The Prudential Series Fund

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF
THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP
For Years Ended December 31, 2008, 2007, and 2006
Note 2:Summary of Significant Accounting Policies (continued)
D. Real Estate Investments (continued)
The purpose of an appraisal is to estimate the fair value of real estate as of a specific date. In accordance
with SFAS 157, fair value is the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. The estimate of fair value is
based on the conventional approaches to value, all of which require the exercise of subjective judgment. The
three approaches are: (1) current cost of reproducing the real estate less deterioration and functional and
economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by
directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent
sales of comparable real estate in the market. In the reconciliation of these three approaches, the independent
appraiser uses one or a combination of them, to come up with the approximated value for the type of real
estate in the market.
In general, the input values used in the appraisal process are unobservable, therefore unless indicated
otherwise; real estate investments are classified as Level 3 (see Note 5 for detail) under SFAS 157 fair value
hierarchy.
Unconsolidated real estate partnerships and preferred equity investments are carried at fair value and are
generally valued at the Partnership’s equity in net assets as reflected in the partnerships' financial statements
with properties valued as described above. Under the equity method, the investment is initially recorded at
the original investment amount, plus or minus additional amounts invested or distributed, and is subsequently
adjusted for the Partnership’s share of undistributed earnings or losses, including unrealized appreciation and
depreciation, from the partnership.
As described above, the estimated fair value of real estate and real estate related assets is determined through
an appraisal process. There continues to be significant disruptions in the global capital, credit and real estate
markets. These disruptions have led to, among other things, a significant decline in the volume of transaction
activity, in the fair value of many real estate and real estate related investments, and a significant contraction
in short-term and long-term debt and equity funding sources. The decline in liquidity and prices of real estate
and real estate related investments, as well as the availability of observable transaction data and inputs, may
have made it more difficult to determine the fair value of such investments. As a result, these estimated fair
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.
These differences could be material to the financial statements. Although the estimated fair values represent
subjective estimates, management believes these estimated fair values are reasonable approximations of
market prices and the aggregate estimated value of investments in real estate is fairly presented as of
December 31, 2008 and December 31, 2007.
B-9 Real Property