Wall Street Watch

$275 Million of Securities Affected.

New York, August 06, 2002 -- Moody's Investors Service has confirmed its Aa3 rating for the senior unsecured debt of the Prudential Insurance Company of America, acting solely on behalf of and for the benefit of its Prudential Investment Separate Account (PRISA or the Fund). According to Moody's, PRISA is one of the largest open-ended commingled real estate funds in the USA. The Fund exhibits healthy operating performance, low leverage and manageable debt maturities. Moody's added that PRISA's cash flow easily covers capital expenditures, debt service and client deposit withdrawals. Sound portfolio diversity and low near-term lease expirations have helped to shield PRISA's earnings and coverage ratios from the weak economy. Moody's outlook for the Fund's ratings is stable, based on expectations that PRISA will preserve its good operating performance, low leverage, minimal level of secured debt and diverse portfolio.

Moody's ratings continue to reflect the overall healthy fundamentals of PRISA's diversified commercial real estate portfolio, its long track record of healthy portfolio performance through business cycles, as well as its conservative capital structure. The rating also recognizes PRISA's seasoned management team, and its prudent policy on fund liquidity. Additional credit protection is provided by the Fund's conservative bond covenants, its insulation from the claims of Prudential's general account policyholders, and its significant flexibility in honoring client withdrawal requests. Although the assets held in PRISA are not subject to liabilities arising out of any other business of the Prudential, limited legal precedent on the possible impact on PRISA if Prudential were to become insolvent remains an important credit consideration. Moody's remarked that The Prudential Insurance Company of America has an insurance financial strength rating of A1.

Rating concerns center around PRISA's rising leverage and weakened operating performance. Continuation of these patterns would result in a downgrade. The Fund also faces increasing competition from alternative real estate investment vehicles, and this could affect PRISA's earnings stability. Moody's does not view PRISA as having much cushion in its Aa3 rating to absorb reversals.

Although laddered lease expirations have benefited PRISA's office and retail portfolios, the Fund experienced significant deterioration in its hotel, industrial and multifamily portfolios. PRISA experienced the most significant value declines in its Silicon Valley, Austin, Denver and Boston markets. Income from its downtown office buildings experienced the highest year-over-year decline due to rising vacancy levels and leasing concessions.

Overall same-store portfolio occupancy (excluding hotel and multifamily) in the first quarter of 2002 dropped to 93.2%, from 95.7% during the corresponding period in 2001. Historically, portfolio diversity has enabled the Fund to maintain consistent earnings through cycles. However, the Fund underperformed the NCREIF index in 2001. Moody's anticipates further declines in the Fund's portfolio occupancy and rental rates over the near-term. Management's active leasing and property management should help PRISA to manage its lease exposures.

PRISA is managed by one of Prudential's divisions, Prudential Real Estate Investors (PREI), a full-service real estate advisor. PREI managed approximately $15.3 billion of real estate assets at March 31, 2002.

PRISA is an open-ended, commingled insurance company separate account, which was established in 1970. As of March 31, 2002, PRISA had assets of approximately $3.6 billion.

New York
Lesia Bates Moss
Senior Vice President
Real Estate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John J. Kriz
Managing Director
Real Estate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653