================================================================================

                                  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 33-20083


                   THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

                                  in respect of

             THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
--------------------------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


               New Jersey                               22-1211670
  ------------------------------------        ---------------------------------
       (State or other jurisdiction of        (IRS Employer Identification No.)
       incorporation or organization)



                 751 Broad 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 [ ]

<PAGE>


                        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         18

   8.     Financial Statements and Supplementary Data                        18

   9.     Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure                                           18

PART III

   10.    Directors and Executive Officers of the Registrant                 19

   11.    Executive Compensation                                             21

   12.    Security Ownership of Certain Beneficial Owners and Management     21

   13.    Certain Relationships and Related Transactions                     21

   14.    Controls and Procedures                                            22

PART IV

   15.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K   23

          Exhibit Index                                                      23

          Signatures                                                         25


                                        2
<PAGE>


                                     PART I

ITEM 1. BUSINESS

Prudential   Variable   Contract  Real  Property  Account  (the  "Real  Property
Account"), the Registrant, was established on November 20, 1986. Pursuant to New
Jersey law, the Real Property  Account was established as a separate  investment
account of  Prudential  Insurance  Company of America  ("Prudential").  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 Prudential
Insurance Company of America.

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
<PAGE>


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


                                       4
<PAGE>


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%.

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
<PAGE>


                                     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  36,225  contract  owners of
record investing in the Real Property Account.

ITEM 6. SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                         -------------------------------------------------------------------------------
                                              2002            2001            2000            1999            1998
                                              ----            ----            ----            ----            ----
<S>                                      <C>              <C>              <C>             <C>              <C>
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
                                         ------------     ------------     ------------    ------------     ------------
</TABLE>

FINANCIAL POSITION:
<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31,
                                         -------------------------------------------------------------------------------
                                             2002            2001            2000            1999            1998
                                             ----            ----            ----            ----            ----
<S>                                      <C>              <C>              <C>             <C>              <C>
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
                                         ------------     ------------     ------------    ------------     ------------
</TABLE>

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
<PAGE>


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.

<TABLE>
<CAPTION>
                                                                                  TWELVE MONTHS ENDED DECEMBER 31,
                                                                                    2002                    2001
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
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)
                                                                               ------------             ------------
</TABLE>



                                       7
<PAGE>


<TABLE>
<CAPTION>
                                                                                  TWELVE MONTHS ENDED DECEMBER 31,
                                                                                    2002                    2001
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>

NET REALIZED GAIN (LOSS) ON REAL ESTATE INVESTMENTS:

Industrial properties ......................................                        395,110                     --
Real estate investment trust ...............................                         (1,578)                (211,665)
                                                                               ------------             ------------
TOTAL 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)
                                                                               ============             ============
</TABLE>

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.

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 approxi-


                                       8
<PAGE>


mately $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.

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,

                                       9
<PAGE>


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
<PAGE>


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.

<TABLE>
<CAPTION>
                                                                                  TWELVE MONTHS ENDED DECEMBER 31,
                                                                                    2001                    2000
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>
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
                                                                               ------------             ------------
</TABLE>


                                       11
<PAGE>

<TABLE>
<CAPTION>
                                                                                 TWELVE MONTHS ENDED DECEMBER 31,
                                                                                   2001                     2000
                                                                               ------------             ------------
<S>                                                                            <C>                      <C>

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
                                                                               ============             ============
</TABLE>
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


                                       12
<PAGE>


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%.

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.



                                       13
<PAGE>


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.

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.


                                       14
<PAGE>


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.

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.













                                       15
<PAGE>


(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:
<TABLE>
<CAPTION>
                                                                        01/01/2002    01/01/2001     01/01/2000
                                                                            to            to             to
                                                                        12/31/2002    12/31/2001     12/31/2000
                                                                        ----------    ----------     ----------

<S>                                                                      <C>             <C>            <C>
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
</TABLE>

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)



                                       16
<PAGE>


(d) 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.

(e) 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.

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.

                                       17

<PAGE>


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

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
<TABLE>
<CAPTION>
DEBT (IN $ THOUSANDS),                                                                                       ESTIMATED
INCLUDING CURRENT PORTION            2003      2004      2005       2006      2007    THEREAFTER    TOTAL   FAIR VALUE
-------------------------            ----      ----      ----       ----      ----    ----------    -----   ----------
<S>                                  <C>       <C>      <C>        <C>        <C>      <C>         <C>        <C>
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
----------------------------------------------------------------------------------------------------------------------
</TABLE>

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.


                                       18
<PAGE>


                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT


                   THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

                                    DIRECTORS

ARTHUR F.  RYAN--Chairman of the Board, Chief Executive Officer and President of
Prudential  since 1994  (current  term expires  June,  2003).  Mr. Ryan is not a
member of any of the following  committees:  Audit,  Compensation  and Corporate
Governance,  which are comprised  solely of independent  members of the Board of
Directors.  He is a member of all other  Board  committees,  although he attends
such meetings only when needed. Mr. Ryan was with Chase Manhattan Bank from 1972
to 1994, serving in various executive  positions  including  President and Chief
Operating  Officer from 1990 to 1994 and Vice Chairman from 1985 to 1990.  Other
Directorships include: Regeneron Pharmaceuticals. Age 60.

FRANKLIN E.  AGNEW--Director  since 1994  (current  term  expires  June,  2003).
Member, Committee on Finance & Dividends;  Member,  Investment Committee. He has
been an independent  business  consultant  since January 1987. From 1989 through
1990,  he served as the court  appointed  trustee in the  reorganization  of the
Sharon  Steel  Corporation.  Mr. Agnew was the Chief  Financial  Officer of H.J.
Heinz Co.  from July 1971 to June  1973 and a Senior  Vice  President  and Group
Executive from July 1973 through 1986.  Other  Directorships  include:  Bausch &
Lomb, Inc. Age 68.

FREDERIC K.  BECKER--Director  since 1994  (current  term expires  June,  2003).
Chairman,  Audit Committee;  Member,  Corporate  Governance  Committee;  Member,
Executive  Committee.  He has  served as  President  of the law firm of  Wilentz
Goldman & Spitzer,  P.C.  since 1989 and has  practiced  law with the firm since
1960. Age 67.

GILBERT F.  CASELLAS--Director  since 1998 (current  term expires  June,  2003).
Member,  Committee on Business Ethics; Member, Committee on Finance & Dividends;
Member,  Investment Committee. He is President of Casellas & Associates,  LLC, a
consulting  firm, in  Washington,  D.C.  During 2001, he served as President and
Chief Executive Officer of Q-linx, Inc. (software development). He served as the
President and Chief Operating Officer of The Swarthmore Group, Inc.  (investment
company) from January 1999 to December 2000.  Mr.  Casellas was a partner in the
law firm of  McConnell  Valdes  LLP  from  1998 to 1999;  Chairman,  U.S.  Equal
Employment  Opportunity  Commission from 1994 to 1998; and General Counsel, U.S.
Department of Air Force from 1993 to 1994. Age 50.

JAMES G. CULLEN--Director  since 1994 (current term expires June, 2003). Member,
Compensation Committee;  Member, Audit Committee. He served as the President and
Chief Operating Officer of Bell Atlantic Corporation (global telecommunications)
from  December  1998  until his  retirement  in June  2000.  Mr.  Cullen was the
President and Chief Executive Officer, Telecom Group, Bell Atlantic Corporation,
from 1997 to 1998; Vice Chairman of Bell Atlantic Corporation from 1995 to 1997;
and  President  of  Bell  Atlantic   Corporation   from  1993  to  1995.   Other
Directorships include: Johnson & Johnson and Agilent Technologies, Inc. Age 60.

ALLAN D. GILMOUR--Director since 1995 (current term expires June, 2003). Member,
Investment Committee;  Member,  Committee on Finance & Dividends. He is the Vice
Chairman  and  Chief  Financial  Officer  of  Ford  Motor  Company   (automotive
industry);  he  previously  retired  from Ford Motor  Company as Vice Charman in
1995. During his 34-year career with Ford Motor Company,  Mr. Gilmour has held a
number of executive  positions,  including that of Chief  Financial  Officer and
President of Ford  Automotive  Group.  Other  Directorships  include:  Whirlpool
Corporation and DTE Energy Company. Age 68.

WILLIAM H. GRAY  III--Director  since 1991 (current  term expires  June,  2003).
Chairman,  Corporate Governance Committee;  Member, Executive Committee; Member,
Committee on Business  Ethics.  He has served as President  and Chief  Executive
Officer of The College Fund/UNCF (philanthropic foundation) since 1991. Mr. Gray
was a member  of the U.S.  House of  Representatives  from  1979 to 1991.  Other
Directorships   include:   JP  Morgan  Chase  &  Co.,   Rockwell   International
Corporation,  Dell Computer  Corporation,  Pfizer,  Inc., Viacom,  Inc., Visteon
Corporation, and Electronic Data Systems. Age 61.


                                       19
<PAGE>


JON F.  HANSON--Director  since 1991 (current term expires June, 2003).  Member,
Investment Committee;  Member, Committee on Finance & Dividend. He has served as
Chairman  of The  Hampshire  Companies  (real  estate  investment  and  property
management)  since 1976. Mr. Hanson served as the Chairman and  Commissioner  of
the New  Jersey  Sports  and  Exposition  Authority  from  1982 to  1994.  Other
Directorships  include:  CD&L, Inc.,  HealthSouth  Corp., and Pascack  Community
Bank. Age 66.

GLEN H.  HINER--Director  since 1997 (current term expires June, 2003).  Member,
Committee on Business Ethics; Member,  Compensation  Committee. He served as the
Chairman and Chief Executive Officer of Owens Corning (advanced glass & building
material systems) from 1992 until his retirement in 2002. Prior to joining Owens
Corning,  Mr.  Hiner worked at General  Electric  Company  starting in 1957.  He
served as Senior Vice President and Group  Executive,  Plastics  Group,  General
Electric  Company  from  1983  to  1991.  Other  Directorships   include:   Dana
Corporation. Age 68.

CONSTANCE J.  HORNER--Director  since 1994 (current  term expires  June,  2003).
Member, Compensation Committee;  Member, Corporate Governance Committee. She has
been  a  Guest  Scholar  at The  Brookings  Institution  (non-partisan  research
institute) since 1993, after serving as Assistant to the President of the United
States and Director, Presidential Personnel from 1991 to 1993; Deputy Secretary,
U. S.  Department of Health and Human  Services from 1989 to 1991; and Director,
U.S.  Office  of  Personnel  Management  from  1985 to 1989.  Ms.  Horner  was a
Commissioner,  U.S.  Commission  on Civil Rights from 1993 to 1998 and taught at
Princeton  University  in 1994 and  Johns  Hopkins  University  in  1995.  Other
Directorships include:  Foster Wheeler Ltd.,  Ingersoll-Rand  Company, Ltd., and
Pfizer, Inc. Age 61.

BURTON G.  MALKIEL--Director  since 1978  (current  term  expires  June,  2003).
Chairman,  Investment  Committee;  Chairman,  Committee  on Finance & Dividends;
Member,  Executive  Committee.  He is the Chemical Bank Chairman's  Professor of
Economics at Princeton University,  where he has served on the faculty from 1988
to the present  and at other times since 1964.  He was the Dean of the School of
Organization  and Management at Yale  University from 1981 to 1988, and he was a
member of the President's  Council of Economic Advisors from 1975 to 1977. Other
Directorships include: BKF Capital. Age 70.

IDA F.S.  SCHMERTZ--Director  since 1997  (current  term  expires  June,  2003).
Member,  Audit Committee.  She has been a Principal of  Microleasing,  LLC since
2001 and was Chairman of the Volkhov International  Business Incubator from 1995
to 2002.  Ms.  Schmertz was a Principal of Investment  Strategies  International
(investment  consultant) from 1994 to 2000 and was with American Express Company
from 1979 to 1994,  holding several management  positions  including Senior Vice
President, Corporate Affairs. Age 68.

RICHARD M.  THOMSON--Director  since 1976  (current  term expires  June,  2003).
Chairman, Executive Committee;  Chairman,  Compensation Committee. He retired as
Chairman of The Toronto-Dominion  Bank (banking and financial services) in 1998,
having retired as the Chief Executive Officer in 1997. He had served as Chairman
and Chief  Executive  Officer since 1978.  Prior to that time,  Mr. Thomson held
other  management  positions at The  Toronto-Dominion  Bank,  which he joined in
1957. Other Directorships include:  INCO, Limited, The Thomson Corporation,  The
Toronto-Dominion  Bank,  Stuart Energy  Systems,  Inc.,  Nexen Inc.,  and Trizec
Properties, Inc. Age 69.

JAMES A.  UNRUH--Director  since 1996 (current term expires June, 2003). Member,
Corporate Governance  Committee;  Member, Audit Committee.  He became a founding
member of Alerion Capital Group, LLC (private equity  investment group) in 1998.
Mr. Unruh was with Unisys Corporation (information technology services, hardware
and  software)  from 1987 to 1997,  serving as its Chairman and Chief  Executive
Officer from 1990 to 1997. Age 62.

STANLEY C. VAN  NESS--Director  since 1990 (current  term expires  June,  2003).
Chairman,  Committee on Business Ethics;  Member,  Executive Committee;  Member,
Audit  Committee.  He has been a partner in the law firm of  Herbert,  Van Ness,
Cayci & Goodell since 1998. From 1990 to 1998, Mr. Van Ness was a partner in the
law firm  Picco  Herbert  Kennedy  and from 1984 to 1990 he was a  partner  with
Jamieson,  Moore, Peskin and Spicer. He was a professor at Seton Hall University
Law School from 1982 to 1984.  Prior to that time he served as the first  Public
Advocate  for the  State of New  Jersey.  Other  Directorships  include:  Jersey
Central Power & Light Company. Age 69.


                                       20
<PAGE>


                   THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

                               PRINCIPAL OFFICERS

VIVIAN L.  BANTA--She  was  elected and has served as Chief  Executive  Officer,
Insurance Division,  of The Prudential Insurance Company of America since August
2002.  She served as Executive Vice President from March 2000 to August 2002 and
Senior Vice  President  from  January  2000 to March 2000.  Prior to joining The
Prudential Insurance Company of America, she was an independent  consultant from
1998 to 1999 and served as Executive Vice President,  Global Investor  Services,
Group Executive for Chase Manhattan Bank from 1991 to 1997. Age 52.

MARK B.  GRIER--He  was elected as Vice  Chairman,  Financial  Management of The
Prudential  Insurance  Company of America in August 2002.  Since May 1995 he has
variously served as Chief Financial Officer, Executive Vice President, Corporate
Governance,  Executive Vice President,  Financial Management, and Vice Chairman,
Financial  Management,  the position he holds at this time. Prior to joining The
Prudential  Insurance Company of America,  Mr. Grier was an executive with Chase
Manhattan Corporation. Age 50.

ROBERT C.  GOLDEN--He  was elected and has served as Executive Vice President of
The  Prudential  Insurance  Company of America since June 1997.  Previously,  he
served  as  Executive  Vice  President  and  Chief  Administrative  Officer  for
Prudential Securities. Age 56.

RICHARD J.  CARBONE--He  was elected and has served as Senior Vice President and
Chief Financial  Officer of Prudential since July 1997. Prior to that, he served
as the Global Controller and a Managing Director of Salomon, Inc. from July 1995
to June  1997,  and  Controller  of  Bankers  Trust New York  Corporation  and a
Managing  Director and  Controller  of Bankers  Trust Company from April 1988 to
March 1993.  From March 1993 to July 1995, he served as a Managing  Director and
Chief  Administrative  Officer of the  Private  Client  Group at  Bankers  Trust
Company. Age 54.

JOHN M.  LIFTIN--He  was elected and served as Senior Vice President and General
Counsel of The Prudential  Insurance  Company of America since April 1998. Prior
to that, Mr. Liftin was an independent  consultant  from 1997 to 1998 and Senior
Vice  President and General  Counsel of Kidder,  Peabody Group Inc. from 1987 to
1996. Age 59.

ANTHONY S.  PISZEL--He  was elected and has served as Senior Vice  President and
Controller of The Prudential Insurance Company of America since January 2000. He
served as Vice  President and  Controller  from 1998 to 2000, and Vice President
from 1997 to 1998. Prior to 1997, he served as Chief Financial Officer,  for the
Individual Insurance Group. Age 48.

SHARON C. TAYLOR--She was elected and has served as Senior Vice President of The
Prudential  Insurance  Company of America  since June 2002.  Ms. Taylor has been
with  Prudential  since  1976,  serving in various  human  resources  management
positions,  including Vice President of Human Resources  Communities of Practice
from 2000 to 2002, Vice President, Human Resources & Ethics Officer,  Individual
Financial  Services,  from 1998 to 2000; Vice  President,  Staffing and Employee
Relations from 1996 to 1998;  Management  Internal  Control Officer from 1994 to
1996; and Vice President,  Human Resources and Administration from 1993 to 1994.
Age 48.

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.

                                       21
<PAGE>


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.











                                       22
<PAGE>



                                     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  Charter of The Prudential  Insurance  Company of America,
              filed as Exhibit 3.1.

      3.2     Amended  By-Laws of The Prudential  Insurance  Company of America,
              filed as Exhibit 3.2.

      3.3     Resolution of the Board of Directors  establishing  The Prudential
              Variable Contract Real Property Account,  filed as Exhibit (3C) to
              Form S-1, Registration Statement No. 33-20083,  filed February 10,
              1988, and incorporated herein by reference.

      4.1     Revised  Individual  Variable  Annuity  Contract  filed as Exhibit
              A(4)(w)   to   Post-Effective   Amendment   No.  8  to  Form  N-4,
              Registration  Statement No.  2-80897,  filed October 23, 1986, and
              incorporated herein by reference.

      4.2     Discovery  Plus  Contract,  filed as  Exhibit  (4)(a) to Form N-4,
              Registration  Statement No. 33-25434,  filed November 8, 1988, and
              incorporated herein by reference.

      4.3     Custom  VAL  (previously   named  Adjustable   Premium  VAL)  Life
              Insurance  Contracts  with fixed death  benefit,  filed as Exhibit
              1.A.(5) to Form S-6,  Registration  Statement No. 33-25372,  filed
              November 4, 1988, and incorporated herein by reference.

      4.4     Custom  VAL  (previously   named  Adjustable   Premium  VAL)  Life
              Insurance Contracts with variable death benefit,  filed as Exhibit
              1.A.(5) to Form S-6,  Registration  Statement No. 33-25372,  filed
              November 4, 1988, and incorporated herein by reference.

      4.5     Variable  Appreciable  Life  Insurance  Contracts with fixed death
              benefit, filed as Exhibit 1.A.(5) to Pre-Effective Amendment No. 1
              to Form S-6, Registration  Statement No. 33-20000,  filed June 15,
              1988, and incorporated herein by reference.


                                       23
<PAGE>


      4.6     Variable  Appreciable Life Insurance Contracts with variable death
              benefit, filed as Exhibit 1.A.(5) to Pre-Effective Amendment No. 1
              to Form S-6, Registration  Statement No. 33-20000,  filed June 15,
              1988, and incorporated herein by reference.

      9.      None.

      10.1    Investment  Management  Agreement between The Prudential Insurance
              Company of  America  and The  Prudential  Variable  Contract  Real
              Property  Partnership,  filed as  Exhibit  (10A) to  Pre-Effective
              Amendment No. 1 to Form S-1, Registration  Statement No. 33-20083,
              filed May 2, 1988, and incorporated herein by reference.

      10.2    Partnership  Agreement of The  Prudential  Variable  Contract Real
              Property  Partnership  filed as  Exhibit  (10C)  to  Pre-Effective
              Amendment No. 1 to Form S-1, Registration  Statement No. 33-20083,
              filed May 2, 1988, and incorporated herein by reference.

      11.     Not applicable.

      12.     Not applicable.

      13.     None.

      16.     None.

      18.     None.

      21.     Not applicable.

      22.     Not applicable.

      23.     None.

      24.     Power of Attorney:  F. Agnew, F. Becker, J. Cullen, A. Gilmour, W.
              Gray III, J. Hanson, G. Hiner, C. Horner, B. Malkiel,  A. Ryan, I.
              Schmertz,  R.  Thomson,  J. Unruh,  S. Van Ness,  incorporated  by
              reference  to  Post-Effective   Amendment  No.  10  to  Form  S-1,
              Registration  No.  33-20083,  filed April 9, 1998 on behalf of The
              Prudential  Variable Contract Real Property  Account.  G. Casellas
              incorporated by reference to Form S-6, Registration No. 333-64957,
              filed  September  30,  1998 on behalf of The  Prudential  Variable
              Appreciable  Account.  R.  Carbone  incorporated  by  reference to
              Post-Effective  Amendment  No.  3 to Form  N-4,  Registration  No.
              333-23271,  filed  October  16,  1998 on behalf of The  Prudential
              Discovery  Select  Group  Variable  Contract  Account.  A.  Piszel
              incorporated  by reference to  Post-Effective  Amendment  No. 4 to
              Form N-4,  Registration No. 333-23271,  filed February 23, 1999 on
              behalf of The Prudential  Discovery Select Group Variable Contract
              Account.

       99.1   Certification of Chief Executive Officer 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 Financial Officer required pursuant to 18
              U.S.C. Section 1350, as adopted pursuant to Section 906 of the
              Sarbanas-Oxley Act of 2002.


                                       24
<PAGE>


                                   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.


                   THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
                                  IN RESPECT OF
             THE PRUDENTIAL 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
---------                             -----                         ----

*                      Chairman of the Board, President           March 25, 2003
--------------------   and Chief Executive Officer
Arthur F. Ryan

*                      Senior Vice President and Chief            March 25, 2003
--------------------   Financial Officer
Richard Carbone

*                      Senior Vice President and Comptroller      March 25, 2003
--------------------
Anthony S. Piszel



                                               *BY:/s/ Thomas C. Castano
                                                   ---------------------
                                                   THOMAS C. CASTANO
                                                   (ATTORNEY-IN-FACT)









                                       25
<PAGE>


SIGNATURE                           TITLE                       DATE
---------                           -----                       ----

*                                 Director                  March 25, 2003
--------------------
Franklin E. Agnew

*                                 Director                  March 25, 2003
--------------------
Frederic K. Becker

*                                 Director                  March 25, 2003
--------------------
Gilbert F. Casellas

*                                 Director                  March 25, 2003
--------------------
James G. Cullen

*                                 Director                  March 25, 2003
--------------------
Allan D. Gilmour

*                                 Director                  March 25, 2003
--------------------
William H. Gray, III

*                                 Director                  March 25, 2003
--------------------
Jon F. Hanson

*                                 Director                  March 25, 2003
--------------------
Glen H. Hiner, Jr.

*                                 Director                  March 25, 2003
--------------------
Constance J. Horner

*                                 Director                  March 25, 2003
--------------------
Burton G. Malkiel

*                                 Director                  March 25, 2003
--------------------
Ida F. S. Schmertz

*                                 Director                  March 25, 2003
--------------------
Richard M. Thomson

*                                 Director                  March 25, 2003
--------------------
James A. Unruh

*                                 Director                  March 25, 2003
--------------------
Stanley C. Van Ness


                                               *BY:/s/ Thomas C. Castano
                                                   ---------------------
                                                   THOMAS C. CASTANO
                                                   (ATTORNEY-IN-FACT)

                                       26
<PAGE>

                                 CERTIFICATIONS

I, Arthur F. Ryan, certify that:

1. I have reviewed this annual  report on Form 10-K of The  Prudential  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/ Arthur F. Ryan
----------------------------------
Arthur F. Ryan
Chief Executive Officer



<PAGE>


I, Richard J. Carbone, certify that:

1. I have reviewed this annual  report on Form 10-K of The  Prudential  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/ Richard J. Carbone
----------------------------------
Richard J. Carbone
Chief Financial Officer








<PAGE>

             THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
                                  (REGISTRANT)

                                      INDEX


<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>  <C>                                                                                        <C>
A.   THE PRUDENTIAL 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
</TABLE>

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
<PAGE>


                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Contract Owners of
The Prudential Variable Contract Real Property Account
and the Board of Directors of
The Prudential Insurance Company of America


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 The Prudential  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 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  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
<PAGE>


                             FINANCIAL STATEMENTS OF
               PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT


STATEMENTS OF NET ASSETS
December 31, 2002 and 2001
<TABLE>
<CAPTION>
                                                                          2002              2001
                                                                       -----------       -----------
<S>                                                                    <C>               <C>
 ASSETS
   Investment in The Prudential Variable Contract
     Real Property Partnership.....................................    $74,450,070       $80,845,322
                                                                       -----------       -----------
   Net Assets......................................................    $74,450,070       $80,845,322
                                                                       ===========       ===========
NET ASSETS, REPRESENTING:
   Equity of contract owners.......................................    $53,487,480       $55,383,118
   Equity of The Prudential Insurance Company of America...........     20,962,590        25,462,204
                                                                       -----------       -----------
                                                                       $74,450,070       $80,845,322
                                                                       ===========       ===========
Units outstanding..................................................     39,356,910        42,938,170
                                                                       ===========       ===========
</TABLE>
STATEMENTS OF OPERATIONS
For the years ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                                                                          2002              2001              2000
                                                                       -----------       -----------       -----------
<S>                                                                    <C>               <C>               <C>
INVESTMENT INCOME
Net investment income from Partnership operations..................    $ 4,422,199       $ 5,038,916       $ 5,516,671
                                                                       -----------       -----------       -----------
EXPENSES
Charges to contract owners for assuming mortality risk and
   expense risk and for administration ............................        439,519           451,312           441,647
                                                                       -----------       -----------       -----------
NET INVESTMENT INCOME..............................................      3,982,680         4,587,604         5,075,024
                                                                       -----------       -----------       -----------
NET REALIZED AND UNREALIZED GAIN
   (LOSS) ON INVESTMENTS
Net change in unrealized gain (loss) on investments in Partnership      (3,628,696)         (933,731)          779,624
Realized gain (loss) on sale of investments in Partnership.........        160,187           (86,359)        1,069,485
                                                                       -----------       -----------       -----------
NET GAIN (LOSS) ON INVESTMENTS.....................................     (3,468,509)       (1,020,090)        1,849,109
                                                                       -----------       -----------       -----------
NET INCREASE IN NET ASSETS
   RESULTING FROM OPERATIONS.......................................    $   514,171       $ 3,567,514       $ 6,924,133
                                                                       ===========       ===========       ===========
</TABLE>

STATEMENTS OF CHANGES IN NET ASSETS
For the years ended December 31, 2002, 2001 and 2000
<TABLE>
<CAPTION>
                                                                          2002              2001              2000
                                                                       -----------       -----------       -----------
<S>                                                                    <C>               <C>               <C>
OPERATIONS
Net investment income..............................................    $ 3,982,680       $ 4,587,604       $ 5,075,024
Net change in unrealized gain (loss) on investments
   in Partnership..................................................     (3,628,696)         (933,731)          779,624
Net realized gain (loss) on sale of investments in Partnership ....        160,187           (86,359)        1,069,485
                                                                       -----------       -----------       -----------
NET INCREASE IN NET ASSETS
   RESULTING FROM OPERATIONS.......................................        514,171         3,567,514         6,924,133
                                                                       -----------       -----------       -----------
CAPITAL TRANSACTIONS
Net withdrawals by contract owners ................................     (2,113,583)       (2,204,027)       (4,226,534)
Net withdrawals by The Prudential Insurance Company
   of America......................................................     (4,795,840)       (5,150,236)       (1,489,090)
                                                                       -----------       -----------       -----------
NET DECREASE IN NET ASSETS
   RESULTING FROM CAPITAL TRANSACTIONS.............................     (6,909,423)       (7,354,263)       (5,715,624)
                                                                       -----------       -----------       -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS............................     (6,395,252)       (3,786,749)        1,208,509
NET ASSETS
   Beginning of year...............................................     80,845,322        84,632,071        83,423,562
                                                                       -----------       -----------       -----------
   End of year.....................................................    $74,450,070       $80,845,322       $84,632,071
                                                                       ===========       ===========       ===========
</TABLE>
           SEE NOTES TO FINANCIAL STATEMENTS ON PAGES F-4 THROUGH F-8.

                                      F-3
<PAGE>


                      NOTES TO THE FINANCIAL STATEMENTS OF
               PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY ACCOUNT
                                DECEMBER 31, 2002

NOTE 1: GENERAL

The Prudential Variable Contract Real Property Account ("Real Property Account")
was  established on November 20, 1986 by resolution of the Board of Directors 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 Prudential's other assets. The Real Property Account
is used to fund  benefits  under certain  variable  life  insurance and variable
annuity contracts issued by Prudential.  These products are Variable Appreciable
Life ("PVAL and PVAL $100,000+ Face Value"),  Discovery  Plus  ("PDISCO+"),  and
Variable Investment Plan ("VIP").

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 variable
annuity contracts. The Real Property Account, along with the Pruco Life Variable
Contract  Real  Property  Account  and The  Pruco  Life of New  Jersey  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 40.4% or
3,087,325 shares and 40.8% or 3,393,522 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 THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

Prudential  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):                3,087,325             3,393,522
NET ASSET VALUE PER SHARE (ROUNDED):        $24.11                $23.82


                                      F-4
<PAGE>


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 1.2%, 0.9%, 0.6% and 1.2% for PDISCO+, PVAL, PVAL $100,000 + face
value,  and VIP,  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 Prudential.

B. 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 PVAL and PVAL $100,000
+ face value are (1) state premium  taxes;  (2) sales charges which are deducted
in order to compensate  Prudential  for the cost of selling the contract and (3)
transaction  costs which 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  Prudential  for the
guaranteed minimum death benefit risk.

C. DEFERRED SALES CHARGE

A deferred sales charge,  applicable to PVAL and PVAL $100,000 + face value,  is
imposed  upon  surrenders  of  certain  variable  life  insurance  contracts  to
compensate Prudential 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 tenth year of the
contract. No sales charge will be imposed on death benefits.

Also a deferred sales charge is imposed upon the withdrawals of certain purchase
payments to compensate  Prudential  for sales and other  marketing  expenses for
PDISCO+  and VIP.  The  amount of any sales  charge  will  depend on the  amount
withdrawn and the number of contract  years that have elapsed since the contract
owner or annuitant made the purchase  payments deemed to be withdrawn.  No sales
charge is made against the  withdrawal  of  investment  income.  A reduced sales
charge is imposed in connection  with the  withdrawal  of a purchase  payment to
effect  an  annuity  if three or more  contract  years  have  elapsed  since the
contract  date,  unless the  annuity  effected is an annuity  certain.  No sales
charge is imposed upon death  benefit  payments or upon  transfers  made between
subaccounts.

D. PARTIAL WITHDRAWAL CHARGE

A charge is imposed by Prudential on partial  withdrawals  of the cash surrender
value for PVAL and PVAL  $100,000 + face value.  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.

E. ANNUAL MAINTENANCE CHARGE

An annual  maintenance  charge,  applicable  to PDISCO+  and VIP, of $30 will be
deducted  if and only if the  contract  fund is less than  $10,000 on a contract
anniversary or at the time a full withdrawal is effected, including a withdrawal
to effect an annuity. The charge is made by reducing accumulation units credited
to a contract owner's account.

NOTE 5: TAXES

Prudential  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
<PAGE>


NOTE 6: NET WITHDRAWALS BY CONTRACT OWNERS

Contract owner activity for the real estate  investment  option in  Prudential's
variable  insurance and variable  annuity  products for the years ended December
31, 2002, 2001 and 2000 were as follows:

2002:
-----
<TABLE>
<CAPTION>
                                                                                   PVAL & PVAL
                                                                                    $100,000+
                                                   PDISCO+            VIP           FACE VALUE           TOTAL
                                                  ---------         --------       -----------       -----------
<S>                                               <C>              <C>             <C>               <C>
Contract Owner Net Payments:                      $       0        $  34,863       $ 5,048,419       $ 5,083,282
Policy Loans:                                             0                0        (1,343,092)       (1,343,092)
Policy Loan Repayments and Interest:                      0                0         1,404,190         1,404,190
Surrenders, Withdrawals, and Death Benefits:       (594,112)        (231,606)       (3,683,175)       (4,508,893)
Net Transfers To Other Subaccounts
   or Fixed Rate Option:                             51,964          121,250           385,036           558,250
Administrative and Other Charges:                       (38)          (2,616)       (3,304,666)       (3,307,320)
                                                  ---------        ---------       -----------       -----------
NET WITHDRAWALS BY CONTRACT OWNERS                $(542,186)       $ (78,109)      $(1,493,288)      $(2,113,583)
                                                  =========        =========       ===========       ===========
</TABLE>

2001:
-----
<TABLE>
<CAPTION>
                                                                                   PVAL & PVAL
                                                                                    $100,000+
                                                   PDISCO+            VIP           FACE VALUE           TOTAL
                                                  ---------         --------       -----------       -----------
<S>                                               <C>              <C>             <C>               <C>
Contract Owner Net Payments:                      $  24,129        $   2,656       $ 4,995,144       $ 5,021,929
Policy Loans:                                             0                0        (1,557,761)       (1,557,761)
Policy Loan Repayments and Interest:                      0                0         1,327,962         1,327,962
Surrenders, Withdrawals, and Death Benefits:       (579,346)        (205,982)       (3,392,906)       (4,178,234)
Net Transfers To Other Subaccounts
   or Fixed Rate Option:                            284,365          116,677            48,342           449,384
Administrative and Other Charges:                       (17)          (2,567)       (3,264,723)       (3,267,307)
                                                  ---------        ---------       -----------       -----------
NET WITHDRAWALS BY CONTRACT OWNERS                $(270,869)       $ (89,216)      $(1,843,942)      $(2,204,027)
                                                  =========        =========       ===========       ===========
</TABLE>

2000:
-----
<TABLE>
<CAPTION>
                                                                                   PVAL & PVAL
                                                                                    $100,000+
                                                   PDISCO+            VIP           FACE VALUE           TOTAL
                                                  ---------         --------       -----------       -----------
<S>                                               <C>              <C>             <C>               <C>
Contract Owner Net Payments:                      $   5,159        $  19,990       $ 5,269,026       $ 5,294,175
Policy Loans:                                             0                0        (1,571,876)       (1,571,876)
Policy Loan Repayments and Interest:                      0                0         1,091,619         1,091,619
Surrenders, Withdrawals, and Death Benefits:       (552,602)        (287,552)       (2,902,456)       (3,742,610)
Net Transfers To Other Subaccounts
   or Fixed Rate Option:                           (189,118)        (138,910)       (1,747,680)       (2,075,708)
Administrative and Other Charges:                    (2,200)          (3,126)       (3,216,808)       (3,222,134)
                                                  ---------        ---------       -----------       -----------
NET WITHDRAWALS BY CONTRACT OWNERS                $(738,761)       $(409,598)      $(3,078,175)      $(4,226,534)
                                                  =========        =========       ===========       ===========
</TABLE>

NOTE 7: UNIT ACTIVITY

Transactions  in units for the years ended December 31, 2002, 2001 and 2000 were
as follows:

2002:
-----
<TABLE>
<CAPTION>
                                                                                                            PVAL
                                                                                                          $100,000+
                                                                        PDISCO+     VIP         PVAL     FACE VALUE
                                                                       --------   --------   ----------  ----------
<S>                      <C>                                            <C>        <C>      <C>         <C>
Company Contributions:   2,080,975   Contract Owner Contributions:      205,356    105,284   2,046,293   1,607,411
Company Redemptions:    (4,538,606)  Contract Owner Redemptions:       (504,137)  (148,174) (2,423,416) (2,012,246)
</TABLE>


                                      F-6
<PAGE>

2001:
-----
<TABLE>
<CAPTION>
                                                                                                            PVAL
                                                                                                          $100,000+
                                                                        PDISCO+     VIP         PVAL     FACE VALUE
                                                                       --------   --------   ----------  ----------
<S>                                                                     <C>        <C>      <C>         <C>
Company Contributions:   2,128,618   Contract Owner Contributions:      217,010     191,730  1,347,176   1,727,014
Company Redemptions:     4,750,574)  Contract Owner Redemptions:       (367,170)   (241,510)(1,754,622) (2,303,032)
</TABLE>

2000:
-----
<TABLE>
<CAPTION>
                                                                                                            PVAL
                                                                                                          $100,000+
                                                                        PDISCO+     VIP         PVAL     FACE VALUE
                                                                       --------   --------   ----------  ----------
<S>                                                                    <C>         <C>      <C>         <C>
Company Contributions:   3,189,909   Contract Owner Contributions:       44,707      46,444 10,576,369   5,685,549
Company Redemptions:    (3,804,712)  Contract Owner Redemptions:       (489,889)   (292,270)(11,527,290)(6,508,205)
</TABLE>

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:
<TABLE>
<CAPTION>
                                           DECEMBER 31, 2002   DECEMBER 31, 2001    DECEMBER 31, 2000
                                           -----------------   -----------------    -----------------
<S>                                           <C>                 <C>                  <C>
PURCHASES:                                    $         0         $         0          $         0
Sales:                                        $(7,348,942)        $(7,786,532)         $(6,157,271)
</TABLE>

NOTE 9: FINANCIAL HIGHLIGHTS

Prudential  Insurance  Company  of  America  (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
Prudential  Insurance  Company of America  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.

<TABLE>
<CAPTION>
               AT DECEMBER 31, 2002                              FOR THE YEAR ENDED DECEMBER 31, 2002
 -----------------------------------------------          ---------------------------------------------------
                                                                                EXPENSE             TOTAL
   UNITS           UNIT VALUE         NET ASSETS           INVESTMENT           RATIO**           RETURN***
  (000'S)        LOWEST-HIGHEST         (000'S)           INCOME RATIO*     LOWEST-HIGHEST     LOWEST-HIGHEST
 ---------    --------------------    ----------          -------------     --------------     --------------
<S>           <C>                       <C>                   <C>           <C>                <C>
  28,139      $1.81952 to $1.95560      $53,487               5.59%         0.60% to 1.20%     0.02% to 0.62%
</TABLE>

<TABLE>
<CAPTION>
               AT DECEMBER 31, 2001                              FOR THE YEAR ENDED DECEMBER 31, 2001
 -----------------------------------------------          ---------------------------------------------------
                                                                                EXPENSE             TOTAL
   UNITS           UNIT VALUE         NET ASSETS           INVESTMENT           RATIO**           RETURN***
  (000'S)        LOWEST-HIGHEST         (000'S)           INCOME RATIO*     LOWEST-HIGHEST     LOWEST-HIGHEST
 ---------    --------------------    ----------          -------------     --------------     --------------
<S>           <C>                       <C>                   <C>           <C>                <C>
  29,263      $1.81915 to $1.94357      $55,383               5.91%         0.60% to 1.20%     3.55% to 4.17%
</TABLE>

The  tables  above  reflect  information  for  units  held by  contract  owners.
Prudential  also maintains a position in the Real Property  Account,  to provide
for property acquisitions and capital expenditure funding needs. Prudential held
11,217,512 and 13,675,143 units representing  $20,962,590 and $25,462,204 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 Prudential net assets.  The total
return  of the  Prudential  units  was 1.22% to 1.22% and 4.75% to 4.77% for the
year ended December 31, 2002 and 2001, respectively.


                                      F-7
<PAGE>


* This amount  represents the  proportionate  share of the net investment income
from the  underlying  Partnership  divided  by the total  average  assets of the
Account.  This ratio  excludes  those  expenses,  such as mortality  and expense
charges, that result in direct reductions in the unit values.

** These  ratios  represent  the  annualized  contract  expenses of the separate
account,  consisting primarily of mortality and expense charges, for each period
indicated.  The ratios  include  only  those  expenses  that  result in a direct
reduction  to unit  values.  Charges made  directly to contract  owner  accounts
through the redemption of units and expenses of the underlying  Partnership  are
excluded.

***  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
<PAGE>

                        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
<PAGE>


                      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
<PAGE>


           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

                CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                   ------------------------------
                                                                                       2002              2001
                                                                                   ------------      ------------
<S>                                                                                <C>               <C>
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 uncollectible accounts: 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
                                                                                   ============      ============
</TABLE>


              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.






                                      F-11
<PAGE>


           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                       -----------------------------------------------
                                                                          2002              2001              2000
                                                                       -----------       -----------      ------------
<S>                                                                    <C>               <C>              <C>
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
                                                                       ===========       ===========      ============
</TABLE>


              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.






                                      F-12
<PAGE>

           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

                CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                        ------------------------------------------------
                                                                          2002                2001              2000
                                                                        ------------      ------------      ------------
<S>                                                                    <C>                <C>               <C>
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
                                                                        ============      ============      ============
</TABLE>

              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-13
<PAGE>


           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                    YEAR ENDED DECEMBER 31,
                                                                      ------------------------------------------------
                                                                          2002              2001              2000
                                                                      ------------      ------------      ------------
<S>                                                                   <C>                <C>              <C>
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
                                                                      ============      ============      ============
</TABLE>


              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.










                                      -14
<PAGE>


           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

                             SCHEDULE OF INVESTMENTS
<TABLE>
<CAPTION>
                                                            DECEMBER 31, 2002                 DECEMBER 31, 2001
                                                     -----------------------------      ------------------------------
                                                                         ESTIMATED                          ESTIMATED
                                                                          MARKET                             MARKET
                                                         COST              VALUE             COST             VALUE
                                                     -----------------------------      ------------------------------
<S>                                                     <C>                  <C>             <C>                  <C>
REAL ESTATE AND IMPROVEMENTS--
   PERCENTAGE OF NET ASSETS......................                            106.7%                               99.9%
</TABLE>

<TABLE>
<CAPTION>
Location                Description
----------------------------------------------------------------------------------------------------------------------
<S>                     <C>                           <C>              <C>               <C>               <C>
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
                                                     ============     ============      ============      ============
<CAPTION>
<S>                                                                            <C>                                 <C>
REAL ESTATE PARTNERSHIP--
   PERCENTAGE OF NET ASSETS......................                              4.9%                                3.4%
</TABLE>
<TABLE>
<CAPTION>
Location                Description
----------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>              <C>               <C>               <C>
Kansas City, KS; MO     Retail Shopping Centers .    $  9,931,394     $  8,978,324      $  7,026,540      $  6,712,308
                                                     =================================================================
</TABLE>
*Real estate partnerships accounted for by the consolidation method.

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31, 2002          DECEMBER 31, 2001
                                                                              ------------------------   -----------------------
                                                                                            ESTIMATED                 ESTIMATED
                                                                 FACE AMOUNT     COST      MARKET VALUE    COST      MARKET VALUE
                                                                -----------   -----------  ------------ -----------  ------------
<S>                                                             <C>           <C>          <C>          <C>          <C>
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
                                                                ===========   ===========  ==========   ===========  ===========
</TABLE>







              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
                       CONSOLIDATED FINANCIAL STATEMENTS.


                                      F-15
<PAGE>



                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
<PAGE>


                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
<PAGE>


                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
<PAGE>

                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

                FOR YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                            2002          2001         2000
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
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
                                                         ==========    ==========    ==========
</TABLE>

NOTE 5: MORTGAGE LOANS PAYABLE:

Debt includes mortgage loans payable as summarized below:
<TABLE>
<CAPTION>
                                                    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
                                                -----------  -----------    -----------  ------------  --------  ------
<S>                                             <C>          <C>            <C>           <C>           <C>       <C>
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

<CAPTION>
<S>                                             <C>          <C>            <C>           <C>           <C>       <C>
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%
</TABLE>

*   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
<PAGE>


                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

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
<PAGE>


                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF

           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

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
<TABLE>
<CAPTION>
                                                                      FOR THE TWELVE MONTHS ENDED
                                                               -----------------------------------------
                                                               DECEMBER 31, 2002       DECEMBER 31, 2001
                                                               -----------------       -----------------
<S>                                                                 <C>                     <C>
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.
</TABLE>

                                      F-21
<PAGE>


           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

                   SCHEDULE III--REAL ESTATE OWNED: PROPERTIES

                                DECEMBER 31, 2002
<TABLE>
<CAPTION>

                                    INITIAL COSTS TO THE PARTNERSHIP        COSTS
                                   ----------------------------------    CAPITALIZED
                                                           BUILDING &   SUBSEQUENT TO
DESCRIPTION                        ENCUMBRANCES   LAND    IMPROVEMENTS   ACQUISITION
-----------                        -----------    ----    ------------  -------------
<S>                                    <C>     <C>         <C>           <C>
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
                                             ===========  ===========   ==========
<CAPTION>
                              GROSS AMOUNT AT WHICH
                            CARRIED AT CLOSE OF YEAR
 ---------------------------------------------------------------------------------
              BUILDING &      2002                        YEAR OF         DATE
    LAND     IMPROVEMENTS     SALES   TOTAL (a)(b)(c)  CONSTRUCTION     ACQUIRED
    ----     ------------     -----   ---------------  ------------     --------
  <S>         <C>          <C>          <C>                <C>          <C>


  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
 ==========  ===========  =========== ============
<CAPTION>
                                                              2002         2001          2000
                                                          -----------   ----------    ----------
<S>                                                       <C>          <C>           <C>
(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
                                                          ===========  ===========   ===========
</TABLE>
(b) Net of $1,000,000 settlement received from lawsuit.

                                      F-22

<PAGE>


           THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

            SCHEDULE III - REAL ESTATE OWNED: INTEREST IN PROPERTIES

                                DECEMBER 31, 2002
<TABLE>
<CAPTION>

                                     INITIAL COSTS TO THE PARTNERSHIP        COSTS
                                   -------------------------------------  CAPITALIZED
                                   ENCUMBRANCES              BUILDING &   SUBSEQUENT TO
DESCRIPTION                         AT 12/31/02     LAND    IMPROVEMENTS   ACQUISITION
-----------                        ------------     ----    ------------  -------------
<S>                                 <C>           <C>         <C>           <C>
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
                                   ==========    ==========   ==========  ===========
<CAPTION>
                           GROSS AMOUNT AT WHICH
                          CARRIED AT CLOSE OF YEAR
  -------------------------------------------------------------------------
                BUILDING &                         YEAR OF           DATE
    LAND       IMPROVEMENTS    TOTAL (a)(b)(c)  CONSTRUCTION       ACQUIRED
    ----       ------------    ---------------  ------------       --------
  <S>           <C>               <C>                    <C>            <C>


  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
===========    ===========     =============
</TABLE>

<TABLE>
<CAPTION>
                                                       2002         2001         2000
                                                    ----------   ----------    ---------
<S>                                                 <C>          <C>           <C>
(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
                                                   ===========  ===========    ==========
</TABLE>

*Partnership interest accounted for by the equity method.


                                      F-23