=================== ================= ===================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THE FINANCIAL STATEMENTS.
13
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.
14
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
MARCH 31, 2001 AND 2000
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements included herein have been
prepared in accordance with the requirements of Form 10-Q and accounting
principles generally accepted in the United States of America for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the three months ended March 31, 2001
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2001. For further information, refer to the financial
statements and notes thereto included in each Partner's December 31, 2000 Annual
Report on Form 10K.
NOTE 2: 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 were utilized for property acquisitions, and returned to
Prudential on an ongoing basis from the 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
$209 million in net assets, the commitment has been automatically reduced to $80
million. As of March 31, 2001, Prudential's equity interest in the Partnership,
on a cost basis, under this commitment 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 3: 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 three months
ended March 31, 2001 and 2000 management fees incurred by the Partnership were
$669,914 and $668,314, respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the three months ended March
31, 2001 and 2000 were $29,157 for each period, and are classified as
administrative expense in the Consolidated Statements of Operations.
NOTE 4: IMPACT OF RECENTLY-ISSUED ACCOUNTING STANDARDS
Effective January 1, 2001, the Partnership adopted SFAS 133/138, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"). This accounting
standard requires the Partnership to measure all derivatives, including certain
derivatives embedded in other contracts, at fair value and to recognize them in
the Consolidated Statement of Assets and Liabilities as an asset or liability,
depending on the Partnership's rights or obligations under the applicable
derivative contract. For derivatives designated as fair value hedges, the
changes in the fair value of both the derivative instrument and the hedged item
are recorded in earnings. For derivatives designated as cash flow hedges, the
effective portions of changes in fair value of the derivative are reported in
other comprehensive income ("OCI") and are subsequently reclassified into
earnings when the hedged item affects earnings. Changes in fair value of
derivative instruments not designated as hedging instruments and ineffective
portions of hedges are recognized in earnings in the current period. Due to the
Partnership's limited use of derivative instruments, adoption of SFAS 133 did
not have a material impact on the Partnership's financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
15
All of the assets of the 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 March 31, 2001, the Partnership's liquid assets consisting of cash, cash
equivalents and marketable securities were $9.1 million, a decrease of $6.3
million from December 31, 2000. This decrease was due primarily to the
acquisition of a controlling interest in an apartment portfolio located in
Gresham/Salem, OR, which was offset by operations of the Partnership's
properties and the sale of REIT shares during the first quarter of 2001. Sources
of liquidity include net cash flow from property operations, interest from
short-term investments, and dividends from REIT shares.
The Partnership's investment policy allows up to 30% investment in cash and
short-term obligations, although the Partnership generally holds approximately
10% of its assets in cash or liquid instruments. At March 31, 2001, 4% of the
Partnership's assets consisted of cash, cash equivalents and marketable
securities.
In 1986, Prudential committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the Partnership
under this commitment have been utilized for property acquisitions, and returned
to Prudential on an ongoing basis from contract owners' net contributions and
other available cash. The amount of the commitment is reduced by $10 million for
every $100 million in current value net assets of the Partnership. Thus with
$209 million in net assets, the commitment has been automatically reduced to $80
million. As of March 31, 2001, Prudential's equity interest in the Partnership,
on a cost basis, under this commitment was $44 million. Prudential does not
intend to make any contributions during the 2001 fiscal year and will begin to
phase out this commitment over the next several years.
The Partnership made $22 million in distributions to the Partners during 2000.
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 the first quarter 2001, the Partnership spent approximately $0.6 million
in capital expenditures. Approximately $0.2 million was associated with
construction costs pertaining to the apartment complex located in Jacksonville,
FL. The balance was associated with leasing activity at the office properties
located in Beaverton, OR and Brentwood, TN. Additionally, the Partnership
acquired a controlling interest in a portfolio of four apartment complexes based
in Gresham and Salem, OR. The portfolio consists of 492 units and 419,487
rentable square feet. The acquisition was financed by contributions of $8.6
million from the Partnership, $0.5 million from the partner, and the assumption
of a $9.0 million mortgage loan.
(b) RESULTS OF OPERATIONS
16
The following is a brief discussion of the Partnership's results of operations
for the quarters ended March 31, 2001 and 2000.
MARCH 31, 2001 VS. MARCH 31, 2000
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 three months ended March 31, 2001 and March 31, 2000.
Quarter Ended March 31,
2001 2000
------------ -----------
NET INVESTMENT INCOME:
Office properties $1,043,819 $1,579,739
Apartment complexes 1,129,655 912,454
Retail property 744,081 707,880
Industrial properties 86,383 377,080
Equity in income of real estate partnership 112,195 169,213
Dividend income from real
estate investment trust 578,078 353,751
Other (including interest income,
investment mgt. fee, etc.) (769,495) (553,046)
----------- ----------
TOTAL NET INVESTMENT INCOME $2,924,716 $3,547,071
=========== ==========
UNREALIZED (LOSS) ON INVESTMENTS:
Office properties $930,001 ($2,068,051)
Apartment complexes 170,141 79,652
Retail property (474,878) (39,629)
Industrial properties (365,524) (1,124,790)
Interest in properties 242,128 80,566
Real estate investment trusts (986,535) 173,157
----------- ----------
(484,667) (2,899,095)
----------- ----------
17
Quarter Ended March 31,
2001 2000
--------- ----------
REALIZED (LOSS) GAIN ON INVESTMENTS
Office properties -
Apartment complexes - -
Industrial properties - -
Interest in properties - -
Real estate investment trust (100,930) (106,625)
--------- ---------
(100,930) (106,625)
--------- ---------
TOTAL REALIZED AND UNREALIZED (LOSS)
ON INVESTMENTS ($585,597) ($2,792,470)
--------- ----------
The Partnership's net investment income for the quarter ended March 31, 2001 was
$2.9 million, a decrease of $0.6 million from the corresponding quarter in the
prior year. This decrease was primarily the result of the following factors:
occupancy decreased at the industrial property in Bolingbrook, IL and the office
complex in Oakbrook Terrace, IL. Additionally, the office complex located in
Morristown, NJ was sold on October 26, 2000.
Revenue from real estate properties was $5.2 million, for the first three months
of 2001, a decrease of $0.7 million, or 11.2%, from $5.9 million in the
corresponding period in 2000, mainly as a result of the sale of the office
complex located in Morristown, NJ and the decreases in occupancy previously
discussed.
Equity in income of real estate partnership was $112,195, for the first three
months of 2001, a decrease of $57,018, or 33.7%, from $169,213 in the
corresponding period in 2000. The decrease is due to snow removal expense
associated with higher snowfall amounts than anticipated.
Dividend income from real estate investment trusts amounted to approximately
$0.6 million for the quarter ended March 31, 2001, an increase of approximately
$0.2 million, or 63.4%, from approximately $0.4 million in the corresponding
period in 2000. This increase was primarily due to an increase in the amount
invested in REIT stocks.
Interest on short-term investments decreased approximately $0.1 million or 39.8%
for the quarter ended March 31, 2001 due primarily to a significantly lower
average cash balance during the quarter ended March 31, 2001 compared to the
corresponding period in 2000. Cash, cash equivalents, and marketable securities
maintained during the first quarter of 2001 averaged approximately $12.3 million
when compared to the first quarter of 2000 when the average was approximately
$18.1 million.
Interest expense increased $83,422, or 47.4%, in the first three months of 2001
compared to the corresponding period in 2000, primarily as a result of the
Partnership's acquisition of a controlling interest in the portfolio of
apartment complexes located in Gresham/Salem, OR, which were acquired subject to
$9.0 million in debt.
OFFICE PROPERTIES
18
Net investment income from property operations for the office sector decreased
approximately $0.5 million, or 33.9%, for the quarter ended March 31, 2001 when
compared to the corresponding period in 2000. This was primarily due to the sale
of the Morristown, NJ office complex coupled with decreased occupancy at the
office located in Oakbrook Terrace, IL.
The five office properties owned by the Partnership experienced a net unrealized
gain of approximately $0.9 million during the first three months of 2001. The
majority of this unrealized gain, or $0.5 million, was due to the office
property located in Lisle, IL due to an increase in occupancy and market rents.
The Beaverton, OR office complex also experienced a net unrealized gain of
approximately $0.5 million primarily due to leasing at the office complex and
improvement in the market as the vacant Class "A" space was absorbed.
The office properties owned by the Partnership experienced a net unrealized loss
of approximately $2.1 million during the first three months of 2000. The
majority of this net unrealized loss, or $1.3 million, was due to the office
property located in Beaverton, OR. This decrease was due to higher vacancy in
the sub-market coupled with the loss of a major tenant at the office complex.
The Morristown, NJ office property also experienced an unrealized loss of $0.7
million, primarily due to capital expenditures on the property that were not
reflected as an increase in market value.
Occupancy at the Beaverton, OR and one of the Brentwood, TN properties remained
unchanged from March 31, 2000 at 100%. Occupancy at the Lisle, IL office
property increased from 80% at March 31, 2000 to 96% at March 31, 2001. The
other Brentwood, TN property increased from 56% at March 31, 2000 to 68% at
March 31, 2001. Occupancy at the Oakbrook Terrace, IL property decreased from
100% at March 31, 2000 to 52% at March 31, 2001 due to a tenant's lease buyout
in the second quarter of 2000. As of March 31, 2001 all vacant spaces were being
marketed.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment sector was $1.1
million for the first three months in 2001, an increase of $0.2 million, or
23.8%, when compared to the corresponding period in 2000. This increase was
primarily due to the acquisition of the controlling interest in the apartment
complex portfolio located in Gresham/Salem, OR.
The apartment complexes owned by the Partnership experienced a net unrealized
gain of $0.2 million in the first quarter of 2001 compared to a net unrealized
gain of $0.1 million in the first quarter of 2000. The majority of the first
quarter 2001 net unrealized gain was due to the Jacksonville, FL and Atlanta, GA
properties. The capital costs associated with the renovation project for the
Jacksonville, FL apartment complex have decreased. In addition, the market rates
for the Atlanta, GA property have steadily risen.
The occupancy at the Atlanta, GA and Jacksonville, FL complexes increased from
95% at March 31, 2000 to 97% at March 31, 2001 and from 86% at March 31, 2000 to
91% at March 31, 2001, respectively. Occupancy at the apartment complex in
Raleigh, NC decreased from 93% at March 31, 2000 to 86% at March 31, 2001.
Occupancy at the Gresham/Salem, OR apartment complexes averaged approximately
85% at March 31, 2001. As of March 31, 2001, all available vacant spaces were
being marketed.
RETAIL PROPERTIES
Net investment income for the Partnership's retail property located in Roswell,
GA was approximately $0.7 million for both the three months ended March 31, 2001
and 2000.
The retail property experienced a net unrealized loss of $0.5 million and $0.1
million in the first three months of 2001 and 2000, respectively. The net
unrealized loss in 2001 was due to increased capital expenditures budgeted for
2001 coupled with a slight decrease in overall occupancy at the property.
19
Occupancy at the shopping center located in Roswell, GA decreased from 97% at
March 31, 2000 to 94% at March 31, 2001. As of March 31, 2001, all vacant spaces
were being marketed.
EQUITY IN INCOME OF REAL ESTATE PARTNERSHIP
During the three months ended March 31, 2001, income from this investment
amounted to $0.1 million, a decrease of 33.7% from $0.2 million at March 31,
2000. The decrease is due to snow removal expense associated with higher
snowfall amounts than anticipated, as noted previously. This equity investment
experienced a net unrealized gain in the first quarter 2001 of $0.2 million,
primarily due to increased leasing activity and stabilized occupancy.
The retail portfolio located in Kansas City, KS and MO had an average occupancy
of 93% at March 31, 2000, which decreased to 92% at March 31, 2001. As of March
31, 2001, all vacant spaces were being marketed.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
decreased from $0.4 million in the first quarter 2000 to $0.1 million in the
corresponding period in 2001. The majority of this 77.1% decrease was a result
of decreased occupancy at the properties in Bolingbrook, IL and Salt Lake City,
UT.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $0.4 million during the first quarter of 2001
compared to a net unrealized loss of approximately $1.1 million in 2000. The
majority of the unrealized loss in 2001 was attributable to the Salt Lake City,
UT industrial property. This loss of approximately $0.4 million was due to
significant leasing costs associated with a new tenant.
The three industrial properties owned by the Partnership experienced a net
unrealized loss of approximately $1.1 million during the first quarter of 2000.
The majority of the decrease was attributable to the Aurora, CO industrial
property. This loss of approximately $0.4 million was due to more conservative
assumptions regarding rental rates, lease-up time and terminal capitalization
rates used by the appraiser. The industrial property located in Bolingbrook, IL
also experienced an unrealized loss of $0.4 million during the first quarter
2000. This loss was due to decreased market rents caused by softening market
conditions.
The occupancy at the Bolingbrook, IL property was 100% at March 31, 2000 and
decreased to 0% at March 31, 2001 due to the scheduled lease expiration. The
occupancy at the Salt Lake City, Utah property decreased from 34% at March 31,
2000 to 16% at March 31, 2001. However, leases have been signed for 50% of the
space that will take effect in 2001. The Aurora, CO property's occupancy rate
remained unchanged at 75% at March 31, 2000 and 2001. As of March 31, 2001, all
vacant spaces were being marketed.
REAL ESTATE INVESTMENT TRUSTS
During the first quarter of 2001, the Partnership's investment in REITS
experienced an unrealized loss of $1.0 million compared to an unrealized gain of
$0.2 million experienced during the first quarter 2000. These changes in
unrealized loss and gain reflect changes in the market value of REIT shares held
by the Partnership.
OTHER
Other net investment income decreased approximately $0.2 million during 2001
when compared to the corresponding period in 2000. Other net investment income
includes interest income from short-term investments, investment management
fees, and expenses not related to property activities.
20
(c) 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.
(d) INFLATION
The Partnership's leases with a majority of its commercial tenants provide for
recoveries of expenses based upon the tenant's proportionate share of, and/or
increases in, real estate taxes and certain operating costs, which may reduce
the Partnership's exposure to increases in operating costs resulting from
inflation.
ITEM 3. 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 13.5% of its investment portfolio consisting
primarily of short-term fixed rate commercial paper and fixed 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 average interest rates
of the Partnership's cash equivalents and short-term investments at March 31,
2001:
Estimated Market Value Average
Maturity (in $ millions) Interest Rate
-------------------------- -------------------------- --------------------------
Cash equivalents 0-3 months $7.3 5.19%
Short-term investments 3-12 months $0 0%
The table below discloses the Partnership's fixed and variable rate debt as of
March 31, 2001. Approximately $9.0 million of the Partnership's long term debt
bears interest at a fixed rate of 7.97%, and therefore the fair value of this
instrument is affected by changes in market interest rates. The interest rate on
the variable rate 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 March 31, 2001 was 7.915%.
21
March 31, 2001
Debt (in $ thousands) 4/1/2001- Estimated
Including current portion 12/31/2001 2002 2003 2004 2005 Thereafter Total Fair Value
- ------------------------- ---------- ---- ---- ---- ---- ---------- ----- ----------
Fixed Rate $145 $206 $224 $242 $262 $7,929 $9,008 $9,008
Variable Rate $60 $90 $98 $104 $114 $9,603 $10,069 $10,069
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.
22
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Contract owners participating in the Real Property Account have
no voting rights with respect to the Real Property Account.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
4.1 Variable Life Insurance Contract, filed as Exhibit
1.A.(5)(a) to Pre-Effective Amendment No. 1 to Form S-6,
Registration Statement No. 2-80513, filed February 17,
1983, and incorporated herein by reference.
4.2 Revised Variable Appreciable Life Insurance Contract with
fixed death benefit, filed as Exhibit 1.A.(5)(f) to
Post-Effective Amendment No. 5 to Form S-6, Registration
Statement No. 2-89558, filed July 10, 1986, and
incorporated herein by reference.
4.3 Revised Variable Appreciable Life Insurance Contract with
variable death benefit, filed as Exhibit 1.A.(5)(g) to
Post-Effective Amendment No. 5 to Form S-6, Registration
Statement No. 2-89558, filed July 10, 1986, and
incorporated herein by reference.
4.4 Single Premium Variable Annuity Contract, filed as Exhibit
4(i) to Form N-4, Registration Statement No. 2-99616, filed
August 13, 1985, and incorporated herein by reference.
4.5 Flexible Premium Variable Life Insurance Contract, filed as
Exhibit 1.A.(5) to Form S-6, Registration Statement No.
2-99260, filed July 29, 1985, and incorporated herein by
reference.
b) REPORT ON FORM 8-K
None
23
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY
in respect of
Pruco Life Variable
Contract Real Property Account
(Registrant)
-------------------------------------------------
Date: May 15, 2001 By: /s/
--------------------------------- ------------------------
Esther H. Milnes
President and Director
Date: MAY 15, 2001 By: /s/
--------------------------------- ------------------------
William J. Eckert, IV
Vice President and Chief
Accounting Officer
24