<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
- - SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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
--- ---
<Page>
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
(REGISTRANT)
INDEX
<Table>
<Caption>
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - June 30, 2001 and December 31, 2000 3
Statements of Operations - Three and Six Months Ended June 30, 2001 and 2000 3
Statements of Changes in Net Assets - Three and Six Months Ended June 30, 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 - June 30, 2001 and December 31, 2000 6
Consolidated Statements of Operations - Three and Six Months Ended June 30, 2001 and 2000 7
Consolidated Statements of Changes in Net Assets - Six Months Ended June 30, 2001 and 2000 8
Consolidated Statements of Cash Flows - Six Months Ended June 30, 2001 and 2000 9
Consolidated Schedules of Investments - June 30, 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 22
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
</Table>
2
<Page>
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
June 30, 2001 and December 31, 2000
<Table>
<Caption>
JUNE 30, 2001
(UNAUDITED) DECEMBER 31, 2000
------------------ ------------------
ASSETS
Investment in The Prudential Variable
Contract
Real Property Partnership (Note 2) $ 117,629,264 $ 112,527,164
------------------ ------------------
Net Assets $ 117,629,264 $ 112,527,164
================== ==================
NET ASSETS, REPRESENTING:
Equity of contract owners (Note 3) $ 79,793,985 $ 78,534,051
Equity of Pruco Life Insurance Company 37,835,279 33,993,113
------------------ ------------------
$ 117,629,264 $ 112,527,164
================== ==================
</Table>
STATEMENTS OF OPERATIONS
<Table>
<Caption>
For the six and three months ended June 30,
2001 and 2000 1/1/2001-6/30/2001 1/1/2000-6/30/2000 4/1/2001-6/30/2001 4/1/2000-6/30/2000
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------ ------------------ ------------------ ------------------
INVESTMENT INCOME
Net investment income from Partnership
operations $ 3,341,666 $ 3,767,917 $ 1,746,740 $ 1,781,551
------------------ ------------------ ------------------ ------------------
EXPENSES
Charges to contract owners for assuming
mortality risk and expense risk and for
administration 241,219 241,920 121,452 120,395
------------------ ------------------ ------------------ ------------------
NET INVESTMENT INCOME 3,100,447 3,525,997 1,625,288 1,661,156
------------------ ------------------ ------------------ ------------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on
investments in Partnership 1,769,119 (1,115,504) 2,033,417 507,993
Realized gain (loss) on sale of investments
in Partnership (8,685) 874,672 46,354 814,962
------------------ ------------------ ------------------ ------------------
NET GAIN (LOSS) ON INVESTMENTS 1,760,434 (240,832) 2,079,771 1,322,955
------------------ ---------------- ------------------ ------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,860,881 $ 3,285,165 $ 3,705,059 $ 2,984,111
================== ================== ================== ==================
</Table>
STATEMENTS OF CHANGES IN NET ASSETS
<Table>
<Caption>
For the six and three months ended June 30,
2001 and 2000 1/1/2001-6/30/2001 1/1/2000-6/30/2000 4/1/2001-6/30/2001 4/1/2000-6/30/2000
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------ ------------------ ------------------ -----------------
OPERATIONS
Net investment income $ 3,100,447 3,525,997 $ 1,625,288 1,661,156
Net change in unrealized gain (loss) on
investments in Partnership 1,769,119 (1,115,504) 2,033,417 507,993
Realized gain (loss) on sale of investments
in Partnership (8,685) 874,672 46,354 814,962
------------------ ------------------ ------------------ ------------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 4,860,881 3,285,165 3,705,059 2,984,111
------------------ ------------------ ------------------ ------------------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners (Note 4) (1,999,124) (3,316,566) (1,014,672) (1,733,310)
Net contributions (withdrawals) by Pruco
Life Insurance Company 2,240,343 (4,441,514) 1,136,124 (6,146,295)
------------------ ------------------ ------------------ ------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS 241,219 (7,758,080) 121,452 (7,879,605)
------------------ ------------------ ------------------ ------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 5,102,100 (4,472,915) 3,826,511 (4,895,494)
NET ASSETS
Beginning of period 112,527,164 117,725,227 113,802,753 118,147,806
------------------ ------------------ ------------------ ------------------
End of period $ 117,629,264 $ 113,252,312 $ 117,629,264 $ 113,252,312
================== ================== ================== ==================
</Table>
3
<Page>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
JUNE 30, 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 six months ended June 30, 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 June 30, 2001 and December 31,
2000, the Real Property Account's interest in the Partnership was
approximately 54.5% or 4,949,340 shares (rounded).
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 June
30, 2001 and December 31, 2000 were as follows:
<Table>
<Caption>
JUNE 30, 2001
(UNAUDITED) DECEMBER 31, 2000
-------------- -----------------
NUMBER OF SHARES (ROUNDED): 4,949,340 4,949,340
NET ASSET VALUE PER SHARE (ROUNDED): $23.77 $22.74
COST: $53,466,976 $53,466,976
</Table>
NOTE 3: CONTRACT OWNER EQUITY INFORMATION
Contract owner equity at June 30, 2001 and December 31, 2000 by product, were as
follows:
<Table>
<Caption>
JUNE 30, 2001
(UNAUDITED) DECEMBER 31, 2000
-------------- -----------------
VAL $69,890,652 $68,838,388
VLI 5,296,110 5,153,802
SPVA 495,784 496,904
SPVL 4,111,439 4,044,957
--------- ---------
TOTAL $79,793,985 $78,534,051
=========== ===========
</Table>
4
<Page>
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
JUNE 30, 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 six months ended June 30, 2001 and 2000, were as follows:
<Table>
<Caption>
JUNE 30,
2001 (UNAUDITED) 2000
---- ----
VAL $1,810,274 $3,024,189
VLI 79,981 34,598
SPVA 19,830 54,395
SPVL 89,039 203,384
------ -------
TOTAL $1,999,124 $ 3,316,566
========== ===========
</Table>
5
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<Table>
<Caption>
JUNE 30, 2001
(UNAUDITED) DECEMBER 31, 2000
------------------------- -------------------------
ASSETS
REAL ESTATE INVESTMENTS - At estimated market value:
Real estate and improvements
(cost: 6/30/2001 -- $209,004,684; 12/31/2000 -- $173,748,950) $198,407,674 $162,213,095
Real estate partnership (cost: 6/30/2001 -- $6,374,819;
12/31/2000 -- $5,985,783) 5,998,069 5,445,528
Real estate investment trusts (cost: 6/30/2001 -- $33,519,342;
12/31/2000 -- $31,896,908) 38,586,244 35,224,737
------------------------- -------------------------
Total real estate investments 242,991,987 202,883,360
MARKETABLE SECURITIES - At estimated market value
(cost: 6/30/2001 -- $0; 12/31/2000 -- $4,916,327) 0 4,916,494
CASH AND CASH EQUIVALENTS 6,014,300 10,543,821
DIVIDEND RECEIVABLE 246,644 242,341
OTHER ASSETS (net of allowance for uncollectable
accounts: 6/30/2001 -- $98,000; 12/31/2000 -- $91,000) 3,997,266 2,926,280
------------------------- -------------------------
Total assets 253,250,197 221,512,296
------------------------- -------------------------
LIABILITIES
MORTGAGE LOAN PAYABLE 29,277,697 10,092,355
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 4,018,506 2,517,818
DUE TO AFFILIATES 880,261 887,434
OTHER LIABILITIES 1,571,506 669,209
MINORITY INTEREST 1,798,115 997,401
------------------------- -------------------------
Total liabilities 37,546,085 15,164,217
------------------------- -------------------------
PARTNERS' EQUITY 215,704,112 206,348,079
------------------------- -------------------------
Total liabilities and partners' equity $253,250,197 $221,512,296
========================= =========================
NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 9,075,913 9,075,913
========================= =========================
SHARE VALUE AT END OF PERIOD $23.77 $22.74
========================= =========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
6
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------ ------------ ------------ ------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
INVESTMENT INCOME:
Revenue from real estate and improvements $ 11,238,156 $ 11,465,567 $ 6,032,932 $ 5,604,105
Equity in income of real estate partnership 389,036 320,176 276,841 150,963
Dividend Income from real estate investment trusts 1,175,459 779,915 597,381 426,164
Interest on short-term investments 212,242 531,530 63,196 283,782
------------ ------------ ------------ ------------
Total investment income 13,014,893 13,097,188 6,970,350 6,465,014
------------ ------------ ------------ ------------
EXPENSES:
Investment management fee 1,344,767 1,348,173 674,853 679,858
Real estate taxes 1,297,049 1,302,236 695,295 644,837
Administrative 1,240,643 1,291,973 675,017 675,115
Operating 2,210,109 2,100,095 1,228,286 1,145,456
Interest 727,878 353,707 468,349 177,600
Minority interest 66,625 (33,746) 25,444 (45,531)
------------ ------------ ------------ ------------
Total investment expenses 6,887,071 6,362,438 3,767,244 3,277,335
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 6,127,822 6,734,750 3,203,106 3,187,679
------------ ------------ ------------ ------------
REALIZED AND UNREALIZED (LOSS) GAIN ON
INVESTMENTS
Net proceeds from real estate investments
sold 7,166,413 18,734,655 5,705,397 15,004,105
Less: Cost of real estate investments sold 6,962,159 19,660,942 5,404,921 15,117,339
Realization of prior periods' unrealized
gain (loss) on real estate investments sold 220,180 (2,489,670) 313,261 (300,934)
------------ ------------ ------------ ------------
Net realized (loss) gain on real estate investments
sold (15,926) 1,563,383 (12,785) 187,700
------------ ------------ ------------ ------------
Change in unrealized gain (loss) on real estate
investments 3,061,603 (1,868,532) 3,680,596 2,311,535
Minority interest in unrealized (gain) loss on
investments (182,534) 126,875 (145,997) 138,789
------------ ------------ ------------ ------------
Net unrealized gain (loss) on real estate
investments 3,244,137 (1,995,407) 3,826,593 2,172,746
------------ ------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS 3,228,211 (432,024) 3,813,808 2,360,446
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 9,356,033 $ 6,302,726 $ 7,016,914 $ 5,548,125
============ ============ ============ ============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
7
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(Unaudited)
<Table>
<Caption>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2001 JUNE 30, 2000
------------------------ ------------------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS:
Net investment income $6,127,822 $6,734,750
Net realized (loss) gain on real estate investments sold (15,926) 1,563,383
Net unrealized gain (loss) on real estate investments 3,244,137 (1,995,407)
------------------------ ------------------------
Net increase in net assets resulting from operations 9,356,033 6,302,726
------------------------ ------------------------
NET DECREASE IN NET ASSETS
FROM CAPITAL TRANSACTIONS:
Withdrawals by partners
(6/30/2001 -- 0 shares; 6/30/2000 -- 372,636 shares) - (8,000,000)
------------------------ ------------------------
Net decrease in net assets resulting from
capital transactions - (8,000,000)
------------------------ ------------------------
NET INCREASE (DECREASE) IN NET ASSETS 9,356,033 (1,697,274)
NET ASSETS - Beginning of period 206,348,079 210,222,940
------------------------ ------------------------
NET ASSETS - End of period $215,704,112 $208,525,666
======================== ========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
8
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2001 JUNE 30, 2000
------------------------- -------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $9,356,033 $6,302,726
Adjustments to reconcile net increase in net assets resulting
from operations to net cash flows from operating activities:
Net realized and unrealized (gain) loss on investments (3,228,211) 432,024
Equity in income of real estate partnership in excess
of distributions (389,037) (320,175)
Minority interest from operating activities 66,625 (33,746)
Bad debt expense 22,874 2,709
(Increase) Decrease in:
Dividend receivable (4,303) (24,443)
Other assets (1,093,860) (2,101,321)
Increase (Decrease) in:
Accounts payable and accrued expenses 1,500,688 386,764
Due to affiliates (7,173) 40,242
Other liabilities 902,297 176,659
------------------------- -------------------------
Net cash flows from operating activities 7,125,933 4,861,439
------------------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from real estate investments sold 7,166,413 18,734,655
Acquisition of real estate investment trust (8,584,594) (9,430,630)
Acquisition of real estate property (14,592,520) 0
Additions to real estate property (1,323,459) (2,290,498)
Sale of marketable securities, net 4,916,494 2,797,008
------------------------- -------------------------
Net cash flows from investing activities (12,417,666) 9,810,535
------------------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loan payable (154,412) (47,108)
Withdrawals by partners 0 (8,000,000)
Distributions to minority interest partners (4,791) 0
Contributions from minority interest partners 921,415 145,586
------------------------- -------------------------
Net cash flows from financing activities 762,212 (7,901,522)
------------------------- -------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (4,529,521) 6,770,452
CASH AND CASH EQUIVALENTS - Beginning of period 10,543,821 13,972,669
------------------------- -------------------------
CASH AND CASH EQUIVALENTS - End of period $6,014,300 $20,743,121
========================= =========================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the six months for interest $727,878 $353,707
========================= =========================
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITY:
Assumption of mortgage loans payable $19,339,754 $0
========================= =========================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
9
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<Table>
<Caption>
JUNE 30, 2001(UNAUDITED) DECEMBER 31, 2000
---------------------------- ---------------------------
ESTIMATED ESTIMATED
MARKET MARKET
COST VALUE COST VALUE
---------------------------- ---------------------------
REAL ESTATE AND IMPROVEMENTS - PERCENT OF NET ASSETS 92.0% 78.6%
Location Description
- ---------------------------------------------------------------------------------------------------------
Lisle, IL Office Building $ 22,483,273 $ 14,715,838 $ 22,267,422 $ 14,134,722
Atlanta, GA Garden Apartments 15,681,994 17,914,642 15,667,354 17,800,002
Roswell, GA Retail Shopping Center 32,553,839 26,616,971 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 15,859,238 17,204,616 15,847,460 17,200,000
Brentwood, TN Office Building 9,829,712 11,046,430 9,657,787 10,396,565
Oakbrook Terrace, IL Office Complex 13,148,557 13,725,381 13,021,251 12,716,910
Beaverton, OR Office Complex 11,557,424 11,204,159 11,225,040 10,623,809
Salt Lake City, UT Industrial Building 5,728,353 5,587,694 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 9,600,000 9,609,133 9,600,675
Jacksonville, FL* Garden Apartments 19,476,690 20,400,000 19,135,546 20,500,000
Gresham/Salem, OR* Garden Apartments 18,540,332 18,500,000 -- --
Hampton, VA* Retail Shopping Center 15,391,943 15,391,943 -- --
---------------------------------------------------------
$209,004,684 $198,407,674 $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 $6,374,819 $5,998,069 $5,985,783 $5,445,528
=========================================================
* Real estate partnerships accounted for by the consolidated method.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
10
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(UNAUDITED)
<Table>
<Caption>
JUNE 30, 2001 (UNAUDITED)
------------------------------------------
ESTIMATED
MARKET
COST VALUE
------------------------------------------
REAL ESTATE INVESTMENT TRUSTS - PERCENT OF NET ASSETS 17.9%
- -----------------------------------------------------------------------------------------------------------------
AMB Property Corporation (30,000 Shares) $706,770 $772,800
AMLI Residential Properties (20,000 Shares) 471,200 492,000
Alexanderia Real Est Equities (20,000 Shares) 740,990 796,000
Apartment Invt & Mgmt Co.- Class A (38,900 Shares) 1,673,578 1,874,980
Archstone Communities Trust (25,000 Shares) 592,188 644,500
Avalonbay Communities Inc (15,000 Shares) 683,900 701,250
Boston Properties Inc (50,000 Shares) 1,955,403 2,045,000
CBL & Associates Prop (30,800 Shares) 741,988 945,252
Carramerica Realty (6,300 Shares) 189,298 192,150
Centerpoint Properties Corp (18,600 Shares) 632,302 933,720
Crescent Real Estate Eqt Co (35,000 Shares) 779,433 859,950
Duke-Weeks Realty Corp (47,000 Shares) 1,070,320 1,167,950
Equity Office Properties Trust (94,400 Shares) 2,684,928 2,985,872
Equity Residential Property Trust (40,000 Shares) 1,987,247 2,262,000
Essex Property Trust Inc (15,000 Shares) 593,700 743,250
Felcor Lodging Trust (31,000 Shares) 699,510 725,400
First Industrial Realty Trust (25,000 Shares) 781,100 803,500
Franchise Finance Cp Amer (46,300 Shares) 1,105,692 1,162,593
General Growth Properties (22,000 Shares) 714,894 865,920
Glimcher Realty Trust (23,400 Shares) 354,098 418,860
Health Care REIT Inc (15,000 Shares) 347,700 356,250
Host Marriott Corp (120,000 Shares) 1,297,692 1,502,400
IRT Property (45,000 Shares) 406,395 490,050
Innkeepers USA Trust (55,000 Shares) 563,875 658,900
Kilroy Realty Corp (20,000 Shares) 505,138 582,000
Kimco Realty (15,000 Shares) 612,612 710,250
Liberty Property LP (35,000 Shares) 899,563 1,036,000
Meristar Hospitality Corp (37,500 Shares) 636,151 890,625
Mission West Properties (58,200 Shares) 455,365 704,220
Parkway Properties Inc (25,000 Shares) 782,750 881,250
Prentiss Properties Trust (29,400 Shares) 729,994 773,220
Prologis Trust (25,000 Shares) 514,355 568,000
SL Green Realty Corp (9,000 Shares) 248,004 272,790
Shurgard Storage Centers (20,000 Shares) 478,500 625,000
Simon Property Group Inc (45,000 Shares) 1,032,157 1,348,650
Spieker Properties (27,000 Shares) 1,197,078 1,618,650
Taubman Centers Inc (20,000 Shares) 271,390 280,000
United Dominion Realty Trust (40,000 Shares) 561,928 574,000
Ventas Inc. (65,000 Shares) 557,958 711,750
Vornado Realty Trust (29,800 Shares) 1,028,569 1,163,392
Washington Reit (30,000 Shares) 566,454 709,200
Apartment Invt & Mgmt Co.-Preferred Stock (10,000 Shares) 212,844 246,300
Public Storage Inc. - Preferred Stock (20,000 Shares) 454,331 490,400
----------------- -------------------
TOTAL REAL ESTATE INVESTMENT TRUSTS $33,519,342 $38,586,244
================= ===================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
11
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<Table>
<Caption>
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 CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
12
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<Table>
<Caption>
JUNE 30, 2001 (UNAUDITED)
-------------------------------------
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 2.8%
Hershey Foods Corp., 4.25%, July 2, 2001 $ 500,000 $ 499,823 $ 499,823
Schering Corp., 4.15%, July 2, 2001 500,000 499,827 499,827
United Parcel Svc., 4.25%, July 2, 2001 239,000 238,915 238,915
Merck & Co. Inc., 3.80%, July 5, 2001 400,000 399,578 399,578
Salomon Smith Barney Hldgs Inc., 3.85%., July 6, 2001 500,000 499,038 499,038
General Electric Capital Corp., 3.98%., July 9, 2001 500,000 496,739 496,739
American Express Cr. Corp., 4.01%., July 13, 2001 500,000 496,658 496,658
Paccar Financial Corp., 3.68%., July 26, 2001 311,000 309,919 309,919
Nike Inc., 3.63%., August 10, 2001 295,000 293,661 293,661
Ciesco L.P., 3.57%., August 17, 2001 310,000 308,432 308,432
---------- ---------- ----------
TOTAL CASH EQUIVALENTS $4,055,000 $4,042,590 $4,042,590
CASH 1,971,710 1,971,710 1,971,710
---------- ---------- ----------
TOTAL CASH AND CASH EQUIVALENTS $6,026,710 $6,014,300 $6,014,300
========== ========== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
13
<Page>
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
<Table>
<Caption>
DECEMBER 31, 2000
-----------------------------------------
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 1,672,163 1,672,163
----------- ----------- -----------
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 CONSOLIDATED FINANCIAL STATEMENTS.
</Table>
14
<Page>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
JUNE 30, 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 six months ended June 30, 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, the Prudential Insurance Company of America ("Prudential") committed to
fund up to $100 million to enable the Partnership to acquire real estate
investments. Contributions to the Prudential Variable Contract Real Property
Partnership ("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 $216 million in net assets, the commitment has been
automatically reduced to $80 million. As of June 30, 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 six months ended
June 30, 2001 and 2000 investment management fees incurred by the Partnership
were $1,344,767 and $1,348,173, respectively.
The Partnership also reimburses Prudential for certain administrative services
rendered by Prudential. The amounts incurred for the six months ended June 30,
2001 and 2000 were $58,315 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.
15
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 June 30, 2001, the Partnership's liquid assets consisting of cash, cash
equivalents and marketable securities were $6.0 million, a decrease of $9.4
million from December 31, 2000. This decrease was due primarily to the
acquisition of real estate investments as described below. 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 and short-term obligations. At June 30, 2001, 2% of
the Partnership's assets consisted of cash, cash equivalents and marketable
securities. Investments in shares of publicly-traded real estate investment
trusts (REITs) provide the Partnership an additional level of liquidity. At June
30, 2001, 18% of the Partnership's assets consisted of such REIT holdings.
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
$216 million in net assets, the commitment has been automatically reduced to $80
million. As of June 30, 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.
The Partnership has completed two real estate acquisitions during the year. A
controlling interest in a portfolio of four apartment complexes based in Gresham
and Salem, OR, was acquired in February. This portfolio consists of 492 units
containing a total of 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. Also, in May, the
Partnership acquired a controlling interest in a 154,540 square foot retail
center based in Hampton, VA. The acquisition was financed by contributions of
$4.0 million from the Partnership, $0.4 million from the partner, and the
assumption of a $10.3 million mortgage loan. During the first six months of
2001, the Partnership also spent approximately $1.3 million in capital
expenditures. Approximately $0.3 million was associated with renovation 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; Lisle, IL; Brentwood, TN; and Oakbrook Terrace, IL.
16
<Page>
(b) RESULTS OF OPERATIONS
The following is a brief year-to-date and quarterly comparison of the
Partnership's results of operations for the periods ended June 30, 2001 and
2000.
JUNE 30, 2001 VS. JUNE 30, 2000
The following table presents a year-to-date and quarterly comparison of the
Partnership's sources of net investment income and realized and unrealized gains
or losses by investment type.
<Table>
<Caption>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
2001 2000 2001 2000
-------- -------- -------- --------
NET INVESTMENT INCOME:
Office properties $2,127,563 $2,913,160 $1,083,744 $1,333,421
Apartment complexes 2,131,061 1,699,749 1,001,406 787,295
Retail property 1,479,057 1,427,918 734,976 720,038
Industrial properties 224,520 770,213 138,137 393,133
Equity in income of estate partership 389,036 320,176 276,841 150,963
Dividend income from real
estate investment trust 1,175,459 779,915 597,381 426,164
Other (including interest income
investment mgt fee, etc.) (1,398,874) (1,176,381) (629,378) (623,335)
---------- ---------- ---------- ----------
TOTAL NET INVESTMENT INCOME $6,127,822 $6,734,750 $3,203,106 $3,187,679
========== ========== ========== ==========
NET UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Office properties $1,971,661 ($2,310,520) $1,041,660 ($242,469)
Apartment Complexes (208,550) 518,075 (378,691) 438,423
Retail property (276,208) (45,620) 198,670 (5,991)
Industrial properties (365,524) (1,135,721) - (10,931)
Interest in partnerships 163,506 265,777 (78,622) 185,211
Real estate investment trusts 1,959,252 712,602 3,043,576 1,808,503
---------- ---------- ---------- ----------
3,244,137 (1,995,407) 3,826,593 2,172,746
========== ========== ========== ==========
<Caption>
SIX MONTHS ENDED JUNE 30, QUARTER ENDED JUNE 30,
2001 2000 2001 2000
-------- -------- -------- --------
NET REALIZED (LOSS) GAIN ON INVESTMENTS
Office properties - - - -
Apartment complexes - - - -
Industrial properties - - - -
Interest in partnerships - - - -
Real estate investment trust (15,926) 1,563,383 (12,785) 187,700
---------- --------- ---------- ----------
(15,926) 1,563,383 (12,785) 187,700
---------- --------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
---------- --------- ---------- ----------
ON INVESTMENTS $3,228,211 ($432,024) $3,813,808 $2,360,446
========== ========= ========== ==========
</Table>
17
<Page>
The Partnership's net investment income for the six months ended June 30, 2001
was $6.1 million, a decrease of $0.6 million from the corresponding period in
the prior year. This decrease was primarily due to the office property located
in Morristown, NJ, which was sold on October 26, 2000. In addition occupancy
decreased at the industrial property in Bolingbrook, IL and the office property
in Oakbrook Terrace, IL.
Equity in income of real estate partnership was $0.4 million for the first six
months of 2001, an increase of $0.1 million, or 21.5%, from $0.3 million in the
corresponding period in 2000. Equity in income of real estate partnership was
$0.3 million for the second quarter of 2001, an increase of $0.1 million, or
83.4%, from $0.2 million in the corresponding quarter in 2000. The increase is
primarily due to an increase in revenues resulting from percentage rent compared
to the prior year.
Dividend income from real estate investment trusts amounted to approximately
$1.2 million for the six months ended June 30, 2001, an increase of
approximately $0.4 million, or 50.7%, from approximately $0.8 million in the
corresponding period in 2000. Dividend income from real estate investment trusts
amounted to approximately $0.6 million for the quarter ended June 30, 2001, an
increase of approximately $0.2 million, or 40.2%, from approximately $0.4
million in the corresponding quarter in 2000. This increase was primarily due to
an increase in the amount invested in REIT stocks subsequent to the 2nd quarter
2000.
Interest on short-term investments decreased approximately $0.3 million or 60.1%
for the six months ended June 30, 2001 due primarily to a significantly lower
average cash balance compared to the corresponding period in 2000. Cash, cash
equivalents, and marketable securities maintained during the first six months of
2001 averaged approximately $10.2 million when compared to the first six months
of 2000 when the average was approximately $19.0 million.
Interest on short-term investments decreased approximately $0.2 million or 77.7%
for the quarter ended June 30, 2001, also due primarily to a significantly lower
average cash balance during the quarter ended June 30, 2001 compared to the
corresponding period in 2000.
Interest expense increased $0.4 million, or 105.8%, in the first six months of
2001 compared to the corresponding period in 2000, and it increased $0.3
million, or 163.7%, in the second quarter of 2001 compared to the corresponding
quarter in 2000. These increases were primarily due to the Partnership's
assumption of a $9.0 million and a $10.3 million mortgage loan in conjunction
with the acquisition of a controlling interest in the two investments discussed
previously.
Minority interest in consolidated partnerships increased $0.1 million, or
297.4%, for the six months ended June 30, 2001, and it increased $0.1 million,
or 155.9%, for the quarter ended June 30, 2001, when compared to the
corresponding periods last year. These increases were due to the Partnership's
acquisition of a controlling interest in the retail center located in Hampton,
VA during the second quarter of 2001.
OFFICE PROPERTIES
Net investment income from property operations for the office sector decreased
approximately $0.8 million, or 27.0%, for the six months ended June 30, 2001
when compared to the corresponding period in 2000. Net investment income from
property operations for the office sector decreased approximately $0.3 million,
or 18.7%, for the quarter ended June 30, 2001 when compared to the corresponding
period in 2000. This was primarily due to the sale of the Morristown, NJ office
center in October 2000.
The five office properties owned by the Partnership experienced a net unrealized
gain of approximately $2.0 million during the first six months of 2001. The
largest increase, or $0.9 million, was due to the office property located in
Oakbrook Terrace, IL. This unrealized gain was attributable to the signing of
two new leases, which will bring the leased area from 55% to 78%. One of the
Brentwood, TN office properties also experienced a net unrealized gain of
approximately $0.5 million primarily due to increased rental growth projections
and lower expense projections. The Lisle, IL office property experienced an
unrealized gain of $0.4 million due to an increase in occupancy and market
rents.
18
<Page>
The six office properties owned by the Partnership experienced a net unrealized
loss of approximately $2.3 million during the first six months of 2000. The
largest share (50%) of the net unrealized loss experienced during 2000 was
primarily due to the office property located in Oakbrook Terrace, IL. This
approximate $1.2 million value decrease was due to a lease termination
associated with 45% of the space and weaker market conditions. The Morristown,
NJ office property 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.
The five office properties owned by the Partnership experienced a net unrealized
gain of approximately $1.0 million during the second quarter of 2001, due to the
office property located in Oakbrook Terrace, IL for the reason discussed above.
Occupancy at one of the Brentwood, TN office properties increased from 56% at
June 30, 2000 to 68% at June 30, 2001, while occupancy at the other Brentwood,
TN location remained unchanged at 100%. Occupancy at the Lisle, IL office
property increased from 82% at June 30, 2000 to 100% at June 30, 2001. Occupancy
at the Beaverton, OR property increased from 61% at June 30, 2000 to 67% at June
30, 2001. Occupancy at the Oakbrook Terrace, IL property decreased from 55% at
June 30, 2000 to 49% at June 30, 2001. New leases have been signed that will
raise the occupancy to 78%. As of June 30, 2001 all vacant spaces were being
marketed.
APARTMENT COMPLEXES
Net investment income from property operations for the apartment sector was $2.1
million for the first six months in 2001, an increase of $0.4 million, or 25.4%,
when compared to the corresponding period in 2000. Net investment income from
property operations for the apartment sector was $1.0 million for the second
quarter of 2001, an increase of $0.2 million, or 27.2%, 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 and Salem, OR.
The apartment complexes owned by the Partnership experienced a net unrealized
loss of $0.2 million in the first six months of 2001 compared to a net
unrealized gain of $0.5 million in the first six months of 2000. The majority of
the unrealized loss experienced in 2001 was primarily due to the Jacksonville,
FL apartment complex which experienced a decrease in value due to higher
replacement reserve expenses, higher operating expense projections, and slightly
lower market rent estimates. The net unrealized gain of $0.5 million in the
first six months of 2000 was due to the near term completion of the renovations
at the Jacksonville, FL apartment complex.
The apartment complexes owned by the Partnership experienced a net unrealized
loss of $0.4 million in the second quarter of 2001 compared to a net unrealized
gain of $0.4 million in the second quarter of 2000. The unrealized loss for 2001
and the unrealized gain for 2000 were primarily experienced by the Jacksonville,
FL apartment complex for the same reasons discussed previously.
The occupancy at the Raleigh, NC and Jacksonville, FL complexes increased from
88% at June 30, 2000 to 91% at June 30, 2001 and from 85% at June 30, 2000 to
92% at June 30, 2001, respectively. Occupancy at the apartment complex in
Atlanta, GA decreased from 98% at June 30, 2000 to 96% at June 30, 2001.
Occupancy at the Gresham and Salem, OR apartment complexes averaged
approximately 88% at June 30, 2001. As of June 30, 2001, all available vacant
spaces were being marketed.
RETAIL PROPERTIES
Net investment income for the Partnership's retail properties located in
Roswell, GA and Hampton, VA was approximately $1.5 million for the six months
ended June 30, 2001 and approximately $1.4 million for the six months ended June
30, 2000. The increase is primarily due to the acquisition of a controlling
interest in a 154,540 square foot retail center based in Hampton, VA. Net
investment income for the Partnership's retail properties was approximately $0.7
million for both the second quarter ended June 30,
19
<Page>
2001 and 2000.
The retail properties experienced a net unrealized loss of $0.3 million and
$0.05 million in the first six months of 2001 and 2000, respectively. This was
due to increased capital expenditures budgeted for 2001 coupled with a slight
decrease in overall occupancy at the Roswell, GA property. The retail property
experienced a net unrealized gain of $0.2 million in the second quarter of 2001,
due to partial completion of capital expenditures at the Roswell, GA location.
Occupancy at the shopping center located in Roswell, GA decreased from 97% at
June 30, 2000 to 94% at June 30, 2001. The newly acquired retail center in
Hampton, VA had occupancy of 99% at June 30, 2001. As of June 30, 2001, all
vacant spaces were being marketed.
EQUITY IN INCOME OF REAL ESTATE PARTNERSHIP
During the six months ended June 30, 2001, income from this investment located
in Kansas City, KS and MO amounted to $0.4 million, an increase of 21.5% from
$0.3 million at June 30, 2000. During the quarter ended June 30, 2001, income
from this investment amounted to $0.3 million, an increase of 83.4% from $0.2
million at June 30, 2000.
The equity investment experienced a net unrealized gain of $0.2 million and $0.3
million in the first six months of 2001 and 2000, respectively. The unrealized
gain of $0.2 million during the first six months of 2001 was primarily due to
increased leasing activity and stabilized occupancy. This investment experienced
a net unrealized loss of $0.1 million and a net unrealized gain of $0.2 million
in the second quarter of 2001 and 2000, respectively. The unrealized loss of
$0.1 million experienced during the second quarter of 2001 was due to capital
expenditures on the retail centers which did not generate an increase in market
value. The unrealized gain experienced during the second quarter of 2000 was
primarily due to increased leasing and higher rental rates at these same retail
centers.
The retail portfolio located in Kansas City, KS and MO had an average occupancy
of 93% at June 30, 2000, which decreased to 92% at June 30, 2001. As of June 30,
2001, all vacant spaces were being marketed.
INDUSTRIAL PROPERTIES
Net investment income from property operations for the industrial properties
decreased from $0.8 million in the first six months of 2000 to $0.2 million in
the corresponding period in 2001. Net investment income from property operations
for the industrial properties decreased from $0.4 million in the second quarter
of 2000 to $0.1 million in the corresponding period in 2001. The majority of
these decreases was due to decreased occupancy at the properties located 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 six months 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 six months of
2000. The majority of the decrease was attributable to the Aurora, CO industrial
property. This loss of approximately $0.7 million was due to more conservative
assumptions regarding rental rates, lease-up time and terminal capitalization
rates used by the appraiser. In addition, capital expenditures were made on the
property which did not generate an increase in market value. The industrial
property located in Bolingbrook, IL also experienced an unrealized loss of $0.4
million during the first six months of 2000. This loss was due to softening
market conditions.
The occupancy at the Bolingbrook, IL property was 100% at June 30, 2000 and
decreased to 0% at June
20
<Page>
30, 2001 due to the scheduled lease expiration. The occupancy at the Salt Lake
City, Utah property decreased from 34% at June 30, 2000 to 16% at June 30, 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 June
30, 2000 and 2001. As of June 30, 2001, all vacant spaces were being marketed.
REAL ESTATE INVESTMENT TRUSTS
During the first six months of 2001, the Partnership's investment in REITS
experienced an unrealized gain of $1.9 million compared to an unrealized gain of
$0.7 million experienced during the first six months of 2000. During the second
quarter of 2001, the Partnership's investment in REITS experienced an unrealized
gain of $3.0 million compared to an unrealized gain of $1.8 million experienced
during the second 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 the
first six months of 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. Interest income on short-term investments decreased primarily as a
result of the Partnership maintaining a significantly lower cash balance when
compared to the corresponding period last year, as mentioned previously.
(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. Readers should consider the information
referred to above 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.
21
<Page>
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 16.36% 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 interest rates of the
Partnership's cash equivalents and short-term investments at June 30, 2001:
<Table>
<Caption>
ESTIMATED MARKET VALUE AVERAGE
MATURITY (IN $ MILLIONS) INTEREST RATE
-------------------------- -------------------------- --------------------------
Cash equivalents 0-3 months $4.0 3.94%
Short-term investments 3-12 months $0 0%
</Table>
The table below discloses the Partnership's fixed and variable rate debt as
of June 30, 2001. Approximately $19.2 million of the Partnership's long-term
debt bears interest at fixed rates and therefore the fair value of these
instruments are affected by changes in market interest rates. The following
table presents principal cash flows (in thousands) based upon maturity dates
of the debt obligations and the related weighted-average interest rates by
expected maturity dates for the fixed rate debt. 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 June 30, 2001 was 7.915%.
June 30, 2001
<Table>
<Caption>
DEBT (IN $ THOUSANDS), 7/1/2001- ESTIMATED
INCLUDING CURRENT PORTION 12/31/2001 2002 2003 2004 2005 THEREAFTER TOTAL FAIR VALUE
Fixed Rate $255 $536 $577 $619 $665 $16,575 $19,227 $19,227
Average Interest Rate 7.376% 7.437% 7.449% 7.471% 7.491% 6.750% 6.950%
Variable Rate $41 $90 $98 $104 $114 $9,603 $10,050 $10,050
</Table>
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
<Page>
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
<Page>
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: August 14, 2001 By: /s/
------------------- -------------------------------------------
Esther H. Milnes
Sr. Vice President
Date: August 14, 2001 By: /s/
------------------- -------------------------------------------
William J. Eckert, IV
Vice President and Chief Accounting Officer
24