10-K 1 c27451.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, 2002 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 [_] ================================================================================ THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT (REGISTRANT) INDEX

ITEM PAGE NO. NO. ----- ----- COVER PAGE INDEX 2 PART I 1. BUSINESS 3 2. PROPERTIES 5 3. LEGAL PROCEEDINGS 5 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 5 PART II 5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY HOLDER MATTERS 6 6. SELECTED FINANCIAL DATA 6 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 17 PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 18 11. EXECUTIVE COMPENSATION 19 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 19 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 19 14. CONTROLS AND PROCEDURES 19 PART IV 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 20 EXHIBIT INDEX 20 SIGNATURES 22

2 PART I ITEM 1. BUSINESS Pruco Life of New Jersey Variable Contract Real Property Account (the "Real Property Account"), the Registrant, was established on October 30, 1987. 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 (the "Partners"), to provide a means for assets allocated to the real estate investment option under certain variable life insurance and variable annuity contracts issued by the respective companies to be invested in a commingled pool. The Partnership has an investment policy of investing at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans. The largest portion of these real estate investments are direct ownership interests in income-producing real estate, such as office buildings, shopping centers, hotels, apartments, or industrial properties. Approximately 10% of the Partnership's assets are generally held in cash or invested in liquid instruments and securities although the Partners reserve discretion to increase this amount to meet partnership liquidity requirements. The remainder of the Partnership's assets are invested in other types of real estate-related investments, including real estate investment trusts. Office Properties--The Partnership owns office properties in Lisle and Oakbrook Terrace, Illinois; Brentwood, Tennessee; and Beaverton, Oregon. Total square footage owned is approximately 482,000 of which 57% or 273,000 square feet are leased for between 1 and 10 years. The Partnership's Morristown, New Jersey property, which had approximately 85,000 square feet, was sold on October 26, 2000. Apartment Complexes--The Partnership owns apartment complexes in Atlanta, Georgia and Raleigh, North Carolina. There are a total of 490 apartment units available of which 89% or 435 units are leased. Leases range from month to month to one year. In addition, on September 17, 1999, the Partnership invested in an apartment complex located in Jacksonville, Florida. This joint venture investment has a total of 458 units available of which 411 units or 90% are occupied. Leases range from month-to-month to one year. Also, on February 15, 2001, the Partnership invested in four apartment complexes located in Gresham/Salem, Oregon. This joint venture investment has a total of 492 units available of which 452 units or 92% are occupied. Leases range from month-to-month to one year. Retail Property--The Partnership owns a shopping center in Roswell, Georgia. The property is located approximately 22 miles north of downtown Atlanta on a 30 acre site. The square footage is approximately 316,000 of which 93% or 294,000 square feet is leased for between 1 and 10 years. On September 30, 1999 the Partnership invested in a retail portfolio located in the Kansas City, Missouri and Kansas areas. This joint venture investment has approximately 503,000 of net rentable square feet of which 87% or 437,000 square feet is leased for between 1 and 20 years. On May 17, 2001, the Partnership invested in a retail center located in the Hampton, Virginia. This joint venture investment has approximately 175,000 of net rentable square feet of which 100% is leased for between 1 and 20 years. On November 27, 2002, the Partnership invested in a retail center located in the Ocean City, Maryland. This joint venture investment has approximately 162,000 of net rentable square feet of which 99% or 160,000 square feet is leased for between 1 and 20 years. Industrial Properties--The Partnership owns warehouses and distribution centers in Aurora, Colorado and Salt Lake City, Utah. Total square footage owned is approximately 460,000 of which 76% or 350,000 square feet are leased for between 1 and 10 years. The Partnership's Bolingbrook, Illinois property, which has approximately 225,000 square feet, was sold on September 12, 2002. Investment in Real Estate Trust--The Partnership liquidated its entire investment in REIT shares during December 2001. 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 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Item 8, Financial Statements and Supplementary Data. 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 to the Partnership's portfolio. These results are not indicative of future performance. REAL ESTATE MARKET OVERVIEW Falling capitalization rates and deteriorating market fundamentals were recurring themes in the US real estate markets in 2002, although not all property types or markets participated equally in either. Apartment and retail sectors had no trouble attracting capital despite weakening market fundamentals. Capitalization rates fell in many transactions. Other sectors, like offices and hotels, could attract capital only if the asset offered an attractive, safe yield. Overall, private institutional real estate investment, as measured by the NCREIF Index, produced a total return of 6.8% in 2002, down from 7.3% in 2001 and 12.3% in 2000. The total return for 2002 is well below the three and five-year annualized returns of 8.7% and 10.7%, respectively. Real estate returns also moderated in the public equity markets. Equity REITs, as measured by the NAREIT index, finished 2002 with a total return of 3.8%, down from a 13.9% total return in 2001. The 2002 total return was composed of 6.9% income return and a -3.1% decline in property values. OFFICE MARKET The office market deterioration that began in late 2000, continued through the end of 2002 as vacancy rates rose an additional 40 bps. According to Torto Wheaton Research (TWR), the average vacancy rate rose to 16.5% in the fourth quarter, up from 16.1% in the third quarter and 14.2% twelve months ago. The average vacancy rate in downtown areas rose to 13.3%, up from 12.8% as of the third quarter. Vacancies rose modestly in suburban markets as well, with the average vacancy rate rising to 18.3% in the fourth quarter from 18.1% in the third quarter. Based on data from the NCREIF office index, private investment in US office real estate returned 0.21% during the fourth quarter of 2002, down from 0.86% in the third quarter. The current quarter's return was composed of 2.03% income and a -1.82% decline in property values. The total returns for Central Business District properties in the fourth quarter were cut in half after a strong third quarter. However, CBD returns still outpaced suburban property markets with total returns of 0.75% and -0.12%, respectively. INDUSTRIAL MARKET Market conditions continued to weaken in the industrial sector, as expected. The national availability rate increased 20 bp from 11% to 11.2% and 130 bps from twelve months prior. According to Torto Wheaton Research, new speculative supply and weak tenant demand are the main culprits behind the continued weakness. Despite the weakening market conditions, the industrial sector outpaced office for the third straight year, delivering a total return of 6.70%. The fourth quarter total return for the industrial sector of the NCREIF index was 1.68%, down from 1.81% in the third quarter. The best performing industrial subtype in the fourth quarter was flex space, with a total return of 1.96%, followed by warehouse with a total return of 1.93%. The Research &Development (R&D) subtype delivered a total return of -1.25% in the fourth quarter, well off the 1.04% total return in the third quarter. However, R&D's returns were higher than 2001's fourth quarter estimate of -1.85%. 4 APARTMENT MARKET According to REIS's estimates, the average vacancy rate among US apartments loosened in the fourth quarter of 2002, rising 40 bps to 6.3%. While market conditions appear to be stabilizing, the current vacancy rate is still up from the 4.8% rate at the end of 2001 and 330 bps higher than at year-end 2000. REIS reports that national same-unit rent growth for the fourth quarter was 0.4%, while the one-year rent growth was 1.1%. According to the NCREIF apartment subindex, private investment in apartments returned 2.01% during the fourth quarter of 2002, down from 2.63% in the third quarter. The total third quarter return included 1.62% from income and 0.39% from appreciation. Low-rise apartment properties returned 2.31% in the fourth quarter, outperforming garden properties (2.03%) and high-rise properties (1.82%). Moreover, the low-rise apartment subtype was the only apartment subtype to show an increase in performance in the fourth quarter. Both high-rise and garden apartments dropped well below their respective third quarter returns but still outpaced fourth quarter 2001 estimates. RETAIL MARKET The retail sector paced all real estate property types in terms of market conditions and returns in 2002. REIS reports that the average vacancy rate at neighborhood and community centers rose just 10 bps in 2002 to 6.9%, while vacancy at all retail centers rose 30 bps to 12.4%. Class A regional malls managed to increase revenues in 2002 despite the ongoing struggles among department store anchors. With limited new mall development, dominant regional malls should continue to enjoy strong internal growth amid stable market fundamentals. Grocery-anchored shopping centers remained popular with investors, but the risks have increased. With Wal-Mart and Target continuing their push into the grocery business, the increased pressure on already thin margins is forcing further consolidation. This is particularly troublesome for the smaller, "garden variety" community shopping center where the grocer is the primary driver of traffic. The retail sector posted an impressive total return of 4.60% in the fourth quarter and a 13.74% total return for 2002. Of the fourth quarter total return, 2.13% was attributable to income and 2.47% was from appreciation. The regional center subtype dethroned the power center as private real estate's top performing sector, with a total return of 5.76% in the fourth quarter. Super regional malls and neighborhood centers witnessed strong total returns of 5.73% and 4.46%, respectively. Community centers finished the quarter with a 3.82% total return, up from 2.52% in the third quarter. Power centers were the worst performing centers, with a total return of 3.66%. ITEM 2. PROPERTIES Not Applicable. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS Contract owners participating in the Real Property Account have no voting rights with respect to the Real Property Account. 5 PART II ITEM 5. MARKET FOR THE REGISTRANT'S INTERESTS AND RELATED SECURITY HOLDER MATTERS Owners of the Contracts may participate by allocating all or part of the net premiums or purchase payments to the Real Property Account. Contract values will vary with the performance of the Real Property Account's investments through the Partnership. Participating interests in the Real Property Account are not traded in any public market, thus a discussion of market information is not relevant. As of December 31, 2002 there were approximately 2,659 contract owners of record investing in the Real Property Account. ITEM 6. SELECTED FINANCIAL DATA

YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- RESULTS OF OPERATIONS: Total Investment Income.............. $27,077,048 $27,480,593 $26,387,938 $24,835,049 $27,163,552 ----------- ----------- ----------- ----------- ----------- Net Investment Income................ $10,864,043 $12,350,306 $13,638,117 $13,279,589 $15,833,513 Net Realized and Unrealized (Loss) Gain on Investment in Partnership.. (8,517,663) (2,547,749) 4,487,022 (7,217,046) 4,795,111 ----------- ----------- ----------- ----------- ----------- Net Increase in Net Assets Resulting From Operations.......... $ 2,346,380 $ 9,802,557 $18,125,139 $ 6,062,543 $20,628,624 ----------- ----------- ----------- ----------- -----------

FINANCIAL POSITION:

YEAR ENDED DECEMBER 31, ---------------------------------------------------------------------------- 2002 2001 2000 1999 1998 ---- ---- ---- ---- ---- Total Assets......................... $229,720,113 $234,594,652 $221,512,296 $225,142,653 $244,249,272 ------------ ------------ ------------ ------------ ------------ Long Term Lease Obligation........... $0 $0 $0 $0 $0 ------------ ------------ ------------ ------------ ------------ Mortgage Loan Payable................ $ 35,699,108 $ 28,994,521 $ 10,092,355 $ 10,184,662 $0 ------------ ------------ ------------ ------------ ------------

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 Financial Statements and the related Notes to the Financial Statements included elsewhere herein. (a) LIQUIDITY AND CAPITAL RESOURCES As of December 31, 2002, the Partnership's liquid assets consisting of cash and cash equivalents were $18.6 million, a decrease of $8.0 million from $26.6 million at December 31, 2001. This decrease was primarily due to distributions to the Partners of $16.1 million during 2002 offset by an increase in net cash flows from operations and the sale of the industrial property located in Bolingbrook, Illinois on September 12, 2002. Sources of liquidity include net cash flow from property operations and interest from short-term investments. The Partnership's investment policy allows up to 30% investment in cash and short-term obligations, although the Partnership generally holds approximately 10% of its assets in cash and short-term obligations. At December 31, 2002, 8.1% of the Partnership's assets consisted of cash and short term obligations. 6 In 1986, Prudential committed to fund up to $100 million to enable the Partnership to acquire real estate investments. Contributions to the Partnership under this commitment have been utilized for property acquisitions and returned to Prudential on an ongoing basis from contract owners' net contributions and other available cash. The amount of the commitment had been reduced by $10 million for every $100 million in current value net assets of the Partnership. As of December 31, 2002, Prudential's equity interest in the Partnership, on a cost basis, under this commitment (held through the Real Property Accounts) was $44 million. Prudential did not make any contributions under this commitment during the 2002 fiscal year. This commitment terminated on December 31, 2002. The Partnership made $16.1 million in distributions to the Partners during 2002, and $18.0 million in distributions, during 2001. Additional distributions may be made to the Partners during 2003 based upon the percentage of assets invested in short-term obligations, taking into consideration anticipated cash needs of the Partnership including potential property acquisitions, property dispositions and capital expenditures. Management anticipates that its current liquid assets and ongoing cash flow from operations will satisfy the Partnership's needs over the next twelve months and the foreseeable future. The Partnership completed one real estate acquisition during the year. The Partnership acquired a controlling interest in a 161,600 square foot retail center in Ocean City, Maryland. The Partnership funded $0.5 million during 2002 as part of this acquisition. A $7.4 million mortgage was also assumed in connection with this transaction. During the first twelve months of 2002, the Partnership spent approximately $2.6 million in capital expenditures. Approximately $1.3 million was associated with the development and expansion of the retail center located in Hampton, Virginia. The remaining $1.3 million balance was primarily associated with the HVAC upgrade at the office building located in Lisle, Illinois, roof replacement at the office building located in Oakbrook Terrace, Illinois, lobby upgrades at one of the Brentwood, Tennessee office buildings, and tenant improvements at the other Brentwood, Tennessee office building. The Partnership also increased its investment in real estate partnerships by approximately $2.9 million in connection with the development and expansion of a retail center located in Kansas City, Missouri. (b) RESULTS OF OPERATIONS The following is a brief year-to-date comparison of the Partnership's results of operations for the periods ended December 31, 2002, 2001, and 2000. 2002 VS. 2001 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, 2002 2001 ---------- ---------- NET INVESTMENT INCOME: Office properties...................................................... $ 4,837,432 $ 4,766,035 Apartment complexes.................................................... 3,089,744 3,735,912 Retail property........................................................ 3,612,435 2,950,333 Industrial properties.................................................. 1,429,036 545,003 Equity in income of real estate partnership............................ 276,206 686,801 Dividend income from real estate investment trust...................... -- 2,157,647 Other (including interest income, investment mgt fee, etc.)............ (2,380,810) (2,491,425) ---------- ---------- TOTAL NET INVESTMENT INCOME............................................ $ 10,864,043 $12,350,306 ---------- ---------- NET UNREALIZED LOSS ON REAL ESTATE INVESTMENTS: Office properties...................................................... $ (6,785,006) $ (777,380) Apartment complexes.................................................... (856,188) 415,417 Retail property........................................................ (808,736) (94,504) Industrial properties.................................................. 177,573 (2,105,641) Interest in real estate partnership.................................... (638,838) 226,024 ---------- ---------- TOTAL NET UNREALIZED LOSS ON REAL ESTATE INVESTMENTS................... $ (8,911,195) $ (2,336,084) ---------- ----------

7

TWELVE MONTHS ENDED DECEMBER 31, 2002 2001 ----------- ----------- NET REALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS: Industrial properties ................................. 395,110 -- Real estate investment trust .......................... (1,578) (211,665) ----------- ----------- TAL NET REALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS 393,532 (211,665 ----------- ----------- NET REALIZED AND UNREALIZED LOSS ON REAL ESTATE INVESTMENTS ............................ $(8,517,663) $(2,547,749) =========== ===========

The Partnership's net investment income for the year ended December 31, 2002 was $10.9 million, a decrease of $1.5 million from $12.4 million when compared to the corresponding period in 2001. The Partnership's liquidation of its investment in REIT stocks during the fourth quarter last year resulted in no dividend income being received in 2002. Additionally, the occupancy at one of the Brentwood, Tennessee properties has decreased to 0% from 100% due to the move-out of the single tenant. Equity in income of real estate partnership was $0.3 million for the twelve months of 2002, a decrease of $0.4 million, or 59.8%, from $0.7 million in the corresponding period in 2001. This decrease is due to a decrease in revenue associated with expansion of the existing grocery store anchor that commenced during the fourth quarter of 2001. It is anticipated that upon completion, both occupancy and rental rates will increase. Dividend income from real estate investment trusts decreased approximately $2.2 million, or 100.0%, during the twelve months of 2002 compared to the corresponding period in 2001. These decreases were due to the Partnership's liquidation of its investment in REIT stocks during the 4th quarter of 2001. Interest on short-term investments increased approximately $0.2 million or 53.6% for the year ended December 31, 2002 due primarily to higher average cash balance when compared to the corresponding period in 2001. Administrative expense increased $0.8 million, or 32.8%, in the twelve months of 2002 compared to the corresponding period in 2001. These increases were primarily due to the Partnership's acquisition of a portfolio of apartment complexes located in Gresham and Salem, Oregon in 2001, a retail center located in Hampton, Virginia in 2001, and a retail center located in Ocean City, Maryland in 2002. Interest expense increased $0.2 million, or 12.0%, in the twelve months of 2002 compared to the corresponding period in 2001. This increase was primarily due to the Partnership's assumption of a $9.0 million and a $10.3 million mortgage loan in conjunction with the acquisition of a controlling interest in a portfolio of apartment complexes located in Gresham and Salem, Oregon and a retail center located in Hampton, Virginia in 2001. There was also the additional assumption of a $7.4 million mortgage loan in conjunction with the acquisition of a controlling interest in a retail center located in Ocean City, Maryland in 2002. The Partnership experienced a net unrealized loss of $8.9 million for the year ended December 31, 2002 compared to a net unrealized loss of $2.3 million during the corresponding period in 2001. The unrealized losses during 2002 were experienced in the office, apartment and retail sectors. The office properties recorded an unrealized loss of $6.8 million primarily due to the buildings located in Brentwood, Tennessee and Oakbrook Terrace, Illinois, where softening market conditions have resulted in reductions in market rental rates and increased leasing costs. In total, the apartment complexes in the portfolio experienced unrealized losses totaling $0.9 million for the twelve months of 2002. Weaker demand caused by higher rates of unemployment and a favorable interest rate environment for homebuyers has resulted in lower short-term occupancy and income projections. The retail sector also experienced a net unrealized loss of $0.8 million primarily due to uncertainty about a lease renewal by a major tenant. OFFICE PROPERTIES Net investment income from property operations for the office sector increased approximately $0.1 million, or 1.5%, for the year ended December 31, 2002 when compared to the corresponding period in 2001. 8 The five office properties owned by the Partnership experienced a net unrealized loss of approximately $6.8 million during the twelve months of 2002. The Oakbrook Terrace, Illinois property experienced a net unrealized loss of approximately $3.3 million primarily due to softening market conditions and the lease expiration of a major tenant. One of the Brentwood, Tennessee properties experienced a net unrealized loss of approximately $1.4 million primarily due to the move-out of the single tenant at the property in July 2002. Though occupancy increased by 4%, the other Brentwood, Tennessee property experienced a net unrealized loss of approximately $1.3 million primarily due to softening market conditions. The Lisle, Illinois property experienced a net unrealized loss of approximately $0.6 million primarily due to impending tenant rollover and softening market conditions. The office property located in Beaverton, Oregon experienced an unrealized loss of approximately $0.1 million due to lower market rental rates and the near-term lease expiration of one of the tenants. The five office properties owned by the Partnership experienced a net unrealized loss of approximately $0.8 million during the twelve months of 2001. One of the Brentwood, Tennessee properties experienced a net unrealized loss of approximately $0.7 million primarily due to the near-term expiration and expected move-out of the single tenant at the property in July 2002. The Beaverton, Oregon and the Lisle, Illinois office properties experienced a net unrealized loss of approximately $0.4 million and $0.2 million, respectively, primarily due to softening market conditions. Offsetting these unrealized losses was an unrealized gain of approximately $0.6 million at the office property located in Oakbrook Terrace, Illinois. This unrealized gain was attributable to the signing of two new leases, which brought the leased area from 55% to 79%. Occupancy at one of the Brentwood, Tennessee office properties increased from 74% at December 31, 2001 to 78% at December 31, 2002. The other Brentwood, Tennessee office property decreased from 100% at December 31, 2001 to 0% at December 31, 2002. Occupancy at the Lisle, Illinois and Beaverton, Oregon office properties remained unchanged at 100% at December 31, 2001 and 2002. Occupancy at the Oakbrook Terrace, Illinois decreased from 79% at December 31, 2001 to 27% at December 31, 2002. As of December 31, 2002 all vacant spaces were being marketed. APARTMENT COMPLEXES Net investment income from property operations for the apartment sector was $3.1 million for the year ended December 31, 2002, a decrease of $0.6 million, or 17.3%, when compared to the corresponding period in 2001. These decreases were primarily due to a decrease in average occupancy at the Atlanta, Georgia apartment complex. Average occupancy for the Atlanta, Georgia apartment complex was 90% and 83% for the year ended December 31, 2001 and 2002, respectively. Additionally, rental concessions have been made in order to increase and/or maintain the occupancy thus resulting in lower revenue at all the apartment complexes. The apartment complexes owned by the Partnership experienced a net unrealized loss of $0.9 million for the year ended December 31, 2002 compared to a net unrealized gain of $0.4 million for the year ended December 31, 2001. Of the unrealized loss experienced in the twelve months of 2002, $1.3 million was experienced at the apartment complex located in Atlanta, Georgia. This unrealized loss was due to softening market conditions. The apartment complex located in Jacksonville, Florida experienced an unrealized loss of $0.2 million due to slightly higher expense estimates and softening market conditions. The apartment portfolio located in Gresham/Salem, Oregon, also experienced a net unrealized loss of $0.1 million primarily due to increases in operating expense levels and softening market conditions. Offsetting these losses, the apartment complex located in Raleigh, North Carolina experienced an unrealized gain of $0.7 million due to a reduced estimate of rent concessions and a reduction in certain operating expenses. The apartment complexes owned by the Partnership experienced a net unrealized gain of $0.4 million for the twelve months ended December 31, 2001. The majority of the unrealized gain experienced in 2001 was primarily due to the Atlanta, Georgia apartment complex that experienced an increase in value of $0.9 million due to sub-metering of the apartments for water usage and lower real estate taxes than previously estimated. The apartment complex portfolio located in Gresham and Salem, Oregon also experienced an increase in value of $0.4 million due to the completion of capital improvements and the reduction of administrative expense estimates. Offsetting these unrealized gains was the apartment complex located in Raleigh, North Carolina, which experienced a net unrealized loss of $0.5 million due to a decrease in occupancy. The apartment complex in Jacksonville, Florida also experienced a decrease in value of $0.4 million due to higher replacement reserve expenses, higher operating expense projections, and slightly lower market rent estimates. 9 Occupancy at the Atlanta, Georgia complex increased from 83% at December 31, 2001 to 90% at December 31, 2002. Occupancy at the Raleigh, North Carolina complex increased from 82% at December 31, 2001 to 88% at December 31, 2002. Occupancy at the apartment complex in Jacksonville, Florida increased from 88% at December 31, 2001 to 90% at December 31, 2002. Occupancy at the Gresham and Salem, Oregon apartment complexes decreased from 93% at December 31, 2001 to 92% at December 31, 2002. As of December 31, 2002, all available vacant units were being marketed. RETAIL PROPERTIES Net investment income for the Partnership's retail properties was approximately $3.6 million for the year ended December 31, 2002, and approximately $2.9 million for the year ended December 31, 2001. The increase in the year-to-date net investment income for the retail sector is primarily due to the May 2001 acquisition of the retail center located in Hampton, Virginia and the November 2002 acquisition of the retail center located in Ocean City, Maryland. The retail properties experienced a net unrealized loss of $0.8 million for the year ended December 31, 2002 and a net unrealized loss of $0.1 million for the year ended December 31, 2001. The retail center located in Roswell, Georgia experienced a net unrealized loss of $1.7 million for the twelve months of 2002 due to the risk that a major tenant will not renew its lease, coupled with lower market rents. Partially offsetting this loss, the retail center located in Hampton, Virginia experienced an unrealized gain of $0.9 million due to the addition of 20,000 rentable square feet and an increase in occupancy. The retail properties experienced a net unrealized loss of $0.1 for the twelve months ended December 31, 2001. The retail center located in Roswell, Georgia experienced a loss of $0.6 million for 2001 due to increased capital expenditures and a slight drop in occupancy. Offsetting this unrealized loss was an unrealized gain of $0.5 million resulting from the market value appraisal received on the newly acquired retail center located in Hampton, Virginia. Occupancy at the retail center in Hampton, Virginia remained unchanged at 100% at December 31, 2001 and 2002. Occupancy at the shopping center located in Roswell, Georgia increased from 92% at December 31, 2001 to 93% at December 31, 2002. Occupancy at the retail center in Ocean City, Maryland was 99% at December 31, 2002. As of December 31, 2002, all vacant spaces were being marketed. INDUSTRIAL PROPERTIES Net investment income from property operations for the industrial properties increased from $0.5 million for year ended December 31, 2001 to $1.4 million for the corresponding period ended December 31, 2002. The majority of this increase was due to higher revenues at the properties located in Bolingbrook, Illinois and Salt Lake City, Utah. On September 12, 2002 the industrial property located in Bolingbrook, Illinois was sold for a realized gain of $0.4 million. Average occupancy for the Bolingbrook, Illinois industrial property was 24% and 79% for the year ended December 31, 2001 and nine months ended September 30, 2002, respectively. The industrial properties owned by the Partnership experienced a net unrealized gain of approximately $0.2 million for the year ended December 31, 2002 compared to a net unrealized loss of approximately $2.1 million in 2001. The majority of the unrealized gain in 2002 was attributable to the Aurora, Colorado industrial property. This gain of approximately $0.5 million was due to an increase in market rents. Offsetting this unrealized gain was the Salt Lake City, Utah facility, which experienced a net unrealized loss of $0.3 million due to capital expenditures at the property that were not reflected as an increase in market value and softening market conditions. The three industrial properties owned by the Partnership experienced a net unrealized loss of approximately $2.1 million for the twelve months ended December 31, 2001. The majority of the unrealized loss in 2001 was attributable to the Salt Lake City, Utah industrial property. This loss of approximately $1.3 million was due to a decrease in market rents. The Bolingbrook, Illinois facility experienced a loss of $0.9 million due to a decrease in rental rates and softening market conditions. The occupancy at the Salt Lake City, Utah property remained unchanged at 77% at December 31, 2001 and 2002. The Aurora, Colorado property's occupancy rate remained unchanged at 75% at December 31, 2001 and 2002. As of December 31, 2002, all vacant spaces were being marketed. 10 EQUITY IN INCOME OF REAL ESTATE PARTNERSHIP During the year ended December 31, 2002, income from the investment located in Kansas City, Kansas and Missouri amounted to $0.3 million, a decrease of 59.8% from $0.7 million at December 31, 2001. The decrease in the year-to-date equity in income of real estate partnership is due to a decrease in revenue associated with expansion of the existing grocery store anchor that commenced during the fourth quarter 2001. It is anticipated that upon completion, both occupancy and rental rates will increase. The equity investment experienced a net unrealized loss of $0.6 million and a net unrealized gain of $0.2 million for the years ended December 31, 2002 and 2001, respectively. The unrealized loss of $0.6 million for the year ended December 31, 2002 was primarily due to renovations from the expansion of the existing grocery store anchor that have not been reflected yet in the market value of the property. The unrealized gain of $0.2 million for the twelve months ended December 31, 2001 was primarily due to the addition of a tenant that will provide a substantial amount of income to the center in rent and the addition of new space to house this tenant. The retail portfolio located in Kansas City, Kansas and Missouri had an average occupancy of 90% at December 31, 2001, which decreased to 87% at December 31, 2002. As of December 31, 2002, all vacant spaces were being marketed. REAL ESTATE INVESTMENT TRUSTS The Partnership's investment in REITS was liquidated at the end of the fourth quarter of 2001. During the twelve months ended December 31, 2001, the Partnership's remaining investment in REITS recognized a realized loss of $0.2 million due to the sale of the Partnership's remaining investment in REITs. OTHER Other net investment income increased $0.1 million during the year of 2002 compared to the corresponding period in 2001. Other net investment income includes interest income from short-term investments, investment management fees, and expenses not related to property activities. The increase in 2002 is primarily due to an increase in interest income from short-term investments offset by a decrease in management fees due to the Partnership's liquidation of its entire investment in REIT shares. 2001 VS. 2000 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, 2001 2000 ---------- ---------- NET INVESTMENT INCOME: Office properties...................................................... $ 4,766,035 $ 5,356,934 Apartment complexes.................................................... 3,735,912 3,446,245 Retail property........................................................ 2,950,333 2,772,438 Industrial properties.................................................. 545,003 1,257,146 Equity in income of real estate partnership............................ 686,801 791,596 Dividend income from real estate investment trust...................... 2,157,647 1,744,611 Other (including interest income, investment mgt fee, etc.)............ (2,491,425) (1,730,853) ---------- ---------- TOTAL NET INVESTMENT INCOME............................................ $12,350,306 $13,638,117 ---------- ---------- NET UNREALIZED (LOSS) GAIN ON REAL ESTATE INVESTMENTS: Office properties...................................................... $ (777,380) $(2,434,245) Apartment complexes.................................................... 415,417 2,717,915 Retail property........................................................ (94,504) (264,300) Industrial properties.................................................. (2,105,641) (935,721) Interest in real estate partnership.................................... 226,024 140,614 Real estate investment trusts.......................................... -- 2,618,815 ---------- ---------- TOTAL NET UNREALIZED (LOSS) GAIN ON REAL ESTATE INVESTMENTS............ $(2,336,084) $ 1,843,078 ---------- ----------

11

TWELVE MONTHS ENDED DECEMBER 31, 2001 2000 --------- ---------- NET REALIZED (LOSS) GAIN ON REAL ESTATE INVESTMENTS Office properties...................................................... -- 186,920 Apartment complexes.................................................... -- -- Industrial properties.................................................. -- -- Interest in real estate partnership.................................... -- -- Real estate investment trust........................................... (211,665) 2,457,024 --------- ---------- TOTAL NET REALIZED (LOSS) GAIN ON REAL ESTATE INVESTMENTS.............. (211,665) 2,643,944 --------- ---------- NET REALIZED AND UNREALIZED (LOSS) GAIN ON REAL ESTATE INVESTMENTS............................................. $(2,547,749) $ 4,487,022 =========== ===========

The Partnership's net investment income for the twelve months ended December 31, 2001 was $12.4 million, a decrease of $1.3 million from the corresponding period in the prior year. This decrease was primarily due to the sale of an office property located in Morristown, New Jersey in the fourth quarter of 2000. Equity in income of real estate partnership was $0.7 million for the twelve months of 2001, a decrease of $0.1 million, or 13.2%, from $0.8 million in the corresponding period in 2000. The decrease is primarily due to a temporary decrease in rental rates at the retail portfolio located in Kansas City, Kansas and Missouri when compared to the prior year. Dividend income from real estate investment trusts amounted to approximately $2.2 million for the twelve months ended December 31, 2001, an increase of approximately $0.4 million, or 23.7%, from approximately $1.7 million in the corresponding period in 2000. This increase was primarily due to an increase in the amount invested in REIT stocks subsequent to the 3rd quarter 2000. Interest on short-term investments decreased approximately $1.0 million or 76.9% for the twelve months ended December 31, 2001 due primarily to a significantly lower average cash balance compared to the corresponding period in 2000. Cash, cash equivalents, and marketable securities maintained during the twelve months ended December 31, 2001 averaged approximately $13.0 million when compared to the twelve months ended December 31, 2000 when the average was approximately $19.1 million. Operating expenses increased $0.9 million, or 21.4%, in the twelve months of 2001 compared to the corresponding period in 2000. These increases were primarily due to the Partnership's acquisition of a controlling interest in the two investments discussed previously. Interest expense increased $1.0 million, or 142.4%, in the twelve months of 2001 compared to the corresponding period in 2000. These increases were primarily due to the Partnership's assumption of a $9.0 million and a $10.3 million mortgage loan in conjunction with the acquisition of a controlling interest in the two investments discussed previously. Minority interest in consolidated partnerships increased $0.1 million, or 1,256.4%, for the twelve months ended December 31, 2001. These increases were due to the Partnership's acquisition of a controlling interest in the two investments discussed previously. OFFICE PROPERTIES Net investment income from property operations for the office sector decreased approximately $0.6 million, or 11.0%, for the twelve months ended December 31, 2001 when compared to the corresponding period in 2000. This was primarily due to the sale of the Morristown, New Jersey office center in October 2000. The five office properties owned by the Partnership experienced a net unrealized loss of approximately $0.8 million during the twelve months of 2001. One of the Brentwood, Tennessee properties experienced a net unrealized loss of approximately $0.7 million primarily due to the near-term expiration and expected move-out of the single tenant at the property in July 2002. The Beaverton, Oregon and the Lisle, Illinois office properties experienced a net unrealized loss of approximately $0.4 million and $0.2 million, respectively, primarily due to softening market conditions. Offsetting these unrealized losses was an unrealized gain of approximately $0.6 million at the office property located in Oakbrook Terrace, Illinois. This unrealized gain was attributable to the signing of two new leases, which brought the leased area from 55% to 79%. 12 The office properties owned by the Partnership experienced a net unrealized loss of approximately $2.4 million during 2000. During 2000, the Oakbrook Terrace, Illinois property decreased $1.6 million in value due to a lease termination associated with 45% of the space and weaker market conditions. One of the Brentwood, Tennessee office properties also experienced a net unrealized loss of approximately $0.8 million primarily due to capital expenditures on the property that were not reflected as an increase in market value. Occupancy at one of the Brentwood, Tennessee office properties decreased from 95% at December 31, 2000 to 74% at December 31, 2001, while occupancy at the other Brentwood, Tennessee location remained unchanged at 100%. Occupancy at the Lisle, Illinois office property increased from 88% at December 31, 2000 to 100% at December 31, 2001. Occupancy at the Beaverton, Oregon property remained unchanged at 100%. Occupancy at the Oakbrook Terrace, Illinois property decreased from 100% at December 31, 2000 to 79% at December 31, 2001. As of December 31, 2001 all vacant spaces were being marketed. APARTMENT COMPLEXES Net investment income from property operations for the apartment sector was $3.7 million for the twelve months ended December 31, 2001, an increase of $0.3 million, or 8.4%, when compared to the corresponding period in 2000. This increase was primarily due to the acquisition of the controlling interest in the apartment complex portfolio located in Gresham and Salem, Oregon. The apartment complexes owned by the Partnership experienced a net unrealized gain of $0.4 million for the twelve months ended December 31, 2001 compared to a net unrealized gain of $2.7 million for the twelve months ended December 31, 2000. The majority of the unrealized gain experienced in 2001 was primarily due to the Atlanta, Georgia apartment complex that experienced an increase in value of $0.9 million due to sub-metering of the apartments for water usage and lower real estate taxes than previously estimated. The apartment complex portfolio located in Gresham and Salem, Oregon also experienced an increase in value of $0.4 million due to the completion of capital improvements and the reduction of administrative expense estimates. Offsetting these unrealized gains was the apartment complex located in Raleigh, North Carolina, which experienced a net unrealized loss of $0.5 million due to a decrease in occupancy. The apartment complex in Jacksonville, Florida also experienced a decrease in value of $0.4 million due to higher replacement reserve expenses, higher operating expense projections, and slightly lower market rent estimates. The apartment complexes owned by the Partnership experienced a net unrealized gain of $2.7 million in 2000. The largest share of the unrealized gain for 2000 or $1.7 million was experienced by the apartment complex located in Atlanta, Georgia primarily due to increases in rental rates, stabilized occupancy, and lower operating expense estimates. The apartment complex located in Raleigh, North Carolina also experienced a net unrealized gain of $0.2 million due to increases in rental rates. The occupancy at the Raleigh, North Carolina complex decreased from 92% at December 31, 2000 to 82% at December 31, 2001. Occupancy at the Atlanta, Georgia complex decreased from 98% at December 31, 2000 to 83% at December 31, 2001. Occupancy at the apartment complex in Jacksonville, Florida decreased from 91% at December 31, 2000 to 88% at December 31, 2001. Occupancy at the Gresham and Salem, Oregon apartment complexes averaged approximately 93% at December 31, 2001. As of December 31, 2001, all available vacant spaces were being marketed. RETAIL PROPERTIES Net investment income for the Partnership's retail properties located in Roswell, Georgia and Hampton, Virginia was approximately $3.0 million for the twelve months ended December 31, 2001 and approximately $2.8 million for the twelve months ended December 31, 2000. The increase is primarily due to the acquisition of the controlling interest in the 154,540 square foot retail center based in Hampton, Virginia. The retail properties experienced a net unrealized loss of $0.1 million and a net unrealized loss of $0.3 million for the twelve months ended December 31, 2001 and 2000, respectively. The retail center located in Roswell, Georgia experienced a loss of $0.6 million for 2001 due to increased capital expenditures and a slight drop in occupancy. Offsetting this unrealized loss was an unrealized gain of $0.5 million resulting from the market value appraisal received on the newly acquired retail center located in Hampton, Virginia. 13 The unrealized loss experienced in 2000 was due to the Roswell, Georgia property due to lower income projections, coupled with capital expenditures that did not increase the market value of the property. Occupancy at the shopping center located in Roswell, Georgia decreased from 97% at December 31, 2000 to 92% at December 31, 2001. The newly acquired retail center in Hampton, Virginia had an occupancy of 99% at December 31, 2001. As of December 31, 2001, all vacant spaces were being marketed. INDUSTRIAL PROPERTIES Net investment income from property operations for the industrial properties decreased from $1.3 million for the twelve months ended December 31, 2000 to $0.5 million for the corresponding period ended December 31, 2001. The majority of these decreases were due to decreased occupancy at the properties located in Bolingbrook, Illinois and Salt Lake City, Utah. Even though the Salt Lake City, Utah location increased occupancy for the year, the new tenants did not move in until the end of the third quarter and there was significant vacancy at the Bolingbrook, Illinois facility for a portion of 2001. The three industrial properties owned by the Partnership experienced a net unrealized loss of approximately $2.1 million for the twelve months ended December 31, 2001 compared to a net unrealized loss of approximately $0.9 million in 2000. The majority of the unrealized loss in 2001 was attributable to the Salt Lake City, Utah industrial property. This loss of approximately $1.3 million was due to a decrease in market rents. The Bolingbrook, Illinois facility experienced a loss of $0.9 million due to a decrease in rental rates and softening market conditions. The three industrial properties owned by the Partnership experienced a net unrealized loss of approximately $0.9 million in 2000. The majority of the decrease for 2000 was attributable to the Aurora, Colorado industrial property, which had a loss of approximately $0.7 million due to more conservative assumptions regarding rental rates, lease-up time and terminal capitalization rates used by the appraiser. In addition, capital expenditures were incurred at the property that were not reflected as an increase in market value. The industrial property located in Bolingbrook, Illinois experienced an unrealized loss of $0.4 million in 2000. This loss was due to the expiration of the single tenant lease with no replacement tenant being signed as of yet. The space was leased during the fourth quarter of 2000 on a temporary basis, and partially leased at the end of 2001 to a different temporary tenant. The occupancy at the Bolingbrook, Illinois property decreased from 100% at December 31, 2000 to 98% at December 31, 2001. The occupancy at the Salt Lake City, Utah property increased from 34% at December 31, 2000 to 77% at December 30, 2001. The Aurora, Colorado property's occupancy rate remained unchanged at 75% at December 31, 2000 and 2001. As of December 31, 2001, all vacant spaces were being marketed. EQUITY IN INCOME OF REAL ESTATE PARTNERSHIP During the twelve months ended December 31, 2001, income from the investment located in Kansas City, Kansas and Missouri amounted to $0.7 million, a decrease of 13.2% from $0.8 million at December 31, 2000. The decrease is primarily due to a temporary decrease in rental rates. The equity investment experienced a net unrealized gain of $0.2 million and $0.1 million for the twelve months ended December 31, 2001 and 2000, respectively. The unrealized gain of $0.2 million for the twelve months ended December 31, 2001 was primarily due to the addition of a tenant that will provide a substantial amount of income to the center in rent and the addition of new space to house this tenant. The retail portfolio located in Kansas City, Kansas and Missouri had an average occupancy of 90% at December 31, 2001, which remained unchanged from December 31, 2000. As of December 31, 2001, all vacant spaces were being marketed. REAL ESTATE INVESTMENT TRUSTS During the twelve months ended December 31, 2001, the Partnership's remaining investment in REITS recognized a realized loss of $0.2 million due to the sale of the Partnership's remaining investment in REITs. The Partnership recognized a net realized gain of $2.5 million in 2000 primarily due to the sale of the Partnership's remaining investment in Prologis REIT shares and sales of other REIT investments. The Partnership recognized an unrealized gain of $2.6 million on investments in REITs for the twelve months ended December 31, 2000, which reflects changes in the market value of REIT shares held by the Partnership. 14 OTHER Other net investment income decreased approximately $0.8 million during the twelve months ended December 31, 2001 when compared to the corresponding period in 2000. Other net investment income includes interest income from short-term investments, investment management fees, and expenses not related to property activities. The decreases discussed above were primarily due to interest income on short-term investments, which decreased primarily as a result of the Partnership maintaining a significantly lower cash balance when compared to the corresponding periods last year coupled with a decrease in interest rates. (c) PER SHARE INFORMATION Following is an analysis of the Partnership's net investment income and net realized and unrealized gain (loss) on investments, presented on a per share basis:

01/01/2002 01/01/2001 01/01/2000 TO TO TO 12/31/2002 12/31/2001 12/31/2000 ------- ------- ------- Revenue from real estate and improvements ..................................... $ 3.22 $ 2.71 $ 2.32 Equity in income of real estate partnership ................................... $ 0.03 $ 0.08 $ 0.08 Dividend income from real estate investment trusts ............................ $ 0.00* $ 0.24 $ 0.18 Interest on short-term investments ............................................ $ 0.06 $ 0.03 $ 0.13 --------- --------- --------- TOTAL INVESTMENT INCOME ....................................................... $ 3.31 $ 3.06 $ 2.71 --------- --------- --------- Investment management fee ..................................................... $ 0.30 $ 0.30 $ 0.28 Real estate taxes ............................................................. $ 0.35 $ 0.30 $ 0.25 Administrative expense ........................................................ $ 0.41 $ 0.28 $ 0.25 Operating expense ............................................................. $ 0.64 $ 0.60 $ 0.44 Interest expense .............................................................. $ 0.24 $ 0.20 $ 0.07 Minority interest in consolidated partnership ................................. $ 0.04 $ 0.02 $ 0.00* --------- --------- --------- TOTAL INVESTMENT EXPENSES ..................................................... $ 1.98 $ 1.70 $ 1.29 --------- --------- --------- NET INVESTMENT INCOME ......................................................... $ 1.33 $ 1.36 $ 1.42 --------- --------- --------- Net realized gain (loss) on real estate investments sold or converted ............................................................... $ 0.05 $ (0.02) $ 0.27 --------- --------- --------- Change in unrealized gain (loss) on real estate investments ................... $ (1.07) $ (0.26) $ 0.23 Less: Minority interest in unrealized gain (loss) on investments .............. $ 0.02 $ 0.00* $ 0.04 --------- --------- --------- Net unrealized gain (loss) on real estate investments ......................... $ (1.09) $ (0.26) $ 0.19 --------- --------- --------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ................................................. $ (1.04) $ (0.28) $ 0.46 ========= ========= ========= Net change in share value ..................................................... $ 0.29 $ 1.08 $ 1.88 Share value at beginning of period ............................................ $ 23.82 $ 22.74 $ 20.86 --------- --------- --------- Share value at end of period .................................................. $ 24.11 $ 23.82 $ 22.74 ========= ========= ========= Ratio of expenses to average net assets (1) ................................... 8.34% 7.26% 6.07% Ratio of net investment income to average net assets (1) ...................... 5.59% 5.93% 6.49% Number of weighted average shares outstanding during the period (000's) .................................................. 8,193 8,922 9,831

ALL PER SHARE CALCULATIONS ARE BASED ON WEIGHTED AVERAGE SHARES OUTSTANDING. (1) -- Average net assets are calculated based on an average of ending monthly net assets. * Per Share amount less than $0.01 (rounded) 15 (c) INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS Certain statements contained in Management's Discussion and Analysis may be considered forward-looking statements. Words such as "expects", "believes", "anticipates", "intends", "plans", or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based upon management's current expectations and beliefs concerning future developments and their potential effects upon the Partnership. There can be no assurance that future developments affecting the Partnership will be those anticipated by management. There are certain important factors that could cause actual results to differ materially from estimates or expectations reflected in such forward-looking statements including without limitation, changes in general economic conditions, including the performance of financial markets and interest rates; market acceptance of new products and distribution channels; competitive, regulatory or tax changes that affect the cost or demand for the Partnership's products; and adverse litigation results. While the Partnership reassesses material trends and uncertainties affecting its financial position and results of operations, it does not intend to review or revise any particular forward-looking statement referenced in this Management's Discussion and Analysis in light of future events. Readers should consider the information referred to above when reviewing any forward-looking statements contained in this Management's Discussion and Analysis. (d) INFLATION The Partnership's leases with a majority of its commercial tenants provide for recoveries of expenses based upon the tenant's proportionate share of, and/or increases in, real estate taxes and certain operating costs, which may reduce the Partnership's exposure to increases in operating costs resulting from inflation. 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. The following sections discuss critical accounting policies applied in preparing our 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 valued at their purchase price. Thereafter, real estate investments are reported at their estimated market values based upon appraisal reports prepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter. The Chief Real Estate Appraiser of Prudential Investment Management is responsible to assure that the valuation process provides objective and accurate 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. 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. As described above, the estimated market value of real estate and real estate related assets is determined through an appraisal process. These estimated market values may vary significantly from the prices at which the real estate investments would sell since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. Although the estimated market values represent subjective estimates, management believes these estimated market values are reasonable approximations of market prices and the aggregate value of investments in real estate is fairly presented as of December 31, 2002 and 2001. 16 INVESTMENT IN REAL ESTATE INVESTMENT TRUSTS--Shares of real estate investment trusts (REITs) are generally valued at their quoted market price. These values may be adjusted for discounts relating to restrictions, if any, on the future sale of these shares, such as lockout periods or limitations on the number of shares which may be sold in a given time period. Any such discounts are determined by the Chief Real Estate Appraiser. OTHER ESTIMATES 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 reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 29.45% 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, 2002:

ESTIMATED MARKET VALUE AVERAGE MATURITY (IN $ MILLIONS) INTEREST RATE -------------------------------------------------------------- Cash equivalents......................... 0-3 months $18.6 1.15% Short-term investments................... 3-12 months $0 N/A

The table below discloses the Partnership's fixed and variable rate debt as of December 31, 2002. Approximately $25.9 million 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. The interest rate on the variable rate debt is equal to the 6-month Treasury rate plus 1.565%. It is subject to a maximum of 11.345% and a minimum of 2.345%. The interest rate on the variable rate debt as of December 31, 2002 was 3.235%. DECEMBER 31, 2002

DEBT (IN $ THOUSANDS), ESTIMATED INCLUDING CURRENT PORTION 2003 2004 2005 2006 2007 THEREAFTER TOTAL FAIR VALUE ---------------- --- --- --- --- --- ------ --- ------ Average Fixed Interest Rate...... 7.43% 7.46% 7.47% 7.16% 7.18% 6.75% 7.79% Fixed Rate....................... $671 $719 $ 774 $ 8,477 $588 $14,626 $25,855 $26,851 Variable Rate.................... 231 242 250 9,121 -- -- 9,844 9,589 -------------------------------------------------------------------------------- Total Mortgage Loans Payable..... $902 $961 $1,024 $17,598 $588 $14,626 $35,699 $36,440 --------------------------------------------------------------------------------

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. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

NAME POSITION AGE ----- -------- --- Vivian L. Banta Chairman of the Board 52 James J. Avery, Jr. Vice Chairman of the Board and Director 51 Andrew J. Mako President and Director 46 Richard J. Carbone Director 55 Helen M. Galt Director 55 Ronald P. Joelson Director 44 David R. Odenath, Jr. Director 46 C. Edward Chaplin Senior Vice President and Treasurer 46 Hwei-Chung Shao Senior Vice President and Chief Actuary 48 William J. Eckert, IV Vice President and Chief Accounting Officer 40 Charles A. McGee Vice President and Comptroller 54 Clifford E. Kirsch Chief Legal Counsel and Secretary 43 Shaun M. Byrnes Senior Vice President 41 James Drozanowski Senior Vice President 60 Thomas F. Higgins Senior Vice President 49 Esther H. Milnes Senior Vice President 52 James B. O'Connor Senior Vice President 47 Melody C. McDaid Senior Vice President 53

VIVIAN L. BANTA is Chairman of the Board of Directors of the Company. She was President of the Company through February 11, 2003. She has been Executive Vice President of the Prudential Insurance Division since 2000. From 1998 to 1999 she was a Consultant for Individual Financial Services. From 1997 to 1998, Ms. Banta was a Consultant for Morgan Stanley and prior to 1997 she was Executive Vice President, Global Investor Service, Chase Manhattan Bank. JAMES J. AVERY, JR. is Vice Chairman of the Board of Directors of the Company. Mr. Avery has been President, Prudential Insurance Division since 1998. From 1997 to 1998 he was Senior Vice President , Chief Financial Officer and Chief Actuary for the Prudential Individual Insurance Group. From 1995 to 1997 he was President, Prudential Select. ANDREW J. MAKO is President and Director of the Company as of February 12, 2003. Mr. Mako has been Vice President, Finance, Prudential Insurance Division since 1999. From 1996 to 1998, he was Vice President for the Business Performance Management Group of Prudential. Prior to 1996, he held various positions in Prudential since joining Prudential in 1978. RICHARD J. CARBONE has been Senior Vice President and Chief Financial Officer of Prudential since 1997. Prior to 1997 he was Controller for Salomon Brothers. HELEN M. GALT has been a Company Actuary for Prudential since 1993. RONALD P. JOELSON has been Senior Vice President, Prudential Asset, Liability and Risk Management since 1999. From 1996 to 1999, he was President of Guaranteed Products, Prudential Institutional. DAVID R. ODENATH, JR. has been President of Prudential Investments since 1999. Prior to joining Prudential in 1999, Mr. Odenath was Senior Vice President and Director of Sales for the Investment Consulting Group at Paine Webber. C. EDWARD CHAPLIN has been Senior Vice President and Treasurer of Prudential Insurance Company of America since 2000. Prior to 2000, he was Vice President and Treasurer of Prudential Insurance Company of America. HWEI-CHUNG SHAO has been Vice President and Associate Actuary, Prudential since 1996. Prior to 1996, she was Vice President and Assistant Actuary, Prudential Corporate Risk Management. WILLIAM J. ECKERT, IV, was elected Vice President and Chief Accounting Officer of the Company in June 2000. Mr. Eckert has been Vice President, Prudential Insurance Division Controllers since May 1995. Prior to joining Prudential in 1995, he was Senior Manager at Deloitte & Touche, LLP. 18 CHARLES A. MCGEE was elected Vice President and Controller of the Company in June 2001. Mr. McGee has been Vice President, Financial Reporting of Prudential since June 2001. He has held a variety of assignments in his 30 years with Prudential. CLIFFORD E. KIRSCH has been Chief Legal Counsel and Secretary of the Company since 1995. Mr. Kirsch joined Prudential Insurance Company of America in 1995 as Chief Counsel, Variable Products. From 1994 to 1995 he was Associate General Counsel of Paine Webber, Inc. Prior to 1994 he was an Assistant Director at the United States Securities and Exchange Commission. SHAUN M. BYRNES has been Senior Vice President, Director of Mutual Funds, Annuities & UITs, Prudential Investments (PI) since 2001. From 2000 to 2001 he was Senior Vice President, Director of Research, PI. From 1999 to 2000 Mr. Byrnes was Senior Vice President, Director of Mutual Funds, PI, and from 1997 to 1999 he was Vice President, Mutual Funds, PI. Prior to joining Prudential in 1997, he was Vice President, SIB Portfolio Advisors, Inc. JAMES C. DROZANOWSKI has been Vice President, Operations and Systems, Prudential Insurance Division since 1998. From 1996 to 1998 he was Vice President and Operations Executive, Prudential Individual Insurance Group. From 1995 to 1996, he was President and Chief Executive Officer of Chase Manhattan Bank and from 1993 to 1995, he was Vice President, North America Customer Services, Chase Manhattan Bank. Prior to 1993, he was Operations Executive, Global Securities Services, Chase Manhattan Bank. THOMAS F. HIGGINS has been Vice President of Annuity Services in the Prudential Insurance Division since 1999. From 1998 to 1999 he was Vice President of Mutual Funds, Prudential Individual Financial Services. Prior to 1998, he was Principal of Mutual Fund Operations, The Vanguard Group. ESTHER H. MILNES has been Vice President and Chief Actuary, Prudential Insurance Division since 1999. From 1996 to 1999 she was Vice President and Actuary of Prudential U.S. Consumer Group. From 1993 to 1996, she was Senior Vice President and Chief Actuary of Prudential Insurance and Financial Services. Prior to 1993, she was Vice President and Associate Actuary of Prudential. JAMES M. O'CONNOR is Senior Vice President and Actuary for the Company. Mr. O'Connor has been Vice President, Guaranteed Products since 2001. From 1998 to 2000 he was Corporate Vice President of Guaranteed Products. Prior to 1998 he was Corporate Actuary for Prudential Investments. MELODY C. MCDAID, Senior Vice President - Vice President and Site Executive, Prudential Financial Services Customer Service Office since 1995. The business address of all directors and officers of Pruco Life of New Jersey (PLNJ) is 213 Washington Street, Newark, New Jersey 07102-2992. PLNJ directors and officers are elected annually. ITEM 11. EXECUTIVE COMPENSATION The Real Property Account does not pay any fees, compensation or reimbursement to any Director or Officer of the Registrant. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Not applicable. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See Related Transactions in note 7 of Notes to Financial Statements of the Partnership on page F-24. ITEM 14: CONTROLS AND PROCEDURES Within the 90-day period prior to the filing of this report, an evaluation was carried out under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 15d under the Securities and Exchange Act of 1934. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the design and operation of these disclosure controls and procedures were effective. No significant changes were made in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. 19 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. Financial Statements See the Index to Financial Statements and Supplementary Data on page F-1. 2. Financial Statement Schedules The following financial statement schedules of The Prudential Variable Contract Real Property Partnership should be read in conjunction with the financial statements in Item 8 of this Annual Report on Form 10-K: Schedule III. Real Estate Owned: Properties Schedule III. Real Estate Owned: Interest in Properties See the Index to Financial Statements and Supplementary Data on page F-1. 3. Documents Incorporated by Reference See the following list of exhibits. 4. Exhibits See the following list of exhibits. (b) None. (c) The following is a list of Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. The Registrant will furnish a copy of any Exhibit listed below to any security holder of the Registrant who requests it upon payment of a fee of 15 cents per page. All Exhibits are either contained in this Annual Report on Form 10-K or are incorporated by reference as indicated below. 3.1 Amended Articles of Incorporation of Pruco Life Insurance Company of New Jersey filed as Exhibit 1.A.(6)(a) to Post Effective Amendment No. 17 to Form S-6, Registration Statement No. 2-89780, filed March 1, 1991, and incorporated herein by reference. 3.2 Amended By-Laws of Pruco Life Insurance Company of New Jersey, filed as Exhibit 1.A.(6)(b) to Post-Effective Amendment No. 17 to Form S-6, Registration Statement No. 2-89780, filed March 1, 1991, and incorporated herein by reference. 3.3 Resolution of the Board of Directors establishing the Pruco Life of New Jersey Variable Contract Real Property Account, filed as Exhibit (3C) to Form S-1, Registration Statement No. 33-20018, filed February 5, 1988, and incorporated herein by reference. 4.1 Variable Life Insurance Contract filed as Exhibit A(5) to Form N-8B-2, Registration Statement No. 2-81243, filed January 10, 1983, and incorporated herein by reference. 4.2 Revised Variable Appreciable Life Insurance Contract with fixed death benefit, filed as Exhibit 1.A.(5)(c) to Post-Effective Amendment No. 5 to Form S-6, Registration Statement No. 2-89780, filed July 11, 1986, and incorporated herein by reference. 4.3 Revised Variable Appreciable Life Insurance Contract with variable death benefit, filed as Exhibit 1.A.(5)(d) to Post-Effective Amendment No. 5 to Form S-6, Registration Statement No. 2-89780, filed July 11, 1986, and incorporated herein by reference. 4.4 Single Premium Variable Annuity Contract, filed as Exhibit 4(i) to Form N-4, Registration Statement No. 2- 99616, filed August 13, 1985, and incorporated herein by reference. 4.5 Flexible Premium Variable Life Insurance Contract, filed as Exhibit 1.A.(5) to Form S-6, Registration Statement No. 2-99537, filed August 8, 1985, and incorporated herein by reference. 9. None. 20 10.1 Investment Management Agreement between The Prudential Insurance Company of America and The Prudential Variable Contract Real Property Partnership filed as Exhibit (10A) to Post- Effective Amendment No. 2 to Form S-1, Registration Statement No. 33-20018, filed April 6, 1990, and incorporated herein by reference. 10.2 Service Agreement between The Prudential Insurance Company of America and The Prudential Investment Corporation, filed as Exhibit (10B) to Form S-1, Registration Statement No. 33-8698, filed September 12, 1986, and incorporated herein by reference. 10.3 Partnership Agreement of The Prudential Variable Contract Real Property Partnership filed as Exhibit (10C) to Post-Effective Amendment No. 2 to Form S-1, Registration Statement No. 33-20018, filed April 6, 1990, and incorporated herein by reference. 11. Not applicable. 12. Not applicable. 13. None. 18. None. 21. Not applicable. 22. Not applicable. 23. None. 24. Power of Attorney: D. Odenath, and W. Eckert, incorporated by reference to Pre-Effective Amendment No. 1 to Form S-6, Registration No. 333-49334, filed on February 8, 2001 on behalf of the Pruco Life of New Jersey Variable Appreciable Account. J. Avery incorporated by reference to Post-Effective Amendment No. 10 to Form S-1, Registration No. 33-20018, filed April 9, 1998 on behalf of the Pruco Life of New Jersey Variable Contract Real Property Account. V. Banta, R. Carbone, H. Galt and J. Hamilton, incorporated by reference to Post-Effective Amendment No.5 to form S-6, registration No. 333-85117, filed on June 28, 2001 on behalf of the Pruco Life of New Jersey Variable Appreciable Account. R. Joelson incorporated by reference to Post- Effective Amendment No.14 to form S-1, Registration No. 33-20018, filed April 10, 2001 on behalf of the Pruco Life of New Jersey Variable Contract Real Property Account. 27. Not applicable. 99.1 Certification of President required pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002. 99.2 Certification of Chief Accounting Officer required pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanas-Oxley Act of 2002. 21 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 25, 2003 By: /s/ William J. Eckert, IV -------------- ------------------------- William J. Eckert, IV Chief Accounting 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 --------- ---- ---- * Director March 25, 2003 ------------------------ James J. Avery, Jr. * Chairman and Director March 25, 2003 ------------------------ Vivian L. Banta * President and Director March 25, 2003 ------------------------ Andrew J. Mako * Director March 25, 2003 ------------------------ Richard J. Carbone * Director March 25, 2003 ------------------------ Helen M. Galt * Director March 25, 2003 ------------------------ David R. Odenath, Jr. * Director March 25, 2003 ------------------------ Ronald P. Joelson *BY: /s/ Thomas C. Castano --------------------- THOMAS C. CASTANO (ATTORNEY-IN-FACT) 22 PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT (REGISTRANT) INDEX

PAGE ---- A. PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT Financial Statements: Report of Independent Accountants............................................................. F-2 Statements of Net Assets--December 31, 2002 and 2001.......................................... F-3 Statements of Operations--Years Ended December 31, 2002, 2001, 2000........................... F-3 Statements of Changes in Net Assets--Years Ended December 31, 2002, 2001, 2000................ F-3 Notes to Financial Statements ................................................................ F-4 B. THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP Financial Statements: Report of Independent Accountants ............................................................ F-9 Report of Independent Accountants on Financial Statement Schedules............................ F-10 Statements of Assets and Liabilities--December 31, 2002 and 2001.............................. F-11 Statements of Operations--Years Ended December 31, 2002, 2001 and 2000........................ F-12 Statements of Changes in Net Assets--Years Ended December 31, 2002, 2001 and 2000 ............ F-13 Statements of Cash Flows--Years Ended December 31, 2002, 2001 and 2000........................ F-14 Schedule of Investments--December 31, 2002 and 2001........................................... F-15 Notes to Financial Statements................................................................. F-16 Financial Statement Schedules: For the period ended December 31, 2002 Schedule III--Real Estate Owned: Properties .................................................. F-22 Schedule III--Real Estate Owned: Interest in Properties ...................................... F-23

All other schedules are omitted because they are not applicable, or because the required information is included in the financial statements or notes thereto. F-1 REPORT OF INDEPENDENT ACCOUNTANTS To the Contract Owners of the Pruco Life of New Jersey Variable Contract Real Property Account and the Board of Directors of Pruco Life Insurance Company of New Jersey In our opinion, the accompanying statements of net assets and the related statements of operations and of 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, 2002 and 2001, and the results of its operations and the changes in its net assets for the three years in the period ended December 31, 2002, 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 generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of shares at December 31, 2002 with The Prudential Variable Contract Real Property Partnership, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York March 25, 2003 F-2 FINANCIAL STATEMENTS OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT STATEMENTS OF NET ASSETS December 31, 2002 and 2001

2002 2001 ---------- ---------- ASSETS Investment in The Prudential Variable Contract Real Property Partnership ..........................................................$8,854,905 $8,747,935 ---------- ---------- Net Assets ............................................................................$8,854,905 $8,747,935 ========== ========== NET ASSETS, representing: Equity of contract owners .............................................................$5,818,363 $5,921,597 Equity of Pruco Life Insurance Company of New Jersey .................................. 3,036,542 2,826,338 ---------- ---------- $8,854,905 $8,747,935 ========== ========== Units outstanding ........................................................................ 4,041,054 4,017,093 ========== ==========

STATEMENTS OF OPERATIONS For the years ended December 31, 2002, 2001 and 2000

2002 2001 2000 ----------- ----------- ----------- INVESTMENT INCOME Net investment income from Partnership operations ..................................... $ 489,257 $ 545,240 $ 599,966 ----------- ----------- ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration ............................................... 33,639 34,149 33,868 ----------- ----------- ----------- NET INVESTMENT INCOME ................................................................. 455,618 511,091 566,098 ----------- ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net change in unrealized gain (loss) on investments in Partnership .................... (400,009) (99,669) 84,525 Realized gain (loss) on sale of investments in Partnership ............................ 17,722 (9,345) 116,312 ----------- ----------- ----------- NET GAIN (LOSS) ON INVESTMENTS ........................................................ (382,287) (109,014) 200,837 ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................................................... $ 73,331 $ 402,077 $ 766,935 =========== =========== =========== STATEMENTS OF CHANGES IN NET ASSETS For the years ended December 31, 2002, 2001 and 2000 2002 2001 2000 ----------- ----------- ----------- OPERATIONS Net investment income ................................................................. $ 455,618 $ 511,091 $ 566,098 Net change in unrealized gain (loss) on investments in Partnership ..................................................................... (400,009) (99,669) 84,525 Net realized gain (loss) on sale of investments in Partnership ........................ 17,722 (9,345) 116,312 ----------- ----------- ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS .......................................................... 73,331 402,077 766,935 ----------- ----------- ----------- CAPITAL TRANSACTIONS Net withdrawals by contract owners ................................................... (139,939) (233,080) (483,241) Net contributions (withdrawals) by Pruco Life Insurance Company of New Jersey ......................................... 173,578 (609,906) (169,001) ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS ................................................ 33,639 (842,986) (652,242) ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS ............................................... 106,970 (440,909) 114,693 NET ASSETS Beginning of year .................................................................. 8,747,935 9,188,844 9,074,151 ----------- ----------- ----------- End of year ........................................................................ $ 8,854,905 $ 8,747,935 $ 9,188,844 =========== =========== ===========

SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-4 THROUGH F-8 F-3 NOTES TO THE FINANCIAL STATEMENTS OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT DECEMBER 31, 2002 NOTE 1: GENERAL Pruco Life of New Jersey Variable Contract Real Property Account ("Real Property Account") was established on October 30, 1987 by resolution of the Board of Directors of Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"), an indirect wholly-owned subsidiary of The Prudential Insurance Company of America ("Prudential"), as a separate investment account pursuant to New Jersey law. The assets of the Real Property Account are segregated from Pruco Life of New Jersey's other assets. The Real Property account is used to fund benefits under certain variable life insurance and variable annuity contracts issued by Pruco Life of New Jersey. These products are Appreciable Life ("VAL"), Variable Life ("VLI"), Discovery Plus ("SPVA"), and Discovery Life Plus ("SPVL"). The assets of the Real Property Account are invested in The Prudential Variable Contract Real Property Partnership (the "Partnership"). The Partnership is organized under New Jersey law and is registered under the Securities Act of 1933. The Partnership is the investment vehicle for assets allocated to the real estate investment option under certain variable life insurance and annuity contracts. The Real Property Account, along with the Pruco Life Variable Contract Real Property Account and The Prudential Variable Contract Real Property Account, are the sole investors in the Partnership. 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 Real Property Account's proportionate interest of the Partnership's market value. At December 31, 2002 and 2001 the Real Property Account's interest in the Partnership was 4.8% or 367,199 shares and 4.4% or 367,199 shares respectively. C. INCOME RECOGNITION Net investment income and realized and unrealized gains and losses are recognized daily. Amounts are based upon the Real Property Account's proportionate interest in the Partnership. D. EQUITY OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY Pruco Life of New Jersey maintains a position in the Real Property Account for property acquisitions and capital expenditure funding needs. The position is also utilized for liquidity purposes including unit purchases and redemptions, Partnership share transactions, and expense processing. The position does not have an effect on the contract owner's account or the related unit value. NOTE 3: INVESTMENT INFORMATION FOR THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP The number of shares (rounded) held by the Real Property Account in the Partnership and the Partnership net asset value per share (rounded) at December 31, 2002 and 2001 were as follows: DECEMBER 31, 2002 DECEMBER 31, 2001 ----------------- ----------------- NUMBER OF SHARES (ROUNDED): 367,199 367,199 NET ASSET VALUE PER SHARE (ROUNDED): $24.11 $23.82 F-4 NOTE 4: 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. B. ADMINISTRATIVE CHARGES Administrative charges are determined daily using an effective annual rate of 0.35% applied daily against the net assets representing equity of contract owners held in each subaccount for SPVA and SPVL. Administrative charges include costs associated with issuing the contract, establishing and maintaining records, and providing reports to contract owners. C. COST OF INSURANCE AND OTHER RELATED CHARGES Contract owner contributions are subject to certain deductions prior to being invested in the Real Property Account. The deductions for VAL and VLI are (1) state premium taxes; (2) sales charges which are deducted in order to compensate Pruco Life of New Jersey for the cost of selling the contract and (3) transaction costs, applicable to VAL, are deducted from each premium payment to cover premium collection and processing costs. Contracts are also subject to monthly charges for the costs of administering the contract to compensate Pruco Life of New Jersey for the guaranteed minimum death benefit risk. D. DEFERRED SALES CHARGE Subsequent to a contract owner redemption, a deferred sales charge is imposed upon surrenders of certain variable life insurance contracts to compensate Pruco Life of New Jersey for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the contract was issued. No sales charge will be imposed after the sixth and tenth year of the contract for SPVL and VAL, respectively. No sales charge will be imposed on death benefits. E. PARTIAL WITHDRAWAL CHARGE A charge is imposed by Pruco Life of New Jersey on partial withdrawals of the cash surrender value for VAL. A charge equal to the lesser of $15 or 2% will be made in connection with each partial withdrawal of the cash surrender value of a contract. NOTE 5: 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 Real Property Account form a part of Prudential's consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Real Property Account. As such, no provision for the tax liability has been recorded in these financial statements. F-5 NOTE 6: NET WITHDRAWALS BY CONTRACT OWNERS Contract owner activity for the real estate investment option in Pruco Life of New Jersey's variable insurance and variable annuity products for the years ended December 31, 2002, 2001 and 2000 were as follows: 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) ========= ========= ========= ========= =========

2001: -----

VAL VLI SPVA SPVL TOTAL --------- --------- --------- --------- --------- Contract Owner Net Payments: ................... $ 336,090 $ 66,216 $ 0 $ (91) $ 402,215 Policy Loans: .................................. (134,830) (10,374) 0 (3,283) (148,487) Policy Loan Repayments and Interest: ........... 133,164 11,187 0 1,484 145,835 Surrenders, Withdrawals, and Death Benefits: .......................... (241,766) (46,572) 0 (24,418) (312,756) Net Transfers To Other Subaccounts or Fixed Rate Option: ........................ (69,664) 157 0 0 (69,507) Administrative and Other Charges: .............. (217,519) (32,032) 0 (829) (250,380) --------- --------- --------- --------- --------- NET WITHDRAWALS BY CONTRACT OWNERS ............. $(194,525) $ (11,418) $ 0 $ (27,137) $(233,080) ========= ========= ========= ========= =========

2000: -----

VAL VLI SPVA SPVL TOTAL --------- --------- --------- --------- --------- Contract Owner Net Payments: ................................. $ 319,329 $ 68,139 $ 0 $ (61) $ 387,407 Policy Loans: ................................................ (180,080) (9,363) 0 (954) (190,397) Policy Loan Repayments and Interest: ......................... 127,498 8,381 0 18,138 154,017 Surrenders, Withdrawals, and Death Benefits: ........................................ (208,054) (55,549) (46,248) 0 (309,851) Net Transfers To Other Subaccounts or Fixed Rate Option: ...................................... (258,262) (13,477) 0 (11,479) (283,218) Administrative and Other Charges: ............................ (212,166) (28,176) (15) (842) (241,199) --------- --------- --------- --------- --------- NET WITHDRAWALS BY CONTRACT OWNERS ........................... $(411,735) $ (30,045) $ (46,263) $ 4,802 $(483,241) ========= ========= ========= ========= =========

F-6 NOTE 7: UNIT ACTIVITY Transactions in units for the years ended December 31, 2002, 2001 and 2000 were as follows: 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)

2001: -----

VAL VLI SPVA SPVL -------- -------- ------- ------- Company Contributions: 200,991 Contract Owner Contributions: 216,764 35,917 0 755 Company Redemptions: (471,389) Contract Owner Redemptions: (307,592) (41,111) 0 (14,895)

2000: -----

VAL VLI SPVA SPVL -------- -------- ------- ------- Company Contributions: 333,606 Contract Owner Contributions: 208,532 34,992 7 9,433 Company Redemptions: (397,027) Contract Owner Redemptions: (416,718) (49,516) (25,342) (7,015)

NOTE 8: 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, 2002, 2001, and 2000 were as follows: DECEMBER 31, 2002 DECEMBER 31, 2001 DECEMBER 31, 2000 ---------------- ---------------- ---------------- PURCHASES: $ 0 $ 0 $ 0 SALES: $ 0 $(877,136) $(686,110) NOTE 9: FINANCIAL HIGHLIGHTS Pruco Life Insurance Company of New Jersey (the "Company") 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 tables were developed by determining which products offered by Pruco Life of New Jersey have the lowest and highest total return. 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 tables reflect contract owner units only.

AT DECEMBER 31, 2002 FOR THE YEAR ENDED DECEMBER 31, 2002 ----------------------------------------------- ----------------------------------------------------- UNITS UNIT VALUE NET ASSETS INVESTMENT EXPENSE RATIO ** TOTAL RETURN *** (000'S) LOWEST- HIGHEST (000'S) INCOME RATIO * LOWEST-HIGHEST LOWEST-HIGHEST --------- --------------- ---------- --------------- --------------- ---------------- 2,647 $1.97263 to $2.27966 $5,818 5.59% 0.35% to 1.25% -0.03% to 0.87%

AT DECEMBER 31, 2001 FOR THE YEAR ENDED DECEMBER 31, 2001 ----------------------------------------------- ----------------------------------------------------- UNITS UNIT VALUE NET ASSETS INVESTMENT EXPENSE RATIO ** TOTAL RETURN *** (000'S) LOWEST- HIGHEST (000'S) INCOME RATIO * LOWEST-HIGHEST LOWEST-HIGHEST --------- --------------- ---------- --------------- --------------- ---------------- 2,712 $1.97316 to $2.26011 $5,922 5.89% 0.35% to 1.25% 3.50% to 4.42%

The tables above reflect 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 1,393,587 and 1,304,664 units representing $3,036,542 and $2,826,338 of net assets as of December 31, 2002 and 2001, respectively. Charges for mortality risk, expense risk and administrative expenses are used to purchase additional units in the account resulting in no impact to Pruco Life of New Jersey net assets. The total return of the Pruco Life of New Jersey units was 1.22% to 1.22% and 4.75% to 4.77% for the year ended December 31, 2002 and 2001, respectively. * 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. F-7 ** 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. *** 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. NOTE 10: RELATED PARTY FOOTNOTE 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-8 REPORT OF INDEPENDENT ACCOUNTANTS To the Partners of The Prudential Variable Contract Real Property Partnership: In our opinion, the accompanying consolidated statements of assets and liabilities, including the schedule of investments, and the related consolidated statements of operations, of changes in net assets and of cash flows present fairly, in all material respects, the financial position of The Prudential Variable Contract Real Property Partnership (the "Partnership") at December 31, 2002 and 2001, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2002 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 auditing standards generally accepted in the United States of America, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York February 18, 2003 F-9 REPORT OF INDEPENDENT ACCOUNTANTS ON 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 February 18, 2003 appearing in this Annual Report on Form 10-K 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 February 18, 2003 F-10 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

YEAR ENDED DECEMBER 31, --------------------------- 2002 2001 ------------ ------------ ASSETS REAL ESTATE INVESTMENTS-- At estimated market value: Real estate and improvements (cost: 12/31/2002-- $215,592,277; 12/31/2001-- $212,044,159) ................................................... $196,631,183 $197,970,877 Real estate partnership (cost: 12/31/2002-- $9,931,394; 12/31/2001-- $7,026,540) ..................................................... 8,978,324 6,712,308 ------------ ------------ Total real estate investments ................................................ 205,609,507 204,683,185 CASH AND CASH EQUIVALENTS .......................................................... 18,591,149 26,615,645 DIVIDEND RECEIVABLE ................................................................ -- 28,455 OTHER ASSETS (net of allowance for uncollectibleaccounts: 12/31/2002-- $69,000; 12/31/2001-- $107,000) ....................................................... 5,519,457 3,267,367 ------------ ------------ Total assets ................................................................. $229,720,113 $234,594,652 ============ ============ LIABILITIES MORTGAGE LOANS PAYABLE ............................................................. 35,699,108 28,994,521 ACCOUNTS PAYABLE AND ACCRUED EXPENSES .............................................. 3,092,098 3,469,242 DUE TO AFFILIATES .................................................................. 907,503 896,134 OTHER LIABILITIES .................................................................. 911,245 972,410 MINORITY INTEREST .................................................................. 4,756,653 2,111,709 ------------ ------------ Total liabilities ............................................................ 45,366,607 36,444,016 ------------ ------------ COMMITMENTS AND CONTINGENCIES PARTNERS' EQUITY ................................................................... 184,353,506 198,150,636 ------------ ------------ Total liabilities and partners' equity ....................................... $229,720,113 $234,594,652 ------------ ------------ NUMBER OF SHARES OUTSTANDING AT END OF PERIOD ...................................... 7,644,848 8,317,470 ============ ============ SHARE VALUE AT END OF PERIOD ....................................................... $ 24.11 $ 23.82 ============ ============

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

YEAR ENDED DECEMBER 31, -------------------------------------------- 2002 2001 2000 ------------ ------------ ------------ INVESTMENT INCOME: Revenue from real estate and improvements ........................... $ 26,345,500 $ 24,339,631 $ 22,570,851 Equity in income of real estate partnership ......................... 276,209 686,801 791,596 Dividend income ..................................................... -- 2,157,647 1,744,611 Interest on short-term investments .................................. 455,339 296,514 1,280,880 ------------ ------------ ------------ Total investment income ........................................... 27,077,048 27,480,593 26,387,938 ------------ ------------ ------------ INVESTMENT EXPENSES: Operating ........................................................... 5,261,674 5,328,004 4,390,001 Investment management fee ........................................... 2,486,639 2,694,130 2,705,589 Real estate taxes ................................................... 2,824,719 2,652,956 2,498,065 Administrative ...................................................... 3,345,192 2,518,644 2,411,390 Interest expense .................................................... 1,989,473 1,776,701 732,991 Minority interest ................................................... 305,308 159,852 11,785 ------------ ------------ ------------ Total investment expenses ......................................... 16,213,005 15,130,287 12,749,821 ------------ ------------ ------------ NET INVESTMENT INCOME ............................................... 10,864,043 12,350,306 13,638,117 ------------ ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS: Net proceeds from real estate investments sold ...................... 6,282,075 53,417,000 46,617,017 Less: Cost of real estate investments sold .......................... 9,101,381 50,300,836 55,269,357 Realization of prior years' unrealized (loss) gain on real estate investments sold ...................... (3,212,838) 3,327,829 (11,296,284) ------------ ------------ ------------ Net gain (loss) realized on real estate investments sold .................................................. 393,532 (211,665) 2,643,944 ------------ ------------ ------------ Change in unrealized (loss) gain on real estate investments ......... (8,739,488) (2,311,404) 2,297,429 Less: Minority interest in unrealized gain on real estate investments 171,707 24,680 454,351 ------------ ------------ ------------ Net unrealized (loss) gain on real estate investments ............... (8,911,195) (2,336,084) 1,843,078 ------------ ------------ ------------ NET REALIZED AND UNREALIZED (LOSS) GAIN ON REAL ESTATE INVESTMENTS .......................................... (8,517,663) (2,547,749) 4,487,022 ------------ ------------ ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ................ $ 2,346,380 $ 9,802,557 $ 18,125,139 ============ ============ ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-12 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

YEAR ENDED DECEMBER 31, ----------------------------------------------- 2002 2001 2000 ------------- ------------- ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: Net investment income ............................................ $ 10,864,043 $ 12,350,306 $ 13,638,117 Net gain (loss) realized on real estate investments sold ......... 393,532 (211,665) 2,643,944 Net unrealized (loss) gain from real estate investments .......... (8,911,195) (2,336,084) 1,843,078 ------------- ------------- ------------- Net increase in net assets resulting from operations ........... 2,346,380 9,802,557 18,125,139 ------------- ------------- ------------- NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS: Withdrawals by partners (2002 -- 672,622; 2001 -- 758,443; and 2000-- 1,003,008 shares, respectively) ......................... (16,143,510) (18,000,000) (22,000,000) ------------- ------------- ------------- Net decrease in net assets resulting from capital transactions ......................................... (16,143,510) (18,000,000) (22,000,000) ------------- ------------- ------------- NET DECREASE IN NET ASSETS ......................................... (13,797,130) (8,197,443) (3,874,861) NET ASSETS-- Beginning of year ..................................... 198,150,636 206,348,079 210,222,940 ------------- ------------- ------------- NET ASSETS-- End of year ........................................... $ 184,353,506 $ 198,150,636 $ 206,348,079 ============= ============= =============

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

YEAR ENDED DECEMBER 31, ---------------------------------------------- 2002 2001 2000 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net increase in net assets resulting from operations ....................... $ 2,346,380 $ 9,802,557 $ 18,125,139 Adjustments to reconcile net increase in net assets resulting from operations to net cash from operating activities: Net realized and unrealized loss (gain) on real estate investments ..... 8,517,663 2,547,749 (4,487,022) Equity in income of real estate partnership's operations in excess of distributions ................................ (53,459) (686,801) (791,596) Minority interest in operating activities .............................. 305,308 159,852 11,785 Bad debt expense ....................................................... 184,242 108,358 96,785 Decrease (increase) in: Dividend receivable .................................................. 20,802 213,886 (110,799) Other assets ......................................................... (2,436,336) (449,444) (169,489) Decrease (increase) in: Accounts payable and accrued expenses ................................ (377,144) 951,424 (449,796) Due to affiliates .................................................... 11,369 8,700 17,957 Other liabilities .................................................... (61,165) 303,201 143,316 ------------ ------------ ------------ Net cash flows from operating activities ................................. 8,457,660 12,959,482 12,386,280 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from real estate investments sold ........................... 6,282,075 53,417,000 46,617,017 Acquisition of real estate ............................................... (2,610,723) (14,582,383) -- Acquisition of real estate partnership ................................... -- -- -- Acquisition of real estate investment trust .............................. -- (18,403,928) (34,157,332) Improvements and additional costs on prior purchases: Additions to real estate ............................................... (2,629,708) (4,373,073) (4,215,157) Additions to real estate partnership ................................... (2,851,395) (353,956) (7,060) Sale (purchase) of marketable securities, net ............................ -- 4,916,494 (2,119,486) ------------ ------------ ------------ Net cash flows from investing activities ................................... (1,809,751) 20,620,154 6,117,982 ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Withdrawals by partners .................................................. (16,143,510) (18,000,000) (22,000,000) Principal payments on mortgage loans payable ............................. (696,828) (437,588) (92,307) Distributions to minority interest partners .............................. (100,528) -- -- Contributions from minority interest partners ............................ 2,268,461 929,776 159,197 ------------ ------------ ------------ Net cash flows from financing activities ................................. (14,672,405) (17,507,812) (21,933,110) ------------ ------------ ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS .................................... (8,024,496) 16,071,824 (3,428,848) CASH AND CASH EQUIVALENTS-- Beginning of year .............................. 26,615,645 10,543,821 13,972,669 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS-- End of year .................................... $ 18,591,149 $ 26,615,645 $ 10,543,821 ============ ============ ============

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. F-14 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE OF INVESTMENTS

DECEMBER 31, 2002 DECEMBER 31, 2001 ------------------------- ------------------------ ESTIMATED ESTIMATED MARKET MARKET COST VALUE COST VALUE ------------------------------------------------------------ REAL ESTATE AND IMPROVEMENTS-- PERCENTAGE OF NET ASSETS...................... 106.7% 99.9% Location Description ---------------------------------------------------------------------------------------------------------------------- Lisle, IL Office Building.......... $22,857,236 $13,854,988 $22,561,428 $14,193,539 Atlanta, GA Garden Apartments........ 15,715,772 17,523,063 15,696,606 18,752,139 Roswell, GA Retail Shopping Center .. 32,895,282 24,903,969 32,878,304 26,625,833 Bolingbrook, IL Warehouse................ -- -- 9,039,620 5,826,782 Raleigh, NC Garden Apartments ....... 15,943,836 17,502,998 15,940,839 16,808,160 Brentwood, TN Office Building.......... 10,320,613 9,651,831 9,977,669 10,629,012 Oakbrook Terrace, IL Office Building.......... 14,205,396 11,213,142 14,015,481 14,359,009 Beaverton, OR Office Building.......... 11,890,209 10,800,005 11,989,204 10,988,123 Salt Lake City, UT Industrial Building...... 6,599,482 5,202,646 6,568,107 5,487,490 Aurora, CO Industrial Building...... 10,294,784 10,557,058 10,131,517 9,900,000 Brentwood, TN Office Building.......... 9,826,195 7,709,345 9,612,024 8,900,790 * Jacksonville, FL Garden Apartments........ 19,745,855 19,800,000 19,711,225 20,400,000 * Gresham/Salem, OR Garden Apartments........ 18,838,570 18,600,000 18,815,082 19,100,000 * Hampton, VA Retail Shopping Center... 16,446,909 19,300,000 15,107,053 16,000,000 * Ocean City, MD Retail Shopping Center... 10,012,138 10,012,138 -- -- ------------ ------------ ------------ ------------ $215,592,277 $196,631,183 $212,044,159 $197,970,877 ============ ============ ============ ============

REAL ESTATE PARTNERSHIP-- PERCENTAGE OF NET ASSETS...................... 4.9% 3.4% Location Description ---------------------------------------------------------------------------------------------------------------------- Kansas City, KS; MO Retail Shopping Centers . $ 9,931,394 $ 8,978,324 $ 7,026,540 $ 6,712,308 ================================================================

*Real estate partnerships accounted for by the consolidation method.

DECEMBER 31, 2002 DECEMBER 31, 2001 ------------------------- -------------------------- ESTIMATED ESTIMATED FACE AMOUNT COST MARKET VALUE COST MARKET VALUE ------------ ----------- ------------ ---------- ------------ CASH AND CASH EQUIVALENTS--PERCENTAGE OF NET ASSETS........ 10.1% 13.4% Federal National Mortgage Assoc., 1.00%, January 02, 2003. $ 6,928,000 $ 6,927,615 $ 6,927,615 $ -- $ -- Federal National Mortgage Assoc., 1.27%, January 17, 2003. 1,218,000 1,217,055 1,217,055 -- -- Federal Home Loan Mortgage Corp., 1.27%, January 21, 2003. 3,461,000 3,457,581 3,457,581 -- -- Federal National Mortgage Assoc., 1.27%, January 21, 2003. 1,288,000 1,286,819 1,286,819 -- -- Federal National Mortgage Assoc., 1.22%, February 10, 2003 1,000,000 998,611 998,611 -- -- Federal National Mortgage Assoc., 1.22%, February 13, 2003 2,070,000 2,066,913 2,066,913 -- -- Federal Farm Credit Banks, 1.22%, February 14, 2003....... 1,870,000 1,867,148 1,867,148 -- -- Federal Home Loan Mortgage 1.51%, January 2, 2002......... 25,334,000 -- -- 25,331,875 25,331,875 ---------- ---------- ---------- ---------- ---------- TOTAL CASH EQUIVALENTS.................................... 17,835,000 17,821,742 17,821,742 25,331,875 25,331,875 CASH .................................................... 769,407 769,407 769,407 1,283,770 1,283,770 ---------- ---------- ---------- ---------- ---------- TOTAL CASH AND CASH EQUIVALENTS........................... $18,604,407 $18,591,149 $18,591,149 $26,615,645 $26,615,645 =========== =========== =========== =========== ===========

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, 2002, 2001, AND 2000 NOTE 1: ORGANIZATION On April 29, 1988, The Prudential Variable Contract Real Property Partnership (the "Partnership"), a general partnership organized under New Jersey law, was formed through an agreement among The Prudential Insurance Company of America ("Prudential"), Pruco Life Insurance Company ("Pruco Life"), and Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"). The Partnership was established as a means by which assets allocated to the real estate investment option under certain variable life insurance and variable annuity contracts issued by the respective companies could be invested in a commingled pool. The Partners in the Partnership are Prudential, Pruco Life and Pruco Life of New Jersey. The Partnership's policy is to invest at least 65% of its assets in direct ownership interests in income--producing real estate and participating mortgage loans. The estimated market value of the Partnership's shares is determined daily, consistent with the Partnership Agreement. On each day during which the New York Stock Exchange is open for business, the net asset value of the Partnership is estimated using the estimated market value of its assets, principally as described in Notes 2A and 2B below, reduced by any liabilities of the Partnership. The periodic adjustments to property values described in Notes 2A and 2B below and other adjustments to previous estimates are made on a prospective basis. There can be no assurance that all such adjustments to estimates will be made timely. Shares of the Partnership are held by 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 part of the Prudential Investment Management unit ("PIM") and is a division of Prudential Investment Management, Inc., a subsidiary of Prudential Financial Inc. 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 are presented on the accrual basis of accounting. It is the Partnership's policy to consolidate those real estate partnerships in which it has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in the consolidation. B: REAL ESTATE INVESTMENTS--The Partnership's investments in real estate are initially valued at their purchase price. Thereafter, real estate investments are reported at their estimated market values based upon appraisal reports prepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization) within a reasonable amount of time following acquisition of the real estate and no less frequently than annually thereafter. The Chief Real Estate Appraiser of PIM is responsible to assure that the valuation process provides objective and accurate 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 objectivity and accuracy of the appraisal process. 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. F-16 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 As described above, the estimated market value of real estate and real estate related assets is determined through an appraisal process. These estimated market values may vary significantly from the prices at which the real estate investments would sell since market prices of real estate investments can only be determined by negotiation between a willing buyer and seller. Although the estimated market values represent subjective estimates, management believes these estimated market values are reasonable approximations of market prices and the aggregate value of investments in real estate is fairly presented as of December 31, 2002, 2001, and 2000. C: REVENUE RECOGNITION--Revenue from real estate is 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. D: 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. E: MORTGAGE LOANS PAYABLE--Mortgage loans payable are stated at the principal amount of the obligation outstanding. F: CASH AND CASH EQUIVALENTS--For purposes of the Consolidated Statements of Cash Flows, all short-term investments with an original maturity of three months or less are considered to be cash equivalents. Cash equivalents consist of investments in the Prudential Investment Liquidity Pool offered and managed by an affiliate of Prudential Financial Inc. and are accounted for at market value. G: OTHER ASSETS--Cash of $237,732 and $160,635 at December 31, 2002 and 2001, respectively, was maintained by the properties for tenant security deposits and is included in Other Assets on the Consolidated Statements of Assets and Liabilities. H: MARKETABLE SECURITIES--Marketable securities are highly liquid investments with maturities of more than three months when purchased and are carried at estimated market value. I: FEDERAL INCOME TAXES--The Partnership is not a taxable entity under the provisions of the Internal Revenue Code. The income and capital gains and losses of the Partnership are attributed, for federal income tax purposes, to the Partners in the Partnership. The Partnership may be subject to state and local taxes in jurisdictions in which it operates. J: MANAGEMENT'S USE OF ESTIMATES IN THE FINANCIAL STATEMENTS--The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. F-17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 K. NEW ACCOUNTING PRONOUNCEMENTS--In August 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." After careful consideration the Partnership has concluded that SFAS No. 144 does not apply to companies that follow the AICPA Audit and Accounting Guide, "Audits of Investment Companies." In April 2002, the FASB issued SFAS No. 145, which rescinded Statement No. 4, "Reporting Gains and Losses from Extinguishment of Debt". SFAS No. 145 is effective for fiscal years beginning after May 15, 2002. The Partnership will adopt SFAS No. 145 on January 1, 2003. The adoption of this statement is not expected to have a material effect on the consolidated financial statements of the Prudential Variable Contract Real Property Partnership. FASB Interpretation No. 46, "Consolidation of Variable Interest Entities", ("FIN 46") was issued in January 2003. FIN 46 applies immediately to variable interest entities created or for which an interest is acquired after January 31, 2003. For all interests in variable interest entities acquired before February 1, 2003, FIN 46 goes into effect for periods beginning after June 15, 2003. The Partnership is evaluating the extent to which our equity investment may need to be consolidated as a result of this Interpretation. The Partnership's exposure to losses associated with this equity joint venture is limited to its carrying value in this investment. 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, 2002, 2001, and 2000 was $1,989,473, $1,776,701, and $732,991, 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. During the first and second quarters of 2001, in conjunction with the acquisition of two real estate investments, the Partnership assumed mortgage loan financing of $9.0 million and $10.3 million, respectively. 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 2B above. The partnership's combined financial position at December 31, 2002 and 2001, and results of operations for the years ended December 31, 2002, 2001, and 2000 are summarized as follows: DECEMBER 31, 2002 2001 ----------- ----------- Partnership Assets and Liabilities Real Estate at estimated market value .... $31,300,000 $28,300,000 Other Assets ............................. 1,643,304 1,877,122 ----------- ----------- Total Assets ............................. 32,943,304 30,177,122 ----------- ----------- Mortgage loans payable ................... 20,389,498 20,648,892 Other Liabilities ........................ 362,837 918,664 ----------- ----------- Total Liabilities ........................ 20,752,335 21,567,556 ----------- ----------- Net Assets ............................... $12,190,969 $ 8,609,566 =========== =========== Partnership's Share of Net Assets ........... $ 8,978,324 $ 6,712,308 =========== =========== F-18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

YEAR ENDED DECEMBER 31, 2002 2001 2000 ---------- ---------- ---------- Partnership Operations Rental Revenue ............................... $4,170,038 $4,497,459 $4,223,801 Real Estate Expenses and Taxes ............... 3,717,425 3,536,948 3,292,500 ---------- ---------- ---------- Net Investment Income ........................ $ 452,613 $ 960,511 $ 931,301 ========== ========== ========== Partnership's Share of Net Investment Income .... $ 276,209 $ 686,801 $ 791,596 ========== ========== ==========

NOTE 5: MORTGAGE LOANS PAYABLE: Debt includes mortgage loans payable as summarized below:

PARTNERSHIP DEBT PARTNERSHIP DEBT AS OF 12/31/02 AS OF 12/31/01 AS OF 12/31/02 ------------------------ ------------------------- -------------------- PARTNERSHIP'S PARTNERSHIP'S 100% LOAN SHARE OF 100% LOAN SHARE OF INTEREST MATURITY BALANCE LOAN BALANCE* BALANCE LOAN BALANCE* RATE** DATE --------- ------------- --------- ------------- -------- --------- MORTGAGES OF WHOLLY OWNED PROPERTIES & CONSOLIDATED PARTNERSHIPS Jacksonville, FL .............................. $ 9,844,318 $ 9,527,331 $ 9,996,863 $ 9,293,084 3.24%*** 2006 Gresham/Salem, OR ............................. 8,657,061 8,657,061 8,863,334 8,493,733 7.97% 2006 Hampton, VA ................................... 9,804,475 7,782,793 10,134,324 8,709,438 6.75% 2018 Ocean City, MD ................................ 7,393,254 3,165,791 -- -- 7.24% 2008 -------------------------------------------------------------------------------------------------------------------------- Total ......................................... $35,699,108 $29,132,976 $28,994,521 $26,496,255 MORTGAGE LOANS ON EQUITY PARTNERSHIP Kansas City, MO - Ten Quivira ................. $ 6,864,726 $ 5,055,871 $ 6,946,631 $ 5,121,057 8.16% 2007 Kansas City, MO - Ten Quivira Parcel .......... 987,524 727,311 999,306 736,688 8.16% 2007 Kansas City, MO - Cherokee Hill ............... 3,172,260 2,336,369 3,212,174 2,368,015 7.79% 2007 Kansas City, KS - Devonshire .................. 2,200,342 1,620,552 2,226,609 1,641,456 8.16% 2007 Kansas City, MO - Willow Creek ................ 1,306,619 962,325 1,336,251 985,084 8.63% 2005 Kansas City, MO - Brywood Center .............. 5,858,028 4,314,437 5,927,921 4,370,064 8.16% 2007 -------------------------------------------------------------------------------------------------------------------------- Total ......................................... $20,389,498 $15,016,865 $20,648,892 $15,222,363 TOTAL MORTGAGE LOANS PAYABLE .............................. $44,149,841 $41,718,618 6.22%

* 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, 2002 or 2001. It does not represent the Partnership's legal obligation. ** The Partnership's weighted average interest rate at December 31, 2002 and 2001 were 6.42% and 7.28%, 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. *** Variable Rate Debt. The interest rate on the variable rate debt is adjusted annually. The rate is equal to the 6-month Treasury rate plus 1.565%. It is subject to a maximum of 11.345% and a minimum of 2.345%. At December 31, 2002 and 2001, the rate was 3.235 % and 5.735%, respectively. As of December 31, 2002, the mortgage loans payable were payable as follows: YEAR ENDING DECEMBER 31, (000'S) ------- 2003 ................ $ 902 2004 ................ 961 2005 ................ 1,024 2006 ................ 17,600 2007 ................ 588 Thereafter .......... 14,624 ------- Total ............... $35,699 ======= The mortgage loans payable are secured by real estate investments with an estimated market value of $65,479,278. F-19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 As of December 31, 2002, principal amounts of mortgage loans payable on the equity partnership mature as follows: 100% LOAN BALANCE PARTNERSHIP'S SHARE YEAR ENDING DECEMBER 31, (000'S) (000'S) ------- ------- 2003 .......................... $ 1,911 $ 1,408 2004 .......................... 1,911 1,408 2005 .......................... 2,793 2,057 2006 .......................... 1,770 1,303 2007 .......................... 12,004 8,841 ------- ------- Total ......................... $20,389 $15,017 ======= ======= Based on borrowing rates available to the Partnership at December 31, 2002 for loans with similar terms and average maturities, the carrying value of the Partnership's mortgages on the consolidated partnerships approximates its estimated fair value. Different assumptions or changes in future market conditions could significantly affect estimated market value. NOTE 6: CONCENTRATION RISK OF REAL ESTATE INVESTMENTS At December 31, 2002, the Partnership had real estate investments located throughout the United States. The diversification of the account's holdings based on the estimated market values and established NCREIF regions is as follows: ESTIMATED MARKET VALUE REGION REGION % (000'S) ------- -------- Southeast ........ 39% $ 79,588 Mideast .......... 22% 44,582 Pacific .......... 14% 29,400 East North Central 12% 25,068 Mountain ......... 7% 15,760 West North Central 4% 8,978 -------- Total ............ $203,376 ======== NOTE 7: 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 2003 to 2022. At December 31, 2002, the aggregate future minimum base rental payments under non-cancelable operating leases by year and in the aggregate are as follows: YEAR ENDING DECEMBER 31, (000'S) ------- 2003 ................... $11,665 2004 ................... 9,647 2005 ................... 8,996 2006 ................... 8,035 2007 ................... 7,087 Thereafter 21,101 ------- Total .................. $66,531 ======= The above future minimum base rental payments exclude residential lease agreements , which accounted for 24% of the Partnership's 2002 annual rental income. F-20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP FOR YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000 NOTE 8: 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, 2002, the cost basis of Prudential's equity interest in the Partnership under this commitment (held through the Real Property Accounts) was $44 million. Prudential did not make any contributions during the 2002 fiscal year and 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 Partnership. NOTE 9: OTHER RELATED PARTY TRANSACTIONS Pursuant to an investment management agreement, Prudential charges the Partnership a daily investment management fee at an annual rate of 1.25% of the average daily gross asset valuation of the Partnership. For the years ended December 31, 2002, 2001 and 2000 management fees incurred by the Partnership were $2.5 million, $2.7 million, and $2.7 million for each of the three years, respectively. The Partnership also reimburses Prudential for certain administrative services rendered by Prudential. The amounts incurred for the years ended December 31, 2002, 2001 and 2000 were $132,380; $118,972; and $116,630, respectively, and are classified as administrative expenses in the Consolidated Statements of Operations. During the years ended December 31, 2002, 2001 and 2000, the Partnership made the following distributions to the Partners: YEAR ENDING DECEMBER 31, (000'S) ------- 2002....................................................... $16,143 2001....................................................... 18,000 2000....................................................... 22,000 NOTE 10: SUBSEQUENT EVENTS On January 28, 2003, the Partnership sold the industrial center located in Salt Lake City, UT for $5.8 million. NOTE 11: FINANCIAL HIGHLIGHTS

FOR THE TWELVE MONTHS ENDED --------------------------------------- DECEMBER 31, 2002 DECEMBER 31, 2001 ---------------- ---------------- PER SHARE(UNIT) OPERATING PERFORMANCE: Net Asset Value, beginning of period ................................... $ 23.82 $ 22.74 INCOME FROM INVESTMENT OPERATIONS: Net Investment income, before management fee ........................... $ 1.63 $ 1.66 Management fee ......................................................... (0.30) (0.30) Net realized and unrealized (loss) gain on investments ................. (1.04) (0.28) ------- ------- Net Increase in Net Assets Resulting from Operations ................ 0.29 1.08 ------- ------- NET ASSET VALUE, END OF PERIOD ......................................... $ 24.11 $ 23.82 ======= ======= TOTAL RETURN, BEFORE MANAGEMENT FEE (a): ............................... 2.52% 6.14% RATIOS/SUPPLEMENTAL DATA: Net Assets, end of period (in millions) ................................ $ 184 $ 198 Ratios to average net assets (b): Management Fee ................................................... 1.28% 1.27% Net Investment Income, before Management Fee ..................... 7.07% 7.45%

(a) Total Return is calculated by 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 period net assets. F-21 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE III--REAL ESTATE OWNED: PROPERTIES DECEMBER 31, 2002

INITIAL COSTS TO THE PARTNERSHIP COSTS ----------------------------------- CAPITALIZED BUILDING & SUBSEQUENT TO DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS ACQUISITION ----------- ------------ ---- ------------ ----------- PROPERTIES: Office Building Lisle, IL .......................... None 1,780,000 15,743,881 5,333,355 Garden Apartments Atlanta, GA ....................... None 3,631,212 11,168,904 915,656(b) Retail Shopping Center Roswell, GA ....................... None 9,454,622 21,513,677 1,926,983 Office/Warehouse Bolingbrook, IL ................... None 1,373,199 7,302,518 418,011 Garden Apartments Raleigh, NC ........................ None 1,623,146 14,135,553 185,137 Office Building Brentwood, TN ...................... None 1,797,000 6,588,451 1,935,162 Office Park Oakbrook Terrace, IL ............... None 1,313,310 11,316,883 1,575,203 Office Building Beaverton, OR ...................... None 816,415 9,897,307 1,176,487 Industrial Building Salt Lake City, UT ................ None 582,457 4,805,676 1,211,349 Industrial Building Aurora, CO ......................... None 1,338,175 7,202,411 1,754,198 Office Complex Brentwood, TN ...................... None 2,425,000 7,063,755 337,440 --------- --------- ------- 26,134,536 116,739,016 16,768,981 ========== =========== ==========

GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF YEAR ------------------------------------------------------------------------ BUILDING & 2002 YEAR OF DATE LAND IMPROVEMENTS SALES TOTAL (A)(B)(C) CONSTRUCTION ACQUIRED ---- ------------ ----- --------------- ------------ -------- 1,780,000 21,077,236 22,857,236 1985 Apr., 1988 3,631,212 12,084,560 15,715,772 1987 Apr., 1988 9,462,951 23,432,331 32,895,282 1988 Jan., 1989 1,373,199 7,720,529 (9,093,728) 0 1989 Feb., 1990 1,623,146 14,320,690 15,943,836 1995 Jun., 1995 1,797,377 8,523,236 10,320,613 1982 Oct., 1995 1,313,821 12,891,575 14,205,396 1988 Dec., 1995 845,887 11,044,322 11,890,209 1995 Dec., 1996 702,323 5,897,159 6,599,482 1997 Jul., 1997 1,415,159 8,879,625 10,294,784 1997 Sep., 1997 2,453,117 7,373,078 9,826,195 1987 Oct., 1997 ---------- ---------- ---------- ----------- 26,398,192 133,244,341 (9,093,728) 150,548,805 ========== =========== ========== ===========

2002 2001 2000 ----------- ----------- ----------- (a) Balance at beginning of year.... 158,410,798 154,613,404 172,606,825 Additions: Acquistions................... 0 0 0 Improvements, etc............. 1,231,735 3,797,394 2,480,354 Deletions: Sale.......................... (9,093,728) 0 (20,473,775) ----------- ----------- ----------- Balance at end of year.............. 150,548,805 158,410,798 154,613,404 =========== =========== =========== (b) Net of $1,000,000 settlement received from lawsuit. F-22 THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP SCHEDULE III - REAL ESTATE OWNED: INTEREST IN PROPERTIES DECEMBER 31, 2002

INITIAL COSTS TO THE PARTNERSHIP COSTS ----------------------------------- CAPITALIZED ENCUMBRANCES BUILDING & SUBSEQUENT TO DESCRIPTION AT 12/31/02 LAND IMPROVEMENTS ACQUISITION ----------- ------------ ---- ------------ ----------- INTEREST IN PROPERTIES: Garden Apartments Jacksonville, FL................. 9,844,318 2,750,000 14,650,743 2,345,112 Retail Shopping Center Kansas City MO and KS*........... 15,016,865 5,710,916 15,211,504 3,053,317 Garden Apartments Gresham/Salem, OR................ 8,657,061 3,063,000 15,318,870 456,700 Retail Shopping Center Hampton, VA...................... 9,804,475 2,339,100 12,767,956 1,339,852 Retail Shopping Center Ocean City, MD................... 7,393,254 -- 10,012,138 -- ---------- ---------- ---------- --------- 50,715,973 13,863,016 67,961,211 7,194,981 ========== ========== ========== =========

GROSS AMOUNT AT WHICH CARRIED AT CLOSE OF YEAR ------------------------------------------------------------------------ BUILDING & YEAR OF DATE LAND IMPROVEMENTS TOTAL (A)(B)(C) CONSTRUCTION ACQUIRED ---- ------------ --------------- ------------ -------- 2,750,000 16,995,855 19,745,855 1973 Sept., 1999 5,710,916 18,264,821 23,975,737 Various Ranging Sept., 1999 From 1972-1992 3,063,000 15,775,570 18,838,570 Various Ranging Feb., 2001 From 1971-1983 3,276,520 13,170,388 16,446,908 1998 May, 2001 -- 10,012,138 10,012,138 1986 Nov., 2002 ---------- ---------- ---------- 14,800,436 74,218,772 89,019,208 ========== ========== ==========

2002 2001 2000 ---------- ---------- ---------- (a) Balance at beginning of year .......................................... 60,659,900 25,121,329 22,587,869 Additions: Acquistions ......................................................... 10,012,138 33,488,926 0 Improvements, etc ................................................... 4,097,329 1,674,862 2,162,457 Deletions: Sale ................................................................ 0 0 0 Encumbrances on Joint Ventures accounted for by the equity method ............................................... 205,498 374,783 371,003 ---------- ---------- ---------- Balance at end of year .................................................... 74,974,865 60,659,900 25,121,329 ========== ========== ==========

*Partnership interest accounted for by the equity method F-23 CERTIFICATIONS I, Andrew J. Mako, certify that: 1. I have reviewed this annual report on Form 10-K of Pruco Life of New Jersey Variable Contract Real Property Account; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/ Andrew J. Mako ------------------------ Andrew J. Mako President F-24 I, William J. Eckert, IV, certify that: 1. I have reviewed this annual report on Form 10-K of Pruco Life of New Jersey Variable Contract Real Property Account; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: March 27, 2003 /s/ William J. Eckert, IV ------------------------- William J. Eckert IV Chief Accounting Officer F-25