As filed with the Securities and Exchange Commission
on February 24, 1999
Registration No. 333-22809
=======================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
(Not applicable)
(Primary Standard Industrial Classification Code Number)
(Not applicable)
(I.R.S. Employer Identification No.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
(Address including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Peter C. Clapman, Esquire
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Steven B. Boehm, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the registration statement.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering:[ ] _______
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
Pursuant to Rule 429 under the Securities Act, the prospectus contained herein
also relates to and constitutes a post-effective amendment to Securities Act
registration statements 33-92990 and 333-13477.
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PART I
INFORMATION REQUIRED IN PROSPECTUS
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TIAA REAL ESTATE ACCOUNT
A Tax-Deferred Variable Annuity Option
Offered By
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA (TIAA)
May 1, 1999
This prospectus tells you about the TIAA Real Estate Account, an
investment option offered through individual and group variable annuity
contracts issued by TIAA. Please read it carefully before investing and keep it
for future reference.
The Real Estate Account invests primarily in real estate and real
estate-related investments. TIAA, one of the largest and most experienced
mortgage and real estate investors in the nation, manages the Account's assets.
The value of your investment in the Real Estate Account will go up or
down depending on how the Account performs and you could lose money. The
Account's performance depends mainly on the value of the Account's real estate
and other real estate-related investments, and the income generated by those
investments. The Account's returns could go down if, for example, real estate
values or rental and occupancy rates decrease due to general economic conditions
or a weak market for real estate generally. Property operating costs and
government regulations, such as zoning or environmental laws, could also affect
a property's profitability. TIAA does not guarantee the investment performance
of the Account, and you bear the entire investment risk. For a detailed
discussion of the specific risks of investing in the Account, see "Risks," page
10.
We take deductions daily from the Account's net assets for the Account's
operating and investment management expenses. The Account also pays TIAA for
bearing mortality and expense risks and for providing a liquidity guarantee. The
current annual expense deductions from Account's net assets total 0.625%.
The Real Estate Account is designed as an option for retirement and
tax-deferred savings plans for employees of colleges, universities, and other
educational and research institutions. TIAA offers the Real Estate Account under
the following annuity contracts:
o RA and GRAs (Retirement and Group Retirement Annuities)
o SRA and GSRAs (Supplemental and Group Supplemental Retirement
Annuities)
o Classic and Roth IRAs (Individual Retirement Annuities)
o GAs (Group Annuities)
o Keoghs (available pending regulatory approval)
Although we have registered these securities with the Securities and Exchange
Commission (SEC), the SEC has not judged them for investment merit and does not
guarantee the accuracy or adequacy of the information in the prospectus. Anyone
who suggests otherwise is committing a federal crime.
An investment in the Real Estate Account is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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(inside cover)
About the Real Estate Account and TIAA
The TIAA Real Estate Account was established in February 1995 as a
separate account of Teachers Insurance and Annuity Association of America
(TIAA). TIAA is a life insurance company founded in 1918 by the Carnegie
Foundation for the Advancement of Teaching. Its home office is at 730 Third
Avenue, New York, NY 10017-3206 and its telephone number is (212) 490-9000. In
addition to issuing variable annuities, whose returns depend upon the
performance of certain specified investments, TIAA also offers traditional
annuities.
With its 50 years in the real estate business and interests in
properties located across the U.S., TIAA is one of the nation's largest and most
experienced investors in mortgages and real estate equity interests. As of
December 31, 1998, TIAA's general account had a mortgage portfolio of $20.3
billion, and a real property portfolio of $6.1 billion.
TIAA is the companion organization of the College Retirement Equities
Fund (CREF), the first company in the United States to issue a variable annuity.
Together, TIAA and CREF form the principal retirement system for the nation's
education and research communities and the largest retirement system in the
U.S., based on assets under management. TIAA-CREF serves approximately 2.1
million people at over 8,800 institutions. As of December 31, 1998, TIAA's
assets were approximately $103 billion; the combined assets for TIAA and CREF
totalled approximately $249 billion.
The Real Estate Account offered by this prospectus is only being offered in
those jurisdictions where it is legal to do so. No person may make any
representation to you or give you any information about the offering that is not
in the prospectus. If anyone provides you with information about the offering
that is not in the prospectus, you shouldn't rely on it.
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TABLE OF CONTENTS
THE ACCOUNT'S INVESTMENT OBJECTIVE AND STRATEGY................................5
Investment Objective...................................................5
Investment Strategy....................................................5
ABOUT THE ACCOUNT'S INVESTMENTS - IN GENERAL...................................5
Direct Investments in Real Estate......................................5
Investments in Mortgages...............................................6
Other Real Estate-Related Investments..................................6
Non-Real Estate-Related Investments....................................7
Foreign Real Estate and Other Foreign Investments.....................7
GENERAL INVESTMENT AND OPERATING POLICIES......................................8
Standards for Real Estate Investments..................................8
Other Real Estate-Related Policies.....................................8
Other Policies.........................................................9
RISKS ......................................................................10
Risks of Real Estate Investing........................................10
Appraisal Risks.......................................................12
Risks of Mortgage Loan Investments....................................12
Risks of REIT Investments.............................................12
Risks of Liquid Investments...........................................13
Risks of Foreign Investments..........................................13
Risk of Unspecified Investments.......................................13
ESTABLISHING AND MANAGING THE ACCOUNT - THE ROLE OF TIAA......................13
Establishing and Seeding the Account..................................13
Managing the Account..................................................14
Liquidity Guarantee...................................................14
Conflicts of Interest.................................................15
Indemnification.......................................................15
Role of the Independent Fiduciary.....................................15
DESCRIPTION OF PROPERTIES.....................................................17
The Properties - In General...........................................17
Commercial (Non-Residential) Properties...............................19
Residential Properties................................................21
Recent Property Purchases and Sales...................................21
SELECTED FINANCIAL DATA.......................................................22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S
FINANCIAL CONDITION AND OPERATING RESULTS.............................23
Results of Operations.................................................23
Liquidity and Capital Resources.......................................25
Effects of Inflation..................................................26
Year 2000 Issues......................................................26
VALUING THE ACCOUNT'S ASSETS..................................................27
Valuing Real Estate and Related Investments...........................27
Valuing Other Investments.............................................29
EXPENSE DEDUCTIONS............................................................29
THE CONTRACTS.................................................................31
RA (Retirement Annuity) and GRA (Group Retirement Annuity)............31
SRA (Supplemental Retirement Annuity) and GSRA (Group
Supplemental Retirement Annuity)..............................31
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Classic IRA...........................................................31
Roth IRA..............................................................31
GA (Group Annuity)....................................................32
Keoghs ...............................................................32
Starting Out..........................................................32
Allocating Your Premiums Among the Account and other TIAA and CREF
Accounts...........................................................33
Determining the Value of Your Interest in the Account -- Accumulation
Units..............................................................33
About Transferring and Withdrawing Your Money.........................34
Transfers Between the Real Estate Account and other TIAA-CREF
Accounts...........................................................35
Transfers to Other Companies ........................................35
Transfers from Other Plans............................................35
Withdrawing Cash......................................................35
Possible Restrictions on Premiums and Transfers to the Account........36
RECEIVING ANNUITY INCOME......................................................37
The Annuity Period in General.........................................37
Annuity Starting Date.................................................37
Income Options........................................................38
Transfers During the Annuity Period...................................39
Annuity Payments......................................................39
DEATH BENEFITS................................................................41
Availability; Choosing Beneficiaries..................................41
Your Spouse's Rights..................................................41
Amount of Death Benefit...............................................41
Methods of Payment of Death Benefits..................................41
TAXES ......................................................................42
Taxes In General......................................................42
Early Distributions...................................................43
Minimum Distribution Requirements.....................................43
Withholding on Distributions..........................................43
GENERAL MATTERS...............................................................44
Making Choices and Changes............................................44
Telephone and Internet Transactions...................................44
Electronic Prospectus.................................................45
Householding..........................................................45
DISTRIBUTOR...................................................................46
STATE REGULATION..............................................................46
LEGAL MATTERS.................................................................46
EXPERTS ......................................................................46
ADDITIONAL INFORMATION........................................................47
Information Available at the SEC......................................47
Other Reports to Participants.........................................47
FINANCIAL STATEMENTS..........................................................47
INDEX TO FINANCIAL STATEMENTS............................................... F-1
APPENDIX A--MANAGEMENT OF TIAA.............................................. A-1
APPENDIX B-GLOSSARY..........................................................B-1
HOW TO REACH US................................................Inside back cover
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THE ACCOUNT'S INVESTMENT OBJECTIVE AND STRATEGY
Investment Objective. The Real Estate Account seeks favorable long term
returns primarily through rental income and appreciation of real estate
investments owned by the Account. The Account also will invest in
publicly-traded securities and other investments that are easily converted to
cash to make redemptions, purchase or improve properties or cover other
expenses.
Investment Strategy. The Account seeks to invest between 70 percent to
95 percent of its assets directly in real estate or real estate-related
investments. The Account's principal strategy is to purchase direct ownership
interests in income-producing real estate, such as office, industrial, retail,
and multi-family residential properties. The Account can also invest in other
real estate or real estate-related investments, through joint ventures, real
estate partnerships or real estate investment trusts (REITs). To a limited
extent, the Account can also invest in conventional mortgage loans,
participating mortgage loans, common or preferred stock of companies whose
operations involve real estate (i.e., that primarily own or manage real estate),
and collateralized mortgage obligations (CMOs).
The Account will invest the remaining portion of its assets in
government and corporate debt securities, money market instruments and other
cash equivalents, and, at times, stock of companies that don't primarily own or
manage real estate. In some circumstances, the Account can increase the portion
of its assets invested in debt securities or money market instruments. This
could happen if the Account receives a large inflow of money in a short period
of time, there is a lack of attractive real estate investments available on the
market, or the Account anticipates a need to have more cash available.
The amount the Account invests in real estate and real estate-related
investments at a given time will vary depending on market conditions and real
estate prospects, among other factors. Through December 31, 1998, the Account
had 76.7 percent of its assets invested in real estate and real estate-related
investments (including REITs).
ABOUT THE ACCOUNT'S INVESTMENTS - IN GENERAL
Direct Investments in Real Estate
Direct Purchase. The Account will generally buy direct ownership
interests in existing or newly constructed income-producing properties,
including office, industrial, retail, and multi-family residential properties.
The Account will invest mainly in established properties with existing rent and
expense schedules or in newly-constructed properties with predictable cash flows
or in which a seller agrees to provide certain minimum income levels. On
occasion the Account might invest in real estate development projects.
Purchase-Leaseback Transactions. The Account can enter into
purchase-leaseback transactions (leasebacks) in which it typically will buy
land and income-producing improvements on the land (such as
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buildings), and simultaneously lease the land and improvements to a third party
(the lessee), generally for very long terms. Usually, the lessee is responsible
for operating the property and paying all operating costs, including taxes and
mortgage debt. The Account can also give the lessee an option to buy the land
and improvements.
In some leasebacks, the Account may purchase only the land under an
income-producing building and lease the land to the building owner. In those
cases, the Account will often seek to share (or "participate") in any increase
in property value from building improvements or in the lessee's revenues from
the building above a base amount. The Account can invest in leasebacks that are
subordinated to other interests in the land, buildings, and improvements (e.g.,
first mortgages); in that case, the leaseback interest will be subject to
greater risks.
Investments in Mortgages
General. The Account can originate or acquire interests in mortgage
loans, generally on the same types of properties it might otherwise buy. These
mortgage loans may pay fixed or variable interest rates or have "participating"
features (as described below). Normally the Account's mortgage loans will be
secured by properties that have income-producing potential. They usually will
not be insured or guaranteed by the U.S. government, its agencies or anyone else
and usually will be non-recourse, which means they won't be the borrower's
personal obligations. Most will be first mortgage loans on existing
income-producing property, with first-priority liens on the property. These
loans may be amortized, or may provide for interest-only payments, with a
balloon payment at maturity.
Participating Mortgage Loans. The Account may make mortgage loans which
permit the Account to share (have a "participation") in the income from or
appreciation of the underlying property. These participations let the Account
receive additional interest, usually calculated as a percentage of the revenues
the borrower receives from operating, selling or refinancing the property. The
Account may also have an option to buy an interest in the property securing the
participating loan.
Managing Mortgage Loan Investments. TIAA can manage the Account's
mortgage loans in a variety of ways, including:
o renegotiating and restructuring the terms of a mortgage loan
o extending the maturity of any mortgage loan made by the Account
o consenting to a sale of the property subject to a mortgage loan
o financing the purchase of a property by making a new mortgage
loan in connection with the sale
o selling them, or portions of them, before maturity
Other Real Estate-Related Investments
Real Estate Investment Trusts. The Account may invest in real estate
investment trusts (REITs), publicly-owned entities that lease, manage, acquire,
hold mortgages on, and develop real estate. Normally the Account will buy the
common or preferred stock of a REIT, although at times it may purchase REIT debt
securities. REITs seek to optimize share value and increase cash flows by
acquiring
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and developing new projects, upgrading existing properties or renegotiating
existing arrangements to increase rental rates and occupancy levels. REITs must
distribute 95% of their net earnings to shareholders in order to benefit from a
special tax structure, which means they may pay high dividends. The value of a
particular REIT can also be affected by such factors as its need for cash flow,
the skill of its management team, and defaults by its lessees or borrowers.
Stock of Companies Involved in Real Estate Activities. The Account can
invest in common or preferred stock of companies whose business involves real
estate. These stocks may be listed on U.S. or foreign stock exchanges or traded
over-the-counter in the U.S. or abroad.
Collateralized Mortgage Obligations. The Account can invest in
collateralized mortgage obligations (CMOs) that are fully collateralized by a
portfolio of mortgages or mortgage-related securities. CMO issuers distribute
principal and interest payments on the mortgages to CMO holders according to the
distribution schedules of each CMO. CMO interest rates can be fixed or variable.
Some classes of CMOs may be entitled to receive mortgage prepayments before
other classes do. Therefore, the prepayment risk for a particular CMO may be
different than for other mortgage-related securities. CMOs may also be harder to
sell than other securities.
Non-Real Estate-Related Investments
The Account can also invest in:
o U.S. government or government agency securities
o Corporate debt or asset-backed securities of U.S. or foreign
entities, or debt securities of foreign governments or
multinational organizations, but only if they're investment-grade
and rated in the top four categories by a nationally recognized
rating organization (or, if not rated, deemed by TIAA to be of
equal quality)
o Money market instruments and other cash equivalents. These will
usually be high-quality short-term debt instruments, including
U.S. government or government agency securities, commercial
paper, certificates of deposit, bankers' acceptances, repurchase
agreements, interest-bearing time deposits, and corporate debt
securities.
o Common or preferred stock of U.S. or foreign companies that aren't
involved in real estate, to a limited extent
Foreign Real Estate and Other Foreign Investments
The Account may invest in foreign real estate or real estate-related
investments. It might also invest in securities or other instruments of foreign
government or private issuers. While the percentage will vary, we expect that
foreign investments will be no more than 25 percent of the Account's portfolio.
Depending on investment opportunities, the Account's foreign investments could
at times be concentrated in one or two foreign countries. We will consider the
special risks involved in foreign investing before investing in foreign real
estate and won't invest unless our standards are met.
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GENERAL INVESTMENT AND OPERATING POLICIES
Standards for Real Estate Investments
General Criteria for Buying Real Estate or Making Mortgage Loans. Before
the Account purchases real estate or makes a mortgage loan, TIAA will consider
such factors as:
o the location, condition, and use of the underlying property
o its operating history, its future income-producing capacity
o the quality, operating experience, and creditworthiness of the
borrower.
TIAA will analyze the fair market value of the underlying real estate,
taking into account the property's operating cash flow (based on the historical
and projected levels of rental and occupancy rates, and expenses), as well as
the general economic conditions in the area where the property is located.
Diversification. We haven't placed percentage limitations on the type
and location of properties that the Account can buy. However, the Account plans
to diversify its investments by type of property and geographic location. How
much the Account diversifies will depend upon whether suitable investments are
available and how much the Account has available to invest.
Special Criteria for Making Mortgage Loans. Ordinarily, the Account will
only make a mortgage loan if the loan, when added to any existing debt, will not
exceed 85 percent of the appraised value of the mortgaged property when the
loan is made, unless the Account is compensated for taking additional risk.
Selling Real Estate Investments. The Account doesn't intend to buy and
sell its real estate investments simply to make short-term profits. But the
Account may sell investments if market conditions are favorable or to raise
cash. The Account will reinvest any sale proceeds that it doesn't need to pay
operating expenses or to meet redemption requests (e.g., cash withdrawals or
transfers).
Other Real Estate-Related Policies
Appraisals. The Account will rely on TIAA's own analysis to appraise a
property when it first buys it. After that, normally the Account's properties
and participating mortgage loans will be appraised or valued once a year by an
independent state-certified appraiser who is a member of a professional
appraisal organization. While the Account usually won't receive an independent
appraisal before it buys real estate, it will get an independent appraisal when
it makes mortgage loans.
Borrowing. Usually, the Account won't borrow money to purchase real
estate. However, to meet short-term cash needs, the Account may obtain a line of
credit whose terms require that the Account secure a loan with one or more of
its properties.
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Joint Investments. The Account can hold property jointly through general
or limited partnerships, joint ventures, leaseholds, tenancies-in-common, or
other legal arrangements. However, the Account will not hold real property
jointly with TIAA or its affiliates.
Discretion to Evict or Foreclose. TIAA may, in its discretion, evict
defaulting tenants or foreclose on defaulting borrowers to maintain the value of
an investment, when it decides that it's in the Account's best interests.
Property Management and Leasing Services. The Account usually will hire
a local management company to perform the day-to-day management services for the
Account's properties, including supervising any on-site personnel, negotiating
maintenance and service contracts, and providing advice on major repairs and
capital improvements. The local manager will also recommend changes in rent
schedules and create marketing and advertising programs to attain and maintain
good occupancy rates by responsible tenants. The Account may also hire leasing
companies to perform or coordinate leasing and marketing services to fill any
vacancies. The fees paid to the local management company, along with any leasing
commissions and expenses, will reduce the Account's cash flow from a property.
Insurance. We will try to arrange for, or require proof of,
comprehensive insurance, including liability, fire, and extended coverage, for
the Account's real property and properties securing mortgage loans or subject to
purchase-leaseback transactions.
Other Policies
Liquid Assets. At times, a significant percentage of the Account may be
invested in liquid assets (which may or may not be real estate-related) while we
look for suitable real property investments. The Account can temporarily
increase the percentage of its liquid assets under some circumstances, including
the rapid inflow of participants' funds, lack of suitable real estate
investments, or a need for greater liquidity.
Investment Company Act of 1940. We intend to operate the Account so that
it will not have to register as an "investment company" under the Investment
Company Act of 1940 (the 1940 Act). This will require monitoring the Account's
portfolio so that it won't have more than 40 percent of total assets, other
than U.S. government securities and cash items, in investment securities. As a
result, the Account may be unable to make some potentially profitable
investments.
Changing Operating Policies or Winding Down. TIAA can decide to change
the operating policies of the Account or wind it down. If the Account is wound
down, you may need to transfer your accumulations or annuity income to TIAA's
traditional annuity or any CREF account available under your employer's plan. If
you don't tell us where to transfer your accumulations or annuity income, we'll
automatically transfer them to the CREF Money Market Account. You will be
notified in advance if we decide to change or wind down the Account.
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RISKS
The value of your investment in the Account will go up and down based on
the value of the Account's assets and the income the assets generate. The
Account's assets and income (particularly its real estate assets and rental
income) can be affected by many factors, and you should consider the specific
risks presented below before investing in the Account.
Risks of Real Estate Investing
General Risks of Owning Real Property. The Account will be subject to
the risks inherent in owning real property, including:
o The Account's property values or rental and occupancy rates could
go down due to general economic conditions, a weak market for
real estate generally, changing supply and demand for certain
types of properties, and natural disasters or man-made events.
o A property may be unable to attract and retain tenants, which means
that rental income would decline.
o The Account could lose revenue if tenants don't pay rent, or if the
Account is forced to terminate a lease for nonpayment. Any
disputes with tenants could also involve costly litigation.
o A property's profitability could go down if operating costs, such
as property taxes, utilities, maintenance and insurance costs, go
up in relation to gross rental income, or the property needs
unanticipated repairs and renovations.
General Risks of Selling Real Estate Investments. Among the risks of
selling real estate investments are:
o The sale price of an Account property might differ from its
estimated or appraised value, leading to losses or reduced profits
to the Account.
o Because of the nature of real estate, the Account might not be able
to sell a property at a particular time for its full value,
particularly in a poor market. This might make it difficult to
raise cash quickly and also could lead to Account losses.
o The Account may need to provide financing if no cash buyers
are available.
Regulatory Risks. Government regulation, including zoning laws, property
taxes, fiscal, environmental or other government policies, could operate or
change in a way that hurts the Account and its properties. For example,
regulations could raise the cost of owning and maintaining properties or make it
harder to sell, rent, finance, or refinance properties due to the increased
costs associated with regulatory compliance.
Environmental Risks. The Account may be liable for damage to the
environment caused by hazardous substances used or found on its properties.
Under various environmental regulations, the Account may also be liable, as a
current or previous property owner or mortgagee, for the cost of removing or
cleaning-up hazardous substances found on a property, even if it didn't know of
and wasn't responsible for the hazardous substances. If any hazardous substances
are present or the Account doesn't properly clean up any hazardous substances,
or if the Account fails to comply with regulations requiring it to actively
monitor the business activities on its premises, the Account may have difficulty
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selling or renting a property or be liable for monetary penalties. The cost of
any required clean-up and the Account's potential liability for environmental
damage to a single real estate investment could exceed the value of the
Account's investment in a property, the property's value, or in an extreme case,
a significant portion of the Account's assets.
Casualty Losses. Certain catastrophic losses (e.g., from earthquakes,
wars, nuclear accidents, floods, or environmental or industrial hazards or
accidents) are uninsurable or so expensive to insure against that it doesn't
make sense to buy insurance for them. If a disaster that we haven't insured
against occurs, the Account could lose both its original investment and any
future profits from the property affected. In addition, some leases may permit a
tenant to terminate its obligations in certain situations, regardless of whether
those events are fully covered by insurance. In that case, the Account would not
receive rental income from the property while that tenant's space is vacant.
Risks of Developing Real Estate or Buying Recently-Constructed
Properties. If the Account chooses to develop a property or buys a
recently-constructed property, it may face the following risks:
o If developing real estate, there may be delays or unexpected
increases in the cost of property development and construction
due to strikes, bad weather, material shortages, increases in
material and labor costs, or other events.
o Because external factors may have changed from when the project
was originally conceived (e.g., slower growth in local economy,
higher interest rates, or overbuilding in the area), the
property, if purchased when unleased, may not operate at the
income and expense levels first projected or may not be developed
in the way originally planned.
o The seller or other party may not be able to carry out any
agreement to provide certain minimum levels of income, or that
agreement could expire, which could reduce operating income and
lower returns.
Risks of Joint Ownership. Investing in joint venture partnerships or
other forms of joint property ownership may involve special risks.
o The co-venturer may have interests or goals inconsistent with those
of the Account.
o If a co-venturer doesn't follow the Account's instructions or
adhere to the Account's policies, the jointly-owned properties,
and consequently the Account, might be exposed to greater
liabilities than expected.
o A co-venturer can make it harder for the Account to transfer its
property interest, particularly if the co-venturer has the right
to decide whether and when to sell the property.
o The co-venturer may become insolvent or bankrupt.
Risks with Purchase-Leaseback Transactions. The major risk of
purchase-leaseback transactions is that the third party lessee will not be able
to make required payments to the Account. If the leaseback interest is
subordinate to other interests in the real property, such as a first mortgage or
other lien, the risk to the Account increases because the lessee may have to pay
the senior lienholder to prevent foreclosure before it pays the Account. If the
lessee defaults or the leaseback is terminated prematurely, the Account might
not recover its investment unless the property is sold or leased on favorable
terms.
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Appraisal Risks
Real estate appraisals are only estimates of property values based on a
professional's opinion and may not be accurate predictors of the amount the
Account would actually receive if it sold a property. If an appraisal is too
high, the Account's value could go down upon reappraisal or if the property is
sold for a lower price than the appraisal. If appraisals are too low, those who
redeem prior to an adjustment to the valuation or a property sale will have
received less than the true value of the Account's assets .
Risks of Mortgage Loan Investments
General Risks of Mortgage Loans. The Account will be subject to the
risks inherent in making mortgage loans, including:
o The borrower may default, requiring that the Account foreclose on
the underlying property to protect the value of its mortgage
loan. Since its mortgage loans are usually non-recourse, the
Account must rely solely on the value of a property for its
security. The larger the mortgage loan compared to the value of
the property securing it, the greater the loan's risk. Upon
default, the Account may not be able to sell the property for its
estimated or appraised value. Also, certain liens on the
property, such as mechanic's or tax liens, may have priority over
the Account's security interest.
o The borrower may not be able to make a lump sum principal payment
due under a mortgage loan at the end of the loan term, unless it
can refinance the mortgage loan with another lender.
o If interest rates are volatile during the loan period, the
Account's variable-rate mortgage loans could have lower yields.
Prepayment Risks. The Account's mortgage loan investments will usually
be subject to the risk that the borrower repays the loan early. Prepayments can
change the Account's return because we may be unable to reinvest the proceeds at
as high an interest rate as the original mortgage loan rate.
Interest Limitations. The interest rate we charge on mortgage loans may
inadvertently violate state usury laws that limit rates, if, for example, state
law changes during the loan term. If this happens, we could incur penalties or
may not be able to enforce payment of the loan.
Risks of Participations. Participating mortgages are subject to the
following additional risks:
o The participation element might generate insufficient returns to
make up for the higher interest rate the loan would have obtained
without the participation feature.
o In very limited circumstances, a court could possibly characterize
the Account's participation interest as a partnership or joint
venture with the borrower and the Account could lose the priority
of its security interest, or be liable for the borrower's debts.
Risks of REIT Investments
REITs are subject to many of the same general risks associated with
direct real property ownership. In particular, equity REITs may be affected by
changes in the value of the underlying property owned by the trust, while
mortgage REITs may be affected by the quality of any credit extended. In
addition to these risks, because REIT investments are securities, they may be
exposed to
- 12 -
<PAGE>
market risk -- price volatility due to changing conditions in the financial
markets and, in particular, changes in overall interest rates.
Risks of Liquid Investments
The Account's investments in securities and other liquid investments may
be subject to:
o financial risk -- for debt securities, the possibility that the
issuer won't be able to pay principal and interest when due, and
for common or preferred stock, the possibility that the issuer's
current earnings will fall or that its overall financial
soundness will decline, reducing the security's value.
o market risk -- price volatility due to changing conditions in the
financial markets and, particularly for debt securities, changes in
overall interest rates.
o interest rate volatility, which may affect current income from an
investment.
Risks of Foreign Investments
Foreign investments present the following special risks:
o Foreign real estate markets may have different liquidity and
volatility attributes than U.S. markets.
o The value of foreign investments or rental income can go up or
down from changes in currency rates, currency exchange control
regulations, possible expropriation or confiscatory taxation,
political, social, and economic developments, and foreign
regulations.
o The Account may (but is not required to) seek to hedge its
exposure to changes in currency rates, which could involve extra
costs. Hedging might not be successful.
o It may be more difficult to obtain and collect a judgment on
foreign investments than on domestic ones.
Risk of Unspecified Investments
You won't have the opportunity to evaluate the economic merit of a
property purchase before the Account completes the purchase, so you will need to
rely solely on TIAA's judgment and ability to select investments consistent with
the Account's investment objective and policies.
ESTABLISHING AND MANAGING THE ACCOUNT - THE ROLE OF TIAA
Establishing and Seeding the Account
TIAA's Board of Trustees established the Real Estate Account as a
separate account of TIAA under New York law on February 22, 1995. The Account is
regulated by the State of New York Insurance Department (NYID) and the insurance
departments of some other jurisdictions in which the annuity contracts are
offered. Although TIAA owns the assets of the Real Estate Account, and the
Account's obligations are obligations of TIAA, the Account's income, investment
gains, and investment losses are credited to or charged against the assets of
the Account without regard to TIAA's other
- 13 -
<PAGE>
income, gains, or losses. Under New York insurance law, we can't charge the
Account with liabilities incurred by any other TIAA business activities or any
other TIAA separate account.
In July 1995, TIAA made a $100 million seed money investment in the
Account to enable the Account to purchase a diverse portfolio of properties
without having to wait to receive premiums. TIAA has been redeeming this
investment since 1996 according to a repayment schedule approved by the New York
Insurance Department. TIAA's investment was redeemed in full by the end of 1998.
Managing the Account
TIAA employees, under the direction and control of TIAA's Board of
Trustees and its Investment Committee, manage the investment of the Account's
assets, following investment management procedures TIAA adopted for the Account.
TIAA's investment management responsibilities include:
o identifying, recommending and purchasing appropriate real
estate-related and other investments
o providing all portfolio accounting, custodial, and related
services for the Account
o arranging for others to provide certain advisory or other
management services to the Account's joint ventures or other
investments
TIAA provides all services to the Account at cost. For more about the charge for
investment management services, see "Expense Deductions" page __.
You don't have the right to vote for TIAA Trustees directly. See
"Voting Rights" page __. For information about the Trustees and principal
executive officers of TIAA, see Appendix A to this prospectus.
TIAA's ERISA Fiduciary Status. To the extent that assets of a plan
subject to ERISA are allocated to the Account, TIAA will be acting as an
"investment manager" and a fiduciary under ERISA with respect to those assets.
Liquidity Guarantee
TIAA provides the Account with a liquidity guarantee -- TIAA ensures
that the Account has funds available to meet participant transfer or cash
withdrawal requests. If the Account can't fund participant requests from the
Account, TIAA's general account will fund them by purchasing Account
accumulation units (liquidity units). TIAA guarantees that you can redeem your
accumulation units at their then current daily net asset value. Of course, you
can make a cash withdrawal only if allowed by the terms of your plan. The
Account pays TIAA for the liquidity guarantee through a daily deduction from net
assets. See "Expense Deductions," page __.
An independent fiduciary (described below) monitors the Account to
ensure that TIAA does not own too much of the Account and may require TIAA to
redeem some of its liquidity units, particularly when the Account has uninvested
cash or liquid investments available. The independent fiduciary may also propose
properties for the Account to sell so that TIAA can redeem liquidity units.
- 14 -
<PAGE>
Conflicts of Interest
TIAA does not accept acquisition or placement fees for the services it
provides to the Account. However, TIAA employees who manage the Account's
investments may also manage TIAA's general account investments. It may therefore
at times face various conflicts of interest
For example, TIAA's general account may sometimes compete with the Real
Estate Account in the purchase or sale of investments. We will seek to resolve
any conflict by determining which account has cash available to make the
purchase, the effect the purchase or sale will have on the diversification of
each account's portfolio, the estimated future cash flow of the portfolios with
regard to both purchases or sales, and other relevant legal or investment policy
factors. If this analysis does not clearly determine which account should
participate in a transaction, a rotation system will be used.
Conflicts could also arise because some properties in TIAA's general
account may compete for tenants with the Account's properties. We will seek to
resolve this conflict by determining the tenant's preference between the two
properties, how much the tenant is willing to pay for rent, and which property
can best afford to pay any required costs associated with such leasing.
Many of the personnel of TIAA involved in performing services to the
Real Estate Account will have competing demands on their time. The personnel
will devote such time to the affairs of the Account as TIAA's management
determines, in its sole discretion exercising good faith, is necessary to
properly service the Account. TIAA believes that it has sufficient personnel to
discharge its responsibility to both the general account and the Real Estate
Account and to avoid conflicts of interest.
Indemnification
The Account has agreed to indemnify TIAA and its affiliates, including
its officers and directors, against certain liabilities, including liabilities
under the Securities Act of 1933. The Account may make such indemnification out
of its assets.
Role of the Independent Fiduciary
Because TIAA's purchase and sale of liquidity units raises certain
technical issues under ERISA, TIAA applied for and received a prohibited
transaction exemption from the U.S. Department of Labor (PTE 96-76). In
connection with the exemption, TIAA has appointed an "independent fiduciary" for
the Real Estate Account, with overall responsibility for reviewing Account
transactions to determine whether they are fair and in the Account's best
interest.
Institutional Property Consultants, Inc., a registered investment
adviser in business since 1983, serves as the Account's independent fiduciary.
The independent fiduciary's responsibilities include:
o reviewing and approving the Account's investment guidelines and
monitoring whether the Account's investments comply with those
guidelines
o reviewing and approving valuation procedures
- 15 -
<PAGE>
o approving adjustments to any property valuations that change the
value of the property or the Account as a whole above or below
certain prescribed levels, or that are made within three months
of the annual independent appraisal
o reviewing and approving how we value accumulation and annuity units
o approving the appointment of all independent appraisers
o reviewing the purchase and sale of units by TIAA to ensure that we
use the correct unit values
o requiring appraisals besides those normally conducted, if the
independent fiduciary believes that any of the properties have
changed materially, or that an additional appraisal is necessary
to assure the Account has correctly valued a property
The independent fiduciary also must monitor TIAA's ownership in the
Account and supervise any winding down of the Account's operations. Its
responsibilities include:
o calculating the percentage of total accumulation units that TIAA's
ownership shouldn't exceed (the trigger point) and creating a
method for changing the trigger point
o approving any adjustment of TIAA's interest in the Account and
requiring an adjustment if TIAA's investment reaches the trigger
point
o participating in any program to reduce TIAA's ownership in the
Account or to facilitate winding down the Account, including
selecting properties for sale, providing sales guidelines, and
approving those sales that, in the independent fiduciary's
opinion, are desirable
TIAA appointed the independent fiduciary for a five-year term, and has
established a special subcommittee of the Investment Committee of its Board of
Trustees that may renew the appointment, remove the independent fiduciary, or
appoint its successor. The independent fiduciary can be removed for cause by the
vote of a majority of subcommittee members or it can resign after at least 180
days' written notice. The independent fiduciary will not be reappointed unless
more than 60 percent of the subcommittee members approve.
TIAA pays the independent fiduciary directly. The investment management
charge paid to TIAA includes TIAA's costs for retaining the independent
fiduciary. The independent fiduciary will receive less than 5 percent of its
annual income (including payment for its services to the Account) from TIAA.
When you decide as a participant or plan fiduciary to invest in the
Account, after TIAA has provided you with full and fair disclosure which
includes the disclosure in this prospectus, you are also acknowledging that you
approve and accept Institutional Property Consultants, Inc. or any successor to
serve as the Account's independent fiduciary.
- 16 -
<PAGE>
DESCRIPTION OF PROPERTIES
The Properties - In General
As of December 31, 1998, the Account had 46 properties in its real
estate portfolio. The following charts break down the Account's real estate
assets by region and property type.
[The following will be printed in pie chart form]
EAST - OFFICE -
WEST - RESIDENTIAL-
MIDWEST - INDUSTRIAL -
SOUTH - RETAIL -
The percentages shown above exclude the interests owned by the Account's
joint venture partners in the portfolio properties.
In the table below you will find general information about each of the
Account's portfolio properties as of December 31, 1998. [INFORMATION TO BE
COMPLETED BY AMENDMENT]
<TABLE>
<CAPTION>
Annual Avg.
Rentable Base Rent
Year Year Area Percent per Leased Market
Property Location Built Purchased (sq. ft.) Leased Sq. Ft.(1) Value(2)
- -------- -------- ----- --------- --------- -------- --------------- --------
OFFICE PROPERTIES
<S> <C> <C> <C> <C> <C> <C> <C>
Parkview Plaza(3) Oakbrook, IL 1990 1997 263,912 % $ $52,106,591
Columbia Centre III Rosemont, IL 1989 1997 238,941 % $ $41,000,000
Metro Center Office Park(3)(4) Sacramento, CA 1986 1997 257,989 % $ $30,056,741
Fairgate at Ballston(3) Arlington, VA 1988 1997 143,564 % $ $28,725,524
Longview Executive Park(3) Hunt Valley, MD 1988 1997 257,944 % $ $27,400,000
Two Newton Place(3) Newton, MA 1987 1997 108,819 % $ $19,600,000
Five Centerpointe(3) Lake Oswego, OR 1988 1997 113,910 % $ $18,703,502
371 Hoes Lane Piscataway, NJ 1986 1997 136,088 % $ $15,614,856
Corporate Center at Sawgrass Sunrise, FL 1997 1997 91,113 % $ $14,000,000
Southbank Building Phoenix, AZ 1995 1996 122,535 % $ $13,000,000
Northmark Business Center(3) Blue Ash, OH 1985 1997 106,552 % $ $12,632,603
USF&G Building(3) Salt Lake City, UT 1988 1997 66,526 % $ $ 8,800,224
Subtotal--Office Properties 1,907,893 $
INDUSTRIAL PROPERTIES
IDI California Portfolio $35,668,791
Timberland Building Ontario, CA 1998 1998 414,435 % $
Park Mira Loma West Mira Loma, CA 1998 1998 557,500 % $
Saks Distribution Facility Aberdeen, MD 1997 1997 470,707 % $ $29,900,000
Park West Int'l Industrial Pk $24,651,154
Building C Hebron, KY 1998 1998 520,000 % $
Buidling D Hebron, KY 1998 1998 184,800 % $
Ontario Portfolio $24,433,584
5200 Airport Drive Ontario, CA 1997 1998 404,500 % $
1200 S. Etiwanda Ave. Ontario, CA 1998 1998 223,170 % $
Glen Pointe Business Park $15,400,000
Building V Chicago, IL 1997 1998 117,600 % $
Building VII Chicago, IL 1997 1998 92,543 % $
Interstate Acres Urbandale, IA 1981-88 1997 440,000 % $ $13,369,742
- 17 -
<PAGE>
Eastgate Distribution Center San Diego, CA 1996 1997 200,000 % $ $12,700,000
Arapahoe Park E. Boulder, CO 1979-82 1996 129,425 % $ $11,500,000
UPS Distribution Facility Fernley, NV 1998 1998 256,000 % $ $10,989,393
Woodcreek Business Park Chicago, IL 1995 1998 149,907 % $ $ 6,800,000
Rockrun Business Park Chicago, IL 1998 1998 258,000 % $ $ 9,325,000
FedEx Distribution Facility Crofton, MD 1998 1998 111,193 % $ $ 7,828,025
Westinghouse Coral Springs, FL 1997 1997 75,630 % $ $ 6,200,000
Interstate Crossing Eagan, MN 1995 1996 131,380 % $ $ 6,361,020
Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 % $ $ 4,850,000
River Road Distribution Center Fridley, MN 1995 1995 100,584 % $ $ 4,200,000
Subtotal--Industrial Properties -------- ----------
$
RETAIL PROPERTIES
Rolling Meadows Rolling Meadows, IL 1957(5) 1997 131,070 % $ $12,650,000
River Oaks Woodbridge, VA 1995 1996 90,885 % $ $12,600,000
Lynnwood Collection Raleigh, NC 1988 1996 86,362 % $ $ 7,500,000
Millbrook Collection Raleigh, NC 1988 1996 102,221 % $ $ 7,300,000
Plantation Grove Ocoee, FL 1995 1995 73,655 % $ $ 7,200,000
Subtotal--Retail Properties 484,193 $
Subtotal--Commercial Properties --------- ----------
$
RESIDENTIAL PROPERTIES(6)
Bay Court at Harbour Pointe Mulkiteo, WA 1991 1998 NA % NA $35,164,373
The Legends at Chase Oaks Plano, TX 1997 1998 NA % NA $29,200,000
Lodge at Willow Creek Douglas County, CO 1997 1997 NA % NA $28,500,000
Golfview Apartments Lake Mary, FL 1998 1998 NA % NA $28,010,000
Lincoln Woods Lafayette Hill, PA 1991 1997 NA % NA $22,700,000
Monte Vista Littleton, CO 1995 1996 NA % NA $19,500,000
Indian Creek Apartments Farmington Hills, MI 1988 1998 NA % NA $17,003,388
Brixworth Atlanta, GA 1989 1995 NA % NA $16,800,000
Royal St. George W. Palm Beach, FL 1995 1996 NA % NA $16,500,000
Westcreek Westlake Village, CA 1988 1997 NA % NA $14,554,494
Bent Tree Apartments Columbus, OH 1987 1998 NA % NA $14,412,000
The Greens at Metrowest Orlando, FL 1990 1995 NA % NA $14,300,000
The Crest of Shadow Mt. El Paso, TX 1992 1997 NA % NA $ 9,500,000
Subtotal--Residential Properties NA $
------------ ----------
Total--All Properties $820,211,240
</TABLE>
(1) Based on total rent (excluding tenant payments for real estate taxes and
operating expenses) on leases existing at December 31, 1998.
(2) Market value reflects the value determined in accordance with the procedures
described under "Valuation of Assets" in this prospectus.
The values shown here assume the Account owns 100% of the properties,
including those held jointly.
(3) Purchased through Light Street Partners, L.P., a partnership with Pegasus
Partners, Inc., a subsidiary of USF&G Corporation.
(4) Light Street Partners, L.P. sold the Metro Center on January 29, 1999 for a
purchase price of $31,750,000.
(5) Renovated in 1991 and 1995.
(6) For the average unit size and annual average rent per unit for each
residential property, see "Residential Properties" below.
- 18 -
<PAGE>
Commercial (Non-Residential) Properties
In General. Through the end of 1998, the Account held 33 commercial
(non-residential) properties in its portfolio. None of these properties is
subject to a mortgage, and although the terms vary under each lease, certain
expenses, such as real estate taxes and other operating expenses, are paid or
reimbursed by the tenants.
Through the end of 1998, the Account's office property portfolio
consisted of 12 suburban office properties located in metropolitan areas
throughout the United States. The office properties together are approximately
[ ] percent leased to [ ] tenants. The Account has a 90 percent interest in
eight of the office properties, which are held in a partnership with Pegasus
Partners, Inc., a wholly-owned subsidiary of USF&G Corporation. (One of these
office properties were sold in 1999.) USF&G Realty Advisors, Inc. provides real
estate advisory services to the partnership and assists in the overall
management of those properties. The partnership has recently notified USF&G
Realty Advisors, Inc. that it is exercising its right to terminate without cause
its advisory arrangement with the partnership as of April 30, 1999.
Through the end of 1998, the Account's industrial property portfolio
consisted of 16 properties used primarily for warehousing, distribution, or
light manufacturing activities. The Account's industrial properties together are
approximately __ percent leased to __ tenants.
The Account's retail property portfolio consisted of five
neighborhood shopping centers, each of which is anchored by a supermarket tenant
through the end of 1998. These retail properties together are approximately
[ ] percent leased to [ ] tenants.
Major Tenants. The following table lists the Account's major
commercial tenants based on the total space they occupy in the Account's
properties.
[CHART TO BE COMPLETED BY AMENDMENT]
<TABLE>
<CAPTION>
Occupied Percentage of Total Rentable
Square Area of Account's
Major Tenant Feet Non-Residential Properties Property Type
- ------------ ---- -------------------------- -------------
<S> <C> <C> <C>
Saks & Company 470,707 % Industrial
New Breed Transfer Company 404,500 Industrial
Petco 258,000 Industrial
UPS 256,000 Industrial
Louisville Bedding Company 223,170 Industrial
VanKampen American Capital 208,821 % Office
PHH Vehicle Management Services 199,563 % Office
Ball Aerospace & Technology Corporation 129,425 % Industrial
Roadway Package System 124,000 % Industrial
Ameritech 120,698 % Office
FedEx 111,193 Industrial
</TABLE>
- 19 -
<PAGE>
Lease Expirations. The following charts provide lease expiration
information for the Account's commercial properties, categorized by property
type. While many of the leases contain renewal options with varying terms, these
charts assume that none of the tenants exercise their renewal options. [CHARTS
TO BE COMPLETED BY AMENDMENT]
Office Properties
<TABLE>
<CAPTION>
Percent of Total Rentable
Rentable Area Area of Account's
Number of Subject to Non-Residential Properties
Leases Expiring Leases Represented by
Year of Lease Expiration Expiring (sq. ft.) Expiring Leases
------------------------ -------- --------- ---------------
<S> <C> <C> <C>
1998
1999 %
2000 %
2001 %
2002 %
2003 and thereafter %
------------------------ -------- --------- --------
Total %
Industrial Properties
Percent of Total Rentable
Rentable Area Area of Account's
Number of Subject to Non-Residential Properties
Leases Expiring Leases Represented by
Year of Lease Expiration Expiring (sq. ft.) Expiring Leases
------------------------ -------- --------- ---------------
<S> <C> <C> <C>
1998 %
1999 %
2000 %
2001 %
2002 %
2003 and thereafter %
------------------------ -------- --------- --------
Total %
Retail Properties
Percent of Total Rentable
Rentable Area Area of Account's Non-
Number of Subject to Residential Properties
Leases Expiring Leases Represented by
Year of Lease Expiration Expiring (sq. ft.) Expiring Leases
------------------------ -------- --------- ---------------
- 20 -
<PAGE>
<S> <C> <C> <C>
1998 %
1999 %
2000 %
2001 %
2002 %
2003 and thereafter %
------------------------ -- ------- ----
Total %
</TABLE>
Residential Properties
The Account's residential property portfolio currently consists of 13
first class or luxury multi-family garden apartment complexes. None of the
properties in the portfolio is subject to a mortgage. The complexes generally
contain one- to three-bedroom apartment units, with a range of amenities, such
as patios or balconies, washers and dryers, and central air conditioning. Many
of these apartment communities have use of on-site fitness facilities, including
some with swimming pools. Rents on each of the properties tend to be comparable
with competitive communities and are not subject to rent regulation. The Account
is responsible for the expenses of operating the properties.
In the table below you will find more detailed information regarding
the complexes in the Account's portfolio as of December 31, 1998.
<TABLE>
<CAPTION>
Average Avg. Rent
Number Unit Size Per Unit/ Percent
Property Location of Units (Square Feet) Per Month Leased
-------- -------- -------- ------------- --------- ------
<S> <C> <C> <C> <C> <C>
Bay Court at Harbour Pointe Mulkiteo, WA 420 $ %
The Legends at Chase Oaks Plano, TX 346 $ %
Lodge at Willow Creek Douglas County, CO 316 $ %
Golfview Apartments Lake Mary, FLA 276 $ %
Lincoln Woods Lafayette Hill, PA 216 $ %
Monte Vista Littleton, CO 219 $ %
Indian Creek Apartments Farmington Hills, MI 196 $ %
Brixworth Atlanta, GA 271 $ %
Royal St. George West Palm Beach, FL 224 $ %
Westcreek Westlake Village, CA 126 $ %
Bent Tree Apartments Columbus, OH 256 $ %
The Greens at Metrowest Orlando, FL 200 $ %
The Crest of Shadow Mt. El Paso, TX 232 $ %
</TABLE>
Recent Property Purchases and Sales
On January 29, 1999, the Metro Center office property, which the Account
held in partnership with USF&G, was sold for a purchase price of $31,750,000.
On February 23, 1999, the Account purchased the Biltmore Commerce
Center, an office building located in Phoenix, Arizona, for a purchase price of
approximately $37,250,000.
For a discussion of the Account's real estate holdings and recent
acquisitions in the context of the Account's performance as a whole, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" below. Real estate investments made by the Account after the date of
this prospectus will be described in supplements to the prospectus, as
appropriate.
- 21 -
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be considered together
with the Account's financial statements and related notes, which are presented
later in this prospectus.
<TABLE>
<CAPTION>
July 3, 1995
Year Ended Year Ended Year Ended (commencement
December 31, December 31, December 31, of operations) to
1998 1997 1996 December 31,1995
---- ---- ---- -----------------
Investment income:
<S> <C> <C> <C> <C>
Real estate income, net:
Rental income................... $ 81,009,203 $ 44,342,342 $ 10,951,183 $ 165,762
------------ ------------ ------------ ------------
Real estate property level
expenses and taxes:
Operating expenses............ 17,339,706 9,024,240 2,116,334 29,173
Real estate taxes............. 9,103,637 4,472,311 1,254,163 14,659
------------ ------------ ------------ ------------
Total real estate property
level expenses and taxes 26,443,343 13,496,551 3,370,497 43,832
------------ ------------ ------------ ------------
Real estate income, net 54,565,860 30,845,791 7,580,686 121,930
Dividends and interest............ 23,943,728 16,486,279 6,027,486 2,828,900
------------ ------------ ------------ ------------
Total investment income $ 78,509,588 $ 47,332,070 $ 13,608,172 $ 2,950,830
============ ============ ============ ============
Net realized and unrealized
gain on investments................. $ 7,864,659 $ 18,147,053 $ 3,330,539 $ 35,603
============ ============ ============ ============
Net increase in net assets
resulting from operations........... $ 76,611,662 $ 60,071,400 $ 15,782,915 $ 2,676,000
============ ============ ============ ============
Net increase in net assets
resulting from participant
transactions........................ $333,936,510 $356,052,262 $233,653,793 $117,582,345
============ ============ ============ ============
Net increase in net assets........... $410,548,172 $416,123,662 $249,436,708 $120,258,345
============ ============ ============ ============
December 31, December 31, December 31, December 31,
1998 1997 1996 1995
---- ---- ---- ----
Total assets......................... $1,229,603,431 $815,760,825 $426,372,007 $143,177,421
============== ============ ============ ============
Total liabilities and minority interest $ 33,236,544 $ 29,942,110 $ 56,676,954 $ 22,919,076
============== ============ ============ ============
Total net assets..................... $1,196,366,887 $785,818,715 $369,695,053 $120,258,345
============== ============ ============ ============
Accumulation units outstanding....... 8,833,911 6,313,015 3,295,786 1,172,498
========= ========= ========= =========
Accumulation unit value.............. $132.17 $122.30 $111.11 $102.57
======= ====== ====== =======
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S
FINANCIAL CONDITION AND OPERATING RESULTS
The TIAA Real Estate Account began operating on July 3, 1995 and
interests in the Account were first offered to participants on October 2, 1995.
In a significant achievement for its short existence, the Account passed the $1
billion mark in net assets during 1998.
Through December 31, 1998, the Account had acquired a total of 46
real estate properties, including 12 office properties, 16 industrial
properties, 5 neighborhood shopping enters and 13 apartment complexes. As of
December 31, 1998, these properties represented 67.71% of the Account's total
investment portfolio.
The Account purchased 8 industrial properties and 5 apartment
properties during 1998. The Account has sold one office property and purchased
one additional office property since the beginning of 1999. The Account
continues to pursue suitable property acquisitions, and is currently in various
stages of negotiations with a number of prospective sellers. While attractive
acquisition prospects are available in the current market, significant
competition exists for the most desirable properties.
As of December 31, 1998, the Account also held investments in U.S.
government agencies, representing 13.97% of the portfolio, commercial paper,
representing 9.09% of the portfolio, real estate investment trusts (REITs),
representing 8.98% of the portfolio, and corporate bonds, representing .25% of
the portfolio.
The Account owns a controlling 90% interest in a partnership which
owns office buildings throughout the U.S. Consistent with generally accepted
accounting principles (GAAP), the Account's consolidated financial statements
and all financial data discussed in this report reflect 100% of the value of the
partnership's assets. The 10% interest of the other partner in the partnership
is reflected as a minority interest in the Account's consolidated financial
statements.
Results of Operations
Year Ended December 31, 1998 Compared to
Year Ended December 31, 1997
The Account's total net return was 8.07% for the year ended December
31, 1998 and 10.07% for 1997. This decline was primarily due to the decline in
value of the Account's REIT holdings. The Account's net investment income, after
deduction of all expenses, was $72,234,994 for the year ended December 31, 1998
and $43,805,525 for the year ended December 31, 1997, a 65% increase. This
increase was the result of a 52% increase in net assets and an increase in the
Account's real estate holdings from December 31, 1997 to December 31, 1998. The
Account had net realized and unrealized gains on investments of $7,864,659 and
$18,147,053 for the year ended December 31, 1998 and December 31, 1997,
respectively. This decrease was primarily the result of the decline in price of
the Account's REITs and other marketable securities, as well as the losses
incurred from the sale of certain of those investments. These realized and
unrealized losses on marketable securities diminished the increase in unrealized
appreciation on the Account's real estate properties, which was
- 23 -
<PAGE>
$33,221,281 in 1998 compared with $10,234,316 in 1997. That increase was the
result of the increased values assigned to many of the properties after periodic
revaluations from internal or independent appraisals.
The Account's real estate holdings generated approximately 70% and
65% of the Account's total investment income (before deducting Account level
expenses) during the year ended December 31, 1998 and December 31, 1997,
respectively. The remaining portion of the Account's total investment income was
generated by investments in marketable securities.
Gross real estate rental income was $81,009,203 for the year ended
December 31, 1998 and $44,342,342 for the same period in 1997. This increase was
primarily due to the increase in the number of properties owned by the Account
- -- from 33 properties at the end of 1997 to 46 properties at the end of 1998.
Interest and dividend income on the Account's marketable securities investments
increased from $16,486,279 for 1997 to $23,943,728 for 1998. This increase was
due to the fact that the actual amount of money the Account had invested in
marketable securities went up as the Account's net asset base grew.
Total property level expenses for the year ended December 31, 1998
were $26,443,343 of which $17,339,706 was attributable to operating expenses and
$9,103,637 was attributable to real estate taxes. Total property level expenses
for the year ended December 31, 1997 were $13,496,551, of which $9,024,240
represented operating expenses and $4,472,311 was attributable to real estate
taxes. The increase in property level expenses during 1998 reflected the
increased number of properties in the Account.
The Account also incurred expenses for the year ended December 31,
1998 and 1997 of $2,999,113 and $1,647,689, respectively, for investment
advisory services, $2,498,376 and $1,368,501, respectively, for administrative
and distribution services, and $777,105 and $510,355, respectively, for
mortality and expense risk charges and liquidity guarantee charges. Such
expenses increased as a result of the larger net asset base of the Account for
1998 over 1997.
Year Ended December 31, 1997 Compared to
Year Ended December 31, 1996
The Account's total net return was 10.07% for the year ended December
31, 1997 and 8.33% for 1996. The Account's net investment income, after
deduction of all expenses, was $43,805,525 for the year ended December 31, 1997
and $12,452,376 for the year ended December 31, 1996, a 252% increase. This
increase was the result of a growing base of net assets, which increased 113%
from December 31, 1996 to December 31, 1997, and a greater concentration of real
estate holdings during the period. In addition, the Account had net realized and
unrealized gains on investments of $18,147,053 and $3,330,539 for the year ended
December 31, 1997 and December 31, 1996, respectively. This increase was
primarily the result of the net increase in unrealized appreciation of
$10,234,316 of the Account's properties the real estate assets and $6,836,012 of
the Account's marketable securities. These increases reflect the increased value
assigned to many of the properties from periodic revaluations and the increase
in the value of REITs and other marketable securities during the year.
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<PAGE>
The Account's real estate holdings generated approximately 65% and
56% of the Account's total investment income (before deducting Account level
expenses) during the year ended December 31, 1997 and December 31, 1996,
respectively. The remaining portion of the Account's total investment income was
generated by investments in marketable securities.
Gross real estate rental income was $44,342,342 for the year ended
December 31, 1997 and $10,951,183 for 1996. This increase was primarily due to
the increase in the number of properties owned by the Account -- from 13
properties at the end of 1996 to 33 properties at the end of 1997. Interest and
dividend income on the Account's marketable securities investments increased
from $6,027,486 for 1996 to $16,486,279 for 1997. This increase in interest and
dividend income was due primarily to the increased size of the Account's
marketable securities holdings (REITs in particular) and the general growth of
the Account's assets. Notably, shares of REITs represented 4.95% of the
Account's investments at the end of 1996 and 13.64% of the Account investments
at the end of 1997.
Total property level expenses for the year ended December 31, 1997
were $13,496,551, of which $9,024,240 represented operating expenses and
$4,472,311 was attributable to real estate taxes. Total property level expenses
for the year ended December 31, 1996 were $3,370,497 of which $2,116,334
represented operating expenses and $1,254,163 was attributable to real estate
taxes. The increase in property level expenses during 1997 reflected the
increased number of properties in the Account.
The Account also incurred expenses for the year ended December 31,
1997 and 1996 of $1,647,689 and $642,042, respectively, for investment advisory
services, $1,368,501 and $437,894, respectively, for administrative and
distribution services and $510,355 and $75,860, respectively, for mortality and
expense risk charges and liquidity guarantee charges. Such expenses increased as
a result of the larger net asset base of the Account for 1997 over 1996.
Liquidity and Capital Resources
Since September 16, 1996, TIAA had been redeeming the accumulation
units related to its $100 million seed money investment in the Account in
accordance with a repayment schedule approved by the New York Insurance
Department. By December 31, 1998, the Account had redeemed its entire seed money
investment.
The Account earned $72,234,994 in net investment income in 1998 and
$43,805,525 in 1997. During 1998 the Account received $91,248,578 in premiums
and $337,568,064 in net participant transfers from other TIAA and CREF accounts,
while in 1997 the Account received $52,344,830 in premiums and $351,174,584 in
net participant transfers from other TIAA and CREF accounts. Real estate
properties costing $259,746,550 and $377,086,027 were purchased during 1998
and 1997, respectively. At the end of 1998 the Account's liquid assets (i.e.,
its cash, REITs, short- and intermediate-term investments, and government
securities) had a value of $391,605,900, while at the end of 1997 those assets
were valued at $280,409,640. We anticipate that much of the Account's liquid
assets as of December 31, 1998, exclusive of the REITs, will be used by the
Account to
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<PAGE>
purchase additional suitable real estate properties. The remaining liquid
assets, exclusive of the REITs, will continue to be available to meet expense
needs and redemption requests (e.g., cash withdrawals or transfers).
If the Account's liquid assets and its cash flow from operating
activities and participant transactions are not sufficient to meet its cash
needs, including redemption requests, TIAA's general account will purchase
liquidity units in accordance with TIAA's liquidity guarantee to the Account.
The Account spent approximately $5,426,497 in 1998 for capital
(long-term) expenses, including ongoing tenant improvements and leasing
commissions at the commercial properties which related to the renewal of
existing tenants or re-leasing of space to new tenants during the normal course
of business. The Account expects to increase this level of spending as the
portfolio of commercial properties grows and new tenants are attracted to lease
space in the buildings. For the apartment complexes, the Account expects to
incur only routine recurring costs, e.g., painting and carpet cleaning and minor
replacements to re-lease apartments that become vacant.
Effects of Inflation
In recent years, inflation has been modest. To the extent that
inflation may increase property operating expenses in the future, we anticipate
that increases will generally be billed to tenants either through contractual
lease provisions in office, industrial, and retail properties or through rent
increases in apartment complexes. However, to the extent there is unrented space
in a property, the Account may not be able to recover the full amount of such
increases in operating expenses.
Year 2000 Issues
Many computer software systems in use today cannot recognize the year
2000 and may revert to 1900 or some other date because of the way in which dates
were encoded and calculated. The Account, the Account's properties, and
participant services could be affected if TIAA's computer systems, the Account's
property computer systems, or those of its external service providers do not
properly process and calculate date-related information and data on and after
January 1, 2000.
TIAA has been actively working on making necessary changes to its
computer systems and is in the process of testing its systems. TIAA is also
working with external service providers to obtain reasonable assurances that
they are taking comparable steps with respect to their computer systems. In
particular, TIAA has been actively working with all those responsible for
property computer systems, i.e., management companies and certain tenants, to
assure that they have developed and are implementing plans to remediate and test
property systems in a timely manner. TIAA is also developing contingency plans
intended to minimize the impact unexpected systems failures (internal and
external) may have on the Account's operations. However, we can't guarantee
complete success or eliminate the possibility that interaction with outside
computer systems could affect participant services, Account activities (such as
securities trading capabilities), or otherwise hurt the Account. Also, to the
extent that the properties, companies and governmental entities in which the
Account invests are negatively affected by the Year 2000, the Account's returns
could be affected.
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<PAGE>
VALUING THE ACCOUNT'S ASSETS
We value the Account's assets as of the close of each valuation day
by taking the sum of:
o the value of the Account's cash, cash equivalents, and short-term
and other debt instruments
o the value of the Account's other securities investments and
other assets
o the value of the individual real properties and other real
estate-related investments owned by the Account, determined as
described below
o an estimate of the net operating income accrued by the Account
from its properties and other real estate-related investments
and then reducing it by the Account's liabilities, including the daily
investment management fee and certain other expenses attributable to operating
the Account. See "Expense Deductions," page 29.
Valuing Real Estate and Related Investments
Valuing Real Property. Individual real properties will be valued
initially at their purchase prices. (Prices include all expenses related to
purchase, such as acquisition fees, legal fees and expenses, and other closing
costs.) We could use a different value in appropriate circumstances.
After this initial valuation, an independent appraiser, approved by
the independent fiduciary, will value properties at least once a year. The
independent fiduciary can require additional appraisals if it believes that a
property has changed materially or otherwise to assure that the Account is
valued correctly.
Quarterly, we will conduct an internal review of each of the
Account's properties. We'll adjust a valuation if we believe that the value of
the property has changed since the previous valuation. We'll continue to use the
revised value to calculate the Account's net asset value until the next review
or appraisal. However, we can adjust the value of a property in the interim to
reflect what we believe are actual changes in property value.
The Account's net asset value will include the current value of any
note receivable (an amount that someone else owes the Account) from selling a
real estate-related investment. We'll estimate the value of the note by applying
a discount rate appropriate to then-current market conditions.
Because of the nature of real estate assets, the Account's net asset
value won't necessarily reflect the true or realizable value of those assets
(i.e., what the Account would get if it sold them).
Valuing Conventional Mortgages. Individual mortgages will be valued
initially at their face amount. Thereafter, quarterly, we'll value the Account's
fixed interest mortgage loans by discounting payments of principal and interest
to their present value (using a rate at which commercial lenders would make
similar mortgage loans). We'll also use this method for foreign mortgages with
conventional terms. We can adjust the mortgage value more frequently if
circumstances require it.
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<PAGE>
Valuing Participating Mortgages. Individual mortgages will initially
be valued at their face amount. Thereafter, quarterly, we'll estimate the values
of the participating mortgages by making various assumptions about occupancy
rates, rental rates, expense levels, and other things. We'll use these
assumptions to project the cash flow and anticipated sale proceeds from each
investment over the term of the loan, or sometimes over a shorter period. To
calculate sale proceeds, we'll assume that the real property underlying each
investment will be sold at the end of the period used in the valuation at a
price based on market assumptions for the time of the projected sale. We'll then
discount the estimated cash flows and sale proceeds to their present value
(using rates appropriate to then-current market conditions).
Net Operating Income. The Account usually receives operating income
from its investments intermittently, not daily. In fairness to participants, we
estimate the Account's net operating income rather than applying it when we
actually receive it, and assume that the Account has earned (accrued) a
proportionate amount of that estimated amount daily. You bear the risk that,
until we adjust the estimates when we receive actual income reports, we could be
under- or overvaluing the Account.
Every year, we prepare a month-by-month estimate of the revenues and
expenses (estimated net operating income) for each of the Account's properties.
Each day, we add the appropriate fraction of the estimated net operating income
for the month to the Account's net asset value.
Every month, the Account receives a report of the actual operating
results for the prior month for each property (actual net operating income). We
then recognize the actual net operating income on the accounting records of the
Account and adjust the outstanding daily accrued receivable accordingly. As the
Account actually receives cash from a property, we'll adjust the daily accrued
receivable and other accounts appropriately.
Adjustments. We can adjust the value of an investment if we believe
events or market conditions (such as a borrower's or tenant's default) have
affected how much the Account could get if it sold the investment. We may not
always be aware of each event that might require a valuation adjustment, and
because our evaluation is based on subjective factors, we may not in all cases
make adjustments where changing conditions could affect the value of an
investment.
The independent fiduciary will need to approve adjustments to any
valuation of one or more properties that
o is made within three months of the annual independent appraisal or
o results in an increase or decrease of:
.more than 6 percent of the value of any of the Account's
properties since the last independent annual appraisal
.more than 2 percent in the value of the Account since the prior
month or
.more than 4 percent in the value of the Account within any
quarter.
Right to Change Valuation Methods. If we decide that a different
valuation method would reflect the value of a real estate-related investment
more accurately, we may use that method if the
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<PAGE>
independent fiduciary consents. Changes in TIAA's valuation methods could change
the Account's net asset value and change the values at which participants
purchase or redeem Account interests.
Valuing Other Investments
Debt Securities and Money Market Instruments. We value fixed income
securities (including money market instruments) for which market quotations are
readily available at the most recent bid price or the equivalent quoted yield
for those securities (or those of comparable maturity, quality, and type). We
obtain values for money market instruments with maturities of one year or less
either from one or more of the major market makers for those securities or from
one or more financial information services. We use an independent pricing
service to value securities with maturities longer than one year except when we
believe prices do not accurately reflect the fair value of these securities.
Equity Securities. We value equity securities (including REITs)
listed or traded on the New York Stock Exchange or the American Stock Exchange
at their last sale price on the valuation day. If no sale is reported that day,
we use the mean of the closing bid and asked prices. Equity securities listed or
traded on any other exchange are valued in a comparable manner on the principal
exchange where traded.
We value equity securities traded on the NASDAQ Stock Market's
National Market at their last sale price on the valuation day. If no sale is
reported that day, we use the mean of the closing bid and asked prices. Other
U.S. over-the-counter equity securities are valued at the mean of the closing
bid and asked prices.
Foreign Securities. To value investments traded on a foreign exchange
or in foreign markets, we use their closing values under the generally accepted
valuation method in the country where traded, as of the valuation date. We
convert this to U.S. dollars at the exchange rate in effect on the valuation
day.
Investments Lacking Current Market Quotations. We value securities or
other assets for which current market quotations are not readily available at
fair value as determined in good faith under the direction of the Investment
Committee of TIAA's Board of Trustees and in accordance with the
responsibilities of TIAA's Board as a whole.
EXPENSE DEDUCTIONS
Deductions are made each valuation day from the net assets of the
Account for various services required to manage investments, administer the
Account and the contracts, and to cover certain risks borne by TIAA. Services
are performed at cost by TIAA and TIAA-CREF Individual & Institutional Services,
Inc. ("Services"), a subsidiary of TIAA. Because services are provided at cost,
we expect that expense deductions will be relatively low. TIAA guarantees that
in the aggregate, the expense charges will never be more than 2.50% of average
net assets per year.
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<PAGE>
The current annual expense deductions are:
<TABLE>
<CAPTION>
Percent of
Net Assets
Type of Expense Deduction Annually Services Performed
------------------------- -------- ------------------
<S> <C> <C>
Investment Management 0.30% For TIAA's investment advice, portfolio accounting,
custodial services, and similar services, including
independent fiduciary and appraisal fees
Administration 0.195% For Services' administrative services, such as
allocating premiums and paying annuity income
Distribution 0.03% For Services' expenses related to distributing the
annuity contracts
Mortality and Expense Risk 0.07% For TIAA's bearing certain mortality and expense
risks. Accumulations and annuity payments aren't
affected by changes in actual mortality experience or
by TIAA's actual expenses.
Liquidity Guarantee 0.03% For TIAA's liquidity guarantee. The actual liquidity
expense charged is computed as a percentage of the
Account's real estate assets.
==============
Total Annual Expense Deduction 0.625% For total services to the Account
</TABLE>
After the end of every quarter, we reconcile how much we deducted as
discussed above with the expenses the Account actually incurred. If there's a
difference, we add it to or deduct it from the Account in equal daily
installments over the remaining days in the quarter. Since our at-cost
deductions are based on projections of Account assets and overall expenses, the
size of any adjusting payments will be directly affected by how different our
projections are from the Account's actual assets or expenses. While our
projections of Account asset size (and resulting expense fees) are based on our
best estimates, the size of the Account's assets can be affected by many
factors, including premium growth, participant transfers into or out of the
Account, and any changes in the value of portfolio holdings. Historically, the
adjusting payments have generally been small and have resulted in both upward
and downward adjustments to the Account's expense deductions for the following
quarter.
TIAA's board can revise the deduction rates from time to time to keep
deductions as close as possible to actual expenses.
Currently there are no deductions from premiums or withdrawals, but
we might change this in the future. Property expenses, brokers' commissions,
transfer taxes, and other portfolio expenses are charged directly to the
Account.
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<PAGE>
THE CONTRACTS
TIAA offers the Real Estate Account as a variable option for the
annuity contracts described below. Some employer plans may not offer the Real
Estate Account as an option for RA, GRA, GSRA, or Keogh contracts. The Account
is not available in California.
RA (Retirement Annuity) and GRA (Group Retirement Annuity)
RA and GRA contracts are used mainly for employee retirement plans.
RA contracts are issued directly to you. GRA contracts, which are group
contracts, are issued through an agreement between your employer and TIAA.
Depending on the terms of your plan, RA and GRA premiums can be paid
by your employer, you, or both. (You can't pay GRA premiums directly to TIAA;
your employer must send them for you.) If you're paying some of or the entire
periodic premium, your contributions can be in either pre-tax dollars by salary
reduction or after-tax dollars by payroll deduction. You can also transfer funds
from another investment choice under your employer's retirement plan to your
contract. For RAs only, you can make contributions directly to TIAA.. Ask your
employer for more information about these contracts.
SRA (Supplemental Retirement Annuity) and GSRA (Group Supplemental Retirement
Annuity)
These are for voluntary tax-deferred annuity (TDA) plans. SRA contracts
are issued directly to you. GSRA contracts, which are group contracts, are
issued through an agreement between your employer and TIAA. Your employer pays
premiums in pre-tax dollars through salary reduction. Although you can't pay
premiums directly, you can transfer amounts from other TDA plans.
Classic IRA
Classic IRAs are individual contracts issued directly to you. You and
your spouse can each open a Classic IRA with an annual contribution of up to
$2,000 or by rolling over funds from another IRA or retirement plan, if you meet
our eligibility requirements. The combined limit for your contributions to a
Classic IRA and a Roth IRA for a single year is $2,000, excluding rollovers. We
can't issue you a joint contract.
Roth IRA
Roth IRAs are also individual contracts issued directly to you. You or
your spouse can each open a Roth IRA with an annual contribution up to $2,000 or
with a rollover from another IRA or a Classic IRA issued by TIAA if you meet our
eligibility requirements. The combined limit for your contributions to a Classic
IRA and a Roth IRA for a single year is $2,000, excluding rollovers. We can't
issue you a joint contract..
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<PAGE>
[SIDEBAR
IRA and Keogh Eligibility
You or your spouse can set up a TIAA Classic or Roth IRA or a Keogh if
you're a current or retired employee or trustee of an eligible institution, or
if you own a TIAA or CREF annuity or a TIAA individual insurance contract. With
IRAs, you can also roll over funds from an eligible institution's retirement
plan or from an IRA account that was set up with money originally in an eligible
institution's plan. Eligibility may be restricted by certain income limits on
opening Roth IRA contracts.]
GA (Group Annuity)
GA contracts are used exclusively for employee retirement plans and are
issued directly to your employer or your plan's trustee. Your employer pays
premiums directly to TIAA (you can't pay GA premiums directly to TIAA) and your
employer or the plan's trustee exclusively controls the allocation of
contributions and transfers to and from these contracts. Ask your employer for
more information if your plan is funded with a GA contract.
Keoghs
Pending regulatory approval, TIAA plans to offer contracts for Keogh
plans. If you own an unincorporated business, you'll be able to use our Keogh
contracts for your Keogh plan, provided you are eligible.
[SIDEBAR]
Vesting
Once you're fully vested under your employer's plan, you can't lose the
benefits you've earned under your RA, GRA or GA contract. Ask your employer for
your vesting status. Your benefits under SRAs, GSRAs, and IRAs are immediately
vested and can't be forfeited.]
Starting Out
We'll issue you a TIAA contract when we receive your completed
application or enrollment form. If you already have a TIAA contract, you will
receive a rider permitting you to allocate premiums to the Real Estate Account.
Your premiums will be credited to the Real Estate Account as of the business day
we receive them.
If we receive premiums from your employer before your application or
enrollment form, we'll credit the premiums to the CREF Money Market Account
until we receive your form. We'll transfer and credit the amount you've
specified to the Real Estate Account as of end of the business day we receive
your completed form. If the allocation instructions on your application or
enrollment form are incomplete, violate plan restrictions, or don't total
100 percent, we'll credit your premiums to the CREF Money Market Account until
we do receive complete instructions. Any amounts that we credited to the CREF
Money
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<PAGE>
Market Account before we received correct instructions will be transferred to
the Real Estate Account only on request, and will be credited as of the business
day we receive that request.
TIAA doesn't restrict the amount or frequency of premiums to your RA,
GRA, and IRA contracts, although we may in the future. Your employer's
retirement plan may limit your premium amounts, while the Internal Revenue Code
limits the total annual premiums you may invest in plans qualified for favorable
tax treatment.
In most cases (subject to any restriction we may impose, as described in
this prospectus), TIAA will accept premiums to a contract at any time during
your accumulation period. Once your first premium has been paid, your TIAA
contract can't lapse or be forfeited for nonpayment of premiums. TIAA can stop
accepting premiums to GRA, GSRA, or Keogh contracts at any time.
Allocating Your Premiums Among the Account and other TIAA and CREF Accounts
You can allocate all or part of your premiums to the Real Estate
Account, unless your employer's plan precludes that choice. You can also
allocate premiums to TIAA's traditional annuity or any of the CREF variable
investment accounts, if the account is available under your employer's plan.
You can change your allocation choices for future premiums by
o writing to our home office
o using our Inter/ACT Internet service at www.tiaa-cref.org or
o calling our Automated Telephone Service (24 hours a day) at
800-842-2252.
The Right to Cancel Your Contract
You can cancel your contract up to 30 days after you first receive it
(unless we already made annuity payments from it). If you already had a TIAA
contract, and are simply receiving a Real Estate Account rider for the first
time, you have no 30-day right to cancel the contract. To cancel, mail or
deliver the contract with a signed Notice of Cancellation (available by
contacting TIAA) to our home office. We'll cancel the contract, then send the
entire current accumulation to whomever sent the premiums. You bear the
investment risk during this period (although some states require us to send back
your entire premium without accounting for investment results).
Determining the Value of Your Interest in the Account -- Accumulation Units
When you pay premiums or make transfers to the Real Estate Account, you
buy accumulation units. When you take a cash withdrawal, transfer from the
Account, or apply funds to begin annuity income, the number of your accumulation
units decrease. We calculate how many accumulation units to credit by dividing
the amount you applied to the Account by its accumulation unit value at the end
of the business day when we received your premium or transfer. To determine how
many accumulation units to subtract for cash withdrawals and transfers, we use
the accumulation unit value for the end of the business day when we receive your
transaction request and all required information and documents (unless you ask
for a later date).
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<PAGE>
The accumulation unit value reflects the Account's investment experience
(i.e., the real estate net operating income accrued, as well as dividends,
interest and other income accrued), realized and unrealized capital gains and
losses, as well as Account expense charges.
[SIDEBAR - Calculating Accumulation Unit Values
We calculate the Account's accumulation unit value at the end of each
valuation day. To do that, we multiply the previous day's value by the net
investment factor for the Account. The net investment factor is calculated as A
divided by B, where A and B are defined as:
A. The value of the Account's net assets at the end of the current
valuation period, less premiums received during the current
valuation period.
B. The value of the Account's net assets at the end of the previous
valuation period, plus the net effect of transactions made at the
start of the current valuation period.]
About Transferring and Withdrawing Your Money
Generally TIAA allows you to move your money to or from the Real Estate
Account in the following ways:
o from the Real Estate Account to other TIAA-CREF investment accounts
(once a calendar quarter)
o to the Real Estate Account from other TIAA-CREF investment accounts
o from the Real Estate Account to other companies
o to the Real Estate Account from other plans
o by withdrawing cash
o by setting up a program of automatic withdrawals or transfers
These options may be limited by the terms of your employer's plan or by current
tax law. Transfers and cash withdrawals are currently free.
Transfers and cash withdrawals are effective at the end of the business
day we receive your request and all required documentation. You can also choose
to have transfers and withdrawals take effect at the close of any future
business day or the last calendar day of the current or any future month, even
if it's not a business day.
To request a transfer or to withdraw cash:
o write to TIAA's home office at 730 Third Ave., New York, NY 10017-3206
o call us at 800 842-2252 or
o for transfers, use Inter/ACT on the Internet at www.tiaa-cref.org
You may be required to complete and return certain forms to effect cash
withdrawals.
Before you transfer or withdraw cash, make sure you understand the possible
federal and other income tax consequences. See "Taxes," page 42.
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<PAGE>
Transfers Between the Real Estate Account and other TIAA-CREF Accounts
Once every calendar quarter you can transfer some or all of your
accumulation in the Real Estate Account to TIAA's traditional annuity or to one
of the CREF accounts. Transfers generally must be for at least $1,000 at a time
(or your entire Account accumulation, if less). Transfers to certain CREF
accounts may be restricted by your employer's plan.
You can also transfer some or all of your accumulation in TIAA's
traditional annuity or in your CREF accounts to the Real Estate Account, if your
employer's plan offers the Account. These transfers generally must be for at
least $1,000 per account at a time. Transfers from TIAA's traditional annuity to
the Real Estate Account under RA and GRA contracts take place in roughly equal
installments over a ten-year period through a TIAA transfer payout annuity.
There are no similar restrictions on transfers from TIAA's traditional annuity
under SRA, GSRA, IRA, or Keogh contracts.
Because excessive transfer activity can hurt Account performance and
other participants, we may further limit how often you transfer or otherwise
modify the transfer privilege.
Transfers to Other Companies
Generally you may transfer funds from the Real Estate Account to a
company other than TIAA or CREF. This right may be limited by your employer's
plan. These transfers must be for at least $1,000 at a time (or your entire
Account accumulation, if that's less than $1,000). If your employer participates
in our Special Transfer Services program, we can make automatic monthly
transfers from your RA or GRA contract to another company, and the $1,000
minimum will not apply to these transfers.
Transfers from Other Plans
Ordinarily you can transfer funds from another 403(b) retirement plan to
a TIAA contract. Likewise, if your TIAA contract is part of a 401(a) or 403(a)
plan, you can transfer to it from other 401(a) or 403(a) plans, if your plans
permit. Amounts transferred to TIAA may still be subject to provisions of your
original employer's retirement plan. You can also transfer funds from some
401(a), 403(a), and 403(b) plans to a TIAA Classic IRA, or from an IRA holding
funds originally contributed to such plans to either a Classic or Roth IRA,
assuming you meet the income eligibility criteria.
Withdrawing Cash
You may withdraw cash from your SRA, GSRA, IRA, or Keogh Real Estate
Account accumulation at any time during the accumulation period, provided
federal tax law permits it (see below). Cash withdrawals from your RA or GRA
Real Estate Account accumulation may be limited by the terms of your employer's
plan. Cash withdrawals usually must be for at least $1,000 (or the entire part
of your accumulation permitted to be withdrawn, if that's less than $1,000).
Normally, you can't withdraw money from a contract if you've already begun
receiving lifetime annuity income.
Current federal tax law restricts your ability to make cash withdrawals
from your accumulation under most voluntary salary reduction agreements.
Withdrawals are generally available only if you reach
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<PAGE>
age 59 1/2, leave your job, become disabled, or die, or if your employer
terminates its retirement plan. If your employer's plan permits, you may also be
able to withdraw money if you encounter hardship, as defined by the IRS, but
hardship withdrawals can be from contributions only, not investment earnings.
Different restrictions apply to withdrawals from Classic and Roth IRAs. You may
be subject to a 10% penalty tax if you make a withdrawal before you reach age 59
1/2, unless an exception applies to your situation.
[SIDEBAR
Systematic Withdrawals and Transfers
If your employer's plan allows, you can set up a program to make cash
withdrawals or transfers automatically by specifying that we withdraw or
transfer from your Real Estate Account accumulation any fixed
o number of accumulation units
o dollar amount or
o percentage of accumulation
until you tell us to stop or until your accumulation is exhausted. Currently,
the program must be set up so that at least $100 is automatically withdrawn or
transferred at a time.
Possible Restrictions on Premiums and Transfers to the Account
From time to time we may stop accepting premiums for and/or transfers
into the Account. We might do so if, for example, we can't find enough
appropriate real estate-related investment opportunities at a particular time.
Whenever reasonably possible, we will notify you before we decide to restrict
premiums and/or transfers. However, because we may need to respond quickly to
changing market conditions, we reserve the right to stop accepting premiums
and/or transfers at any time without prior notice.
If we decide to stop accepting premiums into the Account, amounts that
would otherwise be allocated to the Account will be allocated to the CREF Money
Market Account instead, unless you give us other allocation instructions. We
will not transfer these amounts out of the CREF Money Market Account when the
restriction period is over, unless you request that we do so. However, we will
resume allocating premiums to the Account on the date we remove the
restrictions.
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RECEIVING ANNUITY INCOME
The Annuity Period in General
You can receive an income stream from all or part of your Real Estate
Account accumulation. Although you can receive income at any time, generally you
must be at least age 59 1/2 to begin receiving annuity income payments from your
annuity contract free of a 10 percent early distribution penalty. Your
employer's plan may also restrict when you can begin income payments. Under the
minimum distribution rules, you generally must begin receiving some payments
from your contract shortly after you reach age 70 1/2 or you retire. Also, you
can't begin a one-life annuity after you reach age 90, nor may you begin a
two-life annuity after either you or your annuity partner reach age 90.
Your income payments may be paid out from the Real Estate Account
through a variety of income options. You can pick a different income option for
different portions of your accumulation, but once you've started payments you
usually can't change your income option or annuity partner for that payment
stream.
Usually income payments are monthly. You can choose quarterly,
semi-annual, and annual payments as well. (TIAA has the right to not make
payments at any interval that would cause the initial payment to be less than
$100.) We'll send your payments by mail to your home address or, on your
request, by mail or electronic funds transfer to your bank.
Your initial income payments are based on the value of your accumulation
on the last valuation day before the annuity starting date. Your payments change
after the initial payment based on the Account's investment experience and the
income change method you choose. There are two income change methods for annuity
payments: annual and monthly. Under the annual income change method, payments
from the Account change each May 1, based on the net investment results during
the prior year (April 1 through March 31). Under the monthly income change
method, payments from the Account change every month, based on the net
investment results during the previous month. For the formulas used to calculate
the amount of annuity payments, see page 39. The total value of your annuity
payments may be more or less than your total premiums.
Annuity Starting Date
Generally, you pick an annuity starting date when you first apply for a
TIAA contract but you can change this date at any time prior to the day before
that annuity starting date. Ordinarily, annuity payments begin on your annuity
starting date, provided we have received all documentation necessary for the
income option you've picked. If something's missing, we'll defer your annuity
starting date until we receive it. Your first annuity check may be delayed while
we process your choice of income options and calculate the amount of your
initial payment. Any premiums received within 70 days after payments begin may
be used to provide additional annuity income. Premiums received after 70 days
will remain in your accumulating annuity contract until you give us further
instructions. Ordinarily, your first annuity payment will begin on any business
day between the first and twentieth of any month.
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Income Options
Both the number of annuity units you purchase and the amount of your
income payments will depend on which income option you pick. Your employer's
plan, tax law and ERISA may limit which income options you can use to receive
income from an RA or GRA. Ordinarily you'll choose your income options shortly
before you want payments to begin; but you can make or change your choice any
time before your annuity starting date.
All Real Estate Account income options provide variable payments, and
the amount of income you receive depends in part on the investment experience of
the Account. The current options are:
oOne-Life Annuity with or without Guaranteed Period. Pays income
as long as you live. If you opt for a guaranteed period (10, 15 or 20
years) and you die before it's over, income payments will continue to
your beneficiary until the end of the period. If you don't opt for a
guaranteed period, all payments end at your death -- so that it's
possible for you to receive only one payment if you die less than a
month after payments start.
oAnnuity for a Fixed Period. Pays income for any period you
choose from 5 to 30 years.
oTwo-Life Annuities. Pays income to you as long as you live, then
continues at either the same or a reduced level for the life of your
annuity partner. There are three types of two-life annuity options, all
available with or without a guaranteed period -- Full Benefit to
Survivor, Two- Thirds Benefit to Survivor, and a Half-Benefit to Annuity
Partner.
oMinimum Distribution Option ("MDO") Annuity. Generally available
only if you must begin annuity payments under the Internal Revenue Code
minimum distribution requirements. (Some employer plans allow you to
elect this option earlier -- contact TIAA for more information.) The
option pays an amount designed to fulfill the distribution requirements
under federal tax law. You must apply your entire accumulation under a
contract if you want to use the MDO annuity; however, it's possible you
won't receive income for life under an MDO. Up to age 90, you can apply
any remaining part of an accumulation applied to the MDO annuity to any
other income option for which you're eligible. Using an MDO won't affect
your right to take a cash withdrawal of any accumulation not yet
distributed.
For any of the income options described above, current federal tax law
says that your guaranteed period can't exceed the joint life expectancy of you
and your beneficiary or annuity partner.
Other income options may become available in the future, subject to the
terms of your retirement plan and relevant federal and state laws. For more
information about any annuity option, please contact us.
Receiving Lump Sum Payments (Retirement Transition Benefit). Under
TIAA's current practice, and if your employer's plan allows, you may be able to
receive a single sum payment of up to 10 percent of the
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value of any part of an RA or GRA accumulation being converted to annuity income
on the annuity starting date. Of course, if your employer's plan allows cash
withdrawals, you can take a larger amount (up to 100 percent) of your Real
Estate Account accumulation as a cash payment. The retirement transition benefit
will be subject to current federal income tax requirements and possible early
distribution penalties. See "Federal Income Taxes," page 42.
If you haven't picked an income option when the annuity starting date
arrives, TIAA usually will assume you want the one-life annuity with 10-year
guaranteed period if you're unmarried, paid from TIAA's traditional annuity. If
you're married, we may assume for you a survivor annuity with half-benefit to
annuity partner with 10-Year guaranteed period, with your spouse as your annuity
partner, paid from TIAA's traditional annuity. If you haven't picked an income
option when the annuity starting date arrives for your IRA, we may assume you
want the minimum distribution option annuity.
Transfers During the Annuity Period
After you begin receiving annuity income, you can transfer all or part
of the future annuity income payable once each calendar quarter (i) from the
Real Estate Account into a "comparable annuity" payable from a CREF account or
TIAA's traditional annuity, or (ii) from a CREF account into a comparable
annuity payable from the Real Estate Account. Comparable annuities are those
which are payable under the same income option, and have the same first and
second annuitant, and remaining guaranteed period.
We'll process your transfer on the business day we receive your request.
You can also choose to have a transfer take effect at the close of any future
business day, or the last calendar day of the current or any future month, even
if it's not a business day. Transfers under the annual income payment method
will affect your annuity payments beginning on the May 1 following the March 31
which is on or after the effective date of the transfer. Transfers under the
monthly income payment method and all transfers into TIAA's traditional annuity
will affect your annuity payments beginning with the first payment due after the
monthly payment valuation day that is on or after the transfer date. You can
switch between the annual and monthly income change methods, and the switch will
go into effect on the following March 31.
Annuity Payments
The amount of annuity payments we pay you or your beneficiary
(annuitant) will depend upon the number and value of the annuity units payable.
The number of annuity units is first determined on the day before the annuity
starting date. The amount of the annuity payments will change according to the
income change method chosen.
Under the annual income change method, the value of an annuity unit for
payments is redetermined on March 31 of each year -- the payment valuation day.
Annuity payments change beginning May 1. The change reflects the net investment
experience of the Real Estate Account. The net investment experience for the
twelve months following each March 31 revaluation will be reflected in the
following year's value.
Under the monthly income change method, the value of an annuity unit for
payments is determined on the payment valuation day, which is the 20th day of
the month preceding the payment due date or, if the 20th is not a business day,
the preceding business day. The monthly changes in the value of an annuity unit
reflect the net investment experience of the Real Estate Account.
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The formulas for calculating the number and value of annuity units
payable are described below.
Calculation of the Number of Annuity Units Payable. When a participant
or a beneficiary converts the value of all or a portion of his or her
accumulation into an income-paying contract, the number of annuity units payable
from the Real Estate Account under an income change method is determined by
dividing the value of the Account accumulation to be applied to provide the
annuity payments by the product of the annuity unit value for that income change
method and an annuity factor. The annuity factor as of the annuity starting date
is the value of an annuity in the amount of $1.00 per month beginning on the
first day such annuity units are payable, and continuing for as long as such
annuity units are payable.
The annuity factor will reflect interest assumed at the effective annual
rate of 4 percent, and the mortality assumptions for the person(s) on whose life
(lives) the annuity payments will be based. Mortality assumptions will be based
on the then-current settlement mortality schedules for this Account. Annuitants
bear no mortality risk under their contracts -- actual mortality experience will
not reduce annuity payments after they have started. TIAA may change the
mortality assumptions used to determine the number of annuity units payable for
any future accumulations converted to provide annuity payments.
The number of annuity units payable under an income change method under
your contract will be reduced by the number of annuity units you transfer out of
that income change method under your contract. The number of annuity units
payable will be increased by any internal transfers you make to that income
change method under your contract.
Value of Annuity Units. The Real Estate Account's annuity unit value is
calculated separately for each income change method for each business day and
for the last calendar day of each month. The annuity unit value for each income
change method is determined by updating the annuity unit value from the previous
valuation day to reflect the net investment performance of the Account for the
current valuation period relative to the 4 percent assumed investment return. In
general, your payments will increase if the performance of the Account is
greater than 4 percent and decrease if the value is less than 4 percent. The
value is further adjusted to take into account any changes expected to occur in
the future at revaluation either once a year or once a month, assuming the
Account will earn the 4 percent assumed investment return in the future.
The initial value of the annuity unit for a new annuitant is the value
determined as of the day before annuity payments start.
For participants under the annual income change method, the value of the
annuity unit for payments remains level until the following May l. For those who
have already begun receiving annuity income as of March 31, the value of the
annuity unit for payments due on and after the next succeeding May 1 is equal to
the annuity unit value determined as of such March 31.
For participants under the monthly income change method, the value of
the annuity unit for payments changes on the payment valuation day of each month
for the payment due on the first of the following month.
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TIAA reserves the right, subject to approval by the Board of Trustees,
to modify the manner in which the number and/or value of annuity units is
calculated in the future.
DEATH BENEFITS
Availability; Choosing Beneficiaries
TIAA may pay death benefits if you or your annuity partner die during
the accumulation or annuity period. When you purchase your annuity contract, you
name one or more beneficiaries to receive the death benefit if you die. You can
change your beneficiaries anytime before you die, and, unless you instruct
otherwise, your annuity partner can do the same after your death.
Your Spouse's Rights
Your choice of beneficiary for death benefits may, in some cases, be
subject to the consent of your spouse. Similarly, if you are married at the time
of your death, federal law may require a portion of the death benefit be paid to
your spouse even if you have named someone else as beneficiary. If you die
without having named any beneficiary, any portion of your death benefit not
payable to your spouse will go to your estate.
Amount of Death Benefit
If you die during the accumulation period, the death benefit is the
amount of your accumulation. If you and your annuity partner die during the
annuity period while payments are still due under a fixed- period annuity or for
the remainder of a guaranteed period, the death benefit is the value of the
remaining guaranteed payments.
Methods of Payment of Death Benefits
Generally, you can choose the method by which we'll pay the death
benefit. You can block your beneficiaries from changing the method you've chosen
or you can leave the choice to them. We can block any choice of method that
provides an initial payment of less than $25. If your beneficiary doesn't
specifically request to start receiving death benefits within a year of your
death, we have the option to start making payments to them over five years using
the fixed-period annuity method of payment.
In the Accumulation Period. Currently, the available methods of payment
for death benefits from funds in the accumulation period are:
oSingle-Sum Payment, in which the entire death benefit is paid to
your beneficiary at once;
oOne-Life Annuity with or without Guaranteed Period, in which the
death benefit is paid monthly for the life of the beneficiary or through
the guaranteed period;
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oAnnuity for a Fixed Period of 2 to 30 years;
oAccumulation-Unit Deposit Option, which pays a lump sum at the
end of a fixed period, ordinarily two to five years, during which period
the accumulation units deposited participate in the Account's investment
experience (generally the death benefit value must be at least $5,000);
and
othe Minimum Distribution Option, which is available only to
beneficiaries who must receive income under the Internal Revenue Code's
minimum distribution requirements, and operates in much the same way as
the MDO annuity. It's possible, under this method, that your beneficiary
won't receive income for life.
Death benefits are usually paid monthly (unless you chose a single-sum
method of payment), but your beneficiary can switch them to quarterly,
semi-annual, or annual payments instead.
In the Annuity Period. If you and your annuity partner die during the
annuity period, your beneficiary can choose to receive the remaining guaranteed
periodic payments due under your contract. Alternatively, your beneficiary can
choose to receive the commuted value of those payments in a single sum unless
you have indicated otherwise. The amount of the commuted value will be different
than the total of the periodic payments that would otherwise be paid.
Ordinarily, death benefits are subject to federal estate tax. For more
detailed information on death benefits, please contact TIAA.
TAXES
[SIDEBAR- How the Real Estate Account is treated for tax purposes
The Account is not a separate taxpayer for purposes of the Internal
Revenue Code -- its earnings are taxed as part of TIAA's operations. TIAA is not
expected to owe any federal income taxes on the Account's earnings. If TIAA does
incur taxes attributable to the Account, it may make a corresponding charge
against the Account.]
What we tell you here about federal and other taxes isn't comprehensive
and is for general information only. It doesn't cover every situation. Tax
treatment varies depending on the circumstances, and state and local taxes may
also be involved. For complete information on your personal tax situation, check
with a qualified tax advisor.
Taxes In General
During the accumulation period, Real Estate Account earnings are
generally not taxed until they're withdrawn. When you transfer money, there may
be tax consequences. Annuity payments, single-sum withdrawals, systematic
withdrawals, and death benefits are usually taxed as ordinary income. Premiums
that were paid in after-tax dollars aren't taxable when withdrawn, but earnings
are taxable. Death benefits
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are usually also subject to federal estate and state inheritance taxation.
Generally, transfers between qualified retirement plans are not taxed.
Generally, contributions you can make under an employer's plan are
limited by federal tax law. Employee salary reduction contributions to 403(b)
and 401(k) plans are limited to $10,000 per year. Certain long-term employees
may be able defer up to $13,000 per year in a 403(b) plan. Contributions to IRAs
and Roth IRAs, other than rollover contributions, cannot generally exceed $2,000
per year.
Early Distributions
If you want to withdraw funds or begin income from any 401(a), 403(a),
or 403(b) retirement plan or an IRA before you reach age 59 1/2, you may have to
pay a 10 percent early distribution tax on the taxable amount. You won't have
to pay this tax in certain circumstances. Consult your tax advisor for more
information.
Minimum Distribution Requirements
In most cases, payments have to begin by April 1 of the year after the
year you reach age 70 1/2, or if later, retirement. (For IRAs, payments must
begin by April 1 of the year after the year you reach age 70 1/2.) Under the
terms of certain retirement plans, the plan administrator may direct us to make
the minimum distributions required by law even if you do not elect to receive
them. In addition, if you don't begin distributions on time, you may be subject
to a 50 percent excise tax on the amount you should have received but did not.
Roth IRAs are generally not subject to these rules and do not require that any
distributions be made prior to your death.
Withholding on Distributions
If we send an "eligible rollover" distribution directly to you, federal
law requires us to withhold 20 percent from the taxable portion. If we rollover
such a distribution directly to an IRA or to an employer plan that is similar to
the plan making the distribution, we do not withhold any federal tax. The
20 percent withholding also does not apply to certain "non-eligible" rollover
distributions such as payments from IRAs, lifetime annuity payments, or minimum
distribution payments.
For the taxable portion of non-eligible rollover distributions, we will
usually withhold federal taxes unless you tell us not to. Nonresident aliens who
pay U.S. taxes are subject to different withholding rules.
Contact TIAA or your tax advisor for more information.
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GENERAL MATTERS
Making Choices and Changes
When your TIAA contract and your employer's plan permits, you (or your
annuity partner, beneficiary, or any other payee) can choose or change any of
the following
o an annuity starting date
o an income option
o a transfer
o an income change method
o a method of payment for death benefits
o an annuity partner, beneficiary, or other person named to receive
payments
o a cash withdrawal or other distribution
You have to make your choices or changes by written notice satisfactory
to us and received at our home office. When we receive a notice of a change in
beneficiary or other person named to receive payments, we'll execute the change
as of the date it was signed, even if the signer has died in the meantime. We
execute all other changes as of the date received.
Telephone and Internet Transactions
You can use our Automated Telephone Service (ATS) or our Inter/ACT
system over the Internet to check your account balances, transfer to TIAA's
traditional annuity or CREF, and/or allocate future premiums among the Real
Estate Account, TIAA's traditional annuity, and CREF. You will be asked to enter
your Personal Identification Number (PIN) and Social Security number for both
systems. (You can establish a PIN by calling us.) Both will lead you through the
transaction process and will use reasonable procedures to confirm that
instructions given are genuine. If we use such procedures, we are not
responsible for incorrect or fraudulent transactions. All transactions made over
the ATS and Inter/ACT are electronically recorded.
To use the ATS, you need a touch-tone phone. The toll free number for
the ATS is 800 842-2252. To use Inter/ACT, access the TIAA-CREF Internet home
page at http://www.tiaa-cref.org.
We can suspend or terminate your right to transact by telephone or over
the Internet at any time.
Voting Rights
You don't have the right to vote on the management and operation of the
Account directly; however, you may send ballots to advise the TIAA Board of
Overseers about voting for nominees for the TIAA Board of Trustees.
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Electronic Prospectus
If you received this prospectus electronically and would like a paper
copy, please call 800 842- 2733, extension 5509, and we will send it to you.
Under certain circumstances where we are legally required to deliver a
prospectus to you, we cannot send you a prospectus electronically unless you've
consented.
Householding
To lower costs and eliminate duplicate documents sent to your home, we
may, if the SEC allows, begin mailing only one copy of the Account's prospectus,
prospectus supplements or any other required documents to your household, even
if more than one participant lives there. If you would prefer to continue
receiving your own copy of any of these documents, you may call us toll-free at
800 842-2733, extension 5509, or write us.
Miscellaneous Policies
If You're Married. If you're married, you may be required by law or your
employer's plan to get advance written consent from your spouse before we make
certain transactions for you. If you're married at your annuity starting date,
you may also be required by law or your employer's plan to choose an income
option that provides survivor annuity income to your spouse, unless he or she
waives that right in writing. There are limited exceptions to the waiver
requirement.
Texas Optional Retirement Program Restrictions. If you're in the Texas
Optional Retirement Program, you or your beneficiary can redeem some or all of
your accumulation only if you retire, die, or leave your job in the state's
public institutions of higher education.
Assigning Your Contract Generally, neither you nor your beneficiaries
can assign your ownership of a TIAA retirement contract to anyone else.
Overpayment of Premiums. If your employer mistakenly sends more premiums
on your behalf than you're entitled to under your employer's retirement plan or
the Internal Revenue Code, we'll refund them to your employer as long as we're
requested to do so (in writing) before you start receiving annuity income. Any
time there's a question about premium refunds, TIAA will rely on information
from your employer. If you've withdrawn or transferred the amounts involved from
your accumulation, we won't refund them.
Errors or Omissions. We reserve the right to correct any errors or
omissions on any form, report, or statement that we send you.
Payment to an Estate, Guardian, Trustee, etc. We reserve the right to
pay in one sum the commuted value of any benefits due an estate, corporation,
partnership, trustee, or other entity not a natural person. Neither TIAA nor the
Account will be responsible for the conduct of any executor, trustee, guardian,
or other third party to whom payment is made.
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Benefits Based on Incorrect Information. If the amounts of benefits
provided under a contract were based on information that is incorrect, benefits
will be recalculated on the basis of the correct data. If the Account has
overpaid or underpaid, appropriate adjustments will be made.
Proof of Survival. We reserve the right to require satisfactory proof
that anyone named to receive benefits under a contract is living on the date
payment is due. If we have not received this proof after we request it in
writing, the Account will have the right to make reduced payments or to withhold
payments entirely until such proof is received.
DISTRIBUTOR
The annuity contracts are offered continuously by TIAA-CREF Individual &
Institutional Services, Inc. (Services), which is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. (NASD). Teachers Personal Investors Services, Inc. (TPIS), which is also
registered with the SEC and is a member of the NASD, may participate in the
distribution of the contracts on a limited basis. Services and TPIS are direct
or indirect subsidiaries of TIAA. As already noted, distribution costs are
covered by a deduction from the assets of the Account; no commissions are paid
for distributing the contracts. Anyone distributing the contracts must be a
registered representative of Services or TPIS, whose main offices are both at
730 Third Avenue, New York, NY 10017-3206.
STATE REGULATION
TIAA, the Real Estate Account, and the contracts are subject to
regulation by the New York Insurance Department (NYID) as well as by the
insurance regulatory authorities of certain other states and jurisdictions.
TIAA and the Real Estate Account must file with the NYID both quarterly
and annual statements. The Account's books and assets are subject to review and
examination by the NYID at all times, and a full examination into the affairs of
the Account is made at least every five years. In addition, a full examination
of the Real Estate Account operations is usually conducted periodically by some
other states.
LEGAL MATTERS
All matters involving state law and relating to the contracts, including
TIAA's right to issue the contracts, have been passed upon by Charles H. Stamm,
Executive Vice President and General Counsel of TIAA. Sutherland Asbill &
Brennan LLP, Washington, D.C., have passed upon legal matters relating to the
federal securities laws.
EXPERTS
The consolidated financial statements of the TIAA Real Estate Account as
of December 31, 1998 and for the year then ended, the audited statement of
revenues and certain expenses of [list 3-14
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properties], and the financial statements of TIAA as of December 31, 1998 and
for the year then ended, all appearing herein or incorporated herein by
reference, have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports on those financial statements. We are relying on the
reports of Ernst & Young LLP as experts in accounting and auditing.
ADDITIONAL INFORMATION
Information Available at the SEC
The Account has filed with the SEC a registration statement under the
Securities Act of 1933 which contains this prospectus and additional information
related to the offering described in this prospectus. The Account also files
annual, quarterly, and current reports, along with other information, with the
SEC, as required by the Securities Exchange Act of 1934. You may read and copy
the full registration statement, and any reports and information filed with the
SEC for the Account, at the SEC's public reference room at 450 Fifth Street,
N.W., Room 1024, Washington, DC 20549. This information can also be obtained
through the SEC's website on the Internet (http://www.sec.gov).
Other Reports to Participants
TIAA will mail to each participant in the Real Estate Account periodic
reports providing information relating to their accumulations in the Account,
including premiums paid, number and value of accumulations, and withdrawals or
transfers during the period, as well as such other information as may be
required by applicable law or regulations.
Further information may be obtained from TIAA at 730 Third Avenue,
New York, NY 10017-3206.
FINANCIAL STATEMENTS
The consolidated financial statements of the TIAA Real Estate Account,
financial statements of certain properties purchased by the Account and
condensed unaudited financial statements of TIAA follow. The full audited
financial statements of TIAA, which are incorporated into this prospectus by
reference, are available upon request by calling 800 842-2733 extension 5509.
The financial statements of TIAA should be distinguished from the
consolidated financial statements of the Real Estate Account and should be
considered only as bearing on the ability of TIAA to meet its obligations under
the contracts. They should not be considered as bearing upon the assets held in
the Real Estate Account.
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INDEX TO FINANCIAL STATEMENTS Page
TIAA REAL ESTATE ACCOUNT
Audited Consolidated Financial Statements:
Report of Management Responsibility..........................................F-
Report of Independent Auditors...............................................F-
Consolidated Statements of Assets and Liabilities............................F-
Consolidated Statements of Operations........................................F-
Consolidated Statements of Changes in Net Assets.............................F-
Consolidated Statements of Cash Flows........................................F-
Notes to Consolidated Financial Statements...................................F-
Consolidated Statement of Investments........................................F-
Proforma Condensed Financial Statements:
Proforma Condensed Statement of Assets
and Liabilities............................................................F-
Proforma Condensed Statement of Operations...................................F-
Notes to Proforma Condensed Financial Statements.............................F-
[INSERT VARIOUS 3-14 FINANCIALS:
Report of Independent Auditors ..............................................F-
Statement of Revenues and Certain Expenses...................................F-
Notes to Statement of Revenues
and Certain Expenses........................................................F-]
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
Condensed Unaudited Statutory-Basis Financial Statements.....................F-
Supplemental Information to Condensed Unaudited Statutory-Basis Financial
Statements..................................................................F-
[FINANCIALS TO BE FILED BY AMENDMENT]
F - 1
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APPENDIX A
MANAGEMENT OF TIAA
The Trustees and principal executive officers of TIAA, and their
principal occupations during the last five years, are as follows:
Trustees
David Alexander, 66.
President Emeritus, Pomona College. Formerly, President, Pomona College and
American Secretary, Rhodes Scholarship Trust.
Marcus Alexis, 67.
Board of Trustees Professor of Economics and Professor of Management and
Strategy, J.L. Kellogg Graduate School of Management, Northwestern University.
Willard T. Carleton, 64.
Karl L. Eller Professor of Finance, College of Business and Public
Administration, University of Arizona.
Robert C. Clark, 55.
Dean and Royall Professor of Law, Harvard Law School, Harvard University.
Estelle A. Fishbein, 64.
Vice President and General Counsel, The Johns Hopkins University.
Frederick R. Ford, 62.
Executive Vice President and Treasurer Emeritus, Purdue University.
Formerly, Treasurer, Purdue University.
Martin J. Gruber, 61.
Nomura Professor of Finance, New York University Stern School of Business.
Formerly, Chairman, Department of Finance, New York University Stern School of
Business.
Ruth Simms Hamilton, 61.
Professor, Department of Sociology, and Director, African Diaspora Research
Project, Michigan State University.
Dorothy Ann Kelly, O.S.U., 69.
Chancellor, College of New Rochelle. Formerly, President, College of
New Rochelle.
Robert M. O'Neil, 64.
Professor of Law, University of Virginia and Director, The Thomas Jefferson
Center for the Protection of Free Expression.
A-1
<PAGE>
Leonard S. Simon, 62.
Vice Chairman, Charter One Financial Inc. Formerly, Chairman, President and
Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief Executive
Officer, The Rochester Community Savings Bank.
Ronald L. Thompson, 49.
Chairman and Chief Executive Officer, Midwest Stamping Co. Formerly, Chairman
and President, The GR Group.
Paul R. Tregurtha, 63.
Chairman, Chief Executive, and Director, Mormac Marine Group, Inc.; Vice
Chairman and Director, The Interlake Steamship Company; Chairman and Director,
Moran Transportation Company and Meridian Aggregates, L.P.; Vice Chairman, Lakes
Shipping Company.
William H. Waltrip, 61.
Chairman, Technology Solutions Company. Formerly, Chairman and Chief Executive
Officer, Bausch & Lomb Inc., and Chairman and Chief Executive Officer, Biggers
Brothers, Inc.
Rosalie J. Wolf, 57.
Treasurer and Chief Investment Officer, The Rockefeller Foundation. Formerly,
Executive Vice President, Sithe Energies, Inc., and Managing Director --
Merchant Banking, Bankers Trust Company.
Officer-Trustees
John H. Biggs, 62.
Chairman, President and Chief Executive Officer, TIAA and CREF.
Martin L. Leibowitz, 62.
Vice Chairman and Chief Investment Officer, TIAA and CREF, since November 1995.
Executive Vice President, TIAA and CREF, from June 1995 to November 1995.
Formerly, Managing Director, Director of Research and member of the Executive
Committee, Salomon Brothers Inc.
Other Officers
Richard J. Adamski, 56.
Vice President and Treasurer, TIAA and CREF.
Richard L. Gibbs, 51.
Executive Vice President, Finance and Planning, TIAA and CREF.
E. Laverne Jones, 49
Vice President and Corporate Secretary, TIAA and CREF.
A-2
<PAGE>
APPENDIX B
GLOSSARY
We have defined certain terms so that you'll have a clearer understanding of
this prospectus and your investment.
Accumulation - The total value of your accumulation units in the Real
Estate Account.
Accumulation Period - The period that begins with your first premium and
continues until the entire accumulation has been applied to purchase annuity
income, transferred from the Account, or paid to you or a beneficiary.
Accumulation Unit - A share of participation in the Real Estate Account
for someone in the accumulation period. The Account's accumulation unit value
changes daily.
Annuity Unit - A measure used to calculate the amount of annuity payments
due a participant.
Beneficiary - Any person or institution named to receive benefits if you
die during the accumulation period or if you (and your annuity partner, if you
have one) die before the guaranteed period of your annuity ends.
Business Day - Any day the New York Stock Exchange (NYSE) is open for
trading. A business day ends at 4 p.m. eastern time, or when trading closes on
the NYSE, if earlier.
Calendar Day - Any day of the year. Calendar days end at the same time as
business days.
Commuted Value - The present value of annuity payments due under an
income option or method of payment not based on life contingencies. Present
value is adjusted for investment gains or losses since the annuity unit value
was last calculated.
Eligible Institution - A public or private institution in the United
States that is non-proprietary and nonprofit, and whose main purpose is to offer
instruction, conduct research, or serve and support education or research, or
perform ancillary functions for such institutions.
ERISA - The Employee Retirement Income Security Act of 1974, as amended.
General Account - All of TIAA's assets other than those allocated to the
Real Estate Account or to other existing or future TIAA separate accounts.
Income Change Method - The method under which you choose to have your
annuity payments revalued. Under the annual income change method, your payments
are revalued once each year. Under the monthly income change method, your
payments are revalued every month
Separate Account - An investment account legally separated from the
general assets of TIAA, whose income and investment gains and losses are
credited to or charged against its own assets, without regard to TIAA's other
income, gains or losses.
B-3
<PAGE>
Valuation Day - Any day the NYSE is open for trading, as well as the last
calendar day of each month. Valuation days end as of the close of all U.S.
national exchanges where securities or other investments of the Account are
principally traded. Valuation days that aren't business days will end at 4 p.m.
eastern time.
Valuation Period - The time from the end of one valuation day to the end
of the next.
B-4
<PAGE>
[INSIDE BACK COVER]
HOW TO REACH US
Our Address
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, NY 10017-3206
Send all notices, forms, requests, or payments to this address only.
Internet
www.tiaa-cref.org
24 hours a day/seven days a week
Obtain general information (including Real Estate Account performance) about
TIAA-CREF; use Inter/ACT to view personal account information, reallocate
premiums and transfer funds among TIAA and CREF investment options, or to ask us
questions.
Automated Telephone Service
800 842-2252
24 hours a day/seven days a week
Change your allocation; transfer accumulations; get your accumulation unit
values; get TIAA and CREF performance (provided you've received a Real Estate
Account prospectus); confirm last premium paid.
Telephone Counseling Center
800 842-2776
8 a.m. to 11 p.m. ET Monday-Friday
Speak to a consultant about: retirement savings and planning; quarterly and
annuity benefits reports; receiving annuity payments and annuity options; tax
reports.
IRA Enrollment Hotline
800 842-2888
Speak with a service agent about our IRAs.
We can suspend or terminate your right to transact by telephone or over the
Internet at any time.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN A PROSPECTUS
<PAGE>
Item 13. Other Expenses of Issuance and Distribution.
SEC Registration Fees $ 0.00
Costs of printing and engraving $ 500,000.00*
Legal fees $ 2,500.00*
Accounting fees $ 5,000.00*
--------------
TOTAL $ 507,500.00*
- -----------------
* - Approximate
Item 14. Indemnification of Directors and Officers.
Trustees, officers, and employees of TIAA may be indemnified
against liabilities and expenses incurred in such capacity pursuant to Article
Six of TIAA's bylaws (see Exhibit 3(B)). Article Six provides that, to the
extent permitted by law, TIAA will indemnify any person made or threatened to be
made a party to any action, suit or proceeding by reason of the fact that such
person is or was a trustee, officer, or employee of TIAA or, while a trustee,
officer, or employee of TIAA, served any other organization in any capacity at
TIAA's request. To the extent permitted by law, such indemnification could
include judgments, fines, amounts paid in settlement, and expenses, including
attorney's fees. TIAA has in effect an insurance policy that will indemnify its
trustees, officers, and employees for liabilities arising from certain forms of
conduct.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, or employees of
TIAA, pursuant to the foregoing provision or otherwise, TIAA has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid by a
trustee, officer, or employee in the successful defense of any action, suit or
proceeding) is asserted by a trustee, officer, or employee in connection with
the securities being registered, TIAA will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in that Act and will be governed by the final
adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities.
None.
II - 1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
(1) Distribution and Administrative Services Agreement by and
between TIAA and TIAA-CREF Individual & Institutional
Services, Inc. (as amended)*
(3) (A) Charter of TIAA (as amended)*
(B) Bylaws of TIAA (as amended)**
(4) (A) Forms of RA, GRA, GSRA, SRA, and IRA Real Estate Account
Contract Endorsements*
(B) Forms of Income-Paying Contracts*
(5) Opinion and Consent of Charles H. Stamm, Esquire****
(10) (A) Independent Fiduciary Agreement by and among TIAA, the
Registrant, and Institutional Property Consultants,
Inc. (as amended)***
(B) Custodial Services Agreement by and between TIAA and
Morgan Guaranty Trust Company of New York with respect to
the Real Estate Account*
(23) (A) Opinion and Consent of Charles H. Stamm, Esquire (filed as
Exhibit 5)
(B) Consent of Sutherland, Asbill & Brennan LLP****
(C) Consent of Ernst & Young LLP****
(D) Consent of Deloitte & Touche LLP****
(27) Financial Data Schedule of the Account's
Financial Statements for the year ended December
31, 1998****
- -------------------------------
* - Previously filed and incorporated herein by reference to Post-
Effective Amendment No. 2 to the Account's previous Registration
Statement on Form S-1 filed April 30, 1996 (File No. 33-92990).
** - Previously filed and incorporated herein by reference to the Account's Form
10-Q Quarterly Report for the period ended September 30, 1997, filed November
13, 1997 (File No. 33-92990).
*** - Previously filed and incorporated herein by reference to Pre-
Effective Amendment No. 1 to the Account's registration statement on
Form S-1, filed April 29, 1997 (File No. 333-22809)
**** - To be filed by Amendment.
II - 2
<PAGE>
(b) Financial Statement Schedules
Schedule III -- Real Estate Owned
All other Schedules have been omitted because they are not required
under the related instructions or are inapplicable.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide the full financial statements of TIAA promptly upon
written or oral request.
Following are the full audited financial statements of TIAA.
[TIAA FINANCIAL STATEMENTS TO BE FILED
BY AMENDMENT]
II - 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, TIAA Real Estate Account, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York, on the 23rd day of February, 1999.
TIAA REAL ESTATE ACCOUNT
By: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Peter C. Clapman
------------------------------
Peter C. Clapman
Senior Vice President and
Chief Counsel, Investments
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, trustees and
officers of Teachers Insurance and Annuity Association of America, in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John H. Biggs Chairman of the Board, 2-23-99
- ---------------------- President and Chief Executive
John H. Biggs Officer (Principal Executive
Officer) and Trustee
/s/ Martin L. Leibowitz Vice Chairman, Chief 2-23-98
- ---------------------- Investment Officer and Trustee
Martin L. Leibowitz
/s/ Richard L. Gibbs Executive Vice President 2-23-99
- ---------------------- (Principal Financial and
Richard L. Gibbs Accounting Officer)
II - 4
<PAGE>
<TABLE>
<CAPTION>
Signature of Trustee Date Signature of Trustee Date
- -------------------- ---- -------------------- ----
<S> <C> <C> <C>
/s/ David Alexander 2-23-99 /s/ Dorothy Ann Kelly 2-23-99
- ------------------------ -------------------------
David Alexander Dorothy Ann Kelly, O.S.U.
/s/ Marcus Alexis 2-23-99 /s/Robert M. O'Neil 2-23-99
- ------------------------ -------------------------
Marcus Alexis Robert M. O'Neil
/s/ Willard T. Carleton 2-23-99 /s/ Leonard S. Simon 2-23-99
- ------------------------ -------------------------
Willard T. Carleton Leonard S. Simon
/s/ Robert C. Clark 2-23-99 /s/ Ronald L. Thompson 2-23-99
- ------------------------ -------------------------
Robert C. Clark Ronald L. Thompson
/s/ Estelle A. Fishbein 2-23-99
- ------------------------ -------------------------
Estelle A. Fishbein Paul R. Tregurtha
/s/ Frederick R. Ford 2-23-99 /s/ William H. Waltrip 2-23-99
- ------------------------ -------------------------
Frederick R. Ford William H. Waltrip
/s/ Martin J. Gruber 2-23-99 /s/ Rosalie J. Wolf 2-23-99
- ------------------------ -------------------------
Martin J. Gruber Rosalie J. Wolf
/s/ Ruth Simms Hamilton 2-23-99
- ------------------------
Ruth Simms Hamilton
</TABLE>
