10-K 1 c36089_10-k.txt ================================================================================ 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, 2004 ----------------- 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 [_] Amendment ______________________________________________________________________ Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES [_] NO [X] End of Amendment________________________________________________________________ ================================================================================ PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT (Registrant) INDEX ----- Item Page No. No. ----- ----- Cover Page Index 2 Forward-Looking Statement Disclosure 3 PART I 1. Business 4 2. Properties 6 3. Legal Proceedings 6 4. Submission of Matters to a Vote of Security Holders 6 PART II 5. Market for the Registrant's Interests, Related Security Holder Matters and Issuer Purchases of Equity Securities 7 6. Selected Financial Data 7 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 7A. Quantitative and Qualitative Disclosures About Market Risk 14 8. Financial Statements and Supplementary Data 14 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 14 9A. Controls and Procedures 14 9B. Other Information 14 PART III 10. Directors and Executive Officers of the Registrant 15 11. Executive Compensation 16 12. Security Ownership of Certain Beneficial Owners and Management 16 13. Certain Relationships and Related Transactions 16 14. Principal Accounting Fees and Services 16 PART IV 15. Exhibits, Financial Statement Schedules 17 Exhibit Index 17 Signatures 19 2 FORWARD-LOOKING STATEMENT DISCLOSURE Certain of the statements included in this Annual Report on Form 10-K, including but not limited to those in the Management's Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as "expects," "believes," "anticipates," "includes," "plans," "assumes," "estimates," "projects," "intends", or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management's current expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company of New Jersey ("the Company") or the Prudential Variable Contract Real Property Account (the "Real Property Account"). There can be no assurance that future developments affecting the Company or the Real Property Account will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including without limitation: general economic, market and political conditions, including the performance of financial markets, interest rate fluctuations and the continuing negative impact of the current economic environment; various domestic or international military or terrorist activities or conflicts, economic conditions in local markets in which the property in the Real Property Account are located; volatility in the securities markets; reestimates of our reserves for future policy benefits and claims; changes in our assumptions related to deferred policy acquisition costs; our exposure to contingent liabilities; catastrophe losses; investment losses and defaults; changes in our claims-paying or credit ratings; competition in our product lines and for personnel; fluctuations in foreign currency exchange rates and foreign securities markets; risks to our international operations; the impact of changing regulation or accounting practices; adverse litigation results; and changes in tax law. The Company does not intend, and is under no obligation to, update any particular forward-looking statement included in this document. 3 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. The Real Property Account was established as a separate investment account of Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), 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 Partnership, a general partnership organized under New Jersey law on April 29, 1988, was formed through an agreement among The Prudential Insurance Company of America, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey, 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. Office Properties--The Partnership owns office properties in Lisle and Oakbrook Terrace, Illinois; Brentwood, Tennessee; and Beaverton, Oregon. Total square footage owned is approximately 494,284 of which 68% or 333,951 square feet are leased between 1 and 10 years. Apartment Complexes--The Partnership owns apartment complexes in Atlanta, Georgia; Raleigh, North Carolina; Jacksonville, Florida; and Salem and Gresham, Oregon. There are a total of 1,253 apartment units available of which 91% or 1,135 units are leased. Leases range from month to month to one year. Two of the Partnership's Salem, Oregon apartment complexes, which had a total of 188 units, were sold on December 14, 2004. Retail Property--The Partnership owns retail centers in Roswell, Georgia; Kansas City, Kansas and Missouri; Ocean City, Maryland; and Hampton, Virginia. Total square footage owned is approximately 1,163,464 of which 84% or 979,251 square feet are leased between 1 and 30 years. Industrial Properties--The Partnership owns an industrial building in Aurora, Colorado. Total square footage owned is approximately 277,930 of which 66% or184,047 square feet are leased between 1 and 10 years. Hotel Property--On December 10, 2003, the Partnership invested in a hotel located in Lake Oswego, Oregon. This joint venture investment has 161 rooms. Occupancy for the year ended 2004 averaged 68.3%. 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. For information regarding the Partnership's investments, operations, and other significant events, see Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations and Financial Statements and Supplementary Data. 4 The following is a description of general conditions in the U.S. real estate markets. It does not relate to specific properties held by the Partnership. The Partnership does not have widely diversified holdings; therefore, the discussions of vacancy rates, property values and returns in this section are not necessarily relevant in the Partnership's portfolio. The results described are not indicative of future performance of the industry, or this account. REAL ESTATE MARKET OVERVIEW Real estate market fundamentals in most property sectors and markets remained relatively weak in 2004, but began to improve modestly in the second half of the year. Despite the generally weak property market conditions, robust capital flows into the sector and low interest rates continued to support asset values and drive investment performance. Private and public equity real estate investment benchmarks posted large gains in the fourth quarter and 2004 overall. The National Council of Real Estate Investment Fiduciaries' (NCREIF) Property Index, the benchmark for unleveraged private institutional real estate investments in the U.S., gained nearly 4.7% in the fourth quarter, which pushed the Index's one-year total return to more than 14.5%. OFFICE MARKET Office market fundamentals continued to improve during 4th quarter 2004. According to Torto Wheaton Research, a Boston-based real estate research firm, the national average office vacancy rate declined to 15.4% in the fourth quarter from 15.9% at the end of 3rd quarter 2004 and 16.8% at year-end 2003. Notably, the fourth quarter marked the sixth consecutive quarter of declining vacancy. The average suburban office vacancy rate declined to 16.6%, which marked a substantial improvement over the 18.6% vacancy rate at year-end 2003. Downtown vacancy rates also improved last year. The average vacancy rate for downtown office properties fell to 13.2% by year-end 2004 from 13.6% at the end of 2003. Although market rents for suburban and downtown office space remain soft, the improving job market and healthy investor demand for office properties helped the NCREIF office subindex deliver one-year total returns of about 12% in 2004, which included 4% appreciation and a one-year income return of nearly 7.8%. APARTMENT MARKET Property market trends remain most troubling in the apartment sector. Excess new supply, weak tenant demand, the rising homeownership rate and weak job market have eroded tenant demand in most markets. However, according to REIS, Inc., a national real estate research firm, market rents for apartment units appear to have stabilized and vacancies have improved modestly since year-end 2003. The national average apartment vacancy rate improved to 6.7% at year-end 2004 from 7.1% at the end of 2003. Despite the generally poor apartment market fundamentals, investor demand for apartment properties remains strong. Condo converters, investors who buy apartment and other properties for conversion to residential condominiums, emerged as aggressive capital sources in many markets last year and helped drive capitalization rates for apartment properties to very low levels. As a result, the apartment subindex of the NCREIF Property Index delivered a total return of 13.2% in 2004. The apartment return included more than 6.8% appreciation and a one-year income return of about 6.1%. RETAIL MARKET The retail sector benefited from favorable national trends in 2004. In addition to positive employment growth and an increase in consumer confidence, the International Council of Shopping Centers (ICSC) reports that chain store sales increased 3.8% in 2004, the largest gain since 2000. Landlords and investors enjoyed the strongest absorption in years as retailers continued to expand their store base. As a result, despite healthy construction activity, the vacancy rate for neighborhood and community shopping centers fell to 6.8% in 4th quarter 2004, according to REIS. This marked the 11th straight quarter with a vacancy rate at or below 7.1%. Retail rents continued to climb last year, increasing nearly 2.9% from year-end 2003, according to REIS. 5 The retail subindex remained the best-performing sector in the NCREIF index, returning 7.8% during 4th quarter 2004 and nearly 23% for the year overall. Robust appreciation accounted for a significant share of the retail sector's total return in the 4th quarter and for the year overall. Retail property values gained 5.9% in the fourth quarter and more than 14.4% for the year, which exceeded the total returns in all other property sectors. INDUSTRIAL MARKET Industrial space market fundamentals benefited from improvements in manufacturers' shipments, inventories and orders in 2004. The national average industrial vacancy rate continued to decline in 4th quarter 2004, falling to 10.8% at year-end, according to Torto Wheaton Research. This marks a modest improvement from year-end 2003, when the average vacancy rate peaked at about 11.6%. During the last property market downturn in the early 1990s, the national industrial vacancy rate peaked at about 10.7%. Despite the improvement in vacancy rates, the average rental rate at the end of 2004 was unchanged from one year earlier. The NCREIF industrial subindex delivered a 12.1% total return in 2004, including about 3.9% appreciation and an income return of 7.9%. HOTEL MARKET Although operating fundamentals in the hotel industry improved in 2004, the hotel sector remained the weakest of the NCREIF property types. According to Smith Travel Research, a national lodging industry research firm, average revenue per available room (RevPAR) improved 8.4% during 2004 versus year-end 2003. Importantly, improving occupancy and average daily room rates contributed to the improvement in RevPAR. Since year-end 2003, the average occupancy rate increased 3.5% to 56.9%, while the average daily room rate (ADR) increased 4.8% to $86.23. The NCREIF hotel subindex delivered a 10.2% total return in 2004, which included 2.0% appreciation, the lowest among the five property subtypes in the NCREIF index, and an 8.1% income return. 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. 6 PART II ITEM 5. MARKET FOR THE REGISTRANT'S INTERESTS, RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES 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 December 31, 2004 there were approximately 1,894 contract owners of record investing in the Real Property Account. ITEM 6. SELECTED FINANCIAL DATA

YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- RESULTS OF OPERATIONS: Total Investment Income ......................... $ 29,076,163 $ 27,060,494 $ 27,077,048 $ 27,480,593 $ 26,387,938 ============ ============ ============ ============ ============ Net Investment Income ........................... $ 7,799,606 $ 10,613,409 $ 10,864,043 $ 12,350,306 $ 13,638,117 Net Realized and Unrealized Gain (Loss) on Investment in Partnership .................... 3,280,394 (6,467,364) (8,517,663) (2,547,749) 4,487,022 ------------ ------------ ------------ ------------ ------------ Net Increase in Net Assets Resulting From Operations ....................... $ 11,080,000 $ 4,146,045 $ 2,346,380 $ 9,802,557 $ 18,125,139 ============ ============ ============ ============ ============ FINANCIAL POSITION:

YEAR ENDED DECEMBER 31, --------------------------------------------------------------------------- 2004 2003 2002 2001 2000 ---- ---- ---- ---- ---- Total Assets .................................... $240,575,611 $235,627,852 $229,720,113 $234,594,652 $221,512,296 ============ ============ ============ ============ ============ Mortgage Loan Payable ........................... $ 43,773,767 $ 43,934,494 $ 35,699,108 $ 28,994,521 $ 10,092,355 ============ ============ ============ ============ ============

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS All of the assets of the Real Property Account (the "Account") are invested in the Prudential Variable Contract Real Property Partnership (the "Partnership"). Correspondingly, the liquidity, capital resources and results of operations for the Real Property Account are contingent upon the Partnership. Therefore, all of management's discussion of these items is at the Partnership level. The partners in the Partnership are The Prudential Insurance Company of America, Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey (collectively, the "Partners"). The following analysis of the liquidity and capital resources and results of operations of the Partnership should be read in conjunction with the Consolidated Financial Statements and the related Notes to the Consolidated Financial Statements included elsewhere herein. (A) LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2004, the Partnership's liquid assets consisting of cash and cash equivalents were approximately $17.6 million, a decrease of approximately $1.3 million from $18.9 million at December 31, 2003. Sources of liquidity include net cash flow from property operations, interest from short-term investments, sales, and financings. The Partnership uses cash for its real estate investment activities and for distribution to its partners. As of December 31, 2004, 7.3% of the Partnership's total assets consisted of cash and short-term obligations. Dispositions for the year included the sale of two apartment complexes located in Salem, Oregon. The Joint Venture between the Partnership and its co-investor sold the two apartment complexes for a total of $7.1 million., which resulted in a realized gain of $1.7 million. 7 Subsequent to the end of the reporting period, one additional apartment asset located in Salem, Oregon sold for $4.65 million on March 10, 2005. Proceeds from the sale were used to fully payoff the Special Loan, resulting in a realized loss of approximately $1.6 million for the property. The Partnership spent approximately $8.3 million on capital improvements to existing properties. Approximately $2.5 million was associated with leasing related costs and tenant improvements at one of the office buildings located in Brentwood, Tennessee. $1.6 million was associated with renovation of the apartment complex in Atlanta, Georgia and $0.8 million was associated with renovation and redevelopment of the retail center in Roswell, GA. Of the remaining $3.4 million balance, $2.0 million was associated with the expansion of the retail center located in Ocean City, Maryland. The Partnership also increased its investment by approximately $0.2 million in connection with redevelopment and expansion activities at the retail centers located in Kansas City, Missouri. The Partnership provided, to a developer, short-term financing of approximately $5.0 million for the acquisition of a retail center located in Westminster, Maryland. The loan was repaid to the Partnership on September 13, 2004 together with interest at 10.5% upon obtaining third party construction financing. In addition, the Partnership invested in a Leasehold Mortgage Loan for the acquisition and redevelopment of an adjacent retail center in Westminster, Maryland. As of December 31, 2004, approximately $1.3 million was funded with interest accruing at 10% per annum. (B) RESULTS OF OPERATIONS DECEMBER 31, 2004 VS. DECEMBER 31, 2003 The following table presents a year-to-date comparison of the Partnership's sources of net investment income, and realized and unrealized gains or losses by investment type. TWELVE MONTHS ENDED DECEMBER 31, 2004 2003 ----------- ----------- NET INVESTMENT INCOME: Office properties ................................ $ 2,102,465 $ 2,039,750 Apartment complexes .............................. 2,191,107 3,361,638 Retail properties ................................ 4,728,171 6,638,838 Industrial properties ............................ 933,253 993,962 Hotel property ................................... 640,660 -- Other (including interest income, investment mgt fee, etc.) ...................... (2,796,050) (2,420,779) ----------- ----------- TOTAL NET INVESTMENT INCOME ...................... $ 7,799,606 $10,613,409 =========== =========== 8 TWELVE MONTHS ENDED DECEMBER 31, 2004 2003 ----------- ----------- NET REALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS: Apartment complexes .............................. $ 1,730,000 $ -- Industrial properties ............................ -- 466,061 ----------- ----------- TOTAL NET REALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS ........................ $ 1,730,000 $ 466,061 =========== =========== NET UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS: Office properties ................................ $ 222,384 $(5,776,072) Apartment complexes .............................. (653,211) (141,845) Retail properties ................................ 2,072,493 (455,340) Industrial properties ............................ (190,659) (560,168) Hotel property ................................... 99,387 -- ----------- ----------- TOTAL NET UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS ........................ 1,550,394 (6,933,425) =========== =========== NET REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS ........................ $ 3,280,394 $(6,467,364) =========== =========== NET INVESTMENT INCOME OVERVIEW The Partnership's net investment income for the year ended December 31, 2004 was $7.8 million, a decrease of $2.8 million when compared to the corresponding period in 2003. The decrease is due to the sale of two apartment complexes in Salem, Oregon, increased vacancy at the retail center located in Roswell, Georgia due to a late 2003 lease termination, increased rental concessions within the apartment portfolio, and soft market conditions and vacancy within the office portfolio. The Partnership's acquisition of a controlling interest in a 161-room hotel located in Lake Oswego, Oregon resulted in a full year of operating income, partially offsetting the decrease in total net investment income. In addition, net investment income in 2003 benefited from a $1.9 million lease termination fee with respect to the retail center located in Roswell, Georgia. Revenue increased $1.6 million in 2004 compared to 2003. Administrative expenses increased $1.7 million in 2004 compared to 2003. Operating expenses increased $2.4 million in 2004 compared to 2003. All of these increases were due to the Partnership's acquisition of a controlling interest in a 161-room hotel located in Lake Oswego, Oregon as discussed above. Equity in income of real estate partnership increased $0.07 million in 2004 compared to 2003. The increase is due to an increase in revenue associated with expansion of an existing retail center located in Ocean City, Maryland. Interest and equity income on mortgage loans receivable and other loans receivable was $0.14 million for the year ended December 2004. This was due to the Leasehold Mortgage Loan associated with the redevelopment of a retail center in Westminster, Maryland. Income from other real estate investments was $0.25 million for the year ended December 31, 2004. This was due to short-term financing for the acquisition of a retail center located in Westminster, Maryland. Interest on short-term investments decreased approximately $0.03 million in 2004 when compared to 2003. The decrease is due primarily to lower cash balances. 9 VALUATION OVERVIEW The Partnership recorded an unrealized gain of $3.3 million for the year ended December 31, 2004 compared to an unrealized loss of $6.9 million during the corresponding period in 2003. The 2004 unrealized gain was attributed to the retail and apartment sectors. The retail sector recorded an unrealized gain totaling $2.1 million, primarily due to strengthening market fundamentals, renovation and re-leasing efforts at the Partnership's retail centers. The apartment portfolio recorded unrealized and realized gain of $1.1 million. While market conditions remain soft in the apartment sector, continued investor demand has increased valuations. The two office assets located in Brentwood, Tennessee recorded unrealized gains of $3.4 million in 2004; however, this was offset by continued weak market fundamentals in the office sector. OFFICE PORTFOLIO

NET NET INVESTMENT INVESTMENT UNREALIZED UNREALIZED INCOME INCOME GAIN/(LOSS) GAIN/(LOSS) OCCUPANCY OCCUPANCY PROPERTY 12/31/04 12/31/03 12/31/04 12/31/03 12/31/04 12/31/03 ------------ ---------- ---------- ---------- ---------- --------- --------- YEAR TO DATE ------------ Lisle, IL $ 498,150 $ 709,818 $(2,161,087) $(1,910,862) 43% 47% Brentwood, TN 806,096 714,837 1,626,824 (515,685) 91% 79% Oakbrook Terrace, IL 404,805 102,262 (613,875) (1,528,934) 41% 42% Beaverton, OR 904,462 930,822 (400,000) (800,000) 72% 81% Brentwood, TN (511,048) (417,989) 1,770,522 (1,020,591) 100% 0% -------------------------------------------------------------------------------------------- $2,102,465 $2,039,750 $ 222,384 $(5,776,072) --------------------------------------------------------------------------------------------

NET INVESTMENT INCOME Net investment income for the Partnership's office portfolio was $2.1 million for the year ended December 31, 2004, an increase of $0.1 million, when compared to the corresponding period in 2003. UNREALIZED GAIN/LOSS The five office properties owned by the Partnership recorded an aggregate unrealized gain of approximately $0.2 million during 2004. Large gains were recorded at both assets in Brentwood, Tennessee, mainly due to strengthening market conditions, increasing rents, and stabilized occupancy. Offsetting these gains were losses recorded at the office complexes located in Lisle and Oakbrook Terrace, Illinois and Beaverton, Oregon primarily due to lower market rents, decreased occupancy, and lease up costs associated with attracting new tenants. The five office properties owned by the Partnership recorded an aggregate unrealized loss of approximately $5.8 million during 2003. The losses were primarily due to decreased occupancy, lower market rents, and increased lease up costs. APARTMENT COMPLEXES

NET NET INVESTMENT INVESTMENT UNREALIZED UNREALIZED INCOME INCOME GAIN/(LOSS) GAIN/(LOSS) OCCUPANCY OCCUPANCY PROPERTY 12/31/04 12/31/03 12/31/04 12/31/03 12/31/04 12/31/03 ------------ ---------- ---------- ---------- ---------- --------- --------- YEAR TO DATE ------------ Atlanta, GA $ 814,285 $ 819,908 $(1,946,818) $ (588,553) 88% 91% Raleigh, NC 559,605 738,292 262,271 95,512 95% 93% Jacksonville, FL 972,604 1,096,620 69,368 1,419,362 89% 91% Gresham/Salem, OR (155,387) 706,818 2,691,965 (1,068,166) 91% 90% ---------------------------------------------------------------------------------------------- $2,191,107 $3,361,638 $1,076,786 $ (141,845) ----------------------------------------------------------------------------------------------

10 NET INVESTMENT INCOME Net investment income for the Partnership's apartment complexes was $2.2 million for the year ended December 31, 2004, a decrease of $1.2 million, when compared to the corresponding period in 2003. The decrease was primarily due to (a) mortgage interest incurred for the complex located in Raleigh, North Carolina that was not applicable during the first six months of 2003, (b) the loss of income resulting from the sale of two apartment complexes in Salem, Oregon, and (c) soft market conditions affecting the remaining two apartment complexes located in Gresham/Salem, Oregon and Jacksonville, FL. UNREALIZED GAIN/LOSS The Partnership recorded an aggregate unrealized gain of $1.2 million for the year ended December 31, 2004 compared to an unrealized loss of $0.1 million for the year ended December 31, 2003 on its apartment complexes. The 2004 unrealized gain was primarily due to continued investor demand, which has caused an increase in valuations. The unrealized loss of $0.1 million in 2003 was mainly attributable to increased operating expenses at the apartment complexes located in Gresham/Salem, Oregon. RETAIL PROPERTIES

NET NET INVESTMENT INVESTMENT UNREALIZED UNREALIZED INCOME INCOME GAIN/(LOSS) GAIN/(LOSS) OCCUPANCY OCCUPANCY PROPERTY 12/31/04 12/31/03 12/31/04 12/31/03 12/31/04 12/31/03 ------------- ---------- ---------- ----------- ----------- --------- --------- YEAR TO DATE ------------ Roswell, GA $1,576,783 $4,403,743 $(2,536,369) $(1,571,423) 74% 76% Kansas City, KS; MO 623,917 560,660 2,727,694 (934,885) 81% 83% Hampton, VA 1,220,607 1,077,627 981,574 570,136 100% 100% Ocean City, MD 921,803 596,808 899,597 1,480,832 93% 100% Westminster, MD* 246,765 -- -- -- N/A N/A Westminster, MD** 138,296 -- -- -- N/A N/A ---------------------------------------------------------------------------------------------- $4,728,171 $6,638,838 $2,072,496 $ (455,340) ----------------------------------------------------------------------------------------------

* Other Real Estate Investment (Acquired October 2003) ** Mortgage Loan Receivable (Acquired January 2004) NET INVESTMENT INCOME Net investment income for the Partnership's retail properties decreased approximately $1.9 million for the year ended December 31, 2004 when compared to the corresponding period in 2003. The principal component of higher net investment income in 2003 was the $1.9 million lease termination payment received at the retail center located in Roswell, Georgia. Partially offsetting the decreases attributable to the Roswell, Georgia property were increases in net investment income at the center in Ocean City, Maryland as a result of the expansion and the interest income generated by the Leasehold Mortgage Loan associated with the two Westminster, Maryland redevelopments. It should also be noted that on April 15, 2003 the Partnership acquired its joint venture partner's membership interest in the retail center located in Hampton, Virginia, thus entitling the Partnership to all of the net investment income generated by the investment thereafter. In late 2004, a new lease was executed for a 45,600 square foot Publix grocery store in Roswell, Georgia; the lease term is 20 years; rent commences upon completion of a new store (estimated to be in late 2005). UNREALIZED GAIN/LOSS The retail properties recorded an aggregate unrealized gain of $2.1 million for the year ended December 31, 2004. The Kansas City, Kansas and Hampton, Virginia retail centers recorded unrealized gains primarily due to strengthening market fundamentals. The Ocean City, Maryland retail center recorded a gain due to completion of a pre-leased expansion of the center. Partially offsetting these gains was an unrealized loss of $2.5 million recorded at the retail center located in Roswell, Georgia due to the likely loss of a major anchor tenant at the expiration of its lease in January 2009. 11 The retail properties recorded an aggregate unrealized loss of $0.5 million for the year ended December 31, 2003. The retail center located in Hampton, Virginia had recorded an unrealized gain of $0.6 million in 2003 due to continued strengthening market fundamentals. The retail center in Ocean City, Maryland had recorded a net unrealized gain of $1.5 million in 2003 due to renovation and re-leasing efforts. Offsetting these gains was the unrealized loss for the Kansas City, Kansas retail centers, primarily due to renovations from the expansion of the existing grocery store anchor, which were not reflected as an increase in market value. In addition, an unrealized loss for the Roswell, Georgia retail center was recorded due to decreases in market rental rates and shorter-term lease renewals. INDUSTRIAL PROPERTIES

NET NET UNREALIZED/ UNREALIZED/ INVESTMENT INVESTMENT REALIZED REALIZED INCOME INCOME GAIN/(LOSS) GAIN/(LOSS) OCCUPANCY OCCUPANCY PROPERTY 12/31/04 12/31/03 12/31/04 12/31/03 12/31/04 12/31/03 ------------- ---------- ---------- ----------- ----------- --------- --------- YEAR TO DATE ------------ Aurora, CO $ 936,264 $ 687,743 $ (190,659) $(560,168) 66% 70% Bolingbrook, IL 2,603 (146) -- -- Sold September 2002 Salt Lake City, UT (5,614) 306,365 -- 466,061 Sold January 2003 --------------------------------------------------------------------------------------------- $ 933,253 $ 993,962 $ (190,659) $ (94,107) ---------------------------------------------------------------------------------------------

NET INVESTMENT INCOME Net investment income for the Partnership's industrial properties was $0.9 million for the year ended December 31, 2004, a decrease of $0.1 million, when compared to the corresponding period in 2003. The decrease was due to the loss of rent associated with the 2003 sale of the Salt Lake City asset. This was offset by an early termination penalty payment at the Aurora, Colorado asset. UNREALIZED GAIN/LOSS The Aurora, Colorado industrial property owned by the Partnership recorded an unrealized loss of $0.2 million for the year ended December 31, 2004, compared to an unrealized loss of approximately $0.6 million for the year ended December 31, 2003. The unrealized loss recorded in 2004 and 2003 were due to soft market conditions and capital improvements at the property that were not reflected as an increase in market value. REALIZED GAIN On January 28, 2003 the industrial property located in Salt Lake City, Utah was sold for a realized gain of $0.5 million. HOTEL PROPERTY

NET NET INVESTMENT INVESTMENT UNREALIZED UNREALIZED INCOME INCOME GAIN/(LOSS) GAIN/(LOSS) OCCUPANCY OCCUPANCY PROPERTY 12/31/04 12/31/03 12/31/04 12/31/03 12/31/04 12/31/03 -------- ---------- ---------- ----------- ----------- --------- --------- YEAR TO DATE ------------ Lake Oswego, OR* $ 640,660 N/A $ 99,387 N/A 66% 50%

* Hotel purchased in December 2003 NET INVESTMENT INCOME On December 10, 2003, the Partnership acquired a controlling interest in a 161-room hotel located in Lake Oswego, Oregon for $8.0 million. Net investment income from hotel operations was $0.6 million for the year ended December 31, 2004. 12 UNREALIZED GAIN/LOSS The Lake Oswego, Oregon hotel property owned by the Partnership recorded an unrealized gain of $0.1 million for the year ended December 31, 2004. OTHER Other net investment income decreased $0.4 million during the year ended December 31, 2004 compared to the corresponding period in 2003. Other net investment income includes interest income from short-term investments, investment management fees, and portfolio level expenses. (C) INFLATION The Partnership's leases with a majority of its commercial tenants provide for recoveries of expenses based upon the tenant's proportionate share of, and/or increases in, real estate taxes and certain operating costs, which may reduce the Partnership's exposure to increases in operating costs resulting from inflation. CRITICAL ACCOUNTING POLICIES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires the application of accounting policies that often involve a significant degree of judgment. Management, on an ongoing basis, reviews critical estimates and assumptions. If management determines, as a result of its consideration of facts and circumstances that modifications in assumptions and estimates are appropriate, results of operations and financial position as reported in the Consolidated Financial Statements may change significantly. Actual results could differ from those estimates. The following sections discuss critical accounting policies applied in preparing our consolidated financial statements that are most dependent on the application of estimates and assumptions. VALUATION OF INVESTMENTS REAL ESTATE INVESTMENTS--The Partnership's investments in real estate are initially carried at their purchase price. Subsequently, 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, with independent updates quarterly. The Chief Real Estate Appraiser of Prudential Investment Management ("PIM") is responsible to assure that the valuation process provides objective and reasonable market value estimates. 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 for a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest, and assuming that neither is under undue duress. Unconsolidated 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. Mortgage and other loans receivable, which are accounted for as loans, are independently valued according to the same appraisal process as other investments in real estate. Other real estate investments include notes receivable, which are valued at the amount due and approximate market value. As described above, the estimated market value of real estate and real estate related assets is determined through an appraisal process, except for other real estate investments, which are determined as stated above. 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, 2004 and December 31, 2003. 13 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Interest Rate Risk. The Partnership's exposure to market rate risk for changes in interest rates relates to about 32.85% of its investment portfolio consisting primarily of short-term fixed rate commercial paper and fixed and variable interest rate debt. The Partnership does not use derivative financial instruments. By policy, the Partnership places its investments with high quality debt security issuers, limits the amount of credit exposure to any one issuer, limits duration by restricting the term, and holds investments to maturity except under rare circumstances. The table below presents the amounts and related weighted interest rates of the Partnership's cash equivalents and short-term investments at December 31, 2004: ESTIMATED MARKET VALUE AVERAGE MATURITY (IN $ MILLIONS) INTEREST RATE -------------------------------------------------------------------------------- Cash equivalents............ 0-3 months $17.6 5.18% The table below discloses the Partnership's fixed rate debt as of December 31, 2004. All of the Partnership's long-term debt bears interest at fixed rates and therefore the fair value of these instruments is affected by changes in market interest rates. The following table presents principal cash flows (in thousands) based upon maturity dates of the debt obligations and the related weighted-average interest rates by expected maturity dates for the fixed rate debt.

DEBT (IN $ THOUSANDS), ESTIMATED INCLUDING CURRENT PORTION 2005 2006 2007 2008 THEREAFTER TOTAL FAIR VALUE ------------------------- ---- ---- ---- ---- ---------- ----- ---------- Average Fixed Interest Rate...... 5.22% 5.20% 5.18% 4.99% 6.75% 6.17% Fixed Rate....................... $512 $549 $588 $26,090 $16,034 $43,773 $44,816 ----------------------------------------------------------------------------------------------------------- Total Mortgage Loans Payable..... $512 $549 $588 $26,090 $16,034 $43,773 $44,816

The Partnership is exposed to market risk from tenants. While the Partnership has not experienced any significant credit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults could increase and result in losses to the Partnership, which would adversely affect its operating results and liquidity. 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. ITEM 9A: CONTROLS AND PROCEDURES In order to ensure that the information we must disclose in our filings with the Securities and Exchange Commission is recorded, processed, summarized, and reported on a timely basis, the Company's management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rules 13a-15(e) and 15d-15(e), as of December 31, 2004. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2004, our disclosure controls and procedures were effective in timely alerting them to material information relating to us required to be included in our periodic SEC filings. There has been no change in our internal control over financial reporting during the year ended December 31, 2004, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B: OTHER INFORMATION None. 14 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT NAME POSITION AGE ----- ------- --- JAMES J. AVERY, JR. VICE CHAIRMAN AND DIRECTOR 53 C. Edward Chaplin Treasurer and Director 48 Helen M. Galt Director 57 Bernard J. Jacob President and Director 49 Ronald P. Joelson Director 46 Andrew J. Mako Director 48 David R. Odenath, Jr. Director 48 John Chieffo Vice President and Chief Accounting Officer 41 Clifford E. Kirsch Chief Legal Officer and Secretary 45 Melody C. McDaid Senior Vice President 55 Esther H. Milnes Senior Vice President 54 James M. O'Connor Senior Vice President and Actuary 49 Shirley H. Shao Senior Vice President and Chief Actuary 50 JAMES J. AVERY, JR., VICE CHAIRMAN AND DIRECTOR--President, Prudential Individual Life Insurance since 1998. C. EDWARD CHAPLIN, TREASURER AND DIRECTOR--Senior Vice President and Treasurer, Prudential since 2000; prior to 2000, Vice President and Treasurer, Prudential. HELEN M. GALT, DIRECTOR--Company Actuary, Prudential since 1993. BERNARD J. JACOB, PRESIDENT AND DIRECTOR--Vice President, Prudential Individual Life and Annuities, since 2004; 2002 to 2004: Vice President, Group Executive Strategy and Business Development; prior to 2001: Executive Vice President, Proact Technologies Corporation. RONALD P. JOELSON, DIRECTOR--Senior Vice President, Prudential Asset, Liability and Risk Management since 1999. ANDREW J. MAKO, DIRECTOR--Vice President, Finance, Insurance Division, Prudential Financial since 1999. DAVID R. ODENATH, JR., DIRECTOR--President, Prudential Annuities, since 2003; prior to 2003: President, Prudential Investments. JOHN CHIEFFO, VICE PRESIDENT AND CHIEF ACCOUNTING OFFICER--Vice President and Individual Life Controller since 1998. CLIFFORD E. KIRSCH, CHIEF LEGAL OFFICER AND SECRETARY--Chief Counsel, Variable Products, Prudential Law Department since 1995. MELODY C. MCDAID, SENIOR VICE PRESIDENT--Vice President and Site Executive, Prudential Financial Services Customer Service Office since 1995. ESTHER H. MILNES, SENIOR VICE PRESIDENT--Vice President and Chief Actuary, Prudential Individual Life Insurance since 1999. JAMES M. O'CONNOR, SENIOR VICE PRESIDENT AND ACTUARY--Vice President, Guaranteed Products since 2001; prior to 2000: Corporate Vice President, Guaranteed Products, Prudential Retirement. SHIRLEY H. SHAO, SENIOR VICE PRESIDENT AND CHIEF ACTUARY--Vice President and Actuary, Prudential since 1996. 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. 15 CODE OF ETHICS We have adopted a code of business conduct and ethics, known as "Making the Right Choices," which applies to our Chief Executive Officer, Chief Financial Officer, as well as to our directors and other employees. Making the Right Choices is posted on Prudential Financial's website at www.investor.prudential.com. Our code of business conduct and ethics, any amendments and any waiver granted to any of our directors or executive officers are available free of charge on our website at www.investor.prudential.com. The Board of Directors has not designated a separate audit committee, and therefore the full Board serves as the Company's audit committee. None of the members of the Board of Directors is independent of management within the meaning of SEC rules. The Board of Directors has determined that at least one of its members, Mr. Joelson, has the requisite experience to be designated an audit committee financial expert as that term is defined by rules of the SEC. Specifically, Mr. Joelson has accounting and financial management expertise, which he gained through his experience as Senior Vice President and head of the Asset, Liability and Risk Management area of Prudential Financial, Inc., the New York Stock Exchange listed parent of the Company, as well as experience in senior financial management positions and other similar positions. Mr. Joelson also received an M.B.A. degree in Finance and Accounting from the Columbia University School of Business. 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 - 24. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES. The Audit Committee of the Board of Directors of Prudential Financial has appointed PricewaterhouseCoopers LLP as the independent registered public accounting firm of Prudential Financial and certain of its domestic and international subsidiaries, including the Registrant. The Audit Committee has established a policy requiring its pre-approval of all audit and permissible non-audit services provided by the independent auditor. The specific information called for by this item is hereby incorporated by reference to the section entitled "Item 2 - Ratification of the Appointment of Independent Auditors" in Prudential Financial's definitive proxy statement for the Annual Meeting of Shareholders to be held on June 7, 2005, to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the year ended December 31, 2004. 16 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES. (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, 2004. 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(a) The Articles of Incorporation (as amended through May 11, 1983) of Pruco Life Insurance Company of New Jersey are incorporated by reference to Post-Effective Amendment No. 26 to the Registration Statement on Form S-6 of Pruco Life of New Jersey Variable Appreciable Account as filed April 28, 1997, Registration No. 2-89780. 3.1(b) Amendment to the Articles of Incorporation dated February 12, 1998 is incorporated by reference to Post-Effective Amendment No. 12 to the Registration Statement on Form S-1, of Pruco Life of New Jersey Variable Contract Real Property Account as filed on April 16, 1999, Registration No. 33-20018. 3.2 By-Laws of Pruco Life Insurance Company of New Jersey (as amended through June 7, 1999) are incorporated by reference to Form S-6, Registration No. 333-85117, filed August 13, 1999 on behalf of Pruco Life of New Jersey Variable Appreciable Account. 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, and incorporated herein by reference. 17 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. 32.2 Investment Management Agreement between Prudential Investment Management, Inc. and The Prudential Variable Contract Real Property Partnership, filed as Post-Effective Amendment No. 16 to Form S-1, Registration Statement No. 33-20083-01, filed April 10, 2003, 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. 16. None. 18. None. 22. Not applicable. 23. Not applicable. 24. Powers of Attorney are filed herewith. 31.1 Section 302 Certification of Chief Executive Officer 31.2 Section 302 Certification of Chief Financial Officer 32.1 Section 906 Certification of Chief Executive Officer 32.2 Section 906 Certification of Chief Financial Officer 18 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 31, 2005 By: /s/ Bernard J. Jacob -------------- ------------------------------ Bernard J. Jacob President and Director (Principal Executive Officer) 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 --------- ---- ---- /s/ Bernard J. Jacob President and Director March 31, 2005 ------------------------ (Principal Executive Officer) Bernard J. Jacob /s/ John Chieffo Chief Accounting Officer March 31, 2005 ------------------------ (Principal Accounting and John Chieffo Financial Officer) * Director March 31, 2005 ------------------------ James J. Avery, Jr. * Treasurer and Director March 31, 2005 ------------------------ C. Edward Chaplin * Director March 31, 2005 ------------------------ Helen M. Galt * Director March 31, 2005 ------------------------ Ronald P. Joelson * Director March 31, 2005 ------------------------ Andrew J. Mako * Director March 31, 2005 ------------------------ David R. Odenath, Jr. *BY: /s/ Thomas C. Castano ----------------------- THOMAS C. CASTANO (ATTORNEY-IN-FACT) 19 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 Registered Public Accounting Firm ........ F-2 Statements of Net Assets -- December 31, 2004 and 2003 ......... F-3 Statements of Operations -- Years Ended December 31, 2004, 2003, 2002 .................................. F-3 Statements of Changes in Net Assets -- Years Ended December 31, 2004, 2003, 2002 .................................. F-3 Notes to Financial Statements .................................. F-4 B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP Financial Statements: Report of Independent Registered Public Accounting Firm ........ F-8 Report of Independent Registered Public Accounting Firm on Financial Statement Schedules .................................. F-9 Statements of Assets and Liabilities -- December 31, 2004 and 2003 ....................................................... F-10 Statements of Operations -- Years Ended December 31, 2004, 2003 and 2002 .................................................. F-11 Statements of Changes in Net Assets -- Years Ended December 31, 2004, 2003 and 2002 ............................... F-12 Statements of Cash Flows -- Years Ended December 31, 2004, 2003 and 2002 .................................................. F-13 Schedule of Investments -- December 31, 2004 and 2003 .......... F-14 Notes to Financial Statements .................................. F-16 Financial Statement Schedules: For the period ended December 31, 2004 Schedule III -- Real Estate Owned: Properties .................. F-23 Schedule III -- Real Estate Owned: Interest in Properties ...... F-24 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 REGISTERED PUBLIC ACCOUNTING FIRM 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, 2004 and 2003, and the results of its operations and the changes in its net assets for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of Pruco Life Insurance Company of New Jersey. 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 of the Public Company Accounting Oversight Board (United States). Those standards 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 provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York March 18, 2005 F-2 FINANCIAL STATEMENTS OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENT OF NET ASSETS December 31, 2004 and 2003 2004 2003 ----------- ----------- ASSETS Investment in The Prudential Variable Contract Real Property Partnership ........................................ $ 8,082,948 $ 7,846,237 ----------- ----------- Net Assets .......................................................... $ 8,082,948 $ 7,846,237 =========== =========== NET ASSETS, representing: Equity of contract owners ........................................... $ 6,042,260 $ 5,852,959 Equity of Pruco Life Insurance Company of New Jersey ................ 2,040,688 1,993,278 ----------- ----------- $ 8,082,948 $ 7,846,237 =========== =========== Units outstanding ...................................................... 3,438,311 3,519,859 =========== =========== Portfolio shares held .................................................. 309,093 318,217 Portfolio net asset value per share .................................... $ 26.15 $ 24.66 STATEMENT OF OPERATIONS For the periods ended December 31, 2004, 2003 and 2002 2004 2003 2002 ----------- ----------- ----------- INVESTMENT INCOME Net investment income from Partnership operations ...................... $ 336,966 $ 505,887 $ 489,257 ----------- ----------- ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration ................................. 34,222 33,146 33,639 ----------- ----------- ----------- NET INVESTMENT INCOME .................................................. 302,744 472,741 455,618 ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net change in unrealized gain (loss) on investments from Partnership ... 66,677 (328,761) (400,009) Realized gain (loss) on sale of investments from Partnership ........... 74,741 22,215 17,722 ----------- ----------- ----------- NET GAIN (LOSS) ON INVESTMENTS ......................................... 141,418 (306,546) (382,287) ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................... $ 444,162 $ 166,195 $ 73,331 =========== =========== =========== STATEMENT OF CHANGES IN NET ASSETS For the period ended December 31, 2004, 2003 and 2002 2004 2003 2002 ----------- ----------- ----------- OPERATIONS Net investment income .................................................. $ 302,744 $ 472,741 $ 455,618 Net change in unrealized gain (loss) on investments in Partnership ..... 66,677 (328,761) (400,009) Net realized gain (loss) on sale of investments in Partnership ......... 74,741 22,215 17,722 ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........................................... 444,162 166,195 73,331 ----------- ----------- ----------- CAPITAL TRANSACTIONS Net withdrawals by contract owners ..................................... (128,598) (60,848) (139,939) Net contributions (withdrawals) by Pruco Life Insurance Company of New Jersey ............................................... (78,853) (1,114,015) 173,578 ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS ................................. (207,451) (1,174,863) 33,639 ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS ................................ 236,711 (1,008,668) 106,970 NET ASSETS Beginning of period ................................................. 7,846,237 8,854,905 8,747,935 ----------- ----------- ----------- End of period ....................................................... $ 8,082,948 $ 7,846,237 $ 8,854,905 =========== =========== ===========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS. F-3 NOTES TO THE FINANCIAL STATEMENTS OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT DECEMBER 31, 2004 NOTE 1: GENERAL Pruco Life of New Jersey Variable Contract Real Property Account ("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"), a wholly-owned subsidiary of Prudential Financial, Inc. ("PFI") as a separate investment account pursuant to New Jersey law and is registered under the Securities Act of 1933. The assets of the Account are segregated from Pruco Life of New Jersey's other assets. The 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 Account are invested in The Prudential Variable Contract Real Property Partnership (the "Partnership"). The Partnership is the investment vehicle for assets allocated to the real estate investment option under certain variable life insurance and annuity contracts. The 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. These financial statements should be read in conjunction with the financial statements of 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 of America ("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 Account's proportionate interest of the Partnership's market value. At December 31, 2004 and 2003 the Account's interest in the Partnership was 4.3% or 309,093 shares and 4.3% or 318,217 shares respectively. C. INCOME RECOGNITION Net investment income and realized and unrealized gains and losses are recognized daily. Amounts are based upon the 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 Account for liquidity purposes, including unit purchases and redemptions, Partnership share transactions, and expense processing. The position does not affect contract owners' accounts or the related unit values. NOTE 3: TAXES Pruco Life of New Jersey is taxed as a "life insurance company" as defined by the Internal Revenue Code. The results of operations of the Account form a part of PFI's consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Account. As such, no provision for the tax liability has been recorded in these financial statements. F-4 NOTE 4: NET WITHDRAWALS BY CONTRACT OWNERS Net contract owner withdrawals 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, 2004, 2003 and 2002 were as follows:

2004: ----- VAL VLI SPVA SPVL TOTAL --------- -------- -------- -------- --------- Contract Owner Net Payments: $ 310,624 $ 57,735 $ 0 $ (13) $ 368,346 Policy Loans: (119,474) (22,106) 0 (565) (142,145) Policy Loan Repayments and Interest: 122,527 7,829 0 13,970 144,326 Surrenders, Withdrawals, and Death Benefits: (191,894) (37,613) (1,940) (14,101) (245,548) Net Transfers To Other Subaccounts or Fixed Rate Option: (20,098) 4,924 0 (5,000) (20,174) Administrative and Other Charges: (199,446) (33,301) 0 (656) (233,403) --------- -------- -------- -------- --------- NET WITHDRAWALS BY CONTRACT OWNERS $ (97,761) $(22,532) $ (1,940) $ (6,365) $(128,598) ========= ======== ======== ======== ========= 2003: ----- VAL VLI SPVA SPVL TOTAL --------- -------- -------- -------- --------- Contract Owner Net Payments: $ 325,435 $ 66,854 $ 0 $ 0 $ 392,289 Policy Loans: (96,224) 6,196 0 (1,166) (91,194) Policy Loan Repayments and Interest: 150,021 11,474 0 1,501 162,996 Surrenders, Withdrawals, and Death Benefits: (209,965) (48,272) (6,000) 0 (264,237) Net Transfers To Other Subaccounts or Fixed Rate Option: 5,501 847 (17,828) 0 (11,480) Administrative and Other Charges: (213,640) (34,797) 0 (785) (249,222) --------- -------- -------- -------- --------- NET WITHDRAWALS BY CONTRACT OWNERS $ (38,872) $ 2,302 $(23,828) $ (450) $ (60,848) ========= ======== ======== ======== ========= 2002: ----- VAL VLI SPVA SPVL TOTAL --------- -------- -------- -------- --------- Contract Owner Net Payments: $ 342,282 $ 62,548 $ 0 $ 9 $ 404,839 Policy Loans: (134,116) (11,582) 0 (1,524) (147,222) Policy Loan Repayments and Interest: 130,162 9,722 0 1,741 141,625 Surrenders, Withdrawals, and Death Benefits: (237,764) (32,072) 0 (112) (269,948) Net Transfers To Other Subaccounts or Fixed Rate Option: (26,640) 14,945 0 (4,840) (16,535) Administrative and Other Charges: (218,522) (33,382) 0 (794) (252,698) --------- -------- -------- -------- --------- NET WITHDRAWALS BY CONTRACT OWNERS $(144,598) $ 10,179 $ 0 $ (5,520) $(139,939) ========= ======== ======== ======== =========

F-5 NOTE 5: UNIT ACTIVITY Transactions in units for the years ended December 31, 2004, 2003 and 2002 were as follows:

2004: ----- VAL VLI SPVA SPVL -------- ------- ------ ------ Company Contributions: 138,338 Contract Owner Contributions: 189,069 30,893 0 6,992 Company Redemptions: (164,449) Contract Owner Redemptions: (231,016) (40,269) (920) (10,186) 2003: VAL VLI SPVA SPVL -------- ------- ------ ------ Company Contributions: 134,817 Contract Owner Contributions: 219,562 38,081 0 765 Company Redemptions: (626,880) Contract Owner Redemptions: (237,355) (37,038) (12,153) (993) 2002: ----- VAL VLI SPVA SPVL -------- ------- ------ ------ Company Contributions: 158,361 Contract Owner Contributions: 211,561 38,915 0 5,731 Company Redemptions: (69,438) Contract Owner Redemptions: (278,286) (34,428) (2) (8,453)

NOTE 6: PURCHASES AND SALES OF INVESTMENTS The aggregate costs of purchases and proceeds from sales of investments in the Partnership for the years ended December 31, 2004, 2003 and 2002 were as follows: DECEMBER 31, 2004 DECEMBER 31, 2003 DECEMBER 31, 2002 ----------------- ----------------- ----------------- PURCHASES: $0 $0 $0 SALES: $(241,673) $(1,208,010) $0 NOTE 7: FINANCIAL HIGHLIGHTS Pruco Life Insurance Company of New Jersey (the "Company" or "Prudential") sells a number of variable annuity and variable life insurance products. These products have unique combinations of features and fees that are charged against the contract owner's account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. The following table was developed by determining which products offered by Pruco Life of New Jersey have the lowest and highest total expense ratio. The summary may not reflect the minimum and maximum contract charges offered by the Company as contract owners may not have selected all available and applicable contract options as discussed in Note 1. The table reflects contract owner units only.

AT YEAR ENDED FOR THE YEAR ENDED ----------------------------------------- -------------------------------------------------- UNITS UNIT VALUE NET ASSETS INVESTMENT EXPENSE RATIO** TOTAL RETURN*** (000'S) LOWEST-HIGHEST (000'S) INCOME RATIO* LOWEST-HIGHEST LOWEST-HIGHEST ------- -------------------- ---------- ------------- --------------- --------------- December 31, 2004 2,563 $2.08645 to $2.45484 $6,042 4.15% 0.35% to 1.25% 4.74% to 5.68% December 31, 2003 2,618 $1.99197 to $2.32279 $5,853 5.77% 0.35% to 1.25% 0.98% to 1.89% December 31, 2002 2,647 $1.97263 to $2.27966 $5,818 5.59% 0.35% to 1.25% -0.03% to 0.87% December 31, 2001 2,712 $1.97316 to $2.26011 $5,922 5.89% 0.35% to 1.25% 3.50% to 4.42%

The table above reflects information for units held by contract owners. Pruco Life of New Jersey also maintains a position in the Real Property Account, to provide for property acquisitions and capital expenditure funding needs. Pruco Life of New Jersey held 875,413, 901,524, 1,393,587 and 1,304,664 units representing $2,040,688, $1,993,278, $3,036,542 and $2,826,338 of net assets as of December 31, 2004, 2003, 2002 and 2001, respectively. Charges for mortality risk, expense risk and administrative expenses are used by Pruco Life of New Jersey to purchase additional units in its account resulting in no impact of its net assets. * This amount represents the proportionate share of the net investment income from the underlying Partnership divided by the total average assets of the Account. This ratio excludes those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. ** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying Partnership are excluded. F-6 *** These amounts represent the total return for the periods indicated, including changes in the value of the underlying Partnership, and reflect deductions for all items included in the expense ratio. The total return does not include any expense assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. 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 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. The mortality risk and expense risk charges are assessed through reduction in unit values. 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. The administrative charge is assessed through reduction in unit values. 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, not to exceed 5% for VAL and 9% for VLI, 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. These charges are assesseed through the redemption of units. 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 but will not exceed 45% of one scheduled annual premium for VAL contracts and 9% of the initial premium payment for SPVL. 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. A deferred sales charge is assessed through the redemption of units. 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. A charge is assessed through the redemption of units. NOTE 8: RELATED PARTY Prudential and its affiliates perform various services on behalf of the Partnership in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions. F-7 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners of The Prudential Variable Contract Real Property Partnership In our opinion, the accompanying consolidated statements of assets and liabilities, including the consolidated 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 The Prudential Variable Contract Real Property Partnership at December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards 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 provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York March 16, 2005 F-8 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FINANCIAL STATEMENT SCHEDULES To the Partners of The Prudential Variable Contract Real Property Partnership: Our audits of the consolidated financial statements referred to in our report dated March 16, 2005 appearing in this Annual Report also included an audit of the financial statement schedules listed in Item 15(a)(2) of this Form 10-K. 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 March 16, 2005 F-9 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

YEAR ENDED DECEMBER 31, ------------------------------ 2004 2003 ------------ ------------ ASSETS REAL ESTATE INVESTMENTS -- At estimated market value: Real estate and improvements (cost: 12/31/2004 -- $224,584,885; 12/31/2003 -- $223,943,870) ..... $203,246,069 $201,144,866 Real estate partnerships (cost: 12/31/2004 -- $11,286,826; 12/31/2003 -- $10,609,273) ......................................... 12,126,566 8,721,319 Mortgage and other loans receivable (cost: 12/31/2004 -- $1,332,060 12/31/2003 -- $0) .................................................. 1,332,060 -- Other real estate investments (cost: 12/31/2004 -- $0; 12/31/2003 -- $500,000) ............................................ -- 500,000 ------------ ------------ Total real estate investments ...................................... 216,704,695 210,366,185 CASH AND CASH EQUIVALENTS ................................................ 17,557,182 18,901,814 OTHER ASSETS, NET ........................................................ 6,313,734 6,359,853 ------------ ------------ Total assets ....................................................... $240,575,611 $235,627,852 ============ ============ LIABILITIES & PARTNERS' EQUITY MORTGAGE LOANS PAYABLE ................................................... $ 43,773,767 $ 43,934,494 ACCOUNTS PAYABLE AND ACCRUED EXPENSES .................................... 3,096,006 2,998,752 DUE TO AFFILIATES ........................................................ 721,419 1,017,932 OTHER LIABILITIES ........................................................ 622,900 947,110 MINORITY INTEREST ........................................................ 5,638,458 5,086,503 ------------ ------------ Total liabilities .................................................. 53,852,550 53,984,791 ------------ ------------ COMMITMENTS AND CONTINGENCIES PARTNERS' EQUITY ......................................................... 186,723,061 181,643,061 ------------ ------------ Total liabilities and partners' equity ............................. $240,575,611 $235,627,852 ============ ============ NUMBER OF SHARES OUTSTANDING AT END OF PERIOD ............................ 7,140,308 7,366,835 ============ ============ SHARE VALUE AT END OF PERIOD ............................................. $26.15 $24.66 ============ ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-10 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS

YEAR ENDED DECEMBER 31, ----------------------------------------------- 2004 2003 2002 ----------- ----------- ----------- INVESTMENT INCOME: Revenue from real estate and improvements ..................... $27,810,539 $26,217,891 $26,345,500 Equity in income of real estate partnership ................... 629,190 560,660 276,209 Interest and equity income on mortgage and other loans receivable ................................. 138,296 -- -- Income from other real estate investments ..................... 246,764 -- -- Interest on short-term investments ............................ 251,374 281,943 455,339 ----------- ----------- ----------- Total investment income .................................... 29,076,163 27,060,494 27,077,048 ----------- ----------- ----------- INVESTMENT EXPENSES: Operating ..................................................... 7,545,335 5,116,001 5,261,674 Investment management fee ..................................... 2,666,103 2,493,957 2,486,639 Real estate taxes ............................................. 2,687,018 2,590,600 2,824,719 Administrative ................................................ 5,243,944 3,496,973 3,345,192 Interest expense .............................................. 2,910,841 2,557,294 1,989,473 Minority interest ............................................. 223,316 192,260 305,308 ----------- ----------- ----------- Total investment expenses ............................... 21,276,557 16,447,085 16,213,005 ----------- ----------- ----------- NET INVESTMENT INCOME ............................................ 7,799,606 10,613,409 10,864,043 ----------- ----------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS: Net proceeds from real estate investments sold ................ 7,105,000 5,689,488 6,282,075 Less: Cost of real estate investments sold .................... 7,307,410 6,620,263 9,101,381 Realization of prior years' unrealized gain (loss) on real estate investments sold ................ (1,932,410) (1,396,836) (3,212,838) ----------- ----------- ----------- Net gain (loss) realized on real estate investments sold ........................................... 1,730,000 466,061 393,532 ----------- ----------- ----------- Change in unrealized gain (loss) on real estate investments ... 2,457,887 (6,169,630) (8,739,488) Less: Minority interest in unrealized gain (loss) on real estate investments .................................... 907,493 763,795 171,707 ----------- ----------- ----------- Net unrealized gain (loss) on real estate investments ......... 1,550,394 (6,933,425) (8,911,195) ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS .................................... 3,280,394 (6,467,364) (8,517,663) ----------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS ............................................... $11,080,000 $ 4,146,045 $ 2,346,380 =========== =========== ===========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-11 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

YEAR ENDED DECEMBER 31, -------------------------------------------------- 2004 2003 2002 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: Net investment income ......................................... $ 7,799,606 $ 10,613,409 $ 10,864,043 Net gain (loss) realized on real estate investments sold ...... 1,730,000 466,061 393,532 Net unrealized gain (loss) from real estate investments ....... 1,550,394 (6,933,425) (8,911,195) ------------ ------------ ------------ Increase (decrease) in net assets resulting from operations ... 11,080,000 4,146,045 2,346,380 ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS: Withdrawals by partners (2004 --226,527; 2003 -- 278,014; and 2002 -- 672,622 shares, respectively) ...................... (6,000,000) (6,856,490) (16,143,510) ------------ ------------ ------------ Increase (decrease) in net assets resulting from capital transactions .................. (6,000,000) (6,856,490) (16,143,510) ------------ ------------ ------------ INCREASE (DECREASE) IN NET ASSETS ................................ 5,080,000 (2,710,445) (13,797,130) NET ASSETS -- Beginning of period ................................ 181,643,061 184,353,506 198,150,636 ------------ ------------ ------------ NET ASSETS -- End of period ...................................... $186,723,061 $181,643,061 $184,353,506 ============ ============ ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-12 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS

YEAR ENDED DECEMBER 31, ----------------------------------------------- 2004 2003 2002 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net increase in net assets from operations ....................... $11,080,000 $ 4,146,045 $ 2,346,380 Adjustments to reconcile net increase in net assets to net cash from operating activities Net realized and unrealized loss (gain) ....................... (3,280,394) 6,467,364 8,517,663 Amortization of deferred financing costs ...................... (108,232) (523,586) (189,826) Distributions in excess of (less than) equity in income of real estate partnership operations ...................... (209,678) 648,193 (53,459) Minority interest in consolidated partnerships ................ 223,316 192,260 305,308 Bad debt expense .............................................. 459,103 185,844 184,242 (Increase) decrease in: Dividend receivable ........................................ -- -- 20,802 Other assets ............................................... (304,747) (502,655) (2,246,510) Increase (decrease) in: Accounts payable and accrued expenses ...................... 97,254 (93,346) (377,144) Due to affiliates .......................................... (296,513) 110,429 11,369 Other liabilities .......................................... (324,210) 35,865 (61,165) ----------- ----------- ----------- Net cash flows from (used in) operating activities ............ 7,335,899 10,666,413 8,457,660 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from real estate investments sold ................ 7,105,000 5,689,488 6,282,075 Acquisition of real estate and improvements ................... -- (8,008,729) (2,610,723) Additions to real estate and improvements ..................... (7,746,015) (6,963,127) (2,629,708) Contributions to real estate partnerships ..................... (467,875) (1,326,071) (2,851,395) Origination of mortgage loan receivable ....................... (1,332,060) -- -- Collection of other real estate investments ................... 4,975,000 -- -- Origination of other real estate investments .................. (4,475,000) (500,000) -- ----------- ----------- ----------- Net cash flows from (used in) investing activities ............ (1,940,950) (11,108,439) (1,809,751) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Withdrawals ................................................... (6,000,000) (6,856,490) (16,143,510) Proceeds from mortgage loans payable .......................... 8,750,000 8,750,000 -- Principal payments on mortgage loans payable .................. (8,910,727) (514,614) (696,828) Contributions from minority interest partners ................. -- 242,354 2,268,461 Distributions to minority interest partners ................... (578,854) (868,559) (100,528) ----------- ----------- ----------- Net cash flows from (used in) financing activities ............ (6,739,581) 752,691 (14,672,405) ----------- ----------- ----------- NET CHANGE IN CASH AND CASH EQUIVALENTS .......................... (1,344,632) 310,665 (8,024,496) CASH AND CASH EQUIVALENTS - Beginning of period .................. 18,901,814 18,591,149 26,615,645 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - End of period ........................ $17,557,182 $18,901,814 $18,591,149 =========== =========== ===========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-13 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED SCHEDULES OF INVESTMENTS

DECEMBER 31, TOTAL RENTABLE ------------------------------------------------------ SQUARE FEET 2004 2003 UNLESS -------------------------- -------------------------- OTHERWISE ESTIMATED ESTIMATED INDICATED MARKET MARKET PROPERTY NAME OWNERSHIP CITY, STATE (UNAUDITED) COST VALUE COST VALUE ------------------------------------------------------------------------------------------------------------------------------------ REAL ESTATE INVESTMENTS OFFICES 750 Warrenville WO Lisle, IL 103,193 $ 23,173,036 $ 10,098,838 $ 23,023,835 $ 12,110,725 Oakbrook Terrace WO Oakbrook, IL 123,734 14,833,796 9,698,734 14,619,120 10,097,932 Summit @ Cornell Oaks WO Beaverton , OR 72,109 11,934,209 9,644,005 11,890,209 10,000,005 Westpark WO Nashville, TN 97,199 10,708,970 11,151,327 10,423,727 9,239,260 Financial Plaza WO Brentwood, TN 98,049 12,333,151 10,966,233 9,837,482 6,700,041 ------------------------------------------------------------------------------------------------------------------------------------ Offices % as of 12/31/04 28% 72,983,162 51,559,137 69,794,373 48,147,963 APARTMENTS Brookwood Apartments WO Atlanta, GA 240 Units 17,344,994 16,616,914 15,781,263 17,000,000 Dunhill Trace Apartments WO Raleigh, NC 250 Units 16,083,715 18,000,660 16,010,326 17,665,000 Riverbend Apartments CJV Jacksonville, FL 458 Units 20,015,959 22,600,000 19,946,920 22,400,000 SIMA Apartments CJV Gresham/Salem, OR 493 Units 12,004,323 13,900,000 19,281,738 17,975,000 ------------------------------------------------------------------------------------------------------------------------------------ Apartments % as of 12/31/04 38% 65,448,991 71,117,574 71,020,247 75,040,000 RETAIL King's Market WO Rosewell, GA 314,358 33,864,392 21,765,286 33,102,401 23,539,665 Hampton Towne Center WO Hampton, VA 174,540 18,031,495 21,000,000 18,013,068 20,000,000 White Marlin Mall CJV Ocean City, MD 186,016 15,229,878 19,300,000 13,198,649 15,900,000 Kansas City Portfolio EJV Kansas City, KS;MO 487,660 11,286,726 12,126,466 10,609,273 8,721,319 ------------------------------------------------------------------------------------------------------------------------------------ Retail % as of 12/31/04 40% 78,412,491 74,191,752 74,923,391 68,160,984 INDUSTRIAL Smith Road WO Aurora, CO 277,930 10,692,625 10,204,072 10,806,403 10,508,509 Walsh Higgins WO Salt Lake City, UT 182,500 -- -- -- -- ------------------------------------------------------------------------------------------------------------------------------------ Industrial % as of 12/31/04 5% 10,692,625 10,204,072 10,806,403 10,508,509 HOTEL Portland Crown Plaza CJV Portland, OR 161 Rooms 8,334,342 8,300,000 8,008,729 8,008,729 ------------------------------------------------------------------------------------------------------------------------------------ Hotel % as of 12/31/04 4% 8,334,342 8,300,000 8,008,729 8,008,729 LAND Gateway Village EJV Blue Springs, MO 100 100 -- -- ------------------------------------------------------------------------------------------------------------------------------------ Land % as of 12/31/04 0% 100 100 -- -- MORTGAGE AND OTHER LOANS RECEIVABLE Westminster West Eloan Westminster, MD 1,332,060 1,332,060 -- -- ------------------------------------------------------------------------------------------------------------------------------------ Mortgage and Other Loans Receivable% as of 12/31/04 1% 1,332,060 1,332,060 -- -- OTHER REAL ESTATE INVESTMENTS Englar Lowes Loan NR Westminster, MD -- -- -- 500,000 500,000 ------------------------------------------------------------------------------------------------------------------------------------ Other Real Estate Investments% as of 12/31/04 0% -- -- 500,000 500,000 TOTAL REAL ESTATE INVESTMENTS AS A PERCENTAGE OF NET ASSETS AS OF 12/31/04 116% 237,203,771 216,704,695 235,053,143 210,366,185

WO -- Wholly Owned Investment CJV -- Consolidated Joint Venture EJV -- Joint Venture Investment accounted for under the equity method NR -- Note Receivable Eloan -- Mezzanine loan accounted for under the equity method F-14 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2004 DECEMBER 31, 2003 -------------------------- ------------------------- ESTIMATED ESTIMATED FACE AMOUNT COST MARKET VALUE COST MARKET VALUE ---------- ----------- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS -- PERCENTAGE OF NET ASSETS ........ 9.4% 10.4% Federal National Mortgage Assoc., 1.06%, February 4, 2004 ... $5,974,000 $ -- $ -- $ 5,967,907 $ 5,967,907 Federal Home Loan Mortgage Corp., 0.88%, January 2, 2004 ..... 12,331,000 -- -- 12,330,520 12,330,520 Federal Home Loan Bank, 6.450%, January 3, 2005 .............. 19,457,000 19,455,135 19,455,135 -- -- ---------- ----------- ----------- ----------- ----------- TOTAL CASH EQUIVALENTS ....................................... 19,455,135 19,455,135 18,298,427 18,298,427 CASH ...................................................... (1,897,953) (1,897,953) 603,387 603,387 ----------- ----------- ----------- ----------- TOTAL CASH AND CASH EQUIVALENTS ........................... $17,557,182 $17,557,182 $18,901,814 $18,901,814 =========== =========== =========== ===========

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-15 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 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, 2B and 2C below, reduced by any liabilities of the Partnership. The periodic adjustments to property values described in Notes 2A, 2B and 2C 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 The Prudential Variable Contract Real Property Account, Pruco Life Variable Contract Real Property Account and Pruco Life of New Jersey Variable Contract Real Property Account (the "Real Property Accounts") 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. Prudential Real Estate Investors ("PREI") is the real estate advisory unit of Prudential Investment Management, Inc. ("PIM"), which is an indirectly owned subsidiary of Prudential Financial Inc. ("PFI"). PREI provides investment advisory services to the Partnership's partners pursuant to the terms of the Advisory Agreement as described in Note 9. NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A: BASIS OF PRESENTATION--The accompanying consolidated financial statements of the Partnership have been presented on the market value basis of accounting in conformity with accounting principles generally accepted in the United States of America. It is the Partnership's policy to consolidate those real estate partnerships in which it has a controlling interest. All significant intercompany balances and transactions have been eliminated in consolidation. B: MANAGEMENT'S USE OF ESTIMATES IN THE FINANCIAL STATEMENTS--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. C: REAL ESTATE INVESTMENTS--Real estate investments are shown at estimated market value in accordance with the terms of the Partnership's contracts. Properties owned are initially recorded at the purchase price plus closing costs. Development costs and major renovations are capitalized as a component of cost, and routine maintenance and repairs are charged to expense as incurred. Real estate costs include the cost of acquired property, including all the tangible and intangible assets. Tangible assets include the value of all land, building and tenant improvements at the time of acquisition. Intangible assets include the value of any above and F-16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 below market leases, in-place leases, and tenant relationships at the time of acquisition. Market value estimates are based upon property 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 Real Estate Appraiser of PIM is responsible to assure that the valuation process provides independent and reasonable property market value estimates. American Appraisal Associates (the "Appraisal Management Firm"), an entity not affiliated with PIM, has been appointed by PIM to assist the Chief Real Estate Appraiser in maintaining and monitoring the independence and the accuracy of the appraisal process. The market value of real estate investments does not reflect the transaction sale costs, which may be incurred upon disposition of the real estate investments. Unconsolidated real estate partnerships are valued at the Partnership's equity in net assets as reflected in the partnerships' financial statements with properties valued as described above. Under the equity method, the investment is initially recorded at the original investment amount, plus additional amounts invested, and is subsequently adjusted for the Partnership's share of undistributed earnings or losses (including unrealized appreciation and depreciation) from the underlying entity. 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 estimated value of investments in real estate is fairly presented as of December 31, 2004. D: OTHER REAL ESTATE INVESTMENTS--Other real estate investments include notes receivable, which are valued at the amount due and approximate market value. E: CASH AND CASH EQUIVALENTS--Cash and cash equivalent are comprised of all short-term investments and investments in money market funds with a maximum maturity of three months. Cash equivalents consist of investments in the Prudential Investment Liquidity Pool offered and managed by an affiliate of PFI and are accounted for at market value. F: MARKETABLE SECURITIES--Marketable securities are highly liquid investments with maturities of more than three months when purchased and are carried at estimated market value. G: OTHER ASSETS--Cash of $212,989 and $216,883 was maintained by the wholly owned and consolidated properties at December 31, 2004 and 2003, respectively, for tenant security deposits and is included in Other Assets on the Consolidated Statements of Assets and Liabilities. Other assets also includes tenant receivable and is net of allowance for uncollectible accounts of $46,690 and $76,800 at December 31, 2004 and 2003, respectively. H: MORTGAGE LOANS PAYABLE--Mortgage loans payable are stated at the principal amount of the obligation outstanding. At times the Partnership may assume debt in connection with the purchase of real estate. For debt assumed, the Partnership allocates a portion of the purchase price to the below/above market debt and amortizes the premium/discount over the remaining life of the debt. I: DEFERRED FINANCING COSTS--Included in Other Assets are deferred financing costs amounting to $391,666 and $313,425, which are net of accumulated amortization of $878,316 and $713,990 as of December 31, 2004 and 2003, respectively, and which are being amortized over the term of the related obligation. F-17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 J: REVENUE RECOGNITION--Revenue from real estate is recognized when earned in accordance with the terms of the respective leases. Revenue from certain real estate investments is net of all or a portion of related real estate expenses, as lease arrangements vary as to responsibility for payment of these expenses between tenants and the Partnership. Since real estate is stated at estimated market value, net income is not reduced by depreciation or amortization expense. K: EQUITY IN INCOME OF REAL ESTATE PARTNERSHIP--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 committee of the partnership. L: 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. M: NEW ACCOUNTING PRONOUNCEMENTS--FASB Interpretation No. 46, "Consolidation of Variable Interest Entities", ("FIN 46") was issued in January 2003. In December 2003, FASB issued a revised interpretation of FIN 46 ("FIN 46-R"), which supersedes FIN 46. FIN 46-R defers the effective date for applying the provisions of FIN-46 for those companies currently accounting for their investments in accordance with the AICPA Audit and Accounting Guide, "Audits of Investment Companies" (the "Audit Guide"). The effective date is delayed while the AICPA finalizes the proposed Statement of Position ("SOP") on the clarification of the scope of the Audit Guide. Following the issuance of the final SOP, the FASB will consider modifying FIN 46-R to provide an exception for companies that apply the Audit Guide. The Partnership is awaiting the final determination from the FASB in order to evaluate the extent in which, if any, its equity investments may need to be consolidated as a result of this FIN 46-R. NOTE 3: DISCLOSURE OF SUPPLEMENTAL CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITY Cash paid for interest during the years ended December 31, 2004, 2003, and 2002 was $2,595,651, $2,462,387, and $1,989,473, respectively. During the fourth quarter 2002, in conjunction with the acquisition of a real estate investment, the Partnership assumed mortgage loan financing of $7.4 million. F-18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 NOTE 4: 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 in Note 2C above. The partnership's combined financial position at December 31, 2004 and 2003, and results of operations for the years ended December 31, 2004, 2003, and 2002 are summarized as follows (in 000's): DECEMBER 31, 2004 2003 ------- ------- Partnership Assets and Liabilities Real estate at estimated market value ... $34,200 $29,450 Other assets ............................ 1,217 1,536 ------- ------- Total assets ............................ 35,417 30,986 ------- ------- Mortgage loans payable ................. 18,564 18,834 Other liabilities ....................... 370 321 ------- ------- Total liabilities ....................... 18,934 19,155 ------- ------- Net Assets .............................. $16,483 $11,831 ======= ======= Partnership's Share of Net Assets .......... $12,127 $ 8,721 ======= ======= YEAR ENDED DECEMBER 31, 2004 2003 2002 ------- ------- ------- Partnership Operations Rental revenue .......................... $ 3,125 $ 3,114 $ 3,017 Other revenue ........................... 1,710 1,360 1,153 ------- ------- ------- Total revenue ........................... 4,835 4,474 4,170 ------- ------- ------- Real estate expenses and taxes .......... 2,481 2,196 2,065 Interest expense ........................ 1,500 1,555 1,652 ------- ------- ------- Total expenses .......................... 3,981 3,751 3,717 ------- ------- ------- Net Investment Income ................... $ 854 $ 723 $ 453 ======= ======= ======= Partnership's equity in income of real estate partnerships ................. $ 629 $ 561 $ 276 ======= ======= ======= F-19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 NOTE 5: MORTGAGE LOANS PAYABLE: Debt includes mortgage loans payable as summarized below (in 000's):

AS OF AS OF 12/31/04 12/31/03 AS OF 12/31/04 ------------------------- ----------- ------------------------------ PARTNERSHIP'S 100% SHARE OF 100% PRINCIPAL PRINCIPAL PRINCIPAL BALANCE BALANCE BALANCE INTEREST MATURITY OUTSTANDING OUTSTANDING* OUTSTANDING RATE** DATE TERMS*** ----------- ------------ ----------- -------- -------- -------- MORTGAGES OF WHOLLY OWNED PROPERTIES & CONSOLIDATED PARTNERSHIPS Jacksonville, FL $10,000 $ 8,933 $ 10,000 4.34% 2008 PP, I Hampton, VA 9,075 9,075 9,451 6.75% 2018 PP, P&I Ocean City, MD 7,199 4,655 7,299 7.24% 2008 PP, P&I Raleigh, NC 8,750 8,750 8,750 3.09% 2008 PP, I Atlanta, GA 8,750 8,750 -- 4.90% 2009 PP, P&I Gresham/Salem, OR -- -- 8,434 -- Paid off in 2004 -------------------------------------------------------------------------------------------------------------------------- Total $43,774 $40,163 $43,934 MORTGAGES ON EQUITY PARTNERSHIPS Kansas City, MO - Ten Quivira $ 6,680 $ 4,914 $ 6,776 8.16% 2007 PP, P&I Kansas City, MO- Ten Quivira Parcel 961 707 975 8.16% 2007 PP, P&I Kansas City, MO - Cherokee Hill 3,083 2,268 3,129 7.79% 2007 PP, P&I Kansas City, KS - Devonshire 2,140 1,575 2,172 8.16% 2007 PP, P&I Kansas City, MO - Brywood Center 5,700 4,193 5,782 8.16% 2007 PP, P&I --------------------------------------------------------------------------------------------------------------------------- Total $18,564 $13,657 $18,834 TOTAL MORTGAGE LOANS PAYABLE $62,338 $53,820 $62,768 5.84%

* Represents the Partnership's interest in the loan based upon the estimated percentage of net assets which would be distributed to the Partnership if the partnership were liquidated at December 31, 2004. It does not represent the Partnership's legal obligation. ** The Partnership's weighted average interest rate at December 31, 2004 and 2003 were 5.84% and 6.33%, respectively. The weighted average interest rates were calculated using the Partnership's annualized interest expense for each loan (derived using the same percentage as that in (*) above) divided by the Partnership's share of total debt. *** Loan Terms PP=Prepayment penalties applicable to loan, I=Interest only, P&I=Principal and Interest As of December 31, 2004, mortgage loans payable on wholly owned properties and consolidated partnerships are payable as follows: YEAR ENDING DECEMBER 31, (000'S) ------------------------ ------- 2005....................................................... $ 512 2006....................................................... 549 2007....................................................... 588 2008....................................................... 26,090 2009....................................................... 8,745 Thereafter................................................. 7,290 ------- Total...................................................... $43,774 ======= The mortgage loans payable of wholly owned properties and consolidated partnerships are secured by real estate investments with an estimated market value of $97,517,574. As of December 31, 2004, principal amounts of mortgage loans payable on the equity partnership are payable as follows: 100% LOAN BALANCE PARTNERSHIP'S SHARE YEAR ENDING DECEMBER 31, (000'S) (000'S) ------------------------ ----------------- ------------------- 2005............................. $ 291 $ 214 2006............................. 315 232 2007............................. 17,958 13,211 ------- ------- Total............................ $18,564 $13,657 ======= ======= F-20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 NOTE 5: MORTGAGE LOANS PAYABLE: (CONTINUED) Based on borrowing rates available to the Partnership at December 31, 2004 for loans with similar terms and average maturities, the Partnership's mortgages on wholly owned properties and consolidated partnerships have an estimated fair value of approximately $44.8 million, which is net of deferred financing costs of $350,577 and a carrying value of $43.7 million. The Partnership's share of equity partnership debt has an estimated fair value of approximately $20.0 million and a carrying value of $18.6 million. Different assumptions or changes in future market conditions could significantly affect estimated fair value. NOTE 6: CONCENTRATION OF RISK ON REAL ESTATE INVESTMENTS At December 31, 2004, the Partnership had real estate investments located throughout the United States. The diversification of the Partnership's holdings based on the estimated market values and established NCREIF regions is as follows: ESTIMATED MARKET VALUE REGION (000'S) REGION % ------ ------------ -------- East North Central......................... $ 19,798 9% Mideast.................................... 59,633 28% Mountain................................... 10,204 5% Pacific.................................... 31,844 15% Southeast.................................. 83,100 37% West North Central......................... 12,126 6% -------- ---- Total...................................... $216,705 100% ======== ==== The above allocations are based on (1) 100% of the estimated market value of wholly-owned properties and consolidated joint ventures, and (2) the estimated market value of the Partnership's net equity in non-consolidated ventures. NOTE 7: PURCHASE COMMITMENT OBLIGATIONS PURCHASE COMMITMENTS: Purchase commitments includes forward commitments without conditions waived, commitments to purchase real estate and/or fund additional expenditures on previously acquired properties and loan take out agreements. Certain purchases of real estate are contingent on a developer building the real estate according to plans and specifications outlined in the pre-sale agreement or the property achieving a certain level of leasing. It is anticipated that funding will be provided by operating cash flow, real estate investment sales, and deposits from the Partnership. As of December 31, 2004, the Partnership had the following outstanding purchase commitments: COMMITMENTS PROPERTY TYPE (000'S) ------------- ----------- Other...................................................... 1,600 ------ Total...................................................... $1,600 ====== F-21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 NOTE 8: 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 2005 to 2050. At December 31, 2004, the aggregate future minimum base rental payments under non-cancelable operating leases for wholly owned and consolidated joint venture properties by year are as follows: YEAR ENDING DECEMBER 31, (000'S) ----------------------- ------- 2005....................................................... $11,978 2006....................................................... 11,392 2007....................................................... 10,464 2008....................................................... 9,346 2009....................................................... 6,672 Thereafter................................................. 18,900 ------- Total...................................................... $68,752 ======= NOTE 9: COMMITMENTS AND CONTINGENCIES 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 were to be returned to Prudential on an ongoing basis from contract owners' net contributions and other available cash. The amount of the commitment has been reduced by $10 million for every $100 million in current value net assets of the Partnership. As of December 31, 2004, the cost basis of Prudential's equity interest in the Partnership under this commitment (held through the Real Property Accounts) was $44 million. Prudential terminated this commitment on December 31, 2002. The Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. These matters are generally covered by insurance. In the opinion of Prudential's management, the outcome of such matters will not have a significant effect on the financial position of the Partnership. NOTE 10: OTHER RELATED PARTY TRANSACTIONS Pursuant to an investment management agreement, PIM 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, 2004, 2003 and 2002 management fees incurred by the Partnership were $2.7 million, $2.5 million, and $2.5 million for each of the three years, respectively. The Partnership also reimburses PIM for certain administrative services rendered by PIM. The amounts incurred for the years ended December 31, 2004, 2003 and 2002 were $141,130; $132,380; and $132,380, respectively, and are classified as administrative expenses in the Consolidated Statements of Operations. During the years ended December 31, 2004, 2003 and 2002, the Partnership made the following distributions to the Partners: YEAR ENDING DECEMBER 31, (000'S) ----------------------- ------- 2004....................................................... $ 6,000 2003....................................................... $ 6,856 2002....................................................... $16,143 F-22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002 NOTE 11: FINANCIAL HIGHLIGHTS

FOR THE YEAR ENDED DECEMBER 31, ---------------------------------------------------------- 2004 2003 2002 2001 2000 ------ ------ ------ ------ ------ PER SHARE (UNIT) OPERATING PERFORMANCE: Net Asset Value, beginning of period ................... $24.66 $24.11 $23.82 $22.74 $20.86 INCOME FROM INVESTMENT OPERATIONS: Investment income, before management fee ............... 1.44 1.71 1.63 1.66 1.67 Management fee ......................................... (0.36) (0.33) (0.30) (0.30) (0.26) Net realized and unrealized gain (loss) on investments . 0.41 (0.83) (1.04) (0.28) 0.47 ------ ------ ------ ------ ------ Net Increase in Net Assets Resulting from Operations ... 1.49 0.55 0.29 1.08 1.88 ------ ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD ......................... $26.15 $24.66 $24.11 $23.82 $22.74 ====== ====== ====== ====== ====== TOTAL RETURN, BEFORE MANAGEMENT FEE (a): ............... 7.61% 3.63% 2.52% 6.14% 10.40% RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in millions) ................ $187 $182 $184 $198 $206 Ratios to average net assets (b): Total portfolio level expenses ......................... 1.43% 1.35% 1.28% 1.27% 1.28% Net investment income .................................. 5.76% 7.12% 6.85% 7.11% 7.76%

(a) Total Return, before management fee is calculated by geometrically linking quarterly returns which are calculated using the formula below: Net Investment Income + Net Realized and Unrealized Gains/(Losses) ----------------------------------------------------------------- Beg. Net Asset Value + Time Weighted Contributions - Time Weighted Distributions (b) Average net assets are based on beginning of quarter net assets. NOTE 12: SUBSEQUENT EVENTS: On March 10, 2005, one additional apartment asset located in Salem, Oregon sold for $4.65 million, resulting in a realized loss of approximately $1.6 million for the property. F-23 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE III -- REAL ESTATE OWNED: PROPERTIES DECEMBER 31, 2004

GROSS AMOUNT AT WHICH INITIAL COSTS TO THE PARTNERSHIP CARRIED AT CLOSE OF YEAR ------------------------------------- COSTS ------------------------------------------------------------ CAPITALIZED YEAR OF ENCUMBRANCES BUILDING & SUBSEQUENT TO BUILDING & 2004 TOTAL CONSTRUC- DATE DESCRIPTION AT 12/31/04 LAND IMPROVEMENTS ACQUISITION LAND IMPROVEMENTS SALES (A)(B)(C) TION ACQUIRED ----------- ------------ --------- ------------ ------------- --------- ------------ ----- --------- --------- -------- PROPERTIES: Office Building Lisle, IL.......... None 1,780,000 15,743,881 5,649,155 1,958,000 21,215,036 23,173,036 1985 Apr., 1988 Garden Apartments Atlanta, GA........ 8,750,000 3,631,212 11,168,904 2,544,878(b) 4,206,097 13,138,897 17,344,994 1987 Apr., 1988 Retail Shopping Center Roswell, GA........ None 9,454,622 21,513,677 2,896,093 11,135,594 22,728,798 33,864,392 1988 Jan., 1989 Garden Apartments Raleigh, NC........ 8,750,000 1,623,146 14,135,553 325,016 1,623,146 14,460,569 16,083,715 1995 Jun., 1995 Office Building Nashville, TN...... None 1,797,000 6,588,451 2,323,519 1,797,378 8,911,592 10,708,970 1982 Oct., 1995 Office Park Oakbrook Terrace, IL........ None 1,313,310 11,316,883 2,203,603 1,313,821 13,519,975 14,833,796 1988 Dec., 1995 Office Building Beaverton, OR...... None 816,415 9,897,307 1,220,487 845,887 11,088,322 11,934,209 1995 Dec., 1996 Industrial Building Aurora, CO......... None 1,338,175 7,202,411 2,152,039 1,415,159 9,277,466 10,692,625 1997 Sep., 1997 Office Complex Brentwood, TN...... None 2,425,000 7,063,755 2,844,396 2,453,117 9,880,034 12,333,151 1987 Oct., 1997 Retail Shopping Center Hampton, VA........ 9,074,608 2,339,100 12,767,956 2,924,439 3,462,107 14,569,388 18,031,495 1998 May, 2001 ---------- ---------- ----------- ---------- ---------- ----------- ----- ----------- 26,574,608 26,517,980 117,398,778 25,083,625 30,210,306 138,790,077 0 169,000,383 ========== ========== =========== ========== ========== =========== ===== ===========

2004 2003 2002 2001 ----------- ----------- ----------- ----------- (a) Balance at beginning of year.... 163,507,834 150,548,805 158,410,798 154,613,404 Additions: Acquistions................... -- -- 0 0 Improvements, etc............. 5,492,550 1,545,443 1,231,735 3,797,394 Conversions from JV to WO..... -- 18,013,068 0 0 Deletions: Sale.......................... -- (6,599,482) (9,093,728) 0 ----------- ----------- ----------- ----------- Balance at end of year............... 169,000,384 163,507,834 150,548,805 158,410,798 =========== =========== =========== =========== (b) Net of $1,000,000 settlement received from lawsuit.

F-24 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE III -- REAL ESTATE OWNED: INTEREST IN PROPERTIES DECEMBER 31, 2004

GROSS AMOUNT AT WHICH INITIAL COSTS TO THE PARTNERSHIP COSTS CARRIED AT CLOSE OF YEAR ----------------------------------- CAPITALIZED ------------------------------------------------------------ SUBSEQUENT YEAR OF ENCUMBRANCES BUILDING & TO ACQUI- BUILDING & CONSTRUC- DATE DESCRIPTION AT 12/31/04 LAND IMPROVEMENTS SITION LAND IMPROVEMENTS SOLD TOTAL TION ACQUIRED ----------- ------------ ---------- ------------ ---------- ---------- ------------ ---------- ---------- --------- ---------- INTEREST IN PROPERTIES: Garden Apartments Jacksonville, FL............. 10,000,000 2,750,000 14,650,743 2,615,216 2,750,000 17,265,959 20,015,959 1973 Sept., 1999 Retail Shopping Center Kansas City MO and KS* ....... 13,657,622 5,710,916 15,211,504 3,174,520 5,710,916 18,386,024 24,096,940 Various Sept., 1999 Ranging From 1972-1992 Garden Apartments Gresham/ Salem, OR. .... -- 3,063,000 15,318,870 483,796 3,063,000 15,802,666 (6,861,343) 12,004,323 Various Feb., 2001 Retail Shopping Ranging Center Ocean City, MD.. 7,199,158 1,517,099 8,495,039 5,217,740 1,517,099 13,712,779 15,229,878 1986 Nov., 2002 Hotel Portland, OR.... -- 1,500,000 6,508,729 325,613 1,500,000 6,834,342 8,334,342 1989 Dec., 2003 Land Blue Springs, MO............. -- 100 -- -- 100 -- 100 ---------- ---------- ---------- ---------- ---------- ---------- --------- ---------- 30,856,780 14,541,115 60,184,885 11,816,885 14,541,115 72,001,770 (6,861,343) 79,681,542 ========== ========== ========== ========== ========== ========== ========= ==========

2004 2003 2002 2001 ---------- ---------- ---------- ---------- (a) Balance at beginning of year. 71,045,309 74,974,865 60,659,900 25,121,329 Additions: Acquistions................................ 0 8,008,729 10,012,138 33,488,926 Improvements, etc.......................... 2,444,168 3,392,575 4,097,329 1,674,862 Deletions: Sale....................................... (6,861,343) 0 0 0 Conversions from JV to WO.................. -- (16,446,908) Encumbrances on Joint Ventures accounted for by the equity method ........ 243,195 1,116,048 205,498 374,783 ---------- ---------- ---------- ---------- Balance at end of year........................ 66,871,329 71,045,309 74,974,865 60,659,900 ========== ========== ========== ==========

* Partnership interest accounted for by the equity method. F-25