-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FYgwzACPMERfBnRIgP52Bb1xgZOdOHlDEdJ/UEeMTBW1aVTuEu6ThQFTZPN0oex/ qU9gkzsUa7tYA52KMz1hlA== 0000912057-00-015326.txt : 20000403 0000912057-00-015326.hdr.sgml : 20000403 ACCESSION NUMBER: 0000912057-00-015326 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACC CENTRAL INDEX KEY: 0000829114 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 222426091 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-20018 FILM NUMBER: 589599 BUSINESS ADDRESS: STREET 1: 213 WASHINGTON STREET CITY: NEWARK STATE: NJ ZIP: 07102-2992 BUSINESS PHONE: 9738026196 MAIL ADDRESS: STREET 1: PRUCO LIFE INSURANCE CO OF NEW JERSEY STREET 2: 213 WASHINGTON STREET CITY: NEWARK STATE: NJ ZIP: 07102 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT CENTRAL INDEX KEY: 0000846581 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 221211670 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-20083-01 FILM NUMBER: 589600 BUSINESS ADDRESS: STREET 1: PRUDNTIAL INSURANCE CO OF AMERICA STREET 2: 213 WAHINGTON STREET CITY: NEWARK STATE: NJ ZIP: 07080 BUSINESS PHONE: 9738026196 MAIL ADDRESS: STREET 1: PRUDENTIAL INSURANCE CO OF AMERICA STREET 2: 751 BROAD STREET CITY: NEWARK STATE: NJ ZIP: 07102 10-K 1 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - --- SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 ----------------- OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] COMMISSION FILE NUMBER 33-20018 PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY IN RESPECT OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW JERSEY 22-2426091 - ------------------------------- --------------------------------- (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 213 WASHINGTON STREET, NEWARK, NEW JERSEY 07102-2992 ---------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (800) 778-2255 ---------------------------------------- (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- --- PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT (REGISTRANT) INDEX ITEM PAGE NO. NO. - ---- ---- COVER PAGE INDEX 2 PART I 1. BUSINESS 3 2. PROPERTIES 5 3. LEGAL PROCEEDINGS 5 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5 PART II 5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY HOLDER MATTERS 6 6. SELECTED FINANCIAL DATA 6 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 15 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 15 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 15 PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 16 11. EXECUTIVE COMPENSATION 17 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 17 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 17 PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 18 EXHIBIT INDEX 18 SIGNATURES 20 2 PART I ITEM 1. BUSINESS Pruco Life of New Jersey Variable Contract Real Property Account (the "Real Property Account"), the Registrant, was established on October 30, 1987 by Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), as a separate investment account, pursuant to New Jersey law. The Real Property Account was established to provide a real estate investment option offered in connection with the funding of benefits under certain variable life insurance and variable annuity contracts (the "Contracts") issued by Pruco Life of New Jersey. The assets of the Real Property Account are invested in The Prudential Variable Contract Real Property Partnership (the "Partnership"). The Partners in the Partnership are The Prudential Insurance Company of America, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey (collectively, the "Partners"). The Partnership, a general partnership organized under New Jersey law on April 29, 1988, was formed through agreement among the Partners, to provide a means for assets allocated to the real estate investment option under certain variable life insurance and variable annuity contracts issued by the respective companies to be invested in a commingled pool. The Partnership has an investment policy of investing at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans. The largest portion of these real estate investments are direct ownership interests in income-producing real estate, such as office buildings, shopping centers, hotels, apartments, or industrial properties. Approximately 10% of the Partnership's assets are generally held in cash or invested in liquid instruments and securities although the Partners reserve discretion to increase this amount to meet partnership liquidity requirements. The remainder of the Partnership's assets are invested in other types of real estate-related investments, including real estate investment trusts. Office Properties - The Partnership owns office properties in Lisle and Oakbrook Terrace, Illinois; Morristown, New Jersey; Brentwood, Tennessee; and Beaverton, Oregon. Total square footage owned is approximately 577,000 of which 96% or 553,000 square feet are leased between 1 and 10 years. Apartment Complexes - The Partnership owns apartment complexes in Atlanta, Georgia and Raleigh, North Carolina. There are a total of 490 apartment units available of which 97% or 475 units are leased. Lease terms range from monthly to one year. In addition, on September 17, 1999, the Partnership invested in an apartment complex located in Jacksonville, FL. This joint venture investment has a total of 458 units available of which 408 units or 89% are occupied. Lease terms range from monthly to one year. Retail Property - The Partnership owns a shopping center in Roswell, Georgia. The property is located approximately 22 miles north of downtown Atlanta on a 30 acre site. The square footage is approximately 297,000 of which 97% or 288,000 square feet is leased between 1 and 10 years. On September 30, 1999 the Partnership invested in a retail portfolio located in the Kansas City, KS and Kansas City, MO areas. This joint venture investment has approximately 476,000 of net rentable square feet of which 90% or 427,000 square feet is leased between 1 and 20 years. Industrial Properties - The Partnership owns warehouses and distribution centers in Bolingbrook, Illinois; Aurora, Colorado; and Salt Lake City, Utah. Total square footage owned is approximately 685,000 of which 72% or 494,238 square feet are leased between 2 and 10 years. 3 Investment in Real Estate Trust - The Partnership owns 386,208 shares of ProLogis REIT. ProLogis is a self administered and self-managed equity real estate investment trust engaged in owning, operating, marketing and leasing high quality, industrial distribution facilities throughout North America and Europe, and developing master-planned distribution parks and corporate distribution facilities. The Partnership also owns smaller individual investments in various other REIT stocks. The Partnership's investments are maintained so as to meet the diversification requirements set forth in Treasury Regulations issued pursuant to Section 817(h) of the Internal Revenue Code relating to the investments of variable life insurance and variable annuity separate accounts. Section 817(h), requires among other things that the partnership will have no more than 55% of the assets invested in any one investment, no more than 70% of the assets will be invested in any two investments, no more than 80% of the assets will be invested in any three investments, and no more than 90% of the assets will be invested in any four investments. To comply with requirements of the State of Arizona, the Partnership will limit additional investments in any one parcel or related parcels to an amount not exceeding 10% of the Partnership's gross assets as of the prior fiscal year. REAL ESTATE MARKET 1999 was a year of stability for the U.S. real estate market. Throughout the year, most areas witnessed only slight declines in conditions, as new supply remained in check and demand continued to increase. OFFICE MARKET The office market is still healthy. Construction has continued, but demand has almost kept up pace. Downtown markets look particularly healthy. Suburban areas present more risk. Preliminary data from CB Richard Ellis / Torto Wheaton Research (TWR) indicates that the year end 1999 national average office vacancy rate was 9.8%, up from a low 9% as of year end 1998. The average downtown vacancy rate was 8.4% and the suburban rate reached 10.4% as of year end 1999. APARTMENT MARKET The U.S. apartment market remains close to a state of equilibrium. Demand has been solid, and supply has stayed in check. Average vacancy rates are still low, with only submarket-specific evidence of potential overbuilding. F.W. Dodge reported year end 1999 occupancy was 93.0%, in-line with 1997 and 1998. Indicative of the overall stability of the market, apartment occupancy has remained between 92.5% and 93.2% since 1990. The outlook for the foreseeable future remains equally solid. Investment capital continued to flow into the sector in 1999, but there is evidence that underwriting has become slightly more conservative. Growth in rents has slowed, thus reducing the upward pressure on prices. In general, underlying assumptions about future conditions that are imbedded in purchase prices today look fairly reasonable. Rising mortgage rates negatively impact housing affordability and should generally favor the rental markets and the apartment sector. RETAIL MARKET Amid much concern over the impact of e-commerce on traditional retailers, the retail sector enjoyed a strong year in 1999. Retail sales growth soared to a fifteen-year high. U.S. retail sales for the year rose 8.9%, the biggest annual increase since 1984. This strong annual growth was capped by a sales growth surge of 1.25% in December. As far as retail real estate is concerned, the sector remains relatively weak compared with other property types. The growth in sales price per square foot remained flat to modest in 1999, and rent growth was less that half of 1998's estimate. Retail will remain a challenging sector in 2000 as new construction, or rather a lack of demolition, continues to plague the outlook for retail property. 4 INDUSTRIAL MARKET The industrial real estate sector appears to have peaked. Average availability has begun to tick upward. CB Richard Ellis/Torto Wheaton Research (TWR) estimate that approximately 173 million square feet of industrial space was completed in the U.S. during 1999, up substantially from the 123 million which came on line during 1998. The pipeline for delivery of new product in 2000 indicates the rate of construction will decline. Projections indicate that around 150 million square feet of new space will become available during the next year. TWR estimates that the overall vacancy rate for industrial space as of year end 1999 was 8.2%, up from a low of 6.9% reached one year prior. The firm projects that industrial vacancy will continue to trend slowly upward in 2000, rising about 0.3 percentage points. PUBLIC REAL ESTATE SECURITIES 1999 represented another disappointing year for the REIT market. For the second consecutive year REIT share prices declined, with the Morgan Stanley REIT Index ending the year 4.6% lower than its 12/31/98 level. This was in sharp contrast to the S&P 500 and NASDAQ which gained 19.5% and 85.6% respectively. REIT shares traded at steep discounts to NAV, approaching 20% overall, and earnings multiples reached historically low levels. While there were occasional glimmers of hope throughout the year, fueled in part by Warren Buffet's forays into the market, momentum could not be sustained. Outflows from REIT mutual funds topped $1.3 billion for the year with the 12/31/99 value of all REIT mutual funds equaling $7.75 billion, nearly 16% below 1998 and 35% below the 1997 value. The CMBS market proved remarkably resilient after the market collapsed in the fall of 1998. While substantially below the record setting level of $78.3 billion in 1998, total issuance for 1999 was $67.3 billion, with approximately one-fourth of the year's production being registered in the last three months. For information regarding the Partnership's investments, operations, and other significant events, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data. ITEM 2. PROPERTIES Not Applicable. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS Contract owners participating in the Real Property Account have no voting rights with respect to the Real Property Account. 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY HOLDER MATTERS Owners of the Contracts may participate by allocating all or part of the net premiums or purchase payments to the Real Property Account. Contract values will vary with the performance of the Real Property Account's investments through the Partnership. Participating interests in the Real Property Account are not traded in any public market, thus a discussion of market information is not relevant. As of March 24, 2000, there were approximately 3,118 contract owners of record investing in the Real Property Account. ITEM 6. SELECTED FINANCIAL DATA Selected financial data of the Real Property Partnership:
Year Ended December 31, ----------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 --------------- --------------- --------------- --------------- --------------- RESULTS OF OPERATIONS: Net investment income $ 13,279,589 $ 15,833,513 $ 13,789,747 $ 15,419,518 $ 14,720,271 Net realized and unrealized gain (loss) on investment in Partnership (7,217,046) 4,795,111 8,485,232 (4,784,583) 661,623 --------------- --------------- --------------- --------------- --------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,062,543 $ 20,628,624 $ 22,274,979 $ 10,634,935 $ 15,381,894 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- FINANCIAL POSITION: December 31, ----------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 --------------- --------------- --------------- --------------- --------------- Total Assets $ 225,142,653 $ 244,249,272 $ 222,745,135 $ 204,156,040 $ 196,993,758 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- Long-Term Lease Obligation $ 0 $ 0 $ 0 $ 4,072,677 $ 3,882,421 --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All of the assets of Pruco Life of New Jersey Variable Contract Real Property Account (the "Account") are invested in the Prudential Variable Contract Real Property Partnership (the "Partnership"). Correspondingly, the liquidity, capital resources and results of operations for the Real Property Account are contingent upon the Partnership. Therefore, all of management's discussion of these items is at the Partnership level. The Partners in the Partnership are The Prudential Insurance Company of America, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey (collectively, the "Partners"). The following analysis of the liquidity and capital resources and results of operations of the Partnership should be read in conjunction with the Financial Statements and the related Notes to the Financial Statements included elsewhere herein. (a) LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1999, the Partnership's liquid assets consisting of cash, cash equivalents and marketable securities were $16.8 million, a decrease of $56.7 million from December 31, 1998. This decrease was due primarily to distributions to Partners of $30 million on February 2, 1999 and $6 million on December 23, 1999. In addition, the acquisition of two additional real estate investments in September 1999 required funding of approximately $12.6 million. Sources of liquidity include net cash flow from property operations, interest from short-term investments, and dividends from REIT shares. The Partnership's investment policy allows up to 30% investment in cash and short-term obligations, although the Partnership generally holds approximately 10% of its assets in cash or liquid instruments. At December 31, 1999, 7% of the Partnership's assets consisted of cash, cash equivalents and marketable securities. In 1986, Prudential committed to fund up to $100 million to enable the Partnership to acquire real estate investments. Contributions to the Partnership under this commitment have been utilized for property acquisitions, and returned to Prudential on an ongoing basis from contract owners' net contributions and other available cash. The amount of the commitment is reduced by $10 million for every $100 million in current value net assets of the Partnership. Thus, with $225 million in net assets, the commitment has been automatically reduced to $80 million. As of December 31, 1999, Prudential's equity interest in the Partnership under this commitment was $45 million. Prudential does not intend to make any contributions during the 2000 fiscal year and will begin to phase out this commitment over the next several years. As discussed previously, the Partners made $36 million in withdrawals during 1999 from excess cash. Additional withdrawals may be made by the Partners during 2000 based upon the percentage of assets invested in short-term obligations, taking into consideration anticipated cash needs of the Partnership including potential property acquisitions, property dispositions and capital expenditures. Management anticipates that its current liquid assets and ongoing cash flow from operations will satisfy the Partnership's needs over the next twelve months and the foreseeable future. During 1999, the Partnership spent $2.6 million in capital expenditures for tenant alterations and improvements. The majority of the capital expenditures was associated with leasing activity at the industrial property located in Aurora, CO and the office complex located in Morristown, NJ. 7 (b) RESULTS OF OPERATIONS The following is a brief discussion of the Partnership's results of operations for the years ended December 31, 1999, 1998, and 1997. 1999 VS. 1998 The following table presents a comparison of the Partnership's sources of net investment income, and realized and unrealized gains or losses by investment type, for the twelve months ended December 31, 1999 and December 31, 1998.
TWELVE MONTHS ENDED DECEMBER 31, 1999 1998 ---------------- ---------------- NET INVESTMENT INCOME: Office properties $7,133,356 $7,269,613 Apartment complexes 2,556,743 4,493,384 Retail property 2,676,387 2,702,234 Industrial properties 894,258 1,325,320 Income from interest in properties 98,375 33,462 Dividend income from real estate investment trust 1,221,843 669,100 Other (including interest income, investment mgt fee, etc.) (1,301,373) (659,600) ---------------- ---------------- TOTAL NET INVESTMENT INCOME $13,279,589 $15,833,513 ---------------- ---------------- ---------------- ---------------- UNREALIZED GAIN (LOSS) ON INVESTMENTS: Office properties ($3,267,264) $3,034,542 Apartment complexes 607,234 657,012 Retail property (1,770,462) (1,312,296) Industrial properties 209,503 333,630 Interest in properties (680,870) - Real estate investment trust (2,282,044) (969,156) REALIZED GAIN (LOSS) ON INVESTMENTS Apartment complexes - 1,730,042 Industrial properties (1,485) 1,229,799 Interest in properties 45,126 91,538 Real estate investment trust (76,784) - TOTAL REALIZED AND UNREALIZED (LOSS) ---------------- ---------------- GAIN ON INVESTMENTS ($7,217,046) $4,795,111 ---------------- ---------------- ---------------- ----------------
8 The Partnership's net investment income for 1999 was $13.3 million, a decrease of $2.5 million from the prior year. This was primarily the result of the sales of an industrial property in Pomona, CA and an apartment complex in Farmington Hills, MI, offset by the acquisition of an apartment complex in Jacksonville, FL. These transactions generated a reduction of $3.0 million in real estate revenues but only $400,000 in expenses. As a result, investment income decreased while investment expenses remained relatively flat. Revenue from real estate properties was $21.8 million in 1999, a decrease of $2.8 million, or 11.3%, from $24.6 million in 1998 mainly as a result of the sales of the industrial property and apartment complex discussed previously. Income from interest in properties increased $64,913, or 194.0%, from $33,462 in 1998 to $98,375 in 1999 primarily as a result of the Partnership investing in a retail portfolio located in Kansas City, KS and Kansas City, MO. On March 30, 1999, the Partnership converted 506,894 shares of Meridian REIT to 557,583 shares of ProLogis REIT, with a fair value of $10.9 million, and cash of $1.0 million (or total fair value of $11.9 million) as a result of ProLogis' acquisition of Meridian Industrial Trust. The conversion resulted in a realized gain of $401,713. Dividend income from real estate investment trusts amounted to $1.2 million for the year ended December 31, 1999, an increase of $0.6 million, or 82.6%, compared to the corresponding period in 1998. This increase was primarily due to an increase in the amount invested in REIT stocks. Administrative expenses increased $283,714, or 14.5%, during 1999. This increase was primarily due to the acquisition of the apartment complex located in Jacksonville, FL coupled with higher expense levels experienced by the Westpark office property located in Brentwood, TN. Interest expense increased $145,418, or 100%, in 1999 as a result of the Partnership's investment in the apartment complex located in Jacksonville, FL, which was acquired subject to $10.2 million in debt. Minority interest in consolidated partnership increased $33,746, or 100%, as a result of the Partnership's joint venture investment in the apartment complex located in Jacksonville, FL. OFFICE PROPERTIES Net investment income from property operations for the office sector decreased approximately $136,000, or 2%, for the year ended December 31, 1999 when compared to the corresponding period in 1998. The six office properties owned by the Partnership experienced a net unrealized loss of approximately $3.3 million during 1999 compared to a net unrealized gain of $3.0 million in 1998. The largest share of this net unrealized loss was due to the office property located in Oakbrook Terrace, IL. This $1.6 million value decrease was due to changes in anticipated costs associated with assumed re-leasing of the facility which were used in valuing the property. The Beaverton, OR office property also experienced a net unrealized loss of approximately $0.8 million. This decline in value was due to a change in discounted cash flow assumptions resulting from the large amount of Class "A" space under construction in the local market. In addition, a lower renewal probability in determining the valuation of the property was utilized for a major tenant expected to be vacating their space upon expiration. The Lisle, IL office property also experienced a net unrealized loss of approximately $0.7 million primarily due to capital expenditures on the property that were not reflected as an increase in market value. The office complex located in Morristown, NJ is expected to be marketed for sale during 2000. Occupancy at the Beaverton, OR, Oakbrook Terrace, IL, and one of the Brentwood, TN properties remained unchanged from December 31, 1998 at 100%. Occupancy at the Morristown, NJ property increased from 86% at December 31, 1998 to 100% at December 31, 1999 while occupancy at the Lisle, IL office property decreased from 96% at December 31, 1998 to 88% at December 31, 1999. Occupancy at the other Brentwood, TN property owned by the Partnership decreased from 100% at December 31, 1998 to 95% at December 31, 1999. As of December 31, 1999 all vacant spaces were being marketed. 9 APARTMENT COMPLEXES Net investment income from property operations for the apartment sector was $2.6 million in 1999, a decrease of $1.9 million, or 43.1%, when compared to 1998. This decrease was primarily due to the sale of the apartment complex located in Farmington Hills, MI in 1998. The apartment complexes owned by the Partnership experienced a net unrealized gain of $0.6 million for both years ended December 31, 1999 and 1998. The net realized gain of $1.7 million experienced in 1998 was due to the Farmington Hill, MI apartment complex which was sold on October 8, 1998 for $16.9 million. On September 17, 1999, the Partnership invested in an apartment complex located in Jacksonville, FL, This joint venture investment required the Partnership to contribute $7.5 million and the partner to contribute $0.4 million. There is $10.2 million in debt on this garden apartment complex. The occupancy at the Atlanta, GA complex increased from 96% at December 31, 1998 to 98% at December 31, 1999. Occupancy at the apartment complex in Raleigh, NC decreased from 93% at December 31, 1998 to 92% at December 31, 1999. Occupancy at the Jacksonville, FL apartment complex was 89% at December 31, 1999. As of December 31, 1999, all available vacant spaces were being marketed. RETAIL PROPERTY Net investment income for the Partnership's retail property located in Roswell, GA was approximately $2.7 million for the twelve months ended December 31, 1999 and 1998. The retail property experienced a net unrealized loss of $1.8 million and $1.3 million in 1999 and 1998, respectively. The decrease in value in 1999 was attributable to a declining position of the property in the market, while the decrease in 1998 was a reflection of lower rents. The complex is no longer being actively marketed for sale. On September 30, 1999, the Partnership invested in a retail portfolio located in the Kansas City, KS and Kansas City, MO area. This joint venture investment required the Partnership to contribute $5.1 million to the investment and the partner to contribute $1.7 million. There is $21.0 million in debt on this retail portfolio. During the twelve months ended December 31, 1999, income from interest in this investment amounted to $98,375. This investment experienced a net unrealized loss in 1999 of $0.6 million primarily due to capital expenditures on the property that were not reflected as an increase in market value. Occupancy at the shopping center located in Roswell, GA decreased from 98% at December 31, 1998 to 97% at December 31, 1999. The retail portfolio located in Kansas City, KS and Kansas City, MO had an average occupancy of 90% at December 31, 1999. As of December 31, 1999, all vacant spaces were being marketed. INDUSTRIAL PROPERTIES Net investment income from property operations for the industrial properties decreased from $1.3 million in 1998 to $0.9 million in 1999. The majority of this 32.5% decrease was a result of the sale of Pomona Industrial Park, including the land, offset by an increase in net investment income for the industrial properties located in Aurora, CO and Salt Lake City, UT due to increased occupancy. The three industrial properties owned by the Partnership experienced a net unrealized gain of approximately $210,000 and $334,000 in 1999 and 1998, respectively. The majority of the increase for 1999 was attributable to the Aurora, CO industrial property due to improved market conditions, higher market rental rates, and the absorption of vacant space. The Pomona, CA property was sold on December 17, 1998 for $21.4 million and resulted in a realized gain of $1.2 million. The occupancy at the Bolingbrook, IL property was 100% at December 31, 1999 and 1998. The occupancy at the Salt Lake City, Utah property increased to 34% at December 31, 1999 from 0% at December 31, 1998. The Aurora, 10 CO property's occupancy rate increased from 46% at December 31, 1998 to 75% at December 31, 1999. As of December 31, 1999, all vacant spaces were being marketed. REAL ESTATE INVESTMENT TRUST During 1999, the Partnership recognized a realized gain of $401,713 from the conversion of 506,894 shares of Meridian REIT to 557,583 shares of ProLogis REIT. This was offset by a realized loss of $478,497 primarily as a result of the sale of 171,375 ProLogis REIT shares and other investments in REIT stocks. Management continued applying a 3% discount to the market value of the ProLogis REIT shares through June 29, 1999 because of a restriction which limits the number of shares that can be publicly traded during any six month period. The application of the 3% discount was discontinued on June 30, 1999 because this restriction no longer applied. OTHER Other net investment income decreased $0.6 million during 1999 when compared to the corresponding period in 1998. Other net investment income includes interest income from short-term investments, investment management fees, and expenses not related to property activities. 1998 VS. 1997 The following table presents a comparison of the Partnership's sources of net investment income, and realized and unrealized gains or losses by investment type, for the twelve months ended December 31, 1998 and December 31, 1997.
YEAR ENDED DECEMBER 31, 1998 1997 ------------------- -------------------- NET INVESTMENT INCOME: Office properties $ 7,269,613 $ 5,499,107 Apartment complexes 4,493,384 3,891,465 Retail property 2,702,234 2,856,357 Industrial properties 1,325,320 2,138,111 Income from interest in properties 33,462 435,296 Dividend income from real estate investment trust 669,100 158,184 Other (including interest income, Investment management fee, etc.) (659,600) (1,188,773) ------------------- -------------------- TOTAL NET INVESTMENT INCOME $ 15,833,513 $ 13,789,747 ------------------- -------------------- ------------------- --------------------
11
YEAR ENDED DECEMBER 31, 1998 1997 ------------------- -------------------- REALIZED AND UNREALIZED GAIN(LOSS) ON INVESTMENTS: Office properties $ 3,034,542 $ 1,897,749 Apartment complexes 2,387,054 1,053,061 Retail property (1,312,296) 1,109,099 Industrial properties 1,563,429 1,616,942 Interest in properties 91,538 284,581 Real estate investment trust (969,156) 2,523,800 ------------------- -------------------- TOTAL REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS $ 4,795,111 $ 8,485,232 ------------------- -------------------- ------------------- --------------------
The Partnership's net investment income for 1998 was $15.8 million, an increase of $2.0 million from the prior year. This increase was primarily the result of increased revenues from real estate and improvements partially offset by increased operating expenses. Revenue from real estate and improvements was $24.6 million in 1998, an increase of $3.0 million, or 13.9%, from 1997. This increase was primarily due to higher occupancy at the Lisle, IL office building and the Aurora, CO distribution center coupled with increased rental rates on other properties. Interest on short-term investments decreased $0.4 million from 1997. This was primarily due to lower average cash and cash equivalent balances during 1998 compared to the prior year. Cash and cash equivalents through the third quarter of 1998 averaged approximately $30 million, but increased significantly in the last quarter of 1998 due to the sales of two properties in Pomona, CA and Farmington Hills, MI. Property operating expenses increased $0.8 million, or 23.5%, from 1997. This increase was due primarily to a full year's operating costs (i.e. electricity, repair and maintenance, water, etc.) for one of the Brentwood, TN properties, which was acquired in late 1997 in addition to operating expenses incurred by the Partnership on vacant properties. Administrative expenses decreased $0.3 million or 16.1%. This decrease was due primarily to a reduction in legal expenses. There was no interest expense during 1998 due to the Partnership exercise of its purchase option under the capital lease obligation. OFFICE PROPERTIES In 1998, net investment income from property operations for the office properties increased $1.8 million, or 32.2%, from prior year. The increase was primarily due to a full year's net investment income for one of the Brentwood, TN properties which was acquired in late 1997, as well as the leasing of vacant space in the Lisle, IL office property. Office properties experienced a net unrealized gain of $3.0 million in 1998 due to improving office market conditions in most of the geographical areas where the Partnership has office properties, particularly, the Oakbrook Terrace, IL office property in suburban Chicago. 12 Occupancy at the Beaverton, OR; Oakbrook Terrace, IL; and Brentwood, TN properties remained at 100% as of December 31, 1998 while occupancy at the Lisle, IL office property increased from 37% to 96% at December 31, 1998. Occupancy at the Morristown, NJ property decreased from 99% to 86%. APARTMENT COMPLEXES Net investment income from property operations for the apartment complexes increased $0.6 million, or 15.5%, from 1997. The majority of this increase was due to increased rental rates at the Atlanta, GA apartment complex. Holdings in the Partnership's two apartment complexes experienced a net unrealized gain of $0.6 million during 1998. The Atlanta, GA property was the largest contributor to the gain as it appreciated $0.4 million. The gain was attributable to increased rental rates at the property. The Raleigh, NC property experienced a net unrealized gain of $0.2 million due to increased occupancy rates. The Farmington Hills, MI property was sold on October 7, 1998 for a price of $16.9 million, which resulted in a realized gain of $1.7 million. At the end of December 31, 1998, occupancy at the Atlanta, GA and Raleigh, NC apartment complex was 96% and 93%, respectively. RETAIL PROPERTY In 1998, the retail center experienced a net unrealized loss of $1.3 million, a reflection of lower rents. Occupancy at the shopping center was 98% at December 31, 1998, which is an increase of 2% from the prior year. INDUSTRIAL PROPERTIES Net investment income from property operations for the industrial properties decreased $0.8 million, or 38.0%, from 1997. The decrease was attributable to the sale of Pomona Industrial Park, which accounted for 82% of the decrease. The three industrial properties experienced a net unrealized gain of $0.3 million during 1998. The Pomona, CA property was sold on December 17, 1998 for $21.4 million, which resulted in a realized gain of $1.2 million. Occupancy at the Bolingbrook, IL property remained unchanged at 100%. Occupancy at the Salt Lake City, UT and Aurora, CO property increased to 33.6% and 46%, respectively from prior year. REAL ESTATE INVESTMENT TRUST On September 24, 1997 the Partnership acquired 506,894 shares of Meridian Industrial REIT. Dividend income from the REIT increased $0.5 million from 1997. The Partnership held 506,894 shares of Meridian Industrial REIT throughout 1998. As of December 31, 1998, these REIT shares experienced an unrealized loss of $1.0 million. The Valuation Unit of Prudential applies a 3% discount to the market value of the REIT shares. This discount is applied because of the restriction which limits the number of shares that can be publicly traded during any six month period to 30% of the total shares originally acquired. OTHER Other net investment loss, which includes interest income from short-term investments, investment management fees, and expenses not related to property activities narrowed by $0.5 million. The improved result was due to increased investment management fee in addition to a reduction in administrative expenses. 13 (c) PER SHARE INFORMATION Following is an analysis of the Partnership's net investment income and net realized and unrealized gain (loss) on investments, presented on a per share basis:
01/01/99 01/01/98 01/01/97 to to to 12/31/99 12/31/98 12/31/97 -------- -------- -------- Revenue from real estate and improvements $ 2.16 $ 2.07 $ 1.82 Equity in income of real estate partnership $ 0.01 $ 0.00* $ 0.04 Dividend income from real estate investment trusts $ 0.12 $ 0.06 $ 0.01 Interest on short-term investments $ 0.17 $ 0.16 $ 0.20 ------- ------- ------- TOTAL INVESTMENT INCOME $ 2.46 $ 2.29 $ 2.07 ------- ------- ------- Investment management fee $ 0.27 $ 0.25 $ 0.22 Real estate taxes $ 0.26 $ 0.20 $ 0.19 Administrative expense $ 0.22 $ 0.17 $ 0.20 Operating expense $ 0.38 $ 0.34 $ 0.28 Interest expense $ 0.02 $ 0.00 $ 0.02 Minority interest in consolidated partnership $ 0.00* $ 0.00 $ 0.00 -------- ------- ------- TOTAL INVESTMENT EXPENSES $ 1.15 $ 0.96 $ 0.91 ------- ------- ------- NET INVESTMENT INCOME $ 1.31 $ 1.33 $ 1.16 ------- ------- ------- Net realized gain (loss) on real estate investments sold or converted ($ 0.00)* $ 0.26 $ 0.03 --------- ------- ------- Change in unrealized gain (loss) on real estate investments ($ 0.72) $ 0.15 $ 0.69 Minority interest in unrealized gain (loss) on investments ($ 0.00)* $ 0.00 $ 0.00 --------- ------- ------- Net unrealized gain (loss) on real estate investments ($ 0.72) $ 0.15 $ 0.69 -------- ------- ------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ($ 0.72) $ 0.41 $ 0.72 -------- ------- ------- -------- ------- ------- Net change in share value $ 0.59 $ 1.74 $ 1.88 Share value at beginning of period $ 20.27 $ 18.53 $ 16.65 ------- ------- ------- Share value at end of period $ 20.86 $ 20.27 $ 18.53 ------- ------- ------- ------- ------- ------- Ratio of expenses to average net assets 5.33% 4.99% 5.16% Ratio of net investment income to average net assets 6.12% 6.97% 6.66% Number of shares outstanding at end of period (000's) 10,079 11,848 11,848
ALL CALCULATIONS ARE BASED ON AVERAGE MONTH-END SHARES OUTSTANDING WHERE APPLICABLE. * Per Share amount less than $0.01 (rounded) 14 (d) INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS Certain of the statements contained in Management's Discussion and Analysis may be considered forward-looking statements. Words such as "expects," "believes," "anticipates," "intends," "plans," or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects upon the Partnership. There can be no assurance that future developments affecting the Partnership will be those anticipated by management. There are certain important factors that could cause actual results to differ materially from estimates or expectations reflected in such forward-looking statements including without limitation, changes in general economic conditions, including the performance of financial markets and interest rates; market acceptance of new products and distribution channels; competitive, regulatory or tax changes that affect the cost or demand for the Partnership's products; and adverse litigation results. While the Partnership reassesses material trends and uncertainties affecting its financial position and results of operations, it does not intend to review or revise any particular forward-looking statement referenced in this Management's Discussion and Analysis in light of future events. The information referred to above should be considered by readers when reviewing any forward-looking statements contained in this Management's Discussion and Analysis. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Account and the Partnership are not subject to significant exposure to market rate risk for changes in interest rates because the Partnership's financial instruments consist primarily of short-term fixed rate commercial paper and neither the Account nor the Partnership use derivative financial instruments. Further, by policy, the Partnership places its investments with high quality debt security issuers, limits the amount of credit exposure to any one issuer, limits duration by restricting the term, and holds investments to maturity except under rare circumstances. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and supplementary data are listed in the accompanying Index to the Financial Statements and Supplementary Data on F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT DIRECTORS AND OFFICERS The directors and major officers of Pruco Life of New Jersey, listed with their principal occupations during the past 5 years, are shown below. DIRECTORS OF PRUCO LIFE OF NEW JERSEY JAMES J. AVERY, JR., CHAIRMAN AND DIRECTOR - President, Prudential Individual Life Insurance since 1998; 1997 to 1998: Senior Vice President, Chief Actuary and CFO, Prudential Individual Insurance Group; 1995 to 1997: President, Prudential Select. Age 48. WILLIAM M. BETHKE, DIRECTOR - Chief Investment Officer, Prudential since 1997; prior to 1997: President, Prudential Capital Markets Group. Age 53. IRA J. KLEINMAN, DIRECTOR - Executive Vice President, Prudential International Insurance Group since 1997; 1995 to 1997: Chief Marketing and Product Development Officer, Prudential Individual Insurance Group. Age 53. ESTHER H. MILNES, PRESIDENT AND DIRECTOR - Vice President and Chief Actuary, Prudential Individual Life Insurance since 1999; prior to 1999: Vice President and Actuary, Prudential Individual Insurance Group. Age 49. I. EDWARD PRICE, VICE CHAIRMAN AND DIRECTOR - Senior Vice President and Actuary, Prudential Individual Life Insurance since 1998; 1995 to 1998: Senior Vice President and Actuary, Prudential Individual Insurance Group. Age 57. DAVID R. ODENATH, JR, DIRECTOR - President, Prudential Investments since 1999; prior to 1999: Senior Vice President and Director of Sales, Investment Consulting Group at Paine Webber. Age 43. OFFICERS WHO ARE NOT DIRECTORS C. EDWARD CHAPLIN, TREASURER - Vice President and Treasurer, Prudential since 1995. Age 43. JAMES C. DROZANOWSKI, SENIOR VICE PRESIDENT - Vice President, Operations and Systems, Prudential Individual Financial Services since 1998; 1996 to 1998: Vice President and Operations Executive, Prudential Individual Insurance Group; 1995 to 1996: President, Credit Card Division, Chase Manhattan Bank. Age 57. CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER AND SECRETARY - Chief Counsel, Variable Products, Prudential Law Department since 1995. Age 40. EDWARD A. MINOGUE, SENIOR VICE PRESIDENT - Senior Vice President, Operations and Systems, Prudential Group Insurance since 1999; 1997 to 1999: Vice President, Annuity Services, Prudential Investments; prior to 1997: Director, Merrill Lynch. Age 57. IMANTS SAKSONS, SENIOR VICE PRESIDENT - Vice President, Prudential Select Brokerage, Individual Financial Services since 1999; 1998 to 1999: Vice President, Compliance, Prudential Individual Financial Services; prior to 1998: Vice President, Market Conduct, U.S. Operations, Manulife Financial. Age 49. 16 SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY - Vice President and Associate Actuary, Prudential since 1996; prior to 1996: Vice President and Assistant Actuary, Prudential Corporate Risk Management. Age 45. DENNIS G. SULLIVAN, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER - Vice President and Deputy Controller, Prudential since 1998; 1997 to 1998: Vice President and Controller, ContiFinancial Corporation; prior to 1997: Director, Salomon Brothers. Age 44. The business address of all directors and officers of Pruco Life of New Jersey is 213 Washington Street, Newark, New Jersey 07102-2992. Pruco Life of New Jersey directors and officers are elected annually. ITEM 11. EXECUTIVE COMPENSATION The Real Property Account does not pay any fees, compensation or reimbursement to any Director or Officer of the Registrant. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Not applicable. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Related Transactions in note 7 of Notes to Financial Statements of the Partnership on page F - 21. 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements See the Index to Financial Statements and Supplementary Data on page F-1. 2. Financial Statement Schedules The following financial statement schedules of The Prudential Variable Contract Real Property Partnership should be read in conjunction with the financial statements in Item 8 of this Annual Report on Form 10-K: Schedule III. Real Estate Owned: Properties Schedule III. Real Estate Owned: Interest in Properties See the Index to Financial Statements and Supplementary Data on page F-1. 3. Documents Incorporated by Reference See the following list of exhibits. 4. Exhibits See the following list of exhibits. (b) None. (c) The following is a list of Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. The Registrant will furnish a copy of any Exhibit listed below to any security holder of the Registrant who requests it upon payment of a fee of 15 cents per page. All Exhibits are either contained in this Annual Report on Form 10-K or are incorporated by reference as indicated below. 3.1 Amended Articles of Incorporation of Pruco Life Insurance Company of New Jersey filed as Exhibit 1.A.(6)(a) to Post Effective Amendment No. 17 to Form S-6, Registration Statement No. 2-89780, filed March 1, 1991, and incorporated herein by reference. 3.2 Amended By-Laws of Pruco Life Insurance Company of New Jersey, filed as Exhibit 1.A.(6)(b) to Post-Effective Amendment No. 17 to Form S-6, Registration Statement No. 2-89780, filed March 1, 1991, and incorporated herein by reference. 3.3 Resolution of the Board of Directors establishing the Pruco Life of New Jersey Variable Contract Real Property Account, filed as Exhibit (3C) to Form S-1, Registration Statement No. 33-20018, filed February 5, 1988, and incorporated herein by reference. 4.1 Variable Life Insurance Contract filed as Exhibit A(5) to Form N-8B-2, Registration Statement No. 2-81243, filed January 10, 1983, and incorporated herein by reference. 4.2 Revised Variable Appreciable Life Insurance Contract with fixed death benefit, filed as Exhibit 1.A.(5)(c) to Post-Effective Amendment No. 5 to Form S-6, Registration Statement No. 2-89780, filed July 11, 1986, and incorporated herein by reference. 4.3 Revised Variable Appreciable Life Insurance Contract with variable death benefit, filed as Exhibit 1.A.(5)(d) to Post-Effective Amendment No. 5 to Form S-6, Registration Statement No. 2-89780, filed July 11, 1986, 18 and incorporated herein by reference. 4.4 Single Premium Variable Annuity Contract, filed as Exhibit 4(i) to Form N-4, Registration Statement No. 2-99616, filed August 13, 1985, and incorporated herein by reference. 4.5 Flexible Premium Variable Life Insurance Contract, filed as Exhibit 1.A.(5) to Form S-6, Registration Statement No. 2-99537, filed August 8, 1985, and incorporated herein by reference. 9. None. 10.1 Investment Management Agreement between The Prudential Insurance Company of America and The Prudential Variable Contract Real Property Partnership filed as Exhibit (10A) to Post- Effective Amendment No. 2 to Form S-1, Registration Statement No. 33-20018, filed April 6, 1990, and incorporated herein by reference. 10.2 Service Agreement between The Prudential Insurance Company of America and The Prudential Investment Corporation, filed as Exhibit (10B) to Form S-1, Registration Statement No. 33-8698, filed September 12, 1986, and incorporated herein by reference. 10.3 Partnership Agreement of The Prudential Variable Contract Real Property Partnership filed as Exhibit (10C) to Post-Effective Amendment No. 2 to Form S-1, Registration Statement No. 33-20018, filed April 6, 1990, and incorporated herein by reference. 11. Not applicable. 12. Not applicable. 13. None. 18. None. 21. Not applicable. 22. Not applicable. 23. None. 24. Power of Attorney: W. Bethke, I. Kleinman, and I. Price incorporated by reference to Form N-4, Registration No. 333-18117, filed December 18, 1996 on behalf of the Pruco Life of New Jersey Flexible Premium Variable Annuity Account. J. Avery incorporated by reference to Form S-1, Registration No. 33-20018, filed April 9, 1998 on behalf of the Pruco Life of New Jersey Variable Contract Real Property Account. 27. Not applicable. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY IN RESPECT OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT (REGISTRANT) Date: March 29, 2000 By: /s/ ---------------------- ---------------------- Esther H. Milnes President Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE - --------- ----- ---- * Chairman and Director March 29, 2000 --------------------------- James J. Avery, Jr. * Director March 29, 2000 --------------------------- William M. Bethke * Director March 29, 2000 --------------------------- Ira J. Kleinman /s/ President and Director March 29, 2000 --------------------------- Esther H. Milnes * Vice Chairman and Director March 29, 2000 --------------------------- I. Edward Price /s/ Vice President and Chief March 29, 2000 --------------------------- Accounting Officer Dennis G. Sullivan * Director March 29, 2000 - --------------------------- David R. Odenath, Jr *By: /s/ --------------------- Thomas C. Castano (Attorney-in-Fact) 20 PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT (REGISTRANT) INDEX
PAGE ---- A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT Financial Statements: Report of Independent Accountants F-2 Statements of Net Assets - December 31, 1999 and 1998 F-3 Statements of Operations - Years Ended December 31, 1999, 1998, 1997 F-3 Statements of Changes in Net Assets - Years Ended December 31, 1999, 1998, 1997 F-3 Notes to Financial Statements F-4 B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP Financial Statements: Report of Independent Accountants F-8 Report of Independent Accountants on Financial Statement Schedules F-9 Statements of Assets and Liabilities - December 31, 1999 and 1998 F-10 Statements of Operations - Years Ended December 31, 1999, 1998 and 1997 F-11 Statements of Changes in Net Assets - Years Ended December 31, 1999, 1998 and 1997 F-12 Statements of Cash Flows - Years Ended December 31, 1999, 1998 and 1997 F-13 Schedule of Investments - December 31, 1999 and 1998 F-14 Notes to Financial Statements F-17 Financial Statement Schedules: For the period ended December 31, 1999 Schedule III - Real Estate Owned: Properties F-22 Schedule III - Real Estate Owned: Interest in Properties F-23
All other schedules are omitted because they are not applicable, or because the required information is included in the financial statements or notes thereto. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Contract Owners of the Pruco Life of New Jersey Variable Contract Real Property Account and the Board of Directors of Pruco Life Insurance Company of New Jersey In our opinion, the accompanying statements of net assets and the related statements of operations and changes in net assets present fairly, in all material respects, the financial position of Pruco Life of New Jersey Variable Contract Real Property Account at December 31, 1999 and 1998, and the results of its operations and the changes in its net assets for the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of Pruco Life Insurance Company of New Jersey's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of shares owned in The Prudential Variable Contract Real Property Partnership at December 31, 1999 and 1998, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York March 17, 2000 F-2 PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT
STATEMENTS OF NET ASSETS December 31, 1999 and 1998 1999 1998 ----------- ------------------ ASSETS Investment in The Prudential Variable Contract Real Property Partnership (Note 3) $ 9,074,151 $ 9,260,250 ----------- ------------------ Net Assets $ 9,074,151 $ 9,260,250 ----------- ------------------ ----------- ------------------ NET ASSETS, representing: Equity of contract owners (Note 4) $ 5,925,394 $ 6,428,170 Equity of Pruco Life Insurance Company of New Jersey (Note 2D) 3,148,757 2,832,080 ----------- ------------------ $ 9,074,151 $ 9,260,250 ----------- ------------------ ----------- ------------------ STATEMENTS OF OPERATIONS For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ------------ ------------------ ---------------- INVESTMENT INCOME Net investment income from Partnership operations $ 579,075 $ 611,358 $ 550,770 ------------ ------------------ ---------------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration (Note 5) 35,718 38,644 38,614 ------------ ------------------ ---------------- NET INVESTMENT INCOME 543,357 572,714 512,156 ------------ ------------------ ---------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net change in unrealized gain (loss) on investments in Partnership (308,127) 67,858 326,681 Realized gain (loss) on sale of investments in Partnership (1,445) 117,819 12,223 ------------ ------------------ ---------------- NET GAIN (LOSS) ON INVESTMENTS (309,572) 185,677 338,904 ------------ ------------------ ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 233,785 $ 758,391 $ 851,060 ------------ ------------------ ---------------- ------------ ------------------ ---------------- STATEMENTS OF CHANGES IN NET ASSETS For the years ended December 31, 1999, 1998 and 1997 1999 1998 1997 ------------ ------------------ ---------------- OPERATIONS Net investment income $ 543,357 $ 572,714 $ 512,156 Net change in unrealized gain (loss) on investments in Partnership (308,127) 67,858 326,681 Net realized gain (loss) on sale of investments in Partnership (1,445) 117,819 12,223 ------------ ------------------ ---------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 233,785 758,391 851,060 ------------ ------------------ ---------------- CAPITAL TRANSACTIONS Net withdrawals by contract owners (Note 7) (642,611) (759,469) (524,157) Net contributions by Pruco Life Insurance Company of New Jersey 222,727 493,113 562,771 ------------ ------------------ ---------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS (419,884) (266,356) 38,614 ------------ ------------------ ---------------- TOTAL INCREASE (DECREASE) IN NET ASSETS (186,099) 492,035 889,674 NET ASSETS: Beginning of year 9,260,250 8,768,215 7,878,541 ------------ ------------------ ---------------- End of year $ 9,074,151 $ 9,260,250 $ 8,768,215 ------------ ------------------ ---------------- ------------ ------------------ ----------------
F-3 NOTES TO THE FINANCIAL STATEMENTS OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT DECEMBER 31, 1999 NOTE 1: GENERAL Pruco Life of New Jersey Variable Contract Real Property Account ("Real Property Account") was established on October 30, 1987 by resolution of the Board of Directors of Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), an indirect wholly-owned subsidiary of The Prudential Insurance Company of America ("Prudential"), as a separate investment account pursuant to New Jersey law. The assets of the Real Property Account are segregated from Pruco Life of New Jersey'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 of New Jersey. These products are Appreciable Life ("VAL"), Variable Life ("VLI"), Discovery Plus ("SPVA"), and Discovery Life Plus ("SPVL"). The assets of the Real Property Account are invested in The Prudential Variable Contract Real Property Partnership (the "Partnership"). The Partnership is organized under New Jersey law and is registered under the Securities Act of 1933. The Partnership is the investment vehicle for assets allocated to the real estate investment option under certain variable life insurance and annuity contracts. The Real Property Account, along with the Pruco Life Variable Contract Real Property Account and The Prudential Variable Contract Real Property Account, are the sole investors in the Partnership. The Partnership has a policy of investing at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. BASIS OF ACCOUNTING The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States ("GAAP"). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. B. INVESTMENT IN PARTNERSHIP INTEREST The investment in the Partnership is based on the Real Property Account's proportionate interest of the Partnership's market value. At December 31, 1999 and 1998 the Real Property Account's interest in the Partnership was 4.3% or 435,051 shares and 3.9% or 456,853 shares respectively. C. INCOME RECOGNITION Net investment income and realized and unrealized gains and losses are recognized daily. Amounts are based upon the Real Property Account's proportionate interest in the Partnership. D. EQUITY OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY Pruco Life of New Jersey maintains a position in the Real Property Account for property acquisitions and capital expenditure funding needs. The position is also utilized for liquidity purposes including unit purchases and redemptions, Partnership share transactions, and expense processing. The position does not have an effect on the contract owner's account or the related unit value. F-4 NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP The number of shares (rounded) held by the Real Property Account in the Partnership, the Partnership net asset value per share (rounded) and the aggregate cost of investments in the Real Property Accounts' shares held at December 31, 1999 and December 31, 1998 were as follows:
DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- NUMBER OF SHARES (ROUNDED): 435,051 456,853 NET ASSET VALUE PER SHARE (ROUNDED): $20.86 $20.27 COST: $5,058,737 $5,311,507
NOTE 4: CONTRACT OWNER UNIT INFORMATION Outstanding contract owner units, unit values and total value of contract owner equity at December 31, 1999 and December 31, 1998 by product, were as follows:
1999: - ----- VAL VLI SPVA SPVL TOTAL --- --- ---- ---- ----- CONTRACT OWNER UNITS OUTSTANDING: 2,497,281 446,482 57,529 66,927 UNIT VALUE: $ 1.92825 $ 1.99254 $ 1.77073 $ 1.77073 ---------- ---------- ---------- ---------- TOTAL CONTRACT OWNER EQUITY: $4,815,383 $ 889,633 $ 101,868 $ 118,510 $5,925,394 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1998: - ----- VAL VLI SPVA SPVL TOTAL --- --- ---- ---- ----- CONTRACT OWNER UNITS OUTSTANDING: 2,800,465 475,689 62,086 66,824 UNIT VALUE: $ 1.88513 $ 1.94314 $ 1.74229 $ 1.74229 ---------- ---------- ---------- ---------- TOTAL CONTRACT OWNER EQUITY: $5,279,240 $ 924,330 $ 108,772 $ 116,428 $6,428,170 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NOTE 5: CHARGES AND EXPENSES A. MORTALITY RISK AND EXPENSE RISK CHARGES Mortality risk and expense risk charges are determined daily using an effective annual rate of 0.6%, 0.35%, 0.9% and 0.9% for VAL, VLI, SPVA, SPVL, respectively. Mortality risk is that life insurance and annuity contract owners may not live as long as estimated or annuitants may live longer than estimated and expense risk is that the cost of issuing and administering the policies may exceed related charges by Pruco Life of New Jersey. B. ADMINISTRATIVE CHARGES Administrative charges are determined daily using an effective annual rate of 0.35% applied daily against the net assets representing equity of contract owners held in each subaccount for SPVA and SPVL. Administrative charges include costs associated with issuing the contract, establishing and maintaining records, and providing reports to contract owners. C. COST OF INSURANCE AND OTHER RELATED CHARGES Contract owner contributions are subject to certain deductions prior to being invested in the Real Property Account. The deductions for VAL and VLI are (1) state premium taxes; (2) sales charges which are deducted in order to compensate Pruco Life of New Jersey for the cost of selling the contract and (3) transaction costs, applicable to VAL, are deducted from each premium payment to cover premium collection and processing costs. Contracts are also subject to monthly charges for the costs of administering the contract to compensate Pruco Life of New Jersey for the guaranteed minimum death benefit risk. F-5 D. DEFERRED SALES CHARGE Subsequent to a contract owner redemption, a deferred sales charge is imposed upon surrenders of certain variable life insurance contracts to compensate Pruco Life of New Jersey for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the contract was issued. No sales charge will be imposed after the sixth and tenth year of the contract for SPVL and VAL, respectively. No sales charge will be imposed on death benefits. E. PARTIAL WITHDRAWAL CHARGE A charge is imposed by Pruco Life of New Jersey on partial withdrawals of the cash surrender value for VAL. A charge equal to the lesser of $15 or 2% will be made in connection with each partial withdrawal of the cash surrender value of a contract. NOTE 6: TAXES Pruco Life of New Jersey is taxed as a "life insurance company" as defined by the Internal Revenue Code and the results of operations of the Real Property Account form a part of Prudential's consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Real Property Account. As such, no provision for the tax liability has been recorded in these financial statements. NOTE 7: NET WITHDRAWALS BY CONTRACT OWNERS Contract owner activity for the real estate investment option in Pruco Life of New Jersey's variable insurance and variable annuity products for the years ended December 31, 1999, 1998 and 1997 were as follows:
1999: - ----- VAL VLI SPVA SPVL TOTAL --- --- ---- ---- ----- Contract Owner Net Payments: $ 133,235 $ 44,778 $ 0 $ (9) $ 178,004 Policy Loans: (206,458) (11,382) 0 (1,005) (218,845) Policy Loan Repayments and Interest: 295,414 10,661 0 2,140 308,215 Surrenders, Withdrawals, and Death Benefits: (278,883) (57,044) (7,957) 0 (343,884) Net Transfers From(To) Other Subaccounts or Fixed Rate Option: (288,687) (14,518) 0 0 (303,205) Administrative and Other Charges: (232,010) (29,982) 43 (947) (262,896) ---------- ---------- ---------- ---------- ---------- NET WITHDRAWALS BY CONTRACT OWNERS $(577,389) $ (57,487) $ (7,914) $ 179 $(642,611) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1998: - ----- VAL VLI SPVA SPVL TOTAL --- --- ---- ---- ----- Contract Owner Net Payments: $ 457,528 $ 83,120 $ 0 $ 70 $ 540,718 Policy Loans: (415,907) (12,329) 0 (26,073) (454,309) Policy Loan Repayments and Interest: 147,539 21,940 0 2,028 171,507 Surrenders, Withdrawals, and Death Benefits: (289,995) (60,417) (32,020) (11) (382,443) Net Transfers From(To) Other Subaccounts or Fixed Rate Options: (319,287) (17,694) 0 0 (336,981) Administrative and Other Charges: (264,212) (32,789) (36) (924) (297,961) ---------- ---------- ---------- ---------- ---------- NET WITHDRAWALS BY CONTRACT OWNERS $(684,334) $ (18,169) $ (32,056) $ (24,910) $(759,469) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- F-6 1997: - ----- VAL VLI SPVA SPVL TOTAL --- --- ---- ---- ----- Contract Owner Net Payments: $ 533,340 $ 88,026 $ (5) $ 37 $ 621,398 Policy Loans: (171,484) (14,313) 0 (2,456) (188,253) Policy Loan Repayments and Interest: 136,212 14,124 0 1,104 151,440 Surrenders, Withdrawals, and Death Benefits: (336,616) (74,935) (5,395) 0 (416,946) Net Transfers From(To) Other Subaccounts or Fixed Rate Options: (304,993) (20,526) 0 (17,463) (342,982) Administrative and Other Charges: (315,155) (32,755) 0 (904) (348,814) ---------- ---------- ---------- ---------- ---------- NET WITHDRAWALS BY CONTRACT OWNERS $(458,696) $ (40,379) $ (5,400) $ (19,682) $(524,157) ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
NOTE 8: UNIT ACTIVITY Transactions in units for the years ended December 31, 1999, 1998, 1997 were as follows:
1999: - ----- VAL VLI SPVA SPVL --- --- ---- ---- Contract Owner Contributions: 223,951 29,238 26 1,215 Contract Owner Redemptions: (527,135) (58,445) (4,583) (1,112) 1998: - ----- VAL VLI SPVA SPVL --- --- ---- ---- Contract Owner Contributions: 428,040 59,733 3 1,240 Contract Owner Redemptions: (808,537) (69,561) (19,312) (16,223) 1997: VAL VLI SPVA SPVL --- --- ---- ---- Contract Owner Contributions: 477,493 4,305 0 758 Contract Owner Redemptions: (757,408) (88,132) (3,635) (13,874)
NOTE 9: PURCHASES AND SALES OF INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments in the Partnership for the year ended December 31, 1999 were as follows: Purchases: $ 0 Sales: $ (455,602)
F-7 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of Prudential Variable Contract Real Property Partnership: In our opinion, the accompanying consolidated statements of assets and liabilities, including the schedule of investments, and the related consolidated statements of operations, of changes in net assets and of cash flows present fairly, in all material respects, the financial position of Prudential Variable Contract Real Property Partnership (the "Partnership") at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the management of The Prudential Insurance Company of America; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York February 17, 2000 F-8 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Partners of Prudential Variable Contract Real Property Partnership: Our audit of the consolidated financial statements referred to in our report dated February 17, 2000 also included an audit of the accompanying financial statement schedules. In our opinion, these financial statement schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP New York, New York February 17, 2000 F-9 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 DECEMBER 31, 1998 ----------------- ----------------- ASSETS REAL ESTATE INVESTMENTS - At estimated market value: Real estate and improvements (cost: 12/31/99 -- $190,007,568; 12/31/98 -- $170,045,055) $171,154,516 $155,374,462 Real estate partnership (cost plus equity in undistributed earnings: 12/31/99 -- $5,187,126; 12/31/98 -- $0) 4,506,257 0 Real estate investment trusts (cost: 12/31/99 -- $32,535,158; 12/31/98 -- $10,000,005) 29,727,085 11,554,649 ----------------- ----------------- Total real estate investments 205,387,858 166,929,111 MARKETABLE SECURITIES - At estimated market value (cost: 12/31/99 -- $2,805,493; 12/31/98 -- $14,967,236) 2,797,008 14,950,525 CASH AND CASH EQUIVALENTS 13,972,669 58,578,848 DIVIDEND RECEIVABLE 131,542 167,275 OTHER ASSETS (net of allowance for uncollectible accounts: 12/31/99 -- $179,000; 12/31/98 -- $66,000) 2,853,576 3,623,513 ----------------- ----------------- Total assets 225,142,653 244,249,272 ----------------- ----------------- LIABILITIES MORTGAGE LOAN PAYABLE 10,184,662 0 ACCOUNTS PAYABLE AND ACCRUED EXPENSES 2,967,614 1,985,400 DUE TO AFFILIATES 869,477 1,598,535 OTHER LIABILITIES 525,892 504,940 MINORITY INTEREST 372,068 0 ----------------- ----------------- Total liabilities 14,919,713 4,088,875 ----------------- ----------------- Partners' equity 210,222,940 240,160,397 ----------------- ----------------- TOTAL LIABILITIES AND PARTNERS' EQUITY $225,142,653 $244,249,272 ----------------- ----------------- ----------------- ----------------- NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 10,078,921 11,848,275 ----------------- ----------------- ----------------- ----------------- SHARE VALUE AT END OF PERIOD $20.86 $20.27 ----------------- ----------------- ----------------- -----------------
SEE NOTES TO FINANCIAL STATEMENTS F-10 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- INVESTMENT INCOME: Revenue from real estate and improvements $21,807,346 $24,572,642 $21,582,968 Equity in income of real estate partnership 98,375 33,462 435,296 Dividend income from real estate investment trusts 1,221,843 669,100 158,184 Interest on short-term investments 1,707,485 1,888,348 2,305,364 ----------- ----------- ----------- Total investment income 24,835,049 27,163,552 24,481,812 ----------- ----------- ----------- EXPENSES: Investment managment fee 2,730,713 2,900,445 2,640,470 Real estate taxes 2,616,553 2,406,624 2,208,972 Administrative 2,234,949 1,951,235 2,326,155 Operating 3,794,081 4,071,735 3,296,350 Interest 145,418 0 220,118 Minority interest in consolidated partnership 33,746 0 0 ----------- ----------- ----------- Total investment expenses 11,555,460 11,330,039 10,692,065 ----------- ----------- ----------- NET INVESTMENT INCOME 13,279,589 15,833,513 13,789,747 ----------- ----------- ----------- REALIZED AND UNREALIZED (LOSS) GAIN ON INVESTMENTS Net proceeds from real estate investments sold or converted 21,649,562 37,443,762 6,297,422 Less: Cost of real estate investments sold or converted 19,602,032 37,361,533 6,274,539 Realization of prior periods' unrealized gain (loss) on real estate investments sold or converted 2,080,673 (2,969,150) (283,157) ----------- ----------- ----------- Net (loss) gain realized on real estate investments sold or converted (33,143) 3,051,379 306,040 ----------- ----------- ----------- Change in unrealized (loss) gain on real estate investments (7,145,372) 1,743,732 8,179,192 Minority interest in unrealized gain on investments (38,531) 0 0 ----------- ----------- ----------- Net unrealized (loss) gain on real estate investments (7,183,903) 1,743,732 8,179,192 ----------- ----------- ----------- NET REALIZED AND UNREALIZED (LOSS) GAIN ON INVESTMENTS (7,217,046) 4,795,111 8,485,232 ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $6,062,543 $20,628,624 $22,274,979 ----------- ----------- ----------- ----------- ----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS F-11 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, ------------------------------------------------------ 1999 1998 1997 ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: Net investment income $13,279,589 $15,833,513 $13,789,747 Net (loss) gain realized on real estate investments sold (33,143) 3,051,379 306,040 Net unrealized (loss) gain from real estate investments (7,183,903) 1,743,732 8,179,192 ------------ ------------ ------------ Net increase in net assets resulting from operations 6,062,543 20,628,624 22,274,979 ------------ ------------ ------------ NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS: Withdrawals by partners (1999 -- 1,769,354, 1998 -- 0, and 1997 -- 0 shares, respectively) (36,000,000) 0 0 ------------ ------------ ------------ Net decrease in net assets resulting from capital transactions (36,000,000) 0 0 ------------ ------------ ------------ NET INCREASE IN NET ASSETS (29,937,457) 20,628,624 22,274,979 NET ASSETS - Beginning of year 240,160,397 219,531,773 197,256,794 ------------ ------------ ------------ NET ASSETS - End of year $210,222,940 $240,160,397 $219,531,773 ------------ ------------ ------------ ------------ ------------ ------------
SEE NOTES TO FINANCIAL STATEMENTS F-12 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net increase in net assets resulting from operations $6,062,543 $20,628,624 $22,274,979 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Net realized and unrealized loss (gain) on investments 7,217,046 (4,795,111) (8,485,232) Equity in income of real estate partnership's operations in excess of distributions (98,376) 0 0 Minority interest from operating activities 33,746 0 0 Bad debt expense 124,059 28,264 99,929 Decrease (increase) in: Dividend receivable 35,733 (20,276) (146,999) Other assets 645,878 (1,704,926) 20,136 (Decrease) increase in: Obligation under capital lease 0 0 (72,677) Accounts payable and accrued expenses 982,214 143,373 201,667 Due to affiliates (729,058) 765,613 113,722 Other liabilities 20,952 (33,473) 71,404 ----------- ----------- ----------- Net cash flows from operating activities 14,294,737 15,012,088 14,076,929 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from real estate investments sold 10,706,996 37,443,762 6,297,422 Acquisition of real estate property (7,200,743) 0 (23,417,474) Acquisition of real estate partnership (5,088,750) 0 0 Acquisition of real estate investment trust (31,239,744) 0 (10,000,005) Improvements and additional costs on prior purchases: Additions to real estate owned (2,516,645) (5,736,333) (1,311,864) Sale (purchase) of marketable securities, net 12,153,517 (1,021,229) 10,497,348 ----------- ----------- ----------- Net cash flows from investing activities (23,185,369) 30,686,200 (17,934,573) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Withdrawals by partners (36,000,000) 0 0 Principal payments on mortgage loans payable (15,338) 0 0 Distributions to minority interest partners (93,425) 0 0 Contributions from minority interest partners 393,216 0 0 Principal payments on capital lease obligation 0 0 (4,000,000) ----------- ----------- ----------- Net cash flows from financing activities (35,715,547) 0 (4,OO0,000) ----------- ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS (44,606,179) 45,698,288 (7,857,644) CASH AND CASH EQUIVALENTS - Beginning of year 58,578,848 12,880,560 20,738,204 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - End of year $13,972,669 $58,578,848 $12,880,560 ----------- ----------- ----------- ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest $145,418 $0 $220,118 ----------- ----------- ----------- ----------- ----------- ----------- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITY: Assumption of Mortgage Loan Payable $10,200,000 $0 $0 ----------- ----------- ----------- ----------- ----------- -----------
SEE NOTES TO FINANCIAL STATEMENTS F-13 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE OF INVESTMENTS
DECEMBER 31,1999 DECEMBER 31,1998 ---------------------------------- ---------------------------- ESTIMATED ESTIMATED COST MARKET VALUE COST MARKET VALUE ----------------------------------------------------------------------- REAL ESTATE AND IMPROVEMENTS (PERCENT OF NET ASSETS) 81.4% 64.7% Location Description - -------------------------------------------------------------------------------------------------------------------------------- Lisle, IL Office Building $22,075,782 $13,895,122 $21,634,707 $14,123,742 Atlanta, GA Garden Apartments 15,646,846 16,104,268 15,601,495 15,651,216 Roswell, GA Retail Shopping Center 32,394,853 27,000,939 32,272,627 28,649,176 Morristown, NJ Office Building 20,116,694 12,337,499 19,409,490 11,596,138 Bolingbrook, IL Warehouse 8,948,028 7,000,000 8,948,028 7,000,000 Raleigh, NC Garden Apartments 15,833,928 17,004,623 15,822,682 16,804,570 Nashville, TN Office Building 8,509,908 10,000,000 8,448,026 10,152,399 Oakbrook Terrace, IL Office Complex 12,945,366 14,200,000 12,945,366 15,750,000 Beaverton, OR Office Complex 10,768,811 10,400,866 10,728,618 11,200,000 Salt Lake City, UT Industrial Building 5,640,709 5,703,419 5,388,134 5,450,000 Aurora, CO Industrial Building 10,119,072 10,520,780 9,304,171 9,497,221 Brentwood, TN Office Complex 9,606,828 9,537,000 9,541,711 9,500,000 Jacksonville, FL Garden Apartments 17,400,743 17,450,000 0 0 ---------------------------------------------------------------------- $190,007,568 $171,154,516 $170,045,055 $155,374,462 ---------------------------------------------------------------------- ---------------------------------------------------------------------- REAL ESTATE PARTNERSHIPS (PERCENT OF NET ASSETS) 2.1% Location Description - -------------------------------------------------------------------------------------------------------------------------------- Kansas City, KS; MO Retail Shopping Center $5,187,126 $4,506,257 $0 $0 ---------------------------------------------------------------------- ---------------------------------------------------------------------- REAL ESTATE INVESTMENT TRUSTS (PERCENT OF NET ASSETS) 14.1% 4.8% - -------------------------------------------------------------------------------------------------------------------------------- Prologis REIT Shares (386,208 shares) $7,579,332 $7,434,504 - - AMB Property Corp (42,100 shares) 933,851 839,369 - - Alexandria Real Est Equities (30,800 shares) 874,221 979,825 - - Apartment Inv & Mgmt Co - Class A (16,500 shares) 672,953 656,906 - - Centerpoint Properties Corp (16,200 shares) 544,308 581,175 - - Cousins Properties (24,800 shares) 890,459 841,650 - - Equity Office Properties Trust (32,400 shares) 901,571 797,850 - - Equity Residential Property Trust (13,100 shares) 623,573 559,206 - - Excel Legacy Corp (322,300 shares) 1,479,431 1,067,619 - - Franchise Finance Cp Amer (25,500 shares) 620,027 610,406 - - General Growth Properties (13,600 shares) 512,353 380,800 - - Intrawest Corporation (76,100 shares) 1,258,575 1,317,481 - - MeriStar Hotels & Resorts Inc. (239,100 shares) 875,818 851,794 - - Mission West Properties (116,800 shares) 938,124 905,200 - - Philips International Realty (63,700 shares) 1,052,331 1,047,069 - - Prime Hospitality Corp. (112,500 shares) 1,320,524 991,406 - - Public Storage (45,100 shares) 1,269,884 1,023,206 - - Reckson Service Industries (18,200 shares) 221,041 1,135,225 - - Reckson Assoc Realty Corp (52,200 shares) 1,299,227 1,070,100 - - Spieker Properties (12,000 shares) 426,078 437,250 - - Starwood Hotels and Resorts (87,200 shares) 3,027,806 2,049,200 - - Sun Communities Inc. (16,700 shares) 606,047 537,531 - - Vornado Realty Trust (51,800 shares) 1,930,911 1,683,500 - - Sun International Hotels Ltd (30,900 shares) 1,116,266 598,688 - - Boardwalk Equities, Inc. (146,800.shares) 1,560,447 1,330,125 - - Meridian REIT Shares (506,894 shares) - - 10,000,005 11,554,649 ---------------------------------------------------------------------- $32,535,158 $29,727,085 $10,000,005 $11,554,649 ---------------------------------------------------------------------- ---------------------------------------------------------------------- MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.3% 6.2% Description (See next page for details) - ------------------------------------------------------------------------------------------------------------------------------- TOTAL MARKETABLE SECURITIES $2,805,493 $2,797,008 $14,967,236 $14,950,525 CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 6.6% 24.4% Description (See next page for details) - ------------------------------------------------------------------------------------------------------------------------------- TOTAL CASH AND CASH EQUIVALENT $13,972,669 $13,972,669 $58,578,848 $58,578,848 ---------------------------------------------------------------------- ----------------------------------------------------------------------
*Real estate partnership accounted for by the consolidated method. SEE NOTES TO FINANCIAL STATEMENTS F-14 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE OF INVESTMENTS
DECEMBER 31, 1999 ----------------------------------------------------- NET ESTIMATED FACE AMOUNT COST MARKET VALUE -------------- ----------- ------------- MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 1.3% J.P. Morgan and Co., Inc., 5.96%, March 13, 2000 $ 995,000 980,010 $ 980,010 Ford Motor Credit Co., 7.50%, April 6, 2000 150,000 151,779 150,654 CIT Group Inc., 6.80%, April 17, 2000 500,000 503,765 501,487 Associates Corp of North America, 6.71 %, June 1, 2000 1,160,000 1,169,939 1,164,857 -------------- ----------- ------------- TOTAL MARKETABLE SECURITIES $ 2,805,000 $ 2,805,493 $ 2,797,008 -------------- ----------- ------------- -------------- ----------- ------------- CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 6.6% Duke Energy Corp., 5.00%, January 3, 2000 550,000 549,771 549,771 Bell Atlantic Financial Services, 5.20%, January 7, 2000 672,000 671,321 671,321 Household Finance Corp, 5.93%, January 18, 2000 990,000 983,314 983,314 Ford Motor Credit Co., 6.00%, January 21, 2000 847,000 840,789 840,789 American Express Cr. Corp., 6.02%, January 26, 2000 999,000 990,981 990,981 Procter & Gamble Co., 6.00%, January 26, 2000 200,000 197,867 197,867 Goldman Sachs Group L.P., 6.43%, January 31, 2000 1,000,000 991,963 991,963 Countrywide Home Loans, 6.00%, February 3, 2000 990,000 980,595 980,595 Merrill Lynch & Co., Inc., 5.98%, February 3, 2000 990,000 980,626 980,626 Unifunding Inc., 6.05%, February 3, 2000 900,000 892,135 892,135 Metlife Funding Inc., 5.90%, February 4, 2000 841,000 832,730 832,730 General Electric Cap Corp., 5.95%, February 10 2000 350,000 346,182 346,182 GTE Funding, Inc., 6.10%, February 10, 2000 1,000,000 990,681 990,681 E.I. Du Pont De Nemours & Co. Inc., 6.00%, February 11, 2000 250,000 246,667 246,667 General Electric Capital Corp., 5.92% March 1, 2000 406,000 400,258 400,258 -------------- ----------- ------------- TOTAL CASH EQUIVALENTS 10,985,000 10,895,880 10,895,880 CASH 3,076,789 3,076,789 3,076,789 -------------- ----------- ------------- TOTAL CASH AND CASH EQUIVALENTS $14,061,789 $13,972,669 $13,972,669 -------------- ----------- ------------- -------------- ----------- -------------
SEE NOTES TO FINANCIAL STATEMENTS F-15 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE OF INVESTMENTS
DECEMBER 31,1998 -------------------------------------------- NET ESTIMATED FACE AMOUNT COST MARKET VALUE ----------- ----------- ------------- MARKETABLE SECURITIES (PERCENT OF NET ASSETS) 6.2% General Motors Acceptance Corp., 5.26%, January 26, 1999 $830,000 $817,556 $817,556 American Express Credit Corp., 7.375%, February 1, 1999 325,000 329,342 325,418 Canadian Imperial Bank of Commerce, 5.55%, February 10, 1999 1,000,000 999,520 999,947 Federal National Mortgage Assoc., 5.33%, February 12, 1999 100,000 99,703 99,703 Salomon Smith Barney Holdings, Inc., 5.38%, February 16, 1999 1,720,000 1,695,137 1,695,397 General Motors Acceptance Corp., 5.29 %, February 17, 1999 650,000 641,501 641,501 Chrysler Financial Company LLC , 5.26%, February 22, 1999 2,400,000 2,365,700 2,365,700 International Lease Finance Corp. 7.50% March 1, 1999 500,000 508,250 501,367 Federal Home Loan Mortgage Corp., 5.505%, March 12, 1999 1,000,000 1,000,856 1,000,630 General Motors Acceptance Corp., 6.04%, March 19, 1999 1,000,000 1,003,480 1,000,707 Merrill Lynch & CO., Inc. 5.23%, March 19, 1999 1,790,000 1,758,820 1,758,820 Canadian Wheat Board, 5.14%, April 1, 1999 2,000,000 1,962,406 1,962,406 International Lease Finance Corp., 6.625%, April 1, 1999 375,000 377,419 375,721 CIT Group Holdings, Inc, 6.375%, May 21, 1999 400,000 402,120 400,873 Federal National Mortgage Assoc., 6.07%, July 1, 1999 1,000,000 1,005,426 1,004,779 ----------- ----------- ------------- TOTAL MARKETABLE SECURITIES $15,090,000 $14,967,236 $14,950,525 ----------- ----------- ------------- ----------- ----------- ------------- CASH AND CASH EQUIVALENTS (PERCENT OF NET ASSETS) 24.4% Countrywide Home Loans, 5.403%, January 4, 1999 $1,000,000 $999,400 $999,400 Fortune Brands Inc. 5.05%, January 4, 1999 3,463,000 3,461,057 3,461,057 Xerox Capital (Europe) PLC 5.303%, January 4, 1999 3,483,000 3,480,949 3,480,949 Federal National Mortgage Assoc, 5.77%, January 5, 1999 10,401,000 10,000,000 10,000,000 Ford Motor Credit Co, 5.454%, January 5, 1999 500,000 499,622 499,622 Pioneer Hi-BRED International, 5.665%, January 7, 1999 1,000,000 997,332 997,332 Ford Motor Credit Co., 6.11%, January 8, 1999 167,000 166,717 166,717 Deere & Co., 5.372 %, January 13, 1999 2,520,000 2,509,514 2,509,514 E.I. Du Pont De Nemours & Co., Inc. 5.277%, January 13, 1999 648,000 644,598 644,598 Household Finance Corp., 5.356 %, January 13, 1999 175,000 174,119 174,119 Household Finance Corp., 5.355%, January 15, 1999 2,343,000 2,331,899 2,331,899 Potomac Electric Power Co., 5.569%, January 15, 1999 3,122,000 3,110,930 3,110,930 Chrysler Financial Corp., 5.537%, January 25, 1999 1,164,000 1,158,121 1,158,121 Eastman Kodak Co., 5.232%, January 26, 1999 2,518,000 2,502,360 2,502,360 Cigna Corp., 5.559%, January 27, 1999 1,819,000 1,809,220 1,809,220 Cigna Group Holdings, Inc. 5.334%, January 27, 1999 1,851,000 1,835,496 1,835,496 Countrywide Home Loan, Inc. 5.506%, January 27, 1999 1,342,000 1,333,028 1,333,028 Countrywide Home Loan, Inc. 5.587%, January 27, 1999 1,177,000 1,169,197 1,169,197 General RE Corp., 5.187%, January 29, 1999 542,000 538,046 538,046 PNC Funding Corp. 5.728%, January 29, 1999 2,500,000 2,487,729 2,487,729 GTE Funding, Inc, Inc, 5.211%, February 1, 1999 2,526,000 2,506,048 2,506,048 Norwest Financial, Inc. 5.536%, February 3, 1999 3,563,000 3,539,593 3,539,593 CIGNA Corp., 5.233%, February 4, 1999 1,745,000 1,730,660 1,730,660 General Electric Capital Corp. 5.537%, February 4, 1999 3,563,000 3,539,049 3,539,049 Associates First Capital Corp., 5.241%, February 8, 1999 2,519,000 2,498,988 2,498,988 GTE Funding, Inc., 5.304%, February 11, 1999 1,000,000 993,413 993,413 ----------- ----------- ------------- TOTAL CASH EQUIVALENTS 56,651,000 56,017,086 56,017,086 CASH 2,561,762 2,561,762 2,561,762 ----------- ----------- ------------- TOTAL CASH AND CASH EQUIVALENTS $59,212,762 $58,578,848 $58,578,848 ----------- ----------- ------------- ----------- ----------- -------------
SEE NOTES TO FINANCIAL STATEMENTS F-16 NOTES TO FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 NOTE 1: ORGANIZATION On April 29, 1988, The Prudential Variable Contract Real Property Partnership (the "Partnership"), a general partnership organized under New Jersey law, was formed through an agreement among The Prudential Insurance Company of America ("Prudential"), Pruco Life Insurance Company ("Pruco Life"), and Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"). The Partnership was established as a means by which assets allocated to the real estate investment option under certain variable life insurance and variable annuity contracts issued by the respective companies could be invested in a commingled pool. The partners in the Partnership are Prudential, Pruco Life and Pruco Life of New Jersey. The Partnership's policy is to invest at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans. The estimated market value of the Partnership's shares is determined daily, consistent with the Partnership Agreement. On each day during which the New York Stock Exchange is open for business, the net asset value of the Partnership is estimated using the estimated market value of its assets, principally as described in Notes 2A and 2B below, reduced by any liabilities of the Partnership. The periodic adjustments to property values described in Notes 2A and 2B below and other adjustments to previous estimates are made on a prospective basis. There can be no assurance that all such adjustments to estimates will be made timely. Shares of the Partnership are held by Prudential Variable Contract Real Property Account, Pruco Life Variable Contract Real Property Account and Pruco Life of New Jersey Variable Contract Real Property Account (the "Real Property Accounts") and may be purchased and sold at the then current share value of the Partnership's net assets. Share value is calculated by dividing the estimated market value of net assets of the Partnership as determined above by the number of shares outstanding. A Contract owner participates in the Partnership through interests in the Real Property Accounts. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A: BASIS OF PRESENTATION - It is the Partnership's policy to consolidate those real estate partnerships in which it has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in the consolidation. B: REAL ESTATE INVESTMENTS - The Partnership's investments in real estate are initially valued at their purchase price. Thereafter, real estate investments are reported at their estimated market values based upon appraisal reports prepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter. The Chief Appraiser of Prudential Insurance Company's Valuation Unit (Valuation Unit) is responsible to assure that the valuation process provides independent and accurate market value estimates. In the interest of maintaining and monitoring the independence and accuracy of the appraisal process, the Comptroller of 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; engages all external appraisers; reviews and provides comments on all external appraisals; prepares all quarterly update appraisals; assists in developing policies and procedures and assists in the evaluation of the performance and competency of external appraisers. F-17 The purpose of an appraisal is to estimate the market value of real estate as of a specific date. Market value has been defined as the most probable price for which the appraised real estate will sell in a competitive market under all conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest, and assuming that neither is under undue duress. The estimate of market value generally is a correlation of three approaches, all of which require the exercise of subjective judgment. The three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and economic obsolescence; (2) discounting of a series of income streams and reversion at a specified yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable properties in the market space. In the reconciliation of these three approaches, the one most heavily relied upon is the one then recognized as the most appropriate by the independent appraiser for the type of real estate in the market. Real estate partnerships are valued at the Partnership's equity in net assets as reflected in the partnership's financial statements with properties valued as described above. The market value of real estate and real estate partnerships does not reflect transaction costs which may be incurred at disposition. As described above, the estimated market value of real estate and real estate related assets is determined through an appraisal process. These estimated market values may vary significantly from the prices at which the real estate investments would sell since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. Although the estimated market values represent subjective estimates, management believes these estimated market values are reasonable approximations of market prices and the aggregate value of investments in real estate is fairly presented as of December 31, 1999 and 1998. C: INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS - Shares of real estate investment trusts (REITs) are generally valued at their quoted market price. These values may be adjusted for discounts resulting from restrictions, if any, on the future sale of these shares, such as lockout periods or limitations on the number of shares which may be sold in a given time period. Any such discounts are determined by the Valuation Unit. On March 30, 1999, the Partnership converted 506,894 shares of Meridian REIT to 557,583 shares of ProLogis REIT, fair value of $10,942,566, and cash of $1,013,796 (or total fair value of $11,956,362) as a result of ProLogis' acquisition of Meridian. Management continued applying a 3% discount to the market value of the ProLogis REIT shares through June 29, 1999 because of the restriction which limits the number of shares that can be publicly traded during any six month period to 30% of the total shares originally acquired. The application of the 3% discount was discontinued on June 30, 1999 because this restriction no longer applied. D: REVENUE RECOGNITION - Rent from real estate is recognized when billed. Revenue from certain real estate investments is net of all or a portion of related real estate expenses and taxes. Since real estate is stated at estimated market value, net income is not reduced by depreciation and amortization expense. Dividend income is accrued at the ex-dividend date. E: EQUITY IN INCOME OF REAL ESTATE PARTNERSHIPS - Equity in income from real estate partnership operations represents the Partnership's share of the current year's partnership income as provided for under the terms of the partnership agreements. As is the case with wholly-owned real estate, partnership net income is not reduced by depreciation or amortization expense. Frequency of distribution of income is determined by formal agreements or by the executive committees of the partnerships. F-18 F: MORTGAGE LOAN PAYABLE - Mortgage loan payable is stated at the principal amount of the obligation outstanding. G: CASH AND CASH EQUIVALENTS - For purposes of the Statement of Cash Flows, all short-term investments with an original maturity of three months or less are considered to be cash equivalents. Cash of $72,861 and $114,745 at December 31, 1999 and 1998, respectively, was maintained by the properties for tenant security deposits and is included in Other Assets on the Statements of Assets and Liabilities. H: MARKETABLE SECURITIES - Marketable securities are highly liquid investments with maturities of more than three months when purchased and are carried at estimated market value. I: FEDERAL INCOME TAXES - The Partnership is not a taxable entity under the provisions of the Internal Revenue Code. The income and capital gains and losses of the Partnership are attributed, for federal income tax purposes, to the Partners in the Partnership. The Partnership may be subject to state and local taxes in jurisdictions in which it operates. J: MANAGEMENT'S USE OF ESTIMATES IN THE FINANCIAL STATEMENTS - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-19 NOTE 3: REAL ESTATE PARTNERSHIP Real estate partnership is valued at the Partnership's equity in net assets as reflected by the partnership's financial statements with properties valued as indicated above. The partnership's financial position at December 31, 1999 and 1998, and results from operations for the years then ended are summarized as follows:
December 31, 1999 1998 --------------------------------------- Partnership Assets and Liabilities Real Estate at estimated market value $26,350,000 $0 Other Assets 1,685,059 0 ----------- --------- Total Assets 28,035,059 0 ----------- --------- Mortgage loans payable 20,889,782 0 Other Liabilities 1,250,146 0 ----------- --------- Total Liabilities 22,139,928 0 ----------- --------- Net Assets $5,895,131 $0 ----------- --------- ----------- --------- Partnership's Share of Net Assets $4,506,257 $0 ----------- --------- ----------- --------- December 31, 1999 1998 --------------------------------------- Partnership Operations Rental Revenue $926,283 $33,462 Other Revenue 0 0 ----------- --------- Total Revenue 926,283 33,462 ----------- --------- Real Estate Expenses and Taxes 795,115 0 ----------- --------- Net Investment Income $131,168 $33,462 ----------- --------- ----------- --------- Partnership's Share of Net Investment Income $98,375 $33,462 ----------- ---------
NOTE 4: DEBT The mortgage loan has a variable interest rate which is adjusted annually. The rate is equal to the 6-month Treasury rate plus 1.565%. It is subject to a maximum of 11.345% and a minimum of 2.345%. The change from year to year may not be more than 2%. At December 31, 1999, the rate was 6.845%. As of December 31, 1999, the mortgage loan payable was payable as follows:
Year Ending December 31, (000's) ------------ ---------- 2000 $ 96 2001 105 2002 112 2003 120 2004 127 Thereafter 9,625 -------- Total $ 10,185 -------- --------
The mortgage payable is secured by a real estate investment with an estimated market value of $17,450,000. F-20 NOTE 5: LEASING ACTIVITY The Partnership leases space to tenants under various operating lease agreements. These agreements, without giving effect to renewal options, have expiration dates ranging from 2000 to 2009. At December 31, 1999, the aggregate future minimum base rental payments under non-cancelable operating leases by year and in the aggregate are as follows (excluding apartment leases):
Year Ending December 31, (000's) ------------ ---------- 2000 $ 11,918 2001 10,543 2002 8,984 2003 5,718 2004 3,687 Thereafter 10,186 -------- Total $ 51,036 --------
NOTE 6: COMMITMENT FROM PARTNER In 1986, Prudential committed to fund up to $100 million to enable the Partnership to acquire real estate investments. Contributions to the Partnership under this commitment are utilized for property acquisitions, and returned to Prudential on an ongoing basis from Contract owners' net contributions and other available cash. The amount of the commitment is reduced by $10 million for every $100 million in current value net assets of the Partnership. Thus, with $225 million in net assets, the commitment has been automatically reduced to $80 million. As of December 31, 1999, Prudential's equity interest in the Partnership under this commitment was $45 million. Prudential does not intend to make any contributions during the 2000 fiscal year and will begin to phase out this commitment over the next several years. NOTE 7: RELATED TRANSACTIONS Pursuant to an investment management agreement, Prudential charges the Partnership a daily investment management fee at an annual rate of 1.25% of the average daily gross asset valuation of the Partnership. For the years ended December 31, 1999, 1998 and 1997 management fees incurred by the Partnership were $2.7 million; $2.9 million; and $2.6 million, respectively. The Partnership also reimburses Prudential for certain administrative services rendered by Prudential. The amounts incurred for the years ended December 31, 1999, 1998 and 1997 were $116,463; $116,128; and $115,346, respectively, and are classified as administrative expenses in the Statements of Operations. On February 1, 1999, Prudential and its partners withdrew $30 million from the Partnership. On December 23, 1999, Prudential and its partners withdrew $6 million from the Partnership. The Partnership owned a 50% interest in four warehouse/distribution buildings in Jacksonville, Florida (the Unit warehouses). The remaining 50% interest was owned by Prudential and one of its subsidiaries. In September 1997, the Unit warehouses were sold as part of an industrial package for cash of $12.5 million. The partnership's share of the proceeds was $6.3 million. F-21
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE III - REAL ESTATE OWNED: PROPERTIES DECEMBER 31, 1999 ----------------------------------------------------------------------------------- GROSS AMOUNT AT WHICH CARRIED INITIAL COSTS TO THE PARTNERSHIP AT CLOSE OF YEAR ---------------------------------------------- COSTS ------------------------------- CAPITALIZED BUILDING & SUBSEQUENT TO BUILDING & DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS - ---------------------------- -------------- -------------- -------------- --------------- ------------- -------------- Properties: Office Building Lisle, IL None 1,780,000 15,743,881 4,551,901 1,780,000 20,295,782 Garden Apartments Atlanta, GA None 3,631,212 11,168,904 846,730 (b) 3,631,212 12,015,634 Retail Shopping Center Roswell, GA None 9,454,622 21,513,677 1,426,554 9,500,725 22,894,128 Office Building Morristown, NJ None 2,868,660 12,958,451 4,289,583 2,868,660 17,248,034 Office/Warehouse Bolingbrook, IL None 1,373,199 7,302,518 272,311 1,373,199 7,574,829 Garden Apartments Raleigh, NC None 1,623,146 14,135,553 75,229 1,623,146 14,210,782 Office Building Nashville, TN None 1,797,000 6,588,451 124,457 1,797,377 6,712,531 Office Park Oakbrook Terrace, IL None 1,313,310 11,316,883 315,173 1,313,821 11,631,545 Office Building Beaverton, OR None 816,415 9,897,307 55,089 844,751 9,924,060 Industrial Building Salt Lake City, UT None 582,457 4,805,676 252,576 594,780 5,045,929 Industrial Building Aurora, CO None 1,338,175 7,202,411 1,578,486 1,415,159 8,703,913 Office Complex Brentwood, TN None 2,425,000 7,063,755 118,073 2,453,117 7,153,711 -------------- -------------- --------------- ------------- -------------- 29,003,196 129,697,467 13,906,162 29,195,947 143,410,878 -------------- -------------- --------------- ------------- -------------- -------------- -------------- --------------- ------------- -------------- GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF YEAR -------------------------------------------------------- 1999 YEAR OF DATE DESCRIPTION SALES TOTAL (a)(b)(c) CONSTRUCTION ACQUIRED - ---------------------------- ------- ----------------- -------------- ------------ Properties: Office Building Lisle, IL 22,075,782 1985 Apr., 1988 Garden Apartments Atlanta, GA 15,646,846 1987 Apr., 1988 Retail Shopping Center Roswell, GA 32,394,853 1988 Jan., 1989 Office Building Morristown, NJ 20,116,694 1981 Aug., 1988 Office/Warehouse Bolingbrook, IL 8,948,028 1989 Feb., 1990 Garden Apartments Raleigh, NC 15,833,928 1995 Jun., 1995 Office Building Nashville, TN 8,509,908 1982 Oct., 1995 Office Park Oakbrook Terrace, IL 12,945,366 1988 Dec., 1995 Office Building Beaverton, OR 10,768,811 1995 Dec., 1996 Industrial Building Salt Lake City, UT 5,640,709 1997 Jul., 1997 Industrial Building Aurora, CO 10,119,072 1997 Sep., 1997 Office Complex Brentwood, TN 9,606,828 1987 Oct., 1997 ------- ----------------- 0 172,606,825 ------- ----------------- ------- -----------------
1999 1998 1997 -------------- --------------- ------------- (a) Balance at beginning of year 170,045,055 201,670,248 177,082,291 Additions: Acquisitions 0 0 23,417,474 Improvements, etc. 2,561,770 5,827,888 1,170,483 Deletions: Sale 0 (37,453,081) 0 -------------- --------------- ------------- Balance at end of year 172,606,825 170,045,055 201,670,248 -------------- --------------- ------------- -------------- --------------- ------------- (b) Net of $1,000,000 settlement received from lawsuit.
F-22
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE III - REAL ESTATE OWNED: INTEREST IN PROPERTIES DECEMBER 31, 1999 ------------------------------------------------------------------------------------- GROSS AMOUNT AT WHICH CARRIED INITIAL COSTS TO THE PARTNERSHIP AT CLOSE OF YEAR -------------------------------- COSTS ------------------------------------- CAPITALIZED ENCUMBRANCES BUILDING & SUBSEQUENT TO BUILDING & 1999 DESCRIPTION AT 12/31/99 LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS SALES - ------------------------- --------------- ------------ ----------------- ------------- ----------- -------------- ------- Interest in Properties: Garden Apartments Jacksonville, FL 10,184,662 2,750,000 14,650,743 0 2,750,000 14,650,743 Retail Shopping Center Kansas City MO and KS * 15,968,149 5,710,916 15,211,504 232,855 5,710,916 15,444,359 --------------- ------------ ----------------- ------------- ----------- -------------- ------- 26,152,811 8,460,916 29,862,247 232,855 8,460,916 30,095,102 0 --------------- ------------ ----------------- ------------- ----------- -------------- ------- --------------- ------------ ----------------- ------------- ----------- -------------- ------- GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF YEAR ---------------------------------------------------- YEAR OF DATE DESCRIPTION TOTAL (a)(b)(c) CONSTRUCTION ACQUIRED - ------------------------- ----------------- ----------------- ------------- Interest in Properties: Garden Apartments Jacksonville, FL 17,400,743 1973 Sept., 1999 Retail Shopping Center Kansas City MO and KS * 21,155,275 Various Ranging Sept., 1999 From 1972-1992 ----------------- 38,556,018 ----------------- -----------------
1999 1998 1997 ----------------- ------------- ----------- (a) Balance at beginning of year 0 0 6,133,157 Additions: Acquisitions 38,556,018 0 0 Improvements, etc. 0 0 0 Deletions: Sale 0 0 (6,133,157) Encumbrances on Joint Ventures accounted for by the equity method (15,968,149) 0 0 ----------------- ------------- ----------- Balance at end of year 22,587,869 0 0 ----------------- ------------- -----------
* Partnership interest accounted for by the equity method. F-23 EX-27.1 2 EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF NET ASSETS; STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000829114 PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT 3-MOS DEC-31-1999 DEC-31-1999 0 0 0 0 0 0 0 0 9,074,151 0 0 0 0 0 9,074,151 9,074,151 0 579,075 0 35,718 0 0 0 233,785 0 233,785 0 0 0 233,785 0 0
EX-27.2 3 EXHIBIT 27.2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENTS OF ASSETS & LIABILITIES; STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 0000846581 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP 3-MOS DEC-31-1999 DEC-31-1999 13,972,669 2,797,008 0 179,000 0 225,142,653 0 0 225,142,653 14,919,713 0 0 0 0 210,222,940 225,142,653 0 24,835,049 0 11,555,460 0 0 0 6,062,543 0 6,062,543 0 0 0 6,062,543 0 0
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