THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERS HIP CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS Year Ended December 31, 2008 2007 2006 INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: Net investment income $11,138,184 $12,663,580 $11,161,728 Net gain (loss) realized and unrealized from real estate investments (44,233,635) 5,453,595 18,352,005 Increase (decrease) in net assets resulting from operations (33,095,451) 18,117,175 29,513,733 INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS: Withdrawals (2008- 0; 2007 -0; and 2006 -182,671 shares, respectively) - - (6,000,000) Increase (decrease) in net assets resulting from capital transactions - - (6,000,000) INCREASE (DECREASE) IN NET ASSETS (33,095,451) 18,117,175 23,513,733 NET ASSETS - Beginning of period 247,033,759 228,916,584 205,402,851 NET ASSETS - End of period $213,938,308 $247,033,759 $228,916,584 <strong>The</strong> accompanying notes are an integral part of these consolidated financial statements. B-3 Real Property
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERS HIP CONSOLIDATED S TATEMENTS OF CAS H FLOWS Year Ended December 31, 2008 2007 2006 CASH FLOWS FROM OPERATING ACTIVITIES: Net increase (decrease) in net assets from operations ($33,095,451) $18,117,175 $29,513,733 Adjustments to reconcile net increase (decrease) in net assets to net cash from operating activities Net realized and unrealized loss (gain) 44,233,635 (5,453,595) (18,352,005) Amortization of deferred financing costs 94,554 193,594 - Distributions in excess of (less than) equity in income of real estate partnerships operations 199,730 35,287 (87,396) Minority interest in consolidated partnerships (510,583) 158,196 223,772 Bad debt expense 1,139,238 101,185 (239,380) (Increase) decrease in: Other assets (1,136,791) 166,010 37,951 Increase (decrease) in: Accounts payable and accrued expenses 740,126 (907,118) 546,878 Due to affiliates (49,776) 111,482 28,963 Other liabilities 57,888 43,967 404,151 Net cash flows from (used in) operating activities 11,672,570 12,566,183 12,076,667 CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from real estate investments sold - 18,353,122 67,770 Acquisition of real estate and improvements - (42,218,143) (14,797,730) Additions to real estate and improvements (9,936,151) (3,554,451) (3,417,034) Contributions to real estate partnerships - - (7,289,487) Return of investment in real estate partnerships - - 3,620,455 Collection of mortgage loan receivable - - 4,277,769 Net cash flows from (used in) investing activities (9,936,151) (27,419,472) (17,538,257) CASH FLOWS FROM FINANCING ACTIVITIES: Withdrawals - - (6,000,000) Proceeds from investment level debt 24,016,161 - - Principal payments on investment level debt (16,090,046) (588,776) (485,119) Contributions to minority interest partners 80,000 294,143 - Distributions to minority interest partners (221,885) (35,739) (121,244) Net cash flows from (used in) financing activities 7,784,230 (330,372) (6,606,363) NET CHANGE IN CASH AND CASH EQUIVALENTS 9,520,649 (15,183,661) (12,067,953) CASH AND CASH EQUIVALENTS - Beginning of period 18,215,871 33,399,532 45,467,485 CASH AND CASH EQUIVALENTS - End of period $ 27,736,520 $ 18,215,871 $ 33,399,532 <strong>The</strong> accompanying notes are an integral part of these consolidated financial statements. B-4 Real Property