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 [FEE REQUIRED]
For the quarterly period ended June 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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) 445-4571
----------------------------------------------------
(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
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
A. PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
Statements of Net Assets - June 30, 1995 (Unaudited) and
December 31, 1994 3
Statements of Operations (Unaudited) - Three and Six Months
Ended June 30, 1995 and 1994 3
Statements of Changes in Net Assets - Six Months Ended
June 30, 1995 (Unaudited) and Year Ended December 31, 1994 4
Notes to the Financial Statements (Unaudited) 5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities - June 30, 1995
(Unaudited) and December 31, 1994 7
Statements of Operations (Unaudited) - Three and Six Months
Ended June 30, 1995 and 1994 8
Statements of Changes in Net Assets - Six Months Ended
June 30, 1995 (Unaudited) and Year Ended December 31, 1994 9
Statements of Cash Flows (Unaudited) - Six Months Ended
June 30, 1995 and 1994 10
Schedule of Investments - June 30, 1995 (Unaudited) and
December 31, 1994 11
Notes to the Financial Statements (Unaudited) 14
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
PART III - SIGNATURES 24
2
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS
June 30, 1995
(Unaudited) December 31, 1994
--------------- -----------------
Investment in shares of The Prudential Variable Contract
Real Property Partnership $ 91,439,088 $ 91,251,939
--------------- ----------------
--------------- ----------------
NET ASSETS, representing:
Equity of Contract Owners $ 87,320,104 $ 86,662,912
Equity of Pruco Life Insurance Company 4,118,984 4,589,027
--------------- ----------------
$ 91,439,088 $ 91,251,939
--------------- ----------------
--------------- ----------------
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 3,453,974 $ 3,249,211 $ 1,732,493 $ 1,562,245
EXPENSES:
Asset Based Charges to Contract Owners (Note 3) 278,553 275,308 139,568 133,764
------------ ------------ ------------ ------------
NET INVESTMENT INCOME 3,175,421 2,973,903 1,592,925 1,428,481
------------ ------------ ------------ ------------
NET UNREALIZED GAIN/(LOSS)
ON INVESTMENTS IN PARTNERSHIP (266,824) (1,193,884) 606,117 (152,792)
------------ ------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,908,597 $ 1,780,019 $ 2,199,042 $ 1,275,689
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
- -
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 5 THROUGH 6.
3
FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
Six Months
Ended
June 30, 1995 Year Ended
(Unaudited) December 31, 1994
------------ -----------------
OPERATIONS:
Net Investment Income $ 3,175,421 $ 6,157,628
Net Unrealized Gain/(Loss)
on Investments in Partnership (266,824) 647,693
----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 2,908,597 6,805,321
----------- -----------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (2,111,089) (7,368,879)
Net Withdrawals by Pruco Life
Insurance Company (610,359) (74,591)
----------- -----------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (2,721,448) (7,443,470)
----------- -----------
TOTAL INCREASE/(DECREASE) IN NET ASSETS $ 187,149 $ (638,149)
NET ASSETS:
Beginning of period $91,251,939 $91,890,088
----------- -----------
End of period $91,439,088 $91,251,939
----------- -----------
----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 5 THROUGH 6.
4
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
June 30, 1995
(Unaudited)
Note 1: General
Pruco Life Variable Contract Real Property Account (the "Real Property
Account") was established on August 27, 1986 and commenced business
September 5, 1986. Pursuant to Arizona law, the Real Property Account
was established as a separate investment account of Pruco Life
Insurance Company ("Pruco Life"), a wholly-owned subsidiary of The
Prudential Insurance Company of America ("The Prudential"). The
assets of the Real Property Account are segregated from Pruco Life's
other assets. The Real Property Account is used to fund benefits
under certain variable life insurance and variable annuity contracts
issued by Pruco Life.
Prior to April 29, 1988, the Real Property Account invested primarily
in income-producing real properties and mortgage loans. On April 29,
1988, The Prudential Variable Contract Real Property Partnership (the
"Partnership"), a general partnership organized under New Jersey law,
was formed. On that date all assets and liabilities of the Real
Property Account were contributed to the Partnership in exchange for
interests in the newly formed Partnership.
The Partnership has a policy of investing at least 65% of its assets
in direct ownership interests in income-producing real estate and
participating mortgage loans.
Note 2: Summary of Significant Accounting Policies
A. General
The financial statements included herein have been prepared in
accordance with generally accepted accounting principles for
interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
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, 1995 are not necessarily indicative of the
results that may be expected for the year ended December 31,
1995. For further information, refer to the financial statements
and notes thereto included in the Partner's December 31, 1994
Annual Report on Form 10-K.
B. Investment in Partnership Interest
The investment in the Partnership is based on the Real Property
Account's proportionate interest of the Partnership's current
value, as discussed in Note 1 to the Partnership's financial
statements. At June 30, 1995 the Real Property Account's
interest in the Partnership, based on current value equity was
50.7% or 6,097,943 shares.
C. Income Recognition
The Real Property Account recognizes its proportionate share of
the Partnership's net investment income on a daily basis, as
consistent with the Partnership Agreement.
5
Note 3: Asset Based Charges
Mortality risk and expense risk charges and charges for administration
are applied daily against the net assets representing equity of
Contract Owners investing in the Real Property Account, at an
effective annual rate as shown below for each of Pruco Life's separate
accounts investing in the Real Property Account:
------------------------------------------------------------
Variable Insurance Account 0.35%
Variable Appreciable Account 0.60%
Single Premium Variable Life Account 1.25%
Single Premium Variable Annuity Account 1.25%
------------------------------------------------------------
Note 4: Taxes
Income and capital gains and losses of the Partnership are attributed,
for federal income tax purposes, to the Partners in the Partnership,
including Pruco Life, in respect of the Real Property Account. The
operations of the Real Property Account form a part of, and are taxed
with, the operations of Pruco Life. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the Contract Owners
are not taxable to Pruco Life. As a result, the net asset values of
the Real Property Account are not affected by federal income taxes on
the ordinary income and capital gains and losses attributable to the
Real Property Account.
6
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
June 30, 1995
(Unaudited) December 31, 1994
------------- -----------------
ASSETS:
Properties at current value
(cost $168,208,801and $154,157,068
respectively) (Note 1) $139,446,531 $126,258,004
Interest in properties at current value
(cost $6,132,515 and $6,108,742
respectively) (Note 1) 6,111,832 5,726,451
Cash and cash equivalents 34,714,022 33,093,237
Marketable securities 4,593,468 15,824,199
Other assets and accounts receivable
(net of allowance for uncollectible
amounts of $164,940 and $128,336 respectively) 1,618,846 2,218,095
------------ ------------
Total Assets $186,484,699 $183,119,986
------------ ------------
------------ ------------
LIABILITIES:
Obligation under capital lease $ 3,715,358 $ 3,804,836
Accounts payable and accrued expenses 1,072,654 805,066
Due to affiliates (Note 2) 611,692 624,206
Other liabilities 594,046 645,913
------------ ------------
Total liabilities 5,993,750 5,880,021
------------ ------------
NET ASSETS:
Partners' Equity 180,490,949 177,239,965
------------ ------------
$186,484,699 $183,119,986
------------ ------------
------------ ------------
Number of shares outstanding at end of period 12,036,684 12,241,034
------------ ------------
------------ ------------
Share Value at end of period $15.00 $14.48
------ ------
------ ------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
7
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
--------------------------- ---------------------------
1995 1994 1995 1994
------------ ------------ ------------ ------------
INVESTMENT INCOME:
Rent from properties $ 9,003,242 $ 7,764,381 $ 4,530,845 $ 3,849,143
Income from interest in properties 310,449 1,478,641 161,041 673,770
Interest on mortgage loans 0 105,695 0 26,382
Interest from short-term investments 1,558,962 537,682 793,632 318,106
------------ ------------ ----------- ------------
10,872,653 9,886,399 5,485,518 4,867,401
------------ ------------ ----------- ------------
EXPENSES:
Investment management fee (Note 2) 1,142,684 1,128,229 573,596 566,313
Real estate tax expense 1,075,630 990,975 466,006 513,253
Administrative expenses 839,548 625,950 447,428 305,003
Operating expenses 831,919 823,297 474,418 441,975
Interest expense 230,289 163,500 115,145 81,750
------------ ------------ ----------- ------------
4,120,070 3,731,951 2,076,593 1,908,294
------------ ------------ ----------- ------------
NET INVESTMENT INCOME 6,752,583 6,154,448 3,408,925 2,959,107
------------ ------------ ----------- ------------
NET UNREALIZED GAIN/(LOSS)
ON INVESTMENTS (501,599) (2,261,383) 1,193,930 (289,410)
------------ ------------ ----------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 6,250,984 $ 3,893,065 $ 4,602,855 $ 2,669,697
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
8
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
Six Months
Ended
June 30, 1995 Year Ended
(Unaudited) December 31, 1994
------------ -----------------
OPERATIONS:
Net Investment Income $ 6,752,583 $ 12,848,199
Net Unrealized Gain/(Loss) on Investments (501,599) 1,339,443
------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 6,250,984 14,187,642
------------ ------------
CAPITAL TRANSACTIONS:
Withdrawals by partners
(204,350 and 790,390,
shares respectively) (3,000,000) (11,000,000)
------------ ------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS (3,000,000) (11,000,000)
------------ ------------
TOTAL INCREASE IN NET ASSETS 3,250,984 3,187,642
NET ASSETS:
Beginning of period 177,239,965 174,052,323
------------ ------------
End of period $180,490,949 $177,239,965
------------ ------------
------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
9
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Six Months
Ended Ended
June 30, 1995 June 30, 1994
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 6,250,984 $ 3,893,065
Adjustments to reconcile net increase in net assets
resulting from operations to net cash provided by
operating activities:
Net unrealized loss on investments 501,599 2,261,383
Changes in assets and liabilities:
(Increase)/Decrease in other assets
and accounts receivable 599,249 (42,103)
(Increase)/Decrease in marketable securities 11,230,731 (2,454,426)
Decrease in obligation under capital lease (89,479) (86,500)
Increase in accounts payable
and accrued expenses 267,588 77,311
Decrease in due to affiliates (12,514) (92,203)
Decrease in other liabilities (51,867) (28,948)
------------ ------------
Net cash provided by operating activities 18,696,291 3,527,579
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property (13,760,531) 0
Capital improvements on real estate owned (291,202) (527,255)
Capital improvements on interest in properties (23,773) 0
Principal repayments received on mortgage loans 0 3,547,906
------------ ------------
Net cash provided by/(used in) investing activities (14,075,506) 3,020,651
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Withdrawals (3,000,000) 0
------------ ------------
Net cash used in financing activities (3,000,000) 0
------------ ------------
Net increase in cash and cash equivalents 1,620,785 6,548,230
CASH AND CASH EQUIVALENTS - Beginning of period 33,093,237 23,852,233
------------ ------------
CASH AND CASH EQUIVALENTS - End of period $ 34,714,022 $ 30,400,463
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES
Foreclosure on mortgage loan (Note 5) $ 0 $ 5,675,884
------------ ------------
------------ ------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 376,450 $ 250,000
------------ ------------
------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
10
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
June 30, 1995 December 31, 1994
(Unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (Percent of Net Assets) 77.3% 71.2%
Current Current
Location Description Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
Azusa, CA Warehouse $ 18,252,202 $ 14,904,111 $ 18,219,245 $ 15,426,651
Lisle, IL Office Building 17,524,421 12,900,000 17,524,421 12,000,000
Atlanta, GA Garden Apartments 15,369,903 12,230,830 15,309,193 11,903,533
Pomona, CA (a) Warehouse 23,145,013 15,655,456 23,115,589 16,353,556
Roswell, GA Retail Shopping Center 31,618,820 32,009,880 31,605,970 32,500,000
Morristown, NJ Office Building 18,524,712 9,565,854 18,443,689 9,825,401
Bolingbrook, IL Warehouse 8,930,578 7,300,000 8,915,498 7,009,907
Farmington Hills, MI Garden Apartments 13,567,682 13,505,569 13,560,049 13,538,956
Flint, MI Office Building 7,514,939 7,614,300 7,463,414 7,700,000
Raleigh, NC Garden Apartments 13,760,531 13,760,531 0 0
------------- ------------- ------------- -------------
$ 168,208,801 $ 139,446,531 $ 154,157,068 $ 126,258,004
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
<FN>
(a) Includes land under capital lease of $3,412,636 representing the present value
of minimum future lease payments at the inception of the lease.
</FN>
INVESTMENT IN INTEREST IN PROPERTIES (Percent of Net Assets) 3.4% 3.2%
Current Current
Location Description Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------------------------------
Jacksonville, FL Warehouse/Distribution $ 1,316,811 $ 1,211,832 $ 1,304,979 $ 1,150,000
Jacksonville, FL Warehouse/Distribution 1,002,448 1,050,000 1,002,448 1,000,000
Jacksonville, FL Warehouse/Distribution 1,442,894 1,400,000 1,442,894 1,375,000
Jacksonville, FL Warehouse/Distribution 2,370,362 2,450,000 2,358,421 2,201,451
------------- ------------- ------------- -------------
$ 6,132,515 $ 6,111,832 $ 6,108,742 $ 5,726,451
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 19.2% 18.7%
(see pages 12 and 13 for detail) Face Current Face Current
Description Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
Commercial Paper and Cash $ 34,936,091 $ 34,714,022 $ 33,456,969 $ 33,093,237
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
MARKETABLE SECURITIES (Percent of Net Assets) 2.5% 8.9%
(see pages 12 and 13 for detail) Face Current Face Current
Description Amount Value Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
Marketable Securities $ 4,628,000 $ 4,593,468 $ 16,100,000 $ 15,824,199
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
OTHER ASSETS (Percent of Net Assets) (2.4%) (2.0%)
(net of liabilities) $ (4,374,904) $ (3,661,926)
------------- -------------
TOTAL NET ASSETS $ 180,490,949 $ 177,239,965
------------- -------------
------------- -------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
11
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
(Unaudited)
June 30, 1995
-----------------------------------
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 19.2%
Face Current
Description Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Bell Atlantic Financial, 6.05%, July 3, 1995 $ 2,630,000 $ 2,627,348
PHH Corp., 6.25%, July 5, 1995 600,000 599,479
Whirlpool Financial Corp., 5.96%, July 5, 1995 2,500,000 2,485,928
Allied-Signal Inc., 6.12%, July 6, 1995 660,000 659,327
Aristar Inc., 6.02%, July 6, 1995 2,530,000 2,515,192
Duracell Inc., 6.25%, July 6, 1995 1,100,000 1,098,854
Riverwoods Funding Corp., 5.95%, July 6, 1995 1,000,000 994,215
Pennsylvania Power & Light, 6.15%, July 7, 1995 500,000 499,146
PHH Corp., 6.00%, July 7, 1995 700,000 694,167
USL Capital Corp., 6.07%, July 7, 1995 900,000 898,634
Finova Capital Corp., 6.00%, July 13, 1995 2,300,000 2,285,817
Dayton Hudson Corp., 5.98%, July 17, 1995 2,500,000 2,485,881
General Motors, 6.04%, July 17, 1995 1,069,000 1,056,445
USL Capital Corp., 6.05%, July 17, 1995 500,000 498,572
Transamerica Corp., 6.05%, July 24, 1995 230,000 228,995
GTE Finance Corp., 6.02%, July 26, 1995 2,600,000 2,585,652
H.J. Heinz, 5.93%, August 1, 1995 749,000 743,695
Preferred Receivables Funding Corp., 5.97%, August 1, 1995 2,500,000 2,482,173
Countrywide Funding Corp., 6.05%, August 2, 1995 2,600,000 2,582,522
CIESCO L.P., 5.93%, August 7, 1995 2,500,000 2,479,822
TransAmerica Financial Corp., 6.00%, August 7, 1995 500,000 493,250
American Honda, 6.00%, August 16, 1995 1,000,000 985,000
SE&G Co., 5.86%, September 1, 1995 2,500,000 2,465,817
------------- -------------
Total Commercial Paper 34,668,000 34,445,931
Total Cash 268,091 268,091
------------- -------------
Total Cash and Cash Equivalents $ 34,936,091 $ 34,714,022
------------- -------------
------------- -------------
MARKETABLE SECURITIES (Percent of Net Assets) 2.5%
Face Current
Description Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Monsanto Co., 6.05%, August 14, 1995 $ 2,500,000 $ 2,450,003
General Motors, 6.00%, September 14, 1995 500,000 490,750
Caterpillar Financial Services, 5.67%, November 21, 1995 288,000 280,425
Associates of North America, 8.75%, February 1, 1996 410,000 430,662
General Motors, 8.95%, February 5, 1996 350,000 362,113
General Motors, 4.75%, February 14, 1996 430,000 430,070
Society National Bank Cleveland, 6.00%, April 25, 1996 150,000 149,445
------------- -------------
Total Commercial Paper $ 4,628,000 $ 4,593,468
------------- -------------
------------- -------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
12
FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
December 31, 1994
-----------------------------------
CASH AND CASH EQUIVALENTS (Percent of Net Assets) 18.7%
Face Current
Description Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Chemical Bank, 6.25%, January 3, 1995 $ 90,000 $ 90,000
Amoco Corp., 5.754%, January 3, 1995 2,104,000 2,102,656
Pacificorp, 6.125%, January 12, 1995 2,000,000 1,991,867
Gateway Fuel Corp., 5.571%, January 17, 1995 1,925,000 1,900,590
Norwest Financial Inc., 5.499%, January 17, 1995 1,660,000 1,636,007
Greyhound Financial Corp., 6.215%, January 18, 1995 1,944,000 1,932,987
PHH Corp Note, 5.928%, January 19, 1995 2,400,000 2,388,593
Merrill Lynch & Company Inc., 6.056%, January 25, 1995 706,000 699,528
Associates Corp. of North Am., 5.828%, January 30, 1995 2,300,000 2,277,144
Duracell Inc., 6.310%, January 30, 1995 2,396,000 2,373,122
Ford Motor Credit Corp., 5.841%, February 1, 1995 2,300,000 2,275,997
Goldman Sachs Group, 5 .705%, February 2, 1995 1,685,000 1,654,071
Sears Roebuck Acceptance Corp., 6.120%, February 7, 1995 1,000,000 988,572
Morgan Stanley Group Inc., 6.363%, March 1, 1995 1,000,000 985,370
Beneficial Corp, 6.349%, March 14, 1995 2,400,000 2,362,500
John Deere Capital Corp., 6.349%, March 14, 1995 2,400,000 2,362,500
American General Financial Corp., 6.350%, March 15, 1995 2,400,000 2,362,084
Toronto Dominion Holdings, 6.318%, March 15, 1995 2,400,000 2,362,680
------------- -------------
Total Commercial Paper 33,110,000 32,746,268
Total Cash 346,969 346,969
------------- -------------
Total Cash and Cash Equivalents $ 33,456,969 $ 33,093,237
------------- -------------
------------- -------------
MARKETABLE SECURITIES (Percent of Net Assets) 8.9%
Face Current
Description Amount Value
- -------------------------------------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Bankers Trust NY Corp, 5.250%, January 16, 1995 $ 1,400,000 $ 1,401,680
Republic National Bank of NY, 4.300%, March 8, 1995 1,000,000 998,546
Golden Peanut Co., 6.455%, April 5, 1995 2,000,000 1,958,218
General Electric Capital Corp, 6.592%, April 18, 1995 2,400,000 2,348,400
PNC Bank N.A., 5.820%, April 21, 1995 1,400,000 1,398,775
Nationsbank North Carolina, 5.400%, May 19, 1995 1,500,000 1,511,807
Corporate Receivables Corp., 6.760%, May 23, 1995 2,400,000 2,332,548
Province of Quebec, 6.887%, June 1, 1995 2,000,000 1,937,005
Bank of America NT & SA, 6.783%, June 5, 1995 2,000,000 1,937,220
------------- -------------
Total Commercial Paper $ 16,100,000 $15,824,199
------------- -------------
------------- -------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
13
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
JUNE 30, 1995
(UNAUDITED)
GENERAL
On April 29, 1988, The Prudential Variable Contract Real Property Partnership
(the "Partnership"), a general partnership organized under New Jersey law, was
formed through an agreement among The Prudential Insurance Company of America
("The Prudential"), Pruco Life Insurance Company ("Pruco Life"), and Pruco Life
Insurance Company of New Jersey ("Pruco Life of New Jersey"). The Partnership
was established as a means by which assets allocated to the real estate
investment option under certain variable life insurance and variable annuity
contracts issued by the respective companies could be invested in a commingled
pool. The partners in the Partnership are The Prudential Insurance Company of
America, Pruco Life and the Pruco Life of New Jersey.
The Partnership has a policy of investing at least 65% of its assets in direct
ownership interests in income-producing real estate and participating mortgage
loans.
The Partnership's investments are valued on a daily basis, consistent with the
Partnership Agreement. On each day during which the New York Stock Exchange is
open for business, the net assets of the Partnership are valued using the
current value of its investments as described in Note 1B below, plus an
estimate of net income from operations reduced by any liabilities of the
Partnership.
The periodic adjustments to property values described in Note 1B below and the
corrections of previous estimates of net income are made on a prospective basis.
There can be no assurance that all such adjustments and estimates will be made
timely.
Shares of the Partnership are sold to The Prudential Variable Contract Real
Property Account, Pruco Life Variable Contract Real Property Account, and Pruco
Life of New Jersey Variable Contract Real Property Account, (the "Real Property
Accounts") at the current share value of the Partnership's net assets. Share
value is calculated by dividing the current value of net assets of the
Partnership as determined below by the number of shares outstanding. A Contract
owner participates in the Partnership through interests in the Real Property
Accounts.
Note 1: Summary Of Significant Accounting Policies
A: General - The financial statements included herein have been
prepared in accordance with generally accepted accounting
principles for interim financial information. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. 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, 1995 are not necessarily indicative
of the results that may be expected for the year ended December
31, 1995. For further information, refer to the financial
statements and notes thereto included in each Partner's December
31, 1994 Annual Report on Form 10-K.
B: Real Estate Owned and Interest in Properties - The Partnership's
investments in real estate owned and interest in properties are
initially valued at their purchase price. Thereafter, current
values are based upon appraisal reports prepared by independent
real estate appraisers (members of the Appraisal Institute or an
equivalent organization) which are ordinarily obtained on an
annual basis.
The Chief Appraiser of The Prudential Comptroller's Department
Valuation Unit is responsible to assure that the valuation
process provides independent and accurate current value
estimates. In the interest of maintaining and monitoring the
independence and the accuracy of the appraisal process, the
Comptroller of The Prudential has appointed a third party firm to
act as the Appraisal Management Firm. The Appraisal Management
Firm, among other responsibilities, approves the selection and
scheduling of external appraisals; develops a standard package of
information to be supplied to the appraisers; reviews and
provides comments on all external
14
appraisals and a sample of internal appraisals; assists in
developing policy and procedures and assists in the evaluation of
the performance and competency of external appraisers. The
property valuations are reviewed quarterly by The Prudential
Comptroller's Department Valuation Unit and the Chief Appraiser
and adjusted if there has been any significant changes related to
the property since the most recent independent appraisal.
The purpose of an appraisal is to estimate the current value of a
property as of a specific date. Current value has been defined as
the most probable price for which the appraised property will
sell in a competitive market under all conditions requisite to
fair sale, with the buyer and seller each acting prudently,
knowledgeably, and for self interest, and assuming that neither
is under undue duress. This estimate of current value generally
is a correlation of three approaches, all of which require the
exercise of subjective judgement. The three approaches are: (1)
current cost of reproducing a property less deterioration and
functional and economic obsolescence; (2) discounting of a series
of income streams and reversion at a specified yield or by
directly capitalizing a single-year income estimate by an
appropriate factor; and (3) value indicated by recent sales of
comparable properties in the market. In the reconciliation of
these three approaches, the one most heavily relied upon is the
one most appropriate for the type of property in the market.
C: Income Recognition - Rent from properties consists of all amounts
earned under tenant operating leases including base rent,
recoveries of real estate taxes and other expenses and charges
for miscellaneous services provided to tenants. Revenue from
leases which provide for scheduled rent increases is recognized
as billed.
D: Cash Equivalents - The Partnership considers all highly liquid
investments with an original maturity of three months or less
when purchased to be cash equivalents. Cash equivalents are
carried at market value.
E: Marketable Securities - Marketable securities are highly liquid
investments with maturities of more than three months when
purchased and are carried at market value.
F: Federal Income Taxes - The Partnership is not a taxable entity
under the provisions of the Internal Revenue Code. The income
and capital gains and losses of the Partnership are attributed,
for federal income tax purposes, to the Partners in the
Partnership. The Partnership may be subject to state and local
taxes in jurisdictions in which it operates.
G: Reclassifications - Certain reclassifications have been made to
the 1994 financial statements to conform to those used in 1995.
Note 2: Transactions with affiliates
Pursuant to an investment management agreement, The 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, 1995 and 1994 management fees incurred by the Partnership were
$1,142,684 and $1,128,229, respectively.
The Partnership also reimburses The Prudential for certain administrative
services rendered by The Prudential. The amounts incurred for the six months
ended June 30, 1995 and 1994 were $60,965 and $41,438 respectively and are
classified as administrative expenses in the statements of operations.
The Partnership owns a 50% interest in four warehouse/distribution buildings
in Jacksonville, Florida (the "Unit warehouses"). The remaining 50% interest is
owned by The Prudential and one of its subsidiaries.
15
The Partnership has contracted with PREMISYS Real Estate Services, Inc.
(PREMISYS), an affiliate of The Prudential to provide property management
services at the Unit warehouses and the Bolingbrook, IL warehouse. The
property management fee earned by PREMISYS for the six months ended June 30,
1995 and 1994 were $16,105 and $46,274 respectively.
Note 3: Line of Credit
The Partnership has established a $10 million annually renewable unsecured
revolving line of credit with First Fidelity Bank, N.A., New Jersey which will
be drawn upon as needed for potential liquidity needs. The annual cost of
maintaining the line of credit is 0.1875% of the total line of credit. As of
June 30, 1995, no drawdowns had occurred.
Note 4: Commitment from Partner
On January 9, 1990, The Prudential committed to fund up to $100 million to
enable the Partnership to take advantage of opportunities to acquire
attractive real property investments whose cost is greater than the
Partnership's available cash. Contributions to the Partnership under this
commitment are utilized for property acquisitions and returned to Prudential
on an ongoing basis from Contract owners' net contributions. Also, the amount
of the commitment is reduced by $10 million for every $100 million in current
value net assets of the Partnership. The amount available under this
commitment as of June 30, 1995 is approximately $ 52.2 million.
Note 5: Foreclosure on Mortgage Loan
On July 1, 1994, the Partnership foreclosed on the Flint, MI mortgage loan under
a voluntary conveyance of the property by the mortgagor. The Partnership took
title to the property at the expiration of the redemption period on January 3,
1995.
Note 6: Acquisition of Property
On June 30, 1995, the Partnership acquired Dunhill Trace apartments in Raleigh,
NC for $13,760,531 in cash.
16
NOTE 6: PER SHARE INFORMATION (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
01/01/95 04/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
to to to to to to to
06/30/95 06/30/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
-------- -------- -------- -------- -------- -------- --------
Rent from properties $ 0.7408 $ 0.3748 $ 1.2754 $ 1.1659 $ 1.0727 $ 0.9899 $ 0.9479
Income from interest in properties $ 0.0255 $ 0.0133 $ 0.1838 $ 0.2139 $ 0.1970 $ 0.1791 $ 0.1533
Interest on mortgage loans $ 0.0000 $ 0.0000 $ 0.0082 $ 0.0755 $ 0.0711 $ 0.0663 $ 0.0654
Interest from short-term investments $ 0.1283 $ 0.0657 $ 0.1226 $ 0.0549 $ 0.0653 $ 0.1151 $ 0.1202
---------- ---------- ---------- ---------- ---------- ---------- ----------
INVESTMENT INCOME $ 0.8946 $ 0.4538 $ 1.5900 $ 1.5102 $ 1.4061 $ 1.3504 $ 1.2868
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment management fee $ 0.0940 $ 0.0475 $ 0.1786 $ 0.1673 $ 0.1642 $ 0.1669 $ 0.1591
Real estate tax expense $ 0.0885 $ 0.0386 $ 0.1399 $ 0.1465 $ 0.1488 $ 0.1168 $ 0.1010
Administrative expenses $ 0.0691 $ 0.0370 $ 0.1103 $ 0.1187 $ 0.1046 $ 0.0946 $ 0.0910
Operating expenses $ 0.0685 $ 0.0392 $ 0.1332 $ 0.1209 $ 0.1241 $ 0.0948 $ 0.0776
Interest expense $ 0.0189 $ 0.0095 $ 0.0255 $ 0.0236 $ 0.0215 $ 0.0193 $ 0.0186
---------- ---------- ---------- ---------- ---------- ---------- ----------
EXPENSES $ 0.3390 $ 0.1718 $ 0.5875 $ 0.5770 $ 0.5632 $ 0.4924 $ 0.4473
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET INVESTMENT INCOME $ 0.5556 $ 0.2820 $ 1.0025 $ 0.9332 $ 0.8429 $ 0.8580 $ 0.8395
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net realized loss on investments sold $ 0.0000 $ 0.0000 $ (0.0966) $ (0.1816) $ 0.0000 $ 0.0000 $ 0.0000
Net unrealized gain/(loss) on investments $ (0.0397) $ 0.0993 $ 0.2169 $ 0.0152 $ (1.1359) $ (0.7770) $ (0.1543)
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS $ (0.0397) $ 0.0993 $ 0.1203 $ (0.1664) $ (1.1359) $ (0.7770) $ (0.1543)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net increase/(decrease) in share value $ 0.5159 $ 0.3813 $ 1.1228 $ 0.7668 $ (0.2930) $ 0.0810 $ 0.6852
Share Value at beginning of period $ 14.4792 $ 14.6138 $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016 $ 12.1164
---------- ---------- ---------- ---------- ---------- ---------- ----------
Share Value at end of period $ 14.9951 $ 14.9951 $ 14.4792 $ 13.3564 $ 12.5896 $ 12.8826 $ 12.8016
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Ratio of expenses to average net assets 2.30% 1.16% 4.27% 4.44% 4.47% 3.81% 3.58%
Ratio of net investment income to
average net assets 3.78% 1.91% 7.29% 7.17% 6.69% 6.63% 6.72%
Number of shares outstanding at
end of period (000's) 12,037 12,037 12,241 13,031 14,189 14,993 16,175
ALL CALCULATIONS ARE BASED ON AVERAGE MONTH-END SHARES
OUTSTANDING WHERE APPLICABLE.
PER SHARE INFORMATION PRESENTED HEREIN IS SHOWN ON A BASIS
CONSISTENT WITH THE FINANCIAL STATEMENTS AS DISCUSSED IN NOTE 1G.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
All of the assets of The Pruco Life Variable Contract Real Property Account (the
"Real Property 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 those of 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.
(a) Liquidity and Capital Resources
At June 30, 1995, the Partnership's liquid assets consisting of cash and cash
equivalents and marketable securities totalled $39,307,490. This is a decrease
of $9,609,946 from liquid assets at December 31, 1994, of $48,917,436. The
decrease is due primarily to the acquisition of an apartment complex for
$13,760,531 as discussed below. This was partially offset by cash received from
the operations of the Partnership's properties and interest income received from
short-term investments.
The Partnership has established a $10 million annually renewable line of credit
with First Fidelity Bank, N.A. to be drawn upon as needed for potential
liquidity needs. As of June 30, 1995, no drawdowns had occurred. Management
does not anticipate the need to draw upon this resource in the near future. In
addition, The Prudential has committed to fund up to $100 million to enable the
Partnership to acquire real estate investments. Contributions to the
Partnership under this commitment are utilized for property acquisitions and
returned to The Prudential on an ongoing basis from Contract owners' net
contributions. The amount of the commitment is reduced by $10 million for every
$100 million in current value net assets of the Partnership. The amount
available for future investments is approximately $52.2 million as of June 30,
1995.
The Partnership will ordinarily invest 10-15% of its assets in cash and short-
term obligations to maintain liquidity; however, its investment policy allows up
to 30% investment in cash and short-term obligations. At June 30, 1995, 21.1%
of the Partnership's assets consisted of cash and cash equivalents and
marketable securities. The Partnership has retained a portion of the cash
generated by operations as well as from the sale of properties and the maturing
of the mortgage loans pending anticipated reinvestment of these funds. As
described below, the Partnership acquired an apartment complex in Raleigh, NC on
June 30, 1995 for $13,760,531. This was funded by cash held by the Partnership.
The partners also withdrew $3 million in April 1995. Additional withdrawals may
be made during the remainder of 1995 based upon the needs of the Partnership
including potential property acquisitions and dispositions and capital
expenditures. At June 30, 1995, and currently, the Partnership has adequate
liquidity. Management anticipates that ongoing cash flow from operations will
satisfy the Partnership's needs over the next six months and the foreseeable
future.
During the quarter ended June 30, 1995, the Partnership expended approximately
$174,000 in capital expenditures, excluding the acquisition of the apartment
complex. Of these, approximately $81,000 were for tenant alterations and
leasing commissions. The largest of these was approximately $47,000 at the
Morristown, NJ office building related to a new lease with Kodak signed last
quarter. Approximately $11,000 was expended at one of the Jacksonville
warehouses (the Unit warehouses) related to a lease renewal for Associated Unit
Companies, and $23,000 was expended at the Pomona, CA warehouse related to a new
tenant, Pac Rosa Enterprises. Of the remaining $93,000 in capital expenditures,
approximately $61,000 was for access gates at the Atlanta, GA apartments and
$19,000 was for new fire sprinklers and a new electric transformer at the
Morristown Office Centre. The remaining $13,000 was for common area
improvements at the King's Market Shopping Center in Roswell, GA and the Pomona,
CA warehouse and for carpet replacements at the apartments in Farmington Hills,
MI.
Projected capital expenditures for the remainder of the 1995 total approximately
$1,337,000. Approximately $1,168,000 consists of tenant alterations and leasing
commissions. Approximately $258,000 represents the final installment of costs
related to the Best Buy lease at the Azusa, CA warehouse. At the Morristown
Office Centre,
18
$94,000 is expected to be spent on tenant improvements for the Kodak lease.
Leasing costs projected for prospective leases include $268,000 at Morristown,
$253,000 at the Flint, MI office property, $177,000 at the Pomona warehouse,
$96,000 at the Unit warehouses and $22,000 at the King's Market Shopping Center.
The actual amount of such expenditures will depend on the number of new leases
signed, the needs of the particular tenants and the timing of lease executions.
Other major capital expenditures planned for the remainder of 1995 include
$25,000 for fencing and entrance gates at the Azusa warehouse, $32,000 for
climate control units at the Morristown property, $45,000 for exterior lighting
at the Lisle, IL office building, $44,000 for irrigation and drainage upgrades
and landscaping at the Farmington Hills apartments, the Bolingbrook, IL
warehouse and the Unit warehouses and $23,000 for smaller projects among the
various properties including improvements to common areas and carpet
replacements at the apartments.
On June 30, 1995, the Partnership purchased Dunhill Trace Apartments located in
Raleigh, NC. The newly constructed property consists of 250 units in fourteen
two and three-story buildings. The initial funding, including closing costs,
was $13,760,531. A second funding will be made during 1995 based upon the
property's achieving certain income and occupancy levels. The maximum amount of
the second funding is $1,950,000. All remaining funding for the acquisition of
this investment will come from cash held by the Partnership.
(b) Results of Operations
The following is a brief discussion of a comparison of the results of operations
for the six months and three months ended June 30, 1995 and 1994.
The Partnership's net investment income for the first six months of 1995 was
$6,752,583, an increase of $598,135 (9.7%) from $6,154,448 for the corresponding
period of 1994. This was primarily the result of an increase in interest income
from short-term investments (approximately $1,021,000) partially offset by lower
income from property operations (approximately $239,000), lower interest income
from mortgage loans (approximately $105,000) and higher interest expense
(approximately $66,000) and investment management fee (approximately $14,000).
Income from property operations, including income from investment in properties
was $6,676,845 for the first six months of 1995. This was a decrease of
$238,928 (3.5%) from $6,915,773 for the same period of 1994. This was primarily
the result of lower income from interest in properties due to the sale of the
seven Unit warehouses in October 1994 (approximately $1,168,000) and higher real
estate taxes (approximately $85,000) and administrative expenses (approximately
$216,000), partially offset by an increase in rent from properties
(approximately $1,239,000).
Income from interest in properties relates to the Partnership's 50% co-
investment in the Unit warehouses. On October 7, 1994, the Partnership sold its
interest in seven of the eleven warehouses. This was the major reason that
income from interest in properties decreased by $1,168,192 (79.0%) from
$1,478,641 for the first two quarters of 1994 to $310,449 for the first two
quarters of 1995.
Rent from properties increased by $1,238,861 (16.0%) from $7,764,381 for the
first two quarters of 1994 to $9,003,242 for the corresponding period of 1995.
This was primarily the result of the acquisition, through foreclosure in July
1994, of the Flint office property. For the first six months of 1994, this
investment was reported as a mortgage loan. In 1995, its operating results are
included with income from property operations. This increased rent from
properties by approximately $615,000 for the first half of 1995. Rental income
also increased approximately $298,000 at the Azusa warehouse and the Atlanta, GA
apartments due to higher occupancy in 1995. Rental income at the Bolingbrook
warehouse was about $76,000 higher for the first six months of 1995 as a result
of the expiration of a free rent period granted to the tenant in the first
quarter of 1994. Revenue at the Pomona warehouse was almost $112,000 higher in
the first two quarters of 1995 compared to the corresponding period of
19
last year primarily due to increased expense recoveries and higher rental rates.
Expense recoveries for the first half of 1995 were also higher at King's Market
by approximately $150,000. This was due to the final billing of prior expense
recoveries during the second quarter of 1995. In 1994, this billing was not
done until the third quarter.
Real estate taxes for the first six months of 1995 increased $84,655 (8.5%), to
$1,075,630 from $990,975 for the first six months of 1994. Almost $179,000 was
due to the inclusion of the Flint office buildings in property operations in
1995. This includes approximately $101,000 in 1994 taxes paid in 1995. This
was partially offset by decreases totalling approximately $92,000 at the two
California warehouses as a result of appealing the properties' assessments.
Property operating expenses for the first two quarters of 1995 were $831,919, an
increase of $8,622 (1.0%) from $823,297 for the corresponding period of 1994.
The Flint property had operating expenses for the first two quarters of 1995 of
approximately $73,000. This increase was partially offset by lower utility
costs among all properties and lower maintenance costs, particularly at Azusa,
where building exteriors were painted in the first quarter of 1994. No similar
large expenses were incurred this year.
Administrative expenses on the statement of operations includes both property
and Partnership administrative expenses. Property administrative expenses
totalled $729,297 for the six months ended June 30, 1995. This is an increase
of $216,320 (42.2%) from $512,977 for the same period in 1994. This was
primarily the result of the inclusion of the Flint property (almost $62,000),
higher insurance premiums (approximately $50,000) primarily at the two
California properties, and an increase in bad debt expense (approximately
$62,000). The last item was primarily the result of a reduction in bad debt
expense at the Azusa warehouse in the first quarter of 1994 arising from the
application of a security deposit to amounts owed by a vacated tenant.
Professional fees also increased in 1995 due to the utilization of real estate
tax consultants to assist with the appeal of assessed values at the California
properties. The appeal generated significant tax savings as noted above.
Partnership administrative expenses for the first six months of 1995 decreased
by $2,722 (2.4%) to $110,251 from $112,973 for the first six months of 1994.
This was primarily due to lower appraisal fees for 1995.
Interest expense relates to the capitalized ground leased at the Pomona
warehouse. Interest expense increased by $66,789 (40.8%) to $230,289 for the
first six months of 1995 from $163,500 for the corresponding period of 1994.
This was due to a scheduled increase in the lease payment, effective in November
1994. The annual ground lease payments after November 1994, and for each ten
year increment thereafter, are subject to increase by 50% of the increase in the
Consumer Price Index during the previous period. For 1995, the annual payment
increased by $126,450 to $376,450. The Partnership has the option to purchase
the land for $4,000,000 from November 1994 to November 1997. Management is
continuing to evaluate the relevant factors during the option period before
deciding whether to exercise the option.
Investment management fee expense increased by $14,455 (1.3%) for the first six
months of 1995, to $1,142,684 from $1,128,229 for the first half of 1994. The
fee is computed as 1.25% of gross assets. During the first six months of 1995,
gross assets were slightly higher than in 1994.
Interest income from short-term investments increased by $1,021,280 (189.9%) to
$1,558,962 for the first two quarters of 1995 from $537,682 for the first two
quarters of 1994. This is the result of increased amounts invested and higher
interest rates in 1995. As noted above, the Partnership is retaining increased
cash balances in anticipation of acquiring properties in 1995.
Since both of the Partnership's investments in mortgage loans matured in 1994,
there was no interest income from this source in the first six months of 1995.
Net investment income for the second quarter of 1995 was $3,408,925. This is an
increase of $449,818 (15.2%) over $2,959,107 for the corresponding period of
1994. This is primarily due to higher interest from short-term investments
(approximately $476,000) and income from property operations (approximately
$48,000). These were partially offset by lower interest income on mortgage
loans (approximately $26,000) and higher interest expense
20
(approximately $33,000). The increase in interest from short-term investments
was due to larger amounts invested and higher interest rates in 1995. Interest
expense increased in 1995 as a result of the scheduled rate increase described
above.
Income from property operations including interest in properties increased
$47,708 (1.4%) from $3,309,717 for the second quarter of 1994 to $3,357,425 for
the corresponding period of 1995. This was the result of the inclusion of the
Flint office buildings in property operations in 1995, higher occupancy at Azusa
and the billing of expense recoveries in the second quarter of 1995 at King's
Market. In 1994, these were not billed until the third quarter. These
increases were partially offset by the sale of seven of the Unit warehouses in
October 1994. This reduced income from interest in properties in 1995.
MARKET VALUES OF INVESTED ASSETS
During the six months ended June 30, 1995, the Partnership experienced an
unrealized loss of $501,599 on its investments. This was the result of
decreases in the market values of the warehouse and retail properties totalling
$1,149,370 which were partially offset by increases in the values of the office
properties and apartments totalling $647,771. Most of the declines occurred in
the first quarter of 1995, however. During the second quarter, the Partnership
experienced an unrealized gain of $1,193,930 as improved conditions at several
properties resulted in increased market values.
The warehouses experienced the largest unrealized gain during the second
quarter, $1,184,205 while the office properties had $47,604 in unrealized
gains. The apartments experienced an unrealized loss of $34,909 and King's
Market, the sole retail property, had an unrealized loss of $2,970.
During the second quarter, the Pomona warehouse increased in value by $700,000
(4.7% of its March 31, 1995 value) due to the signing of two leases which will
bring occupancy to 100% in August 1995. These leases had not been anticipated
in the first quarter appraisal. The Unit warehouses increased in value by
$286,609 during the second quarter (4.9% of the properties' March 31, 1995
values) as a result of improved market conditions in the Jacksonville, FL area,
where the buildings are located as well as the renewal of a major lease at a
slightly higher rental rate. The warehouse in Bolingbrook, IL experienced an
unrealized gain of $184,920 during the second quarter, (2.6% of its March 31,
1995 value). This was due to lower estimates of operating expenditures and
improved local market conditions. The Azusa warehouse also experienced an
increase in value of $12,676 during the quarter (less than 1.0% of its March 31,
1995 value).
The Flint property experienced an unrealized gain of $262,776 during the second
quarter (3.6% of its March 31, 1995 value). The increase was the result of
higher rental rates projected for the Flint market and improved expectations for
the amount of time it will take to release space on expiring leases. The
Morristown office building increased in value by $184,828 (2.0% of its March 31,
1995 value) due to increased occupancy. The value of the office building in
Lisle, IL decreased by $400,000 (3.0% of its March 31, 1995 value) as a result
of approaching termination of the current lease and the likelihood that the
rental rate on any new lease would be less than that currently received.
The Partnership's two apartment properties experienced an unrealized loss
totalling $34,909 during the second quarter of 1995 due to capital expenditures
which did not add to value. The retail property, King's Market, also had an
unrealized loss of $2,970 for the same reason.
PROPERTY LEASING ACTIVITY
Leasing activity during the second quarter of 1995 was greatest at the Pomona
warehouse and Flint office property. Although occupancy at the Pomona property
remained at 83% as of June 30, 1995, two leases were signed during the quarter
which will increase occupancy in August. The first was a three-year lease with
Pac Rosa Enterprises covering 33,400 square feet (6% of the property). The
tenant took occupancy July 1, 1995. The second lease was a 55,000 square foot
expansion by a current tenant, Ashley Furniture. The tenant will occupy the
additional space
21
in August 1995. The new lease expires concurrent with its existing lease in
2003. This expansion represents 10% of the property. No leases are scheduled
to expire during the remainder of 1995.
Occupancy at the Flint office property was 80% at June 30, 1995 as compared to
92% at the end of the first quarter. During the second quarter, three tenants
whose leases total 14,400 square feet (13% of the property) vacated the
property. Two of these tenants were leasing space on a month-to-month basis,
and the third left at the expiration of its lease. One new lease was executed
during the quarter. It covers approximately 1,800 square feet (1% of the
property) and has a term of three years. Five leases totalling approximately
10,800 square feet (9% of the property) are scheduled to expire during the last
six months of 1995. In addition, three tenants occupying a total of 6,400
square feet (6% of the property) are renting on a month-to-month basis.
Management is pursuing renewal discussions with the current tenants as well as
marketing the space to others. However, at present there are no indications
that these will be renewed.
Occupancy at the Morristown office building increased from 93% at March 31, 1995
to 96% at the end of the second quarter. Smith Barney expanded its space by
approximately 2,100 square feet (2% of the property). The lease expires in
1997. In addition, 600 square feet (1% of the property) was leased to a new
tenant under a 5 year lease. One lease, covering 4000 square feet (5% of the
property) expires during the last half of 1995. The Partnership is discussing
renewal terms with the current tenant, but it is not certain whether they will
renew.
Associated Unit Companies which leases one of the Unit warehouses in
Jacksonville, FL renewed their lease for two years at a rental rate
approximately 10% greater than that on the expiring lease. The lease covers
102,000 square feet (20% of the four Unit warehouses). No other leases are
scheduled to expire during the remainder of 1995.
King's Market was 98% occupied at June 30 and March 31, 1995. During the last
six months of 1995, two leases totalling approximately 5,600 square feet (2% of
the property) are scheduled to expire. Management is discussing potential
renewal terms with the tenants.
The warehouses in Azusa and Bolingbrook and the Lisle office property remained
100% occupied at June 30, 1995, as they were at March 31. No leases are
scheduled to expire during the last six months of 1995.
Occupancy at the Partnership's two apartment properties decreased to 96% at June
30, 1995 from 98% at March 31, 1995. Rental rates are expected to rise slightly
in 1995 in the residential markets where the apartments are located. Occupancy
is not expected to change significantly during the remainder of 1995.
22
PART II
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
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 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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 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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRUCO LIFE INSURANCE COMPANY
in respect of
Pruco Life Variable
Contract Real Property Account
------------------------------------------------------------
Date: August 8, 1995 By: /s/ Esther H. Milnes
------------------------------
Esther H. Milnes
President
Date: August 8, 1995 By: /s/ Stephen P. Tooley
------------------------------
Stephen P. Tooley
Vice President, Comptroller and
Chief Accounting Officer
24