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 March 31, 1996
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 - March 31, 1996 (Unaudited) and December 31, 1995 3
Statements of Operations (Unaudited) - Three Months Ended March 31, 1996
and 1995 3
Statements of Changes in Net Assets - Three Months Ended March 31, 1996 (Unaudited)
and Year Ended December 31, 1995 4
Notes to the Financial Statements (Unaudited) 5
B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
Statements of Assets and Liabilities - March 31, 1996 (Unaudited) and December 31, 1995 7
Statements of Operations (Unaudited) - Three Months Ended March 31, 1996
and 1995 8
Statements of Changes in Net Assets - Three Months Ended March 31, 1996 (Unaudited)
and Year Ended December 31, 1995 9
Statements of Cash Flows (Unaudited) - Three Months Ended March 31, 1996 and 1995 10
Schedule of Investments - March 31, 1996 (Unaudited) and December 31, 1995 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
MARCH 31, 1996
(UNAUDITED) DECEMBER 31, 1995
-------------- -----------------
Investment in shares of The Prudential Variable Contract
Real Property Partnership $ 94,729,322 $ 96,064,928
-------------- -----------------
-------------- -----------------
NET ASSETS, representing:
Equity of Contract Owners $ 87,913,183 $ 88,198,777
Equity of Pruco Life Insurance Company 6,816,139 7,866,151
-------------- -----------------
$ 94,729,322 $ 96,064,928
-------------- -----------------
-------------- -----------------
STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
--------------- ---------------
INVESTMENT INCOME:
Net Investment Income from Partnership Operations $ 1,999,382 $ 1,721,481
EXPENSES:
Asset Based Charges to Contract Owners (Note 3) 139,082 138,985
--------------- ---------------
NET INVESTMENT INCOME 1,860,300 1,582,496
--------------- ---------------
NET UNREALIZED LOSS
ON INVESTMENTS IN PARTNERSHIP (334,988) (872,941)
--------------- ---------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,525,312 $ 709,555
--------------- ---------------
--------------- ---------------
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
THREE MONTHS
ENDED
MARCH 31, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
-------------- -----------------
OPERATIONS:
Net Investment Income $ 1,860,300 $ 6,931,412
Net Unrealized Gain/(Loss)
on Investments in Partnership (334,988) 320,146
-------------- -----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 1,525,312 7,251,558
-------------- -----------------
CAPITAL TRANSACTIONS:
Net Withdrawals by Contract Owners (1,674,147) (5,278,643)
Net Contributions/(Withdrawals) by Pruco Life
Insurance Company (1,186,771) 2,840,074
-------------- -----------------
NET DECREASE IN NET ASSETS
RESULTING FROM CAPITAL TRANSACTIONS (2,860,918) (2,438,569)
-------------- -----------------
TOTAL INCREASE/(DECREASE) IN NET ASSETS $ (1,335,606) $ 4,812,989
NET ASSETS:
Beginning of period $ 96,064,928 $ 91,251,939
-------------- -----------------
End of period $ 94,729,322 $ 96,064,928
-------------- -----------------
-------------- -----------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 5 THROUGH 6.
4
NOTES TO THE FINANCIAL STATEMENTS OF
PRUCO LIFE VARIABLE CONTRACT REAL PROPERTY ACCOUNT
MARCH 31, 1996
(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. BASIS OF ACCOUNTING
The financial statements are prepared on a current value basis due to the
fact that the unit values under Contracts participating in the Partnership
are determined using the current value basis of investments (see General
Note to the Partnership financials). These unaudited financial statements
reflect all adjustments which are, in the opinion of management, necessary
to a fair statement of the results for the interim period presented. All
such adjustments are of a normal recurring nature.
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 March 31, 1996 the
Real Property Account's interest in the Partnership, based on current value
equity was 49.9% or 5,909,534 shares.
C. INCOME RECOGNITION
The Real Property Account recognizes its proportionate share of the
Partnership's net investment income on a daily basis, consistent with the
Partnership Agreement. The Net Gain/(Loss) on Investment in Partnership
reflected on the Statements of Operations represents the Real Property
Account's proportionate share of the Net Gain/(Loss) on Investments
recognized by the Partnership.
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.
NOTE 5: RELATED PARTY
Several actions have been brought against Pruco Life, on behalf of those persons
who purchased life insurance policies based on complaints about sales practices
engaged in by The Prudential and Pruco Life and agents appointed by The
Prudential and Pruco Life. The Prudential has agreed to indemnify Pruco Life
for any and all losses resulting from such litigation.
6
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF ASSETS AND LIABILITIES
MARCH 31, 1996
(UNAUDITED) DECEMBER 31, 1995
-------------- -----------------
ASSETS:
Properties at estimated market value
(cost $192,129,776 and $191,981,608
respectively) (Note 1) $ 164,144,560 $ 164,695,033
Interest in properties at estimated market value
(cost $6,133,157 and $6,133,157
respectively) (Note 1) 5,850,000 5,800,000
Cash and cash equivalents 13,852,454 14,223,265
Marketable securities 10,922,485 10,532,155
Other assets and accounts receivable
(net of allowance for uncollectible
amounts of $16,589 and $18,896 respectively) 2,072,037 1,743,305
-------------- -----------------
Total Assets $ 196,841,536 $ 196,993,758
-------------- -----------------
-------------- -----------------
LIABILITIES:
Obligation under capital lease $ 3,633,479 $ 3,882,421
Accounts payable and accrued expenses 2,003,642 2,142,614
Due to affiliates (Note 2) 639,124 682,795
Other liabilities 638,440 664,069
-------------- -----------------
Total liabilities 6,914,685 7,371,899
-------------- -----------------
Partners' Equity 189,926,851 189,621,859
-------------- -----------------
Total Liabilities and Partner's Equity $ 196,841,536 $ 196,993,758
-------------- -----------------
-------------- -----------------
Number of shares outstanding at end of period 11,848,275 12,036,684
-------------- -----------------
-------------- -----------------
Share Value at end of period $16.03 $15.75
------ ------
------ ------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
7
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
INVESTMENT INCOME:
Rent from properties $ 5,920,596 $ 4,472,397
Income from interest in properties 164,145 149,408
Interest from short-term investments 431,857 765,330
-------------- --------------
6,516,598 5,387,135
-------------- --------------
EXPENSES:
Investment management fee (Note 2) 608,075 569,088
Real estate tax expense 656,600 609,624
Administrative expenses 476,840 392,120
Operating expenses 683,285 357,501
Interest expense 138,165 115,144
-------------- --------------
2,562,965 2,043,477
-------------- --------------
NET INVESTMENT INCOME 3,953,633 3,343,658
-------------- --------------
NET UNREALIZED LOSS ON INVESTMENTS (648,641) (1,695,529)
-------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,304,992 $ 1,648,129
-------------- --------------
-------------- --------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
8
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CHANGES IN NET ASSETS
THREE MONTHS
ENDED
MARCH 31, 1996 YEAR ENDED
(UNAUDITED) DECEMBER 31, 1995
-------------- -----------------
OPERATIONS:
Net Investment Income $ 3,953,633 $ 14,720,271
Net Realized and Unrealized
Gain/(Loss) on Investments (648,641) 661,623
-------------- -----------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 3,304,992 15,381,894
-------------- -----------------
CAPITAL TRANSACTIONS:
Withdrawals by partners
(188,409 and 204,350,
shares respectively) (3,000,000) (3,000,000)
-------------- -----------------
NET DECREASE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS (3,000,000) (3,000,000)
-------------- -----------------
TOTAL INCREASE IN NET ASSETS 304,992 12,381,894
NET ASSETS:
Beginning of period 189,621,859 177,239,965
-------------- -----------------
End of period $ 189,926,851 $ 189,621,859
-------------- -----------------
-------------- -----------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
9
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 MARCH 31, 1995
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net increase in net assets resulting from operations $ 3,304,992 $ 1,648,129
Adjustments to reconcile net increase in net assets
resulting from operations to net cash from
operating activities:
Net unrealized loss on investments 648,641 1,695,529
Changes in assets and liabilities:
(Increase)/Decrease in other assets
and accounts receivable (328,732) 289,431
(Increase)/Decrease in marketable securities (390,330) 2,400,226
Decrease in obligation under capital lease (248,942) (173,011)
(Decrease)/Increase in accounts payable
and accrued expenses (138,972) 100,088
(Decrease)/Increase in due to affiliates (43,671) 4,523
Decrease in other liabilities (25,629) (121,393)
-------------- --------------
Net cash from operating activities 2,777,357 5,843,522
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital improvements on real estate owned (148,168) (129,388)
Capital improvements on interest in properties 0 (11,941)
-------------- --------------
Net cash from investing activities (148,168) (141,329)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Withdrawals (3,000,000) 0
-------------- --------------
Net (decrease)/increase in cash and cash equivalents (370,811) 5,702,193
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 14,223,265 33,093,237
-------------- --------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 13,852,454 $ 38,795,430
-------------- --------------
-------------- --------------
SUPPLEMENTAL INFORMATION:
Interest paid $ 376,450 $ 376,450
-------------- --------------
-------------- --------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
10
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
MARCH 31, 1996
(UNAUDITED) DECEMBER 31, 1995
- -------------------------------------------------------------------------------------------------------------
INVESTMENT IN PROPERTIES (PERCENT OF NET ASSETS)
86.4% 86.9%
ESTIMATED ESTIMATED
MARKET MARKET
LOCATION DESCRIPTION COST VALUE COST VALUE
- -------------------------------------------------------------------------------------------------------------
Azusa, CA Warehouse $ 18,622,709 $ 15,160,187 $ 18,546,247 $ 5,083,725
Lisle, IL Office Building 17,524,421 11,600,000 17,524,421 11,600,000
Atlanta, GA Garden Apartments 15,407,757 12,816,211 15,371,495 12,600,000
Pomona, CA (a) Warehouse 23,205,172 16,126,000 23,205,172 17,127,292
Roswell, GA Retail Shopping Center 31,683,240 30,994,334 31,688,912 32,055,216
Morristown, NJ Office Building 18,651,095 10,106,287 18,664,969 9,572,688
Bolingbrook, IL Warehouse 8,948,028 7,400,000 8,948,028 7,400,000
Farmington Hills, MI Garden Apartments 13,594,950 14,800,000 13,594,950 14,200,000
Flint, MI Office Building 7,671,280 6,354,438 7,616,842 6,539,368
Raleigh, NC Garden Apartments 15,758,699 17,200,000 15,758,699 17,200,000
Nashville, TN Office Building 8,428,652 8,683,523 8,431,680 8,686,551
Oakbrook Terrace, IL Office Complex 12,633,773 12,903,580 12,630,193 12,630,193
------------- ------------ ------------ ------------
$ 192,129,776 $164,144,560 $191,981,608 $164,695,033
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
(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.
INVESTMENT IN INTEREST IN PROPERTIES (PERCENT OF NET ASSETS)
3.1% 3.1%
ESTIMATED ESTIMATED
MARKET MARKET
LOCATION DESCRIPTION COST VALUE COST Value
- ------------------------------------------------------------------------------------------------------------------
Jacksonville, FL Warehouse/Distribution 1,317,453 1,250,000 1,317,453 1,225,000
Jacksonville, FL Warehouse/Distribution 1,002,448 1,000,000 1,002,448 975,000
Jacksonville, FL Warehouse/Distribution 1,442,894 1,300,000 1,442,894 1,300,000
Jacksonville, FL Warehouse/Distribution 2,370,362 2,300,000 2,370,362 2,300,000
-------------- ------------- ------------- ------------
$ 6,133,157 $ 5,850,000 $ 6,133,157 $ 5,800,000
-------------- ------------- ------------- ------------
-------------- ------------- ------------- ------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS)
(SEE PAGES 12 AND 13 FOR DETAIL)
7.3% 7.5%
ESTIMATED ESTIMATED
FACE MARKET FACE MARKET
DESCRIPTION AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
Commercial Paper and Cash $ 13,919,728 $ 13,852,454 $ 14,282,697 $ 14,223,265
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS)
(see pages 12 and 13 for detail)
5.8% 5.6%
ESTIMATED ESTIMATED
FACE MARKET FACE MARKET
DESCRIPTION AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------------------------------------
Marketable Securities $ 10,900,000 $ 10,922,485 $ 10,480,000 $ 10,532,155
------------ ------------- ------------ ------------
------------ ------------- ------------ ------------
OTHER ASSETS (2.6%) (3.1%)
(net of liabilities) $ (4,842,648) $ (5,628,594)
------------- ------------
TOTAL NET ASSETS $ 189,926,851 $189,621,859
------------- ------------
------------- ------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
11
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
MARCH 31, 1996
(UNAUDITED)
------------------------------------
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS)
7.3%
ESTIMATED
FACE MARKET
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Engelhard Corp., 5.55%, April 1, 1996 $ 1,008,000 $ 1,008,000
Lehman Brothers Inc., 5.60%, April 1, 1996 601,000 599,972
Household International, inc., 5.24%, April 2, 1996 1,200,000 1,193,887
Morgan Stanley Group Inc., 5.60%, April 3, 1996 1,100,000 1,100,000
Nynex Corporation, 5.30%, April 8, 1996 1,200,000 1,192,050
Aristar Inc., 5.30%, April 22, 1996 1,223,000 1,213,277
Duracell Inc., 5.37%, April 25, 1996 1,260,000 1,253,234
Finova Capital Corp, 5.25%, April 26, 1996 1,225,000 1,213,745
Whirlpool Financial Corp, 5.20%, April 26, 1996 490,000 484,479
Countrywide Funding Corp, 5.39%, May 3, 1996 156,000 154,972
Countrywide Funding Corp, 5.47%, May 8, 1996 1,000,000 993,770
First Data Corp, 5.42%, May 8, 1996 1,200,000 1,192,231
Whirlpool Financial Corp, 5.43%, May 10, 1996 600,000 596,109
--------------- ----------------
Total Commercial Paper 12,263,000 12,195,726
Total Cash 1,656,728 1,656,728
--------------- ----------------
Total Cash and Cash Equivalents $ 13,919,728 $ 13,852,454
--------------- ----------------
--------------- ----------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS)
5.8%
ESTIMATED
FACE MARKET
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Household Finance Corp, 5.75%, April 19, 1996 $ 2,000,000 $ 1,996,520
Ford Motor Credit Corp, 5.80%, April 22, 1996 500,000 500,658
Society National bank Cleveland, 6.00%, April 25, 1996 150,000 149,295
International Lease Finance Corp, 5.00%, May 28, 1996 1,000,000 992,120
Transamerica Financial Corp, 8.55%, June 15, 1996 400,000 409,284
John Deere Capital Corp, 5.77%, July 22, 1996 1,000,000 1,002,267
Sears Roebuck Acceptance Corp, 8.55%, August 1, 1996 1,000,000 1,018,910
Key Bank of New York, N.A., 5.33%, September 6, 1996 1,000,000 999,210
Bank One Columbus, 5.34%, September 12, 1996 1,000,000 999,297
Associates Corp of North Am, 4.48%, October 15, 1996 350,000 345,860
Caterpillar Financial Services, 5.47%, November 29, 1996 1,200,000 1,203,019
Sears Roebuck Acceptance Corp, 7.48%, February 19, 1997 100,000 104,701
General Motors Acceptance Corp, 7.48%, March 18, 1997 1,200,000 1,201,344
Total Commercial Paper $ 10,900,000 $ 10,922,485
--------------- ----------------
--------------- ----------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
12
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
SCHEDULE OF INVESTMENTS
CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS)
DECEMBER 31, 1995
------------------------------------
7.5%
ESTIMATED
FACE MARKET
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Morgan Stanley Group, Inc., 6.10%, January 2, 1996 $ 1,146,000 $ 1,146,000
Engelhard Corp., 6.25%, January 3, 1996 1,038,000 1,038,000
Finova Capital Corp., 5.95%, January 4, 1996 800,000 792,198
Philip Morris Companies Inc., 5.80%, January 5, 1996 505,000 504,430
Gannett Co. Inc., 5.85%, January 9, 1996 1,700,000 1,696,409
Hanson Finance, 5.80%, January 12, 1996 354,000 352,175
Riverwoods Funding Corp., 5.78%, January 12, 1996 1,189,000 1,183,273
Finova Capital Corp., 5.97%, January 16, 1996 780,000 771,980
Smith Barney Inc., 5.79%, January 18, 1996 1,628,000 1,618,836
Fleet Financial Group, 5.75%, January 30, 1996 1,700,000 1,689,139
Countrywide Funding Corp., 5.82%, February 14, 1996 1,500,000 1,488,128
--------------- ----------------
Total Commercial Paper 12,340,000 12,280,568
Total Cash 1,942,697 1,942,697
--------------- ----------------
Total Cash and Cash Equivalents $ 14,282,697 $ 14,223,265
--------------- ----------------
--------------- ----------------
MARKETABLE SECURITIES (PERCENT OF NET ASSETS)
5.6%
ESTIMATED
FACE MARKET
DESCRIPTION AMOUNT VALUE
- ----------------------------------------------------------------------------------------------------
Commercial Paper (with stated rate and maturity date)
Associates Corp. of North America, 8.75%, February 1, 1996 $ 410,000 $ 416,810
General Motors Acceptance Corp., 8.75%, February 1, 1996 650,000 658,860
General Motors Acceptance Corp., 8.95%, February 5, 1996 350,000 356,370
General Motors Acceptance Corp., 4.75%, February 14, 1996 430,000 426,212
General Motors Acceptance Corp., 6.01%, February 22, 1996 240,000 240,057
Household Finance Corp., 5.75%, April 19, 1996 2,000,000 1,996,520
Ford Motor Credit Corp., 6.24%, April 22, 1996 500,000 500,658
Society National Bank Cleveland, 6.00%, April 25, 1996 150,000 149,295
International Lease Finance Corp., 5.00%, May 28, 1996 1,000,000 992,120
Transamerica Financial Corp., 8.55%, June 15, 1996 400,000 409,284
John Deere Capital Corp., 6.16%, July 22, 1996 1,000,000 1,002,267
Sears Roebuck Acceptance Corp., 8.55%, August 1, 1996 1,000,000 1,039,335
Key Bank of New York, N.A., 5.43%, September 6, 1996 1,000,000 999,210
Bank One Columbus, 5.56%, September 12, 1996 1,000,000 999,297
Associates Corp. of North America, 4.48%, October 15, 1996 350,000 345,860
--------------- ----------------
Total Commercial Paper $ 10,480,000 $ 10,532,155
--------------- ----------------
--------------- ----------------
SEE NOTES TO FINANCIAL STATEMENTS ON PAGES 14 THROUGH 17.
13
NOTES TO FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
MARCH 31, 1996
(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, the Pruco Life Variable Contract Real Property Account, and
the 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 three months ended March 31, 1996
are not necessarily indicative of the results that may be expected for
the year ended December 31, 1996. For further information, refer to
the financial statements and notes thereto included in each Partner's
December 31, 1995 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
14
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
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 have
been any significant changes related to the property since the most
recent independent appraisal.
The purpose of an appraisal is to estimate the market value of a
property as of a specific date. Estimated market 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: Revenue 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
estimated market value.
E: Marketable Securities - Marketable securities are highly liquid
investments with maturities of more than three months when purchased
and are carried at estimated 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.
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 three months
ended March 31, 1996 and 1995 management fees incurred by the Partnership were
$608,075 and $569,088, respectively.
The Partnership also reimburses The Prudential for certain administrative
services rendered by The Prudential. The amounts incurred for the three months
ended March 31, 1996 and 1995 were $32,912 and $32,255 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.
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. The property management fees earned by
PREMISYS for the three months ended March 31, 1996 and 1995 were $5,974 and
$4,689 respectively.
15
NOTE 3: 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 March 31, 1996
is approximately $ 51.6 million.
NOTE 4: EVENT SUBSEQUENT TO MARCH 31, 1996
On April 12, 1996, the Partnership sold its Azusa, California warehouse
facility. The proceeds, net of related costs, amounted to approximately
$14,640,000, resulting in a realized loss of approximately $421,000.
16
NOTE 6: PER SHARE INFORMATION (FOR A SHARE OUTSTANDING THOUGHOUT THE PERIOD)
01/01/96 01/01/95 01/01/94 01/01/93 01/01/92 01/01/91 01/01/90
TO TO TO TO TO TO TO
03/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90
-------- -------- -------- -------- -------- -------- --------
Rent from properties $ 0.4938 $ 1.6387 $ 1.2754 $ 1.1659 $ 1.0727 $ 0.9899 $ 0.9479
Income from interest in properties $ 0.0137 $ 0.0527 $ 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 $ 0.0360 $ 0.2199 $ 0.1226 $ 0.0549 $ 0.0653 $ 0.1151 $ 0.1202
-------- -------- -------- -------- -------- -------- --------
INVESTMENT INCOME $ 0.5435 $ 1.9113 $ 1.5900 $ 1.5102 $ 1.4061 $ 1.3504 $ 1.2868
-------- -------- -------- -------- -------- -------- --------
Investment management fee $ 0.0507 $ 0.1936 $ 0.1786 $ 0.1673 $ 0.1642 $ 0.1669 $ 0.1591
Real estate tax expense $ 0.0548 $ 0.1602 $ 0.1399 $ 0.1465 $ 0.1488 $ 0.1168 $ 0.1010
Administrative expenses $ 0.0398 $ 0.1484 $ 0.1103 $ 0.1187 $ 0.1046 $ 0.0946 $ 0.0910
Operating expenses $ 0.0570 $ 0.1546 $ 0.1332 $ 0.1209 $ 0.1241 $ 0.0948 $ 0.0776
Interest expense $ 0.0115 $ 0.0381 $ 0.0255 $ 0.0236 $ 0.0215 $ 0.0193 $ 0.0186
-------- -------- -------- -------- -------- -------- --------
EXPENSES $ 0.2138 $ 0.6949 $ 0.5875 $ 0.5770 $ 0.5632 $ 0.4924 $ 0.4473
-------- -------- -------- -------- -------- -------- --------
NET INVESTMENT INCOME $ 0.3298 $ 1.2164 $ 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 ($0.0535) $ 0.0581 $ 0.2169 $ 0.0152 $(1.1359) $(0.7770) $(0.1543)
-------- -------- -------- -------- -------- -------- --------
NET REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS ($0.0535) $ 0.0581 $ 0.1203 $(0.1664) $(1.1359) $(0.7770) $(0.1543)
-------- -------- -------- -------- -------- -------- --------
Net increase/(decrease) in share value $ 0.2762 $ 1.2745 $ 1.1228 $ 0.7668 $(0.2930) $ 0.0810 $ 0.6852
Share Value at beginning of period $15.7537 $14.4792 $13.3564 $12.5896 $12.8826 $12.8016 $12.1164
-------- -------- -------- -------- -------- -------- --------
Share Value at end of period $16.0299 $15.7537 $14.4792 $13.3564 $12.5896 $12.8826 $12.8016
-------- -------- -------- -------- -------- -------- --------
Ratio of expenses to average net assets 1.35% 4.62% 4.27% 4.44% 4.47% 3.81% 3.58%
Ratio of net investment income to
average net assets 2.08% 8.08% 7.29% 7.17% 6.69% 6.63% 6.72%
Number of shares outstanding at
end of period (000's) 11,848 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 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All of the assets of The Prudential Variable Contract Real Property Account (the
"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 March 31, 1996, the Partnership's liquid assets consisting of cash and cash
equivalents and marketable securities totalled $24,774,939. This is an increase
of $19,519 from liquid assets at December 31, 1995, of $24,755,420. The
increase is due to cash received from the operations of the Partnership's
properties and interest income received from short-term investments offset by
withdrawals by the partners of $3,000,000.
The Partnership had 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. The line of credit had never been drawn upon. Management did
not anticipate any future needs for this credit facility and decided to
terminate the line of credit as of October 31, 1995. 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 $51.6
million as of March 31, 1996.
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 March 31, 1996, 12.6%
of the Partnership's assets consisted of cash and cash equivalents and
marketable securities. The partners withdrew $3 million in March, 1996.
Additional withdrawals may be made during the remainder of 1996 based upon the
needs of the Partnership including potential property acquisitions and
dispositions and capital expenditures. At March 31, 1996, and currently, the
Partnership has adequate liquidity. Management anticipates that ongoing cash
flow from operations and proceeds from the sale of properties will satisfy the
Partnership's needs over the next nine months and the foreseeable future.
On April 12, 1996, the Partnership sold the Azusa, CA warehouse. Actual cash
received from the sale was approximately $14,525,000. These funds will be
retained by the Partnership and may be used to acquire additional properties.
During the quarter ended March 31, 1996, the Partnership expended approximately
$148,000 in capital expenditures. Approximately $131,000 were for tenant
alterations and leasing commissions. The most significant of these was
approximately $77,000 at the warehouse facility located in the Azusa, CA
building relating to the lease signed by Best Buy . Approximately $53,400 was
expended at the office park in Flint, MI. These costs were attributable to the
tenant improvements being performed for the Olsten Kimberly suites. Of the
remaining $17,000 in capital expenditures, approximately $21,000 was for access
gates at the Atlanta, GA apartments. These amounts were offset by reductions in
the leasing commissions that were charged to the partnership in the fourth
quarter of 1995 at the Morristown, N.J. and Roswell, GA properties.
Projected capital expenditures for the remainder of the 1996 total approximately
$1,532,000. Approximately $1,244,000 consists of tenant alterations and leasing
commissions. Approximately $352,000 is budgeted for the Morristown Office
Center. The property projects payments of almost $120,000 for costs associated
with the
18
Spectrum Financial expansion and the budget also includes leasing the
remaining vacancies at the property. At the Lisle, IL office building, the
Partnership projects leasing commissions of $324,000 resulting from efforts to
renew the tenant prior to the November, 1997 expiration of its lease. In
addition, tenant improvements and leasing commissions are expected to be about
$162,000 at the Pomona, CA warehouse, $207,000 at the Roswell shopping center,
86,000 at the Flint, MI office park, $47,000 at the Nashville, TN property and
about $66,000 at the Unit Distribution warehouses.
Other major capital expenditures planned for the remainder of 1996 include
$90,000 for separating the irrigation meters at the Pomona, CA warehouse,
$35,000 for recaulking of the exterior windows at the Morristown property,
$27,000 for a landscaping upgrade, new signage and carport roof replacement at
Farmington Hills, MI and $38,000 to replace exterior entrance doors and
landscaping upgrades at the Flint property. Also $27,000 is expected to be
expended to complete the fencing, entrance gates and upgrades to the exercise
room at the Atlanta, GA apartments. Approximately $70,000 was budgeted for
smaller projects among the various properties.
(B) RESULTS OF OPERATIONS
The following is a brief discussion of a comparison of the results of operations
for the three months ended March 31, 1996 and 1995.
The Partnership's net investment income for the first three months of 1996 was
$3,953,633, an increase of $609,975 (18.2%) from $3,343,658 for the
corresponding period of 1995. This was largely due to income from three
acquisitions that were made in 1995 (approximately $892,000), increased income
from ongoing property operations (approximately $107,300) and a decrease in
administrative expense (about $6,000) offset by a decrease in interest income
from short-term investments (approximately $333,500), higher interest expense
(approximately $23,000), higher investment management fees (approximately
$39,000).
Income from property operations, including income from investment in properties
was $4,318,734 for the first three months of 1996. This was an increase of
$999,309 (30.1%) from $3,319,425 for the same period of 1995. This was
primarily the result of the properties acquired as noted above. Excluding the
results of the acquired properties, income from property operations increased
($107,300 or 3.2%). Revenue at the properties held for the comparable period
increased by $33,000. The gain in revenue was increased by lower real estate
taxes (about $97,800) and lower administrative expenses (approximately $16,300).
These gains were offset by higher general operation expenses ( approximately
$55,500).
Income from interest in properties relates to the Partnership's 50% co-
investment in the Unit warehouses. Income from interest in properties increased
by $14,737 (9.9%) from $149,408 for the first quarter of 1995 to $164,145 for
the first quarter of 1996.
Rent from properties increased by $1,448,199 (32.4%) from $4,472,397 for the
first quarter of 1995 to $5,920,596 for the corresponding period of 1996. This
was primarily the result of the acquisition, of the Raleigh,NC, ($557,390)
Nashville TN, ($371,066) and Oakbrook, IL ($486,861) properties.
Real estate taxes for the first three months of 1996 increased $46,976 (7.7%),
to $656,600 from $609,624 for the first three months of 1995. Almost $146,000
was due to the inclusion of the recent acquisitions. The Flint property taxes
includes approximately $101,000 of 1994 taxes which were paid in 1995. This
caused a decline of approximately $93,000 that offsets the taxes for the newer
properties. Real estate taxes were virtually unchanged at the other properties.
19
Property operating expenses for the first quarter of 1996 was $683,285, an
increase of $325,784 (91.1%) from $357,501 for the corresponding period of last
year. Excluding the newly acquired properties, operating expenses increased
$55,500 or 15.5%. The severe winter in the northeast caused the Morristown
property to experience higher utility and snow removal costs which accounted for
approximately $56,000 of the increase. Operating costs were slightly higher at
the Atlanta apartments and the Azusa, CA warehouse. These increases were offset
by lower expenses at the Flint, Pomona and Roswell properties.
Administrative expenses on the statement of operations includes both property
and Partnership administrative expenses. Property administrative expenses
totalled $426,074 for the three months ended March 31, 1996. This is an
increase of $90,819 (27.1%) from $335,255 for the same period last year. This
was primarily the result of the inclusion of the aforementioned acquisitions
($107,143). Excluding these properties, administrative expenses decreased
$16,323 (4.9%). Advertising and marketing was lower at the Atlanta apartments
$16,500, and Farmington Hills, MI apartments $14,200 and there were lower
professional fees at the Flint property $10,400. This was offset by an increase
in professional fees at the Pomona warehouse $22,500. Partnership
administrative expenses for the first three months of 1996 decreased by $6,100
(10.7%) to $50,766 from $56,866 for the first three months of 1995. This was
primarily due to the termination of the line of credit facility.
Interest expense relates to the capitalized ground leased at the Pomona
warehouse. Interest expense increased by $23,021 (20.0%) to $138,165 for the
first three months of 1996 from $115,144 for the corresponding period of 1995.
This was due to a scheduled increase in the lease payment, effective in November
1995. 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 and intends to exercise this option
prior to its expiration in November, 1997.
Investment management fee expense increased by $38,987 (6.9%) for the first
three months of 1996 to $608,075 from $569,088 for the first three months of
1995. The fee is computed as 1.25% of gross assets. During the first three
months of 1996, gross assets were slightly higher than in 1995.
Interest income from short-term investments decreased by $333,473 (43.6%) to
$431,857 for the first quarter of 1996 from $765,330 for the first quarter of
1995. This is primarily due to significantly lower cash balances as a result of
the property acquisitions and withdrawals made by the partners in the preceding
twelve months.
ESTIMATED MARKET VALUES OF INVESTED ASSETS: QUARTER ENDED MARCH 31, 1996
During the three months ended March 31, 1996, the Partnership experienced an
unrealized loss of $648,641 on its real estate investments. This was the result
of decreases in the estimated market values of the warehouse and retail
properties totalling $2,006,502 which were partially offset by increases in the
values of the office properties and apartments of $577,912 and $779,949,
respectively.
During the first quarter, the Pomona warehouse decreased in value by $1,001,292
(5.8% of its December 31, 1995 value). The decline in value reflects a vacancy
of 33,300 square feet (6%) of the property. Inter-City Products, whose lease
expired in January vacated their space. The space is currently being marketed
to a prospective tenant. Also, Structural Composite's lease expires in
November, 1996 and the there is some uncertainty at this time as to whether they
will renew. Estimated market values at the Azusa and Bolingbrook warehouses
remained stable during the first quarter of 1996.
The Partnership's retail property in Roswell experienced an unrealized loss of
$1,055,210 during the first quarter (3.3% of its December 31, 1995 value). The
decrease reflects the potential impact of a shopping center which was
constructed nearby and another center which is under construction.
20
The Partnership's apartment properties experienced an unrealized gain totalling
$779,949 during the first quarter of 1996. The Farmington Hills apartments had
gains of $600,000 (4.2% of its December 31, 1995 value) and Atlanta $179,949
(1.4% of its December 31, 1995 value). These gains are due to increases in the
rental rate assumptions for these properties and the continued strong demand for
rentals in their markets. The Raleigh property was unchanged during the period.
The office center properties showed a net increase in unrealized appreciation
for the first quarter of 1996. This was due to increases at the Morristown
property $547,473 (5.7% of its December 31, 1995 value) and at the Oakbrook, IL
center $269,807 (2.1% of its December 31, 1996 value). These gains were offset
by a decline in value at the Flint office park $239,368 (3.7% of its December
31, 1995 value). The Morristown increase reflects increased prospects for
signing new leases which will improve the properties performance. The Oakbrook
property is experiencing increasing rental rates in its market which is
compounded by declining vacancy rates. The Flint office center negotiations
ceased in the first quarter. The agreed upon price of the deal was $6,300,000
and the value was set at approximately that price. The Flint market continues to
experience very soft leasing demand and consists mostly of existing tenants.
PROPERTY LEASING ACTIVITY
Occupancy among the Partnership's properties was generally stable during the
first quarter of 1996 however, there was a slight decline at one of the
warehouses.
Occupancy at the Pomona warehouse declined to 94% as a result of Inter-City
Products lease covering 33,400 square feet (6 % of the property) expiring in
January, 1996. Currently, efforts are being made to market this space to
prospective tenants. Structural Composite's lease expires in November, 1996.
They occupy 56,450 square feet (10.6%). The Partnership is uncertain at this
time as to whether they will renew their lease. The Unit warehouses occupancy
remained at 100% at March 31, 1996. However, there are two leases which expire
in 1996. The Partnership is currently in negotiations with Angelo Brothers, Inc,
whose lease expires in April, 1996. Their lease covers 84,000 square feet (17%
of the four warehouses). The Partnership has reached a tentative agreement for
a three year lease renewal. We expect the lease agreement to be finalized by
the end of May. GATX's lease expires in expires in May, 1996. Presently, they
occupy 114,240 square feet (23% of the four warehouses). The Partnership had
expected them to vacate at the end of their term. However there are renewed
negotiations concerning a new lease, during which time they may continue to
occupy the space on a month to month basis. The warehouse in Bolingbrook
continues to be fully occupied by Gillette under a lease expiring in 2000.
Occupancy at the office properties remained stable in the first quarter of 1996.
The Flint property is currently 94% leased. The property had one lease
expiration in February for 1,350 square feet. The tenant still occupies the
space, but is expected to vacate shortly. There are six additional leases which
are scheduled to expire in 1996 totalling 37,023 square feet (32.5% of the
property). Two of these tenants are not expected to renew. McLaren Sports
occupies 7,178 square feet and Spender and Robb P.C. 2,044 square feet . The
property has instituted a tenant retention program and is making efforts to
renew existing tenants and will market existing vacancies.
Occupancy at the Morristown office was intact at 94.8% on March 31, 1996. The
Partnership is currently negotiating a ten year lease for 5,800 square feet (7%
of the property) to a prospective tenant. Currently, Chase Home Mortgage and
Owens-Illinois occupies that space on a month to month basis. There is one
lease expiration in 1996. Mutual of Omaha's original lease expired on March 31,
1996. The tenant requested a six month extension through September, 1996. The
Partnership is actively marketing the remaining vacancies. Occupancy at the
Oakbrook and Nashville properties remained at 99%.
21
The office building in Lisle, Illinois continues to be fully leased to R.R.
Donnelly under a lease expiring in September,1997. The lease contains two five-
year renewal options. Discussions are being held with this tenant in an attempt
to secure an early renewal. The tenant is also evaluating alternatives at other
properties.
Occupancy at King's Market declined to 97.2% from 99% at December 31, 1995.
Parties Galore vacated in December, 1995. They had occupied 6,100 square feet.
Kids Mart vacated in January, 1996. They occupied 2,100 square feet. There are
four leases that will expire in 1996 totalling 7,864 square feet (2.7% of the
center). Two of these tenants occupying 2,882 square feet (1% of the property)
are expected to renew. The Men's Wearhouse 3,982 square feet (2% of the center)
is expected to vacate at the end of its lease in May,1996. Atlanta Kids 1,000
square feet (.3%) of the property is also expected to vacate. In addition, Hit
or Miss has been occupying 4,000 square feet ( 1.3%) of the property on a
month to month basis. The Partnership expects them to vacate at the end of
April, 1996. Tenant retention and new leasing plans are underway to maintain and
improve the occupancy at the center.
Occupancy at the Partnership's apartments was generally strong during the first
quarter of 1996. The Atlanta apartments increased to 99% at March 31, 1996 from
97% at December 31, 1996. The Farmington Hills and Raleigh apartments were 98%
and 95% leased at March 31, 1996. This reflected no change from levels at
December 31,1995. Market rental rates are expected to increase slightly in
1996 in the residential markets in which the Partnership's are located.
Occupancy at the Atlanta and Farmington Hills properties are expected to be
strong during the course of 1996. There is some uncertainty whether the Raleigh
complex can sustain its current occupancy level.
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.
23
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: May 8, 1996 By: /s/ Esther H. Milnes
------------------- ----------------------
Esther H. Milnes
President
Date: May 8, 1996 By: /s/ Steve Tooley
------------------- ----------------------
Steve Tooley
Vice President, Comptroller and
Chief Accounting Officer
24