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May 1, 2000
TIAA Real Estate Account
P r o s p e c t u s
| A Variable Annuity Offered Through
| Individual, Group and Tax-Deffered
| Annuity Contracts
[TIAA LOGO]
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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 fixed 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, 1999, TIAA's general account had a mortgage portfolio of $21.4
billion and a real property portfolio of $5.7 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 one of the largest pension systems in
the U.S., based on assets under management. TIAA-CREF serves approximately 2.2
million people at over 9,500 institutions. As of December 31, 1999, TIAA's
assets were approximately $110 billion; the combined assets for TIAA and CREF
totalled approximately $288 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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TIAA Real Estate Account
A Tax-Deferred Variable Annuity Option
Offered By
Teachers Insurance and Annuity
Association of America (TIAA)
May 1, 2000
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 8.
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 estimated annual expense deductions from Account's net assets total
0.565%.
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:
- RA and GRAs (Retirement and Group Retirement Annuities)
- SRAs (Supplemental Retirement Annuities)
- GSRAs (Group Supplemental Retirement Annuities)
- Classic and Roth IRAs (Individual Retirement Annuities)
- GAs (Group Annuities)
- Keoghs (subject to regulatory approval)
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the adequacy of the information in this
prospectus. Any representation to the contrary is a criminal offense.
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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Table of Contents
<TABLE>
<S> <C>
3 The Account's Investment Objective and Strategy
4 About the Account's Investments--In General
6 General Investment and Operating Policies
8 Risks
12 Establishing and Managing the Account--
The Role of TIAA
16 Description of Properties
23 Selected Financial Data
24 Management's Discussion and Analysis of Account's Financial Condition and
Operating Results
27 Valuing the Account's Assets
30 Expense Deductions
32 The Contracts
35 How to Transfer and Withdraw Your Money
38 Receiving Annuity Income
44 Death Benefits
45 Taxes
48 General Matters
50 Distributor
50 State Regulation
50 Legal Matters
51 Experts
51 Additional Information
52 Financial Statements
F-1 Index to Financial Statements
A-1 Appendix A--Management of TIAA
B-1 Appendix B--Glossary
C-1 Appendix C--Description of Certain Properties
</TABLE>
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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. On December 31, 1999, the Account had
82.5 percent of its net assets invested in real estate and real estate-related
investments (including REITs).
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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 buildings), and
simultaneously lease the land and improvements to a third party (the lessee).
Leasebacks are 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. They 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
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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:
- - renegotiating and restructuring the terms of a mortgage loan
- - extending the maturity of any mortgage loan made by the Account
- - consenting to a sale of the property subject to a mortgage loan
- - financing the purchase of a property by making a new mortgage loan in
connection with the sale
- - 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 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 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:
- - U.S. government or government agency securities
- - Corporate debt or asset-backed securities of U.S. or foreign entities, or
debt securi-
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ties of foreign governments or multi-national 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)
- - 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.
- - 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.
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:
- - the location, condition, and use of the underlying property
- - its operating history, its future income-producing capacity
- - 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 seeks 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.
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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. On a limited basis, the Account may place a mortgage on an Account
property held by one of its subsidiaries for tax planning
or other purposes.
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.
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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 a significant policy or wind
down the Account.
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:
- - 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.
- - A property may be unable to attract and retain tenants, which means that
rental income would decline.
- - 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.
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- - 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:
- - The sale price of an Account property might differ from its estimated or
appraised value, leading to losses or reduced profits to the Account.
- - 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.
- - 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 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.
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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:
- - 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.
- - 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.
- - 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.
- - The co-venturer may have interests or goals inconsistent with those of the
Account.
- - 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.
- - 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.
- - 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.
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.
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Risks of Mortgage Loan Investments
General Risks of Mortgage Loans. The Account will be subject to the risks
inherent in making mortgage loans, including:
- - 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.
- - 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.
- - 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:
- - The participation element might generate insufficient returns to make up for
the higher interest rate the loan would have obtained without the
participation feature.
- - 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 market
risk--price volatility due to changing conditions in the financial markets and,
in particular, changes in overall interest rates.
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Risks of Liquid Investments
The Account's investments in securities and other liquid investments may be
subject to:
- - 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.
- - market risk--price volatility due to changing conditions in the financial
markets and, particularly for debt securities, changes in overall interest
rates.
- - interest rate volatility, which may affect current income from an
investment.
Risks of Foreign Investments
Foreign investments present the following special risks:
- - Foreign real estate markets may have different liquidity and volatility
attributes than U.S. markets.
- - 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.
- - 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.
- - 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 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
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or charged against the assets of the Account without regard to TIAA's other
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.
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:
- - identifying, recommending and purchasing appropriate real estate-related and
other investments
- - providing all portfolio accounting, custodial, and related services for the
Account
- - 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 30.
You don't have the right to vote for TIAA Trustees directly. See "Voting
Rights" page 48. 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 30.
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.
TIAA does not currently own liquidity units.
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
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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. A special TIAA Allocation
Committee 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 ability to purchase and sell 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.
The Townsend Group, an institutional real estate consulting firm whose
principal offices are located in Cleveland, Ohio, recently has been engaged to
serve as the Account's independent fiduciary, replacing Institutional Property
Consultants, Inc. The independent fiduciary's responsibilities include:
- - reviewing and approving the Account's investment guidelines and monitoring
whether the Account's investments comply with those guidelines
- - reviewing and approving valuation procedures
14
<PAGE>
- - 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
- - reviewing and approving how we value accumulation and annuity units
- - approving the appointment of all independent appraisers
- - reviewing the purchase and sale of units by TIAA to ensure that we use the
correct unit values
- - 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:
- - 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
- - approving any adjustment of TIAA's interest in the Account and requiring an
adjustment if TIAA's investment reaches the trigger point
- - 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
A special subcommittee of the Investment Committee of TIAA's Board of Trustees
appointed The Townsend Group as the independent fiduciary starting March 1,
2000, for a three-year term. This subcommittee may renew the independent
fiduciary 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 including the
disclosure in this prospectus, you are also acknowledging that you approve and
accept The Townsend Group or any successor to serve as the Account's
independent fiduciary.
15
<PAGE>
Description of Properties
The Properties--In General
As of December 31, 1999, the Account had 54 properties in its real estate
portfolio. The following charts break down the Account's real estate assets by
region and property type.
[Start Pie Chart]
West--30.8%
East--39.0%
Midwest--18.5%
South--11.7%
[End Pie Chart]
[Start Pie Chart
Office--50.1%
Residential--27.7%
Industrial--18.7%
Retail--3.5%
[End Pie Chart]
In the table below you will find general information about each of the
Account's portfolio properties as of December 31, 1999.
<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)
- -------- -------- ----- --------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES
780 Third Avenue New York, NY 1984 1999 487,501 90% $ 40.44 $162,500,000
88 Kearny Street San Francisco, CA 1986 1999 228,464 95% $ 28.37 $ 72,400,000
Parkview Plaza(3) Oakbrook, IL 1990 1997 266,020 99% $ 19.44 $ 52,436,321
Columbia Centre III Rosemont, IL 1989 1997 238,696 99% $ 23.20 $ 42,100,000
Biltmore Commerce Center Phoenix, AZ 1985 1999 262,875 98% $ 15.91 $ 38,500,000
One Monument Place Fairfax, VA 1990 1999 217,990 99% $ 19.30 $ 36,100,000
Columbus Office Portfolio $ 33,701,672
Metro South Building Dublin, OH 1997 1999 90,726 91% $ 11.47 --
BISYS Fund Services Building Eaton, OH 1995 1999 155,964 100% $ 11.29 --
Vision Service Plan Building Eaton, OH 1997 1999 50,000 100% $ 11.88 --
10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 92% $ 23.75 $ 31,200,000
Fairgate at Ballston(3) Arlington, VA 1988 1997 143,457 94% $ 27.63 $ 30,800,000
Longview Executive Park(3) Hunt Valley, MD 1988 1997 258,999 100% $ 10.77 $ 28,400,000
Sawgrass Portfolio Sunrise, FL 1998 1999 159,647 100% $ 14.05 $ 25,000,000
Two Newton Place(3) Newton, MA 1987 1997 108,819 100% $ 24.03 $ 20,300,000
Five Centerpointe(3) Lake Oswego, OR 1988 1997 113,910 98% $ 20.99 $ 18,000,948
371 Hoes Lane Piscataway, NJ 1986 1997 139,670 100% $ 17.02 $ 16,800,000
Corporate Center at Sawgrass Sunrise, FL 1997 1997 91,119 100% $ 15.01 $ 14,200,000
Southbank Building Phoenix, AZ 1995 1996 122,535 100% $ 9.36 $ 13,000,000
Northmark Business Center(3) Blue Ash, OH 1985 1997 108,341 100% $ 12.09 $ 13,000,000
USF&G Building(3) Salt Lake City, UT 1988 1997 67,081 87% $ 16.99 $ 8,722,167
--------- ------------
SUBTOTAL--OFFICE PROPERTIES 3,521,367 $657,161,108
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Rentable Base Rent
Year Year Area Percent per Leased Market
Property Location Built Purchased (sq. ft.) Leased Sq. Ft.(1) Value(2)
- -------- -------- ----- --------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
IDI California Portfolio $ 36,500,000
Timberland Building Ontario, CA 1998 1998 414,435 100% $ 3.52 --
Park Mira Loma West Mira Loma, CA 1998 1998 557,500 100% $ 3.18 --
Saks Distribution Facility Aberdeen, MD 1997 1997 470,707 100% $ 4.98 $ 30,325,000
Park West Int'l Industrial Pk $ 25,400,000
Building C Hebron, KY 1998 1998 520,000 100% $ 2.85 --
Buidling D Hebron, KY 1998 1998 184,800 100% $ 3.26 --
Ontario Portfolio $ 24,650,000
5200 Airport Drive Ontario, CA 1997 1998 404,500 100% $ 3.48 --
1200 S. Etiwanda Ave. Ontario, CA 1998 1998 223,170 100% $ 3.16 --
Konica Photo Imaging
Headquarters Mahwah, NJ 1999 1999 168,000 100% NA $ 17,051,474
Glen Pointe Business Park $ 16,100,000
Building V Chicago, IL 1997 1998 117,600 100% $ 5.89 --
Building VII Chicago, IL 1997 1998 92,543 100% $ 7.24 --
Interstate Acres Urbandale, IA 1981-88 1997 440,000 97% $ 3.12 $ 14,100,000
Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $ 5.51 $ 13,300,000
Arapahoe Park E. Boulder, CO 1979-82 1996 129,425 100% $ 9.22 $ 11,850,000
UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $ 3.54 $ 11,000,000
Rockrun Business Park Chicago, IL 1998 1998 258,000 100% $ 2.92 $ 9,350,000
FedEx Distribution Facility Crofton, MD 1998 1998 111,191 100% $ 6.39 $ 7,800,000
Woodcreek Business Park Chicago, IL 1995 1998 149,907 100% $ 4.11 $ 6,976,343
Westinghouse Coral Springs, FL 1997 1997 75,630 100% $ 5.47 $ 6,200,000
Interstate Crossing Eagan, MN 1995 1996 131,380 100% $ 5.05 $ 6,400,000
Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $ 2.89 $ 4,850,000
River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $ 3.44 $ 4,300,000
--------- ------------
Subtotal--Industrial Properties 5,188,754 $246,152,817
RETAIL PROPERTIES
Rolling Meadows Rolling Meadows, IL 1957(4) 1997 130,910 91% $ 10.19 $ 12,110,000
River Oaks Woodbridge, VA 1995 1996 90,885 91% $ 14.41 $ 12,100,000
Lynnwood Collection Raleigh, NC 1988 1996 86,362 98% $ 8.66 $ 7,700,000
Millbrook Collection Raleigh, NC 1988 1996 102,221 93% $ 7.99 $ 7,100,000
Plantation Grove Ocoee, FL 1995 1995 73,655 100% $ 10.40 $ 7,350,000
--------- ------------
Subtotal--Retail Properties 484,033 $ 46,360,000
--------- ------------
Subtotal--Commercial Properties 9,194,154 $949,673,925
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<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)
- -------- -------- ----- --------- --------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL PROPERTIES(5)
The Colorado New York, NY 1987 1999 NA 98% NA $ 56,547,289
Larkspur Courts Apartments Larkspur, CA 1991 1999 NA 99% NA $ 55,300,000
Bay Court at Harbour Pointe Mulkiteo, WA 1991 1998 NA 96% NA $ 34,800,000
Lodge at Willow Creek Douglas County, CO 1997 1997 NA 93% NA $ 30,000,000
The Legends at Chase Oaks Plano, TX 1997 1998 NA 96% NA $ 27,800,000
Golfview Apartments Lake Mary, FL 1998 1998 NA 92% NA $ 27,510,000
Lincoln Woods Lafayette Hill, PA 1991 1997 NA 99% NA $ 22,952,310
Monte Vista Littleton, CO 1995 1996 NA 94% NA $ 20,500,000
Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 95% NA $ 17,108,785
Royal St. George W. Palm Beach, FL 1995 1996 NA 95% NA $ 16,500,000
Westcreek Westlake Village, CA 1988 1997 NA 98% NA $ 15,511,245
Bent Tree Apartments Columbus, OH 1987 1998 NA 99% NA $ 14,500,000
The Greens at Metrowest Orlando, FL 1990 1995 NA 92% NA $ 14,100,000
The Crest at Shadow Mt. El Paso, TX 1992 1997 NA 95% NA $ 9,700,000
--------- --------------
Subtotal--Residential Properties NA $ 362,829,629
--------- --------------
Total--All Properties 9,194,154 $1,312,503,554
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on total rent (excluding tenant payments for real estate taxes and
operating expenses) on leases existing at December 31, 1999. For those
properties purchased in 1999, the number was derived by annualizing the
rents charged by the Account since acquiring the property.
(2) Market value reflects the value determined in accordance with the
procedures described in the Account's prospectus.
(3) Purchased through Light Street Partners, L.P. (now 100% owned by the
Account).
(4) Renovated in 1991 and 1995.
(5) 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. At December 31, 1999, the Account held 40 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.
At December 31, 1999, the Account's office property portfolio consisted of 18
office properties located in metropolitan areas throughout the United States.
The office properties together are approximately 96 percent leased with 360
leases.
At December 31, 1999, the Account's industrial property portfolio consisted of
17 properties used primarily for warehousing, distribution, or light
manufacturing activities. The Account's industrial properties together are 98.5
percent leased with 66 leases.
At December 31, 1999, the Account's retail property portfolio consisted of 5
neighborhood shopping centers, each of which is anchored by a supermarket
tenant. These retail properties together are approximately 93.4 percent leased
with 78 leases.
Major Tenants: The following table lists the Account's major commercial tenants
based on the total space they occupy in the Account's properties.
<TABLE>
<CAPTION>
Percentage of Total Rentable
Occupied Area of Account's
Major Tenant Square Feet Non-Residential Properties Property Type
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The GAP 520,000 5.7% Industrial
Saks & Company 470,000 5.1% Industrial
Meiko-America 463,235 5.0% Industrial
Timberland 414,435 4.5% Industrial
New Breed Transfer Company 404,500 4.4% Industrial
Petco 258,000 2.8% Industrial
UPS 256,000 2.8% Industrial
Louisville Bedding Company 223,170 2.4% Industrial
VanKampen American Capital 208,821 2.3% Office
PHH Vehicle Management Services 199,563 2.2% Office
- -----------------------------------------------------------------------------------------------------
</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.
OFFICE PROPERTIES
<TABLE>
<CAPTION>
Rentable Area
Number of Subject to Percent of Total Rentable Area of
Leases Expiring Leases Account's Non-Residential Properties
Year of Lease Expiration Expiring (sq. ft.) Represented by Expiring Leases
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 47 357,148 10.14%
2001 67 440,670 12.51%
2002 64 558,166 15.85%
2003 62 659,643 18.73%
2004 44 316,570 8.99%
2005 and thereafter 76 1,034,093 29.37%
- ----------------------------------------------------------------------------------------------------
Total 360 3,366,290 95.59%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Industrial Properties
<TABLE>
<CAPTION>
Rentable Area
Number of Subject to Percent of Total Rentable Area of
Leases Expiring Leases Account's Non-Residential Properties
Year of Lease Expiration Expiring (sq. ft.) Represented by Expiring Leases
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 12 256,246 4.94%
2001 8 205,199 3.95%
2002 4 100,560 1.94%
2003 16 1,366,854 26.34%
2004 3 35,456 0.68%
2005 and thereafter 23 3,144,921 60.61%
- ----------------------------------------------------------------------------------------------------
Total 66 5,109,236 98.47%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Retail Properties
<TABLE>
<CAPTION>
Rentable Area
Number of Subject to Percent of Total Rentable Area of
Leases Expiring Leases Account's Non-Residential Properties
Year of Lease Expiration Expiring (sq. ft.) Represented by Expiring Leases
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 18 38,035 7.86%
2001 27 61,037 12.61%
2002 7 20,151 4.16%
2003 6 8,832 1.82%
2004 8 10,693 2.21%
2005 and thereafter 12 313,560 64.78%
- ----------------------------------------------------------------------------------------------------
Total 78 452,308 93.44%
- ----------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Residential Properties
The Account's residential property portfolio currently consists of 13 first
class or luxury multi-family garden apartment complexes and one high rise
apartment building. 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
apartment complexes in the Account's portfolio as of December 31, 1999.
<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>
The Colorado New York, NY 256 631 $1,338 98%
Larkspur Courts Apartments Larkspur, CA 248 1001 $1,935 99%
Bay Court at Harbour Pointe Mulkiteo, WA 420 970 $ 765 96%
The Legends at Chase Oaks Plano, TX 346 972 $ 904 93%
Lodge at Willow Creek Douglas County, CO 316 1001 $1,035 96%
Golfview Apartments Lake Mary, FL 276 1089 $ 950 92%
Lincoln Woods Lafayette Hill, PA 216 773 $1,083 99%
Monte Vista Littleton, CO 219 888 $ 902 94%
Indian Creek Apartments Farmington Hills, MI 196 1139 $ 984 99%
Royal St. George West Palm Beach, FL 224 870 $ 849 95%
Westcreek Westlake Village, CA 126 948 $1,194 98%
Bent Tree Apartments Columbus, OH 256 928 $ 605 99%
The Greens at Metrowest Orlando, FL 200 920 $ 799 92%
The Crest at Shadow Mt. El Paso, TX 232 837 $ 649 95%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
Recent Property Purchases and Sales
On April 4, 2000, the Account purchased Satellite Distribution Center, three
warehouse/distribution buildings located in Atlanta, Georgia, for a purchase
price of approximately $19,350,000. The properties are not subject to a
mortgage. 1600 Distribution Drive, built in 1997, contains 265,200 square feet
of rentable area and is situated on 16.2 acres of land with 176 parking spaces.
The building is 100% leased to three tenants, with rents averaging $3.33 per
square foot. 1620 Satellite Boulevard, built in 1999, contains 115,520 square
feet of rentable area and is situated on 9.1 acres of land with 106 parking
spaces. The building is 75% leased to two tenants, with rents averaging $4.22
per square foot. 1600 Satellite Boulevard, built in 1999, contains 114,720
square feet of rentable area and is situated on 9.1 acres of land with 105
parking spaces. The building is 100% leased to two tenants, with rents
averaging $3.61 per square foot. All of the expenses for operating each
property are either borne or reimbursed by the tenants.
21
<PAGE>
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.
(Note that the Account made a number of property purchases in 1999 that were
not described in supplements to its prospectus. These properties are briefly
described in Appendix C to this prospectus).
22
<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
(commencement
Year Ended December 31, of operations) to
--------------------------------------------------------------------------- December 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Real estate income, net:
Rental income $ 132,316,878 $ 81,009,203 $ 44,342,342 $ 10,951,183 $ 165,762
-------------- -------------- ------------ ------------ ------------
Real estate property level
expenses and taxes:
Operating expenses 27,334,060 17,339,706 9,024,240 2,116,334 29,173
Real estate taxes 15,892,736 9,103,637 4,472,311 1,254,163 14,659
-------------- -------------- ------------ ------------ ------------
Total real estate
property level
expenses and taxes 43,226,796 26,443,343 13,496,551 3,370,497 43,832
-------------- -------------- ------------ ------------ ------------
Real estate income, net 89,090,082 54,565,860 30,845,791 7,580,686 121,930
Dividends and interest 24,932,733 23,943,728 16,486,279 6,027,486 2,828,900
-------------- -------------- ------------ ------------ ------------
Total investment income $ 114,022,815 $ 78,509,588 $ 47,332,070 $ 13,608,172 $ 2,950,830
============== ============== ============ ============ ============
Net realized and unrealized
gain on investments $ 9,834,743 $ 7,864,659 $ 18,147,053 $ 3,330,539 $ 35,603
============== ============== ============ ============ ============
Net increase in net assets
resulting from operations $ 115,943,767 $ 76,611,662 $ 60,071,400 $ 15,782,915 $ 2,676,000
============== ============== ============ ============ ============
Net increase in net assets
resulting from participant
transactions $ 383,171,774 $ 333,936,510 $356,052,262 $233,653,793 $117,582,345
============== ============== ============ ============ ============
Net increase in net assets $ 499,115,541 $ 410,548,172 $416,123,662 $249,436,708 $120,258,345
============== ============== ============ ============ ============
December 31,
----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $1,719,457,715 $1,229,603,431 $815,760,825 $426,372,007 $143,177,421
============== ============== ============ ============ ============
Total liabilities and
minority interest $ 23,975,287 $ 33,236,544 $ 29,942,110 $ 56,676,954 $ 22,919,076
============== ============== ============ ============ ============
Total net assets $1,695,482,428 $1,196,366,887 $785,818,715 $369,695,053 $120,258,345
============== ============== ============ ============ ============
Accumulation units
outstanding 11,487,360 8,833,911 6,313,015 3,295,786 1,172,498
============== ============== ============ ============ ============
Accumulation unit value $ 142.97 $ 132.17 $ 122.30 $ 111.11 $ 102.57
============== ============== ============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Management's Discussion and Analysis of Account's Financial Condition and
Operating Results
The Real Estate Account continues to grow and passed the $1.6 billion mark in
net assets during 1999. Through December 31, 1999, the Account had a total of
54 real estate properties, including 18 office properties, 17 industrial
properties, 5 neighborhood shopping enters and 14 apartment complexes. At
December 31, 1999, these properties represented 77.8% of the Account's total
investment portfolio. This is in contrast to the end of 1998, when real estate
represented 67.7% of the Account's total investment portfolio.
In 1999, the Account purchased ten properties (seven office properties, one
industrial property and two apartment properties), sold two properties (one
office property and one apartment property), and purchased the remaining 10%
interest in a partnership owning a portfolio of office buildings, in which the
Account already owned the controlling 90% interest. Because the Account is now
at a size where it can absorb larger properties, this year the Account began to
pursue and make larger property purchases, including a $161 million purchase of
an office building. The Account continues to pursue suitable properties, and is
currently in various stages of negotiations with a number of prospective
sellers. While attractive acquisition prospects are available in the current
market, there is significant competition for the most desirable properties.
As of December 31, 1999, the Account also held investments in commercial paper,
representing 16.3% of the portfolio, real estate investment trusts (REITs),
representing 4.7% of the portfolio, U.S. government agencies, representing 0.6%
of the portfolio, and corporate bonds, representing 0.6% of the portfolio.
Results of Operations
Year Ended December 31, 1999 Compared to
Year Ended December 31, 1998
The Account's total net return was 8.17% for the year ended December 31, 1999
and 8.07% for 1998. The Account's net investment income, after deducting all
expenses, was $104,744,405 for the year ended December 31, 1999 and $72,234,994
for 1998, a 45% increase. This increase was the result of a 42% increase in net
assets and an increase in the Account's real estate holdings from December 31,
1998 to December 31, 1999. The Account had net realized and unrealized gains on
investments of $9,834,743 and $7,864,659 for the year ended December 31, 1999
and December 31, 1998, respectively. The gains on the Account's real estate
properties of $23,232,711 and $33,221,281 for 1999 and 1998, respectively, were
offset by net realized and unrealized losses on the Account's marketable
securities of $13,397,968 and $25,356,622 for 1999 and 1998 respectively.
24
<PAGE>
The Account's real estate holdings generated approximately 78% of the Account's
total investment income (before deducting Account level expenses) during 1999
compared with 70% during 1998. The remaining portion of the Account's total
investment income was generated by investments in marketable securities.
Gross real estate rental income was $132,316,878 for the year ended December
31, 1999 and $81,009,203 for the same period in 1998. This increase was
primarily due to the increase in the number of properties owned by the
Account--from 46 properties at the end of 1998 to 54 properties at the end of
1999. Interest and dividend income on the Account's marketable securities
investments increased from $23,943,728 for 1998 to $24,932,733 in 1999.
Total property level expenses for the year ended December 31, 1999 were
$43,226,796, of which $27,334,060 represented operating expenses and
$15,892,736 was attributable to real estate taxes. 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. The increase in property level expenses
during 1999 reflected the increased number of properties in the Account.
The Account also incurred expenses for the years ended December 31, 1999 and
1998 of $4,246,911 and $2,999,113, respectively, for investment advisory
services, $3,442,282 and $2,498,376, respectively, for administrative and
distribution services, and $1,589,217 and $777,105, 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 1999 over
1998.
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 also 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
$33,221,281 in 1998 compared with $10,234,316 in 1997. That increase was the
result of the increased values
25
<PAGE>
assigned to many of the properties after periodic revaluations from internal or
independent appraisals.
The Account's real estate holdings generated approximately 70% of the Account's
total investment income (before deducting Account level expenses) during 1998
and 65% during 1997. 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.
Liquidity and Capital Resources
The Account earned $104,744,405 in 1999 and $72,234,994 in net investment
income in 1998. During 1999, the Account received $126,200,561 in premiums and
$293,354,604 in net participant transfers from other TIAA and CREF accounts,
while in 1998 the Account received $91,248,578 in premiums and $337,568,064 in
net participant transfers from other TIAA and CREF accounts. Real estate
properties costing $511,878,000 and $259,746,550 were purchased during 1999 and
1998, respectively. In 1999, the Account also received $45,927,000 in proceeds
from the sale of two properties. By year end 1999, the Account's liquid assets
(i.e., its cash, REITs, short- and intermediate-term investments, and
government securities) had a value of $374,896,400, while at the end of 1998
those assets were valued at $391,605,900. We anticipate that much of the
Account's liquid assets as of December 31, 1999,
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exclusive of the REITs, will be used by the Account to 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 $4,343,000 in 1999 for capital (long-term)
expenses, including ongoing tenant improvements and leasing commissions at the
commercial properties relating to the renewal of existing tenants or re-leasing
of space to new tenants during the normal course of business. For the apartment
complexes, in addition to the routine recurring costs, e.g., painting and
carpet cleaning and minor replacements to re-lease apartments that become
vacant, the Account will be expending capital to renovate the lobby and upgrade
the elevators of The Colorado in New York City and the kitchens in the Larkspur
apartments.
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, depending on how long any vacant
space in a property remains unleased, the Account may not be able to recover
the full amount of such increases in operating expenses.
Valuing the Account's Assets
We value the Account's assets as of the close of each valuation day by taking
the sum of:
- - the value of the Account's cash, cash equivalents, and short-term and other
debt instruments
- - the value of the Account's other securities investments and other assets
- - the value of the individual real properties and other real estate-related
investments owned by the Account, determined as described below
- - 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
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<PAGE>
attributable to operating the Account. See "Expense Deductions," page 30.
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.
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).
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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
- - is made within three months of the annual independent appraisal or
- - 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 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
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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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The current annual expense deductions are:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Percent of
Net Assets
Type of Expense Deduction Annually Services Performed
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Management 0.25% For TIAA's investment advice, portfolio accounting,
custodial services, and similar services, including
independent fiduciary and appraisal fees
- ----------------------------------------------------------------------------------------------------------------
Administration 0.185% 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
- ----------------------------------------------------------------------------------------------------------------
Liquidity Guarantee 0.03% For TIAA's liquidity guarantee
- ----------------------------------------------------------------------------------------------------------------
Total Annual Expense Deduction 0.565% 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 is 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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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. 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 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.
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. To be considered a retired
employee for this purpose, an individual must be at least
55 years old and have completed at least three years of
service at an eligible institution. In the case of
partnerships that wish to establish Keoghs, at least half
the partners must be eligible individuals and the
partnership itself must be primarily engaged in education
or research. 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.
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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.
Classic and Roth IRAs may together be referred to as "IRAs" in this prospectus.
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. If a GA contract is issued pursuant to
your plan, the rules relating to transferring and withdrawing your money,
receiving any annuity income or death benefits, and the timing of payments may
be different, and are determined by your plan. Ask your employer or plan
administrator for more information.
Keoghs
Subject to regulatory approval, TIAA also offers contracts for Keogh plans. If
you own an unincorporated business, you can use our Keogh contracts and
prototype plan, provided you are eligible.
Starting Out
We'll issue you a TIAA contract when we receive your completed application or
enrollment form. 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 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.
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.
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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. If you pay premiums directly to an RA or IRA, the premiums and any
earnings are not subject to your employer's plan.
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
- - writing to our home office
- - using our Inter/ACT Internet service at www.tiaa-cref.org or
- - 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 have begun making annuity payments from it. If you already had a TIAA
contract prior to investing in the Real Estate Account, 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
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<PAGE>
transaction request and all required information and documents (unless you ask
for a later date).
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.
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.
How to Transfer and Withdraw Your Money
Generally TIAA allows you to move your money to or from the Real Estate Account
in the following ways:
- - from the Real Estate Account to a CREF investment account or TIAA's
traditional annuity
- - to the Real Estate Account from a CREF investment account or TIAA's
traditional annuity (subject to certain limitations)
- - from the Real Estate Account to other companies
- - to the Real Estate Account from other plans
- - by withdrawing cash
- - by setting up a program of automatic withdrawals or transfers
These transactions generally must be for at least $1,000 at a time (or your
entire Account accumulation, if less). 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. If you request a transfer at any time other than during a
business day, it will be effective at the close of the next business day.
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<PAGE>
To request a transfer or to withdraw cash:
- - write to TIAA's home office at 730 Third Ave., New York, NY 10017-3206
- - call us at 800 842-2252 or
- - 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 these
transactions. We can suspend or terminate your ability to transact by
telephone, over the Internet, or by fax at any time, for any reason.
Before you transfer or withdraw cash, make sure you understand the possible
federal and other income tax consequences. See "Taxes," page 45.
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 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. 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, subject to certain tax restrictions. This right may be
limited by your employer's plan. 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.
Market Timing Policy
There are participants who may try to
profit from transferring money back and
forth among the CREF accounts and the
Real Estate Account in an effort to
"time" the market. As money is shifted
in and out of these accounts, we incur
transaction costs, including, among
other things, expenses for buying and
selling securities. These costs are
borne by all participants, including
long-term investors who do not generate
the costs. To discourage this
market-timing activity, participants who
make more than three transfers out of
any account (other than the CREF Money
Market Account) in a calendar month will
be advised that if this transfer
frequency continues, we will suspend
their ability to make telephone, fax and
internet transfers. We have the right to
modify our policy at any time without
advance notice.
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<PAGE>
Transfers from Other Plans
Subject to your employer's plan, you can usually transfer money from another
403(b) retirement plan to your TIAA contract. Similarly, you can transfer money
to the Real Estate Account from other 401(a) and 403(a) plans. Amounts
transferred to TIAA may be subject to the provisions of your original
employer's plan. Similarly, subject to your employer's plan, you may be able to
rollover funds from 401(a), 403(a), and 403(b) plans to a TIAA Classic IRA, or
subject to applicable income limits, from an IRA containing funds originally
contributed to such plans, to either a TIAA Classic or Roth IRA. Funds in a
457(b) plan can be transferred to another 457(b) plan only. Accumulations in
457(b) plans may not be rolled over to a qualified plan (e.g., a 401(a) plan),
a 403(b) plan or an IRA.
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 accumulation
may be limited by the terms of your employer's plan and federal tax law.
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 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 percent
penalty tax if you make a withdrawal before you reach age 59 1/2, unless an
exception applies to your situation.
Under current federal tax law, you are not permitted to withdraw from 457(b)
plans earlier than the calendar year in which you reach age 70 1/2 or separate
from service or are faced with an unforeseeable emergency (as defined by law).
There are no early withdrawal tax penalties if you withdraw under any of these
circumstances (i.e., no 10% tax on distributions prior to age 59 1/2).
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 number of
accumulation units, dollar amount, or 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.
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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.
Receiving Annuity Income
The Annuity Period in General
You can receive an income stream from all or part of your Real Estate Account
accumulation. Unless you opt for a lifetime annuity, 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 tax. 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 the later of 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.
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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 41. 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.
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, GSRA or Keogh. 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:
- - One-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.
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- - Annuity for a Fixed Period: Pays income for any period you choose from 5 to
30 years.
- - Two-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. Under the Two-Thirds Benefit
to Survivor option, payments to you will be reduced upon the death of your
annuity partner.
- - Minimum 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): If your
employer's plan allows, you may be able to receive a single sum payment of up
to 10 percent of the 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 "Taxes," page 45.
If you haven't picked an income option when the annuity starting date arrives
for your RA, GRA, SRA or GSRA contract, 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 a 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
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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.
Calculating 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.
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For participants under the annual income change method, the value of the
annuity unit for payments remains level until the following May 1. 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.
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.
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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 for your beneficiary the method we'll use to pay the
death benefit, but few participants do this. If you choose a payment method,
you can also block your beneficiaries from changing it. Most people leave the
choice to their beneficiaries. We can block any choice if its initial payment
is less than $25. Beginning late in 2000 or early 2001, if death occurs while
your contract is in the accumulation stage, in most cases we'll pay the death
benefit using the TIAA-CREF Savings & Investment Plan (described on page 45).
We won't do this if you preselected another option or if the beneficiary elects
another option. Some beneficiaries aren't eligible for the TIAA-CREF Savings &
Investment Plan. If your beneficiary isn't eligible and doesn't specifically
tell us to start paying death benefits within a year of your death, we can
start making payments to them over five years using the fixed-period annuity
method of payment.
Payments During the Accumulation Period:
Currently, the available methods of payment for death benefits from funds in
the accumulation period are:
- - Single-Sum Payment, in which the entire death benefit is paid to your
beneficiary at once;
- - One-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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- - Annuity for a Fixed Period of 2 to 30 years;
- - Accumulation-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
- - Minimum Distribution Option (also called the TIAA-CREF Savings &
Investment Plan), which automatically pays income according to the Internal
Revenue Code's minimum distribution requirements. It operates in much the
same way as the MDO annuity income option. 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.
Payments During the Annuity Period: If you and your annuity partner die during
the annuity period, your beneficiary can choose to receive any 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
This section offers general information concerning federal taxes. 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 premiums paid in before-tax
dollars, employer contributions and earnings attributable to these amounts are
not taxed until they're withdrawn. Annuity payments, single-sum withdrawals,
systematic withdrawals, and death benefits are usually taxed as ordinary
income. Premiums paid in after-tax dollars aren't taxable when withdrawn, but
earnings attributable to these amounts are taxable. Death benefits are usually
also subject to federal estate and state estate or inheritance taxation.
Generally, transfers between qualified retirement plans are not taxed.
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Generally, contributions you can make under an employer's plan are limited by
federal tax law. Employee voluntary salary reduction contributions to 403(b)
and 401(k) plans are limited to $10,500 per year. Certain long-term employees
may be able to defer up to $13,500 per year in a 403(b) plan. Contributions to
Classic and Roth IRAs, other than rollover contributions, cannot generally
exceed $2,000 per year.
The maximum contribution limit to a 457(b) non-qualified deferred compensation
plan for employees of state and local governments for 2000 is the lesser of
$8,000 or 33 1/3% of "includable compensation" (as defined by law). Special
catch up rules may permit a higher contribution in one or more of the last
three years prior to an individual's normal retirement age under the plan. All
pre-tax contributions made on behalf of an individual to a 403(b) plan, and
pre-tax elective deferrals made on behalf of an individual to a 401(k) plan, a
simple IRA or to a Simplified Employee Pension Plan are aggregated with
contributions to a 457(b) plan to calculate the maximum contribution that may
be made to the 457(b) plan.
Early Distributions
If you want to withdraw funds or begin receiving 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.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to any Roth IRA. A 10% penalty tax
may apply to amounts attributable to a conversion from an IRA if they are
distributed during the five taxable years beginning with the year in which the
conversion was made. 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 Classic IRAs, payments must
begin by April 1 of the year after 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.
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. Although 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.
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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 roll over
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 income 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 income taxes unless you tell us not to and you are eligible to
avoid withholding. Nonresident aliens who pay U.S. taxes are subject to
different withholding rules. In general, all amounts received under a section
457 plan are taxable and are subject to federal income tax withholding as
wages. Contact TIAA or your tax advisor for more information.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of your contract could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on your contract.
We have the right to modify the contract in response to legislative changes
that could otherwise diminish the favorable tax treatment that annuity contract
owners currently receive. We make no guarantee regarding the tax status of any
contract and do not intend the above discussion as tax advice.
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General Matters
Making Choices and Changes
You may have to make certain choices or changes (e.g., changing your income
option, making a cash withdrawal) 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 ability to transact by telephone, over the
Internet, or by fax at any time, for any reason.
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.
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
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
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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.
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.
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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.
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Experts
Ernst & Young LLP, independent auditors, have audited our (i) consolidated
financial statements and financial statement schedule at December 31, 1999
and 1998 and for each of the years in the period ended December 31, 1999,
(ii) statement of revenues and certain expenses of The Colorado for the year
ended December 31, 1997, (iii) statement of revenues and certain expenses of
Larkspur Courts Apartments for the year ended December 31, 1998, and (iv)
statement of revenues and certain expenses of 88 Kearny Street for the year
ended December 31, 1998, respectively, as set forth in their reports.
Friedman, Alpren & Green LLP, independent auditors, have audited our
statement of revenues and certain expenses of 780 Third Avenue for the year
ended December 31, 1998. We've included these financial statements and
schedule in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's and Friedman, Alpren & Green LLP's reports,
given on their authority 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.
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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
<TABLE>
<CAPTION>
Page
----
<S> <C>
TIAA REAL ESTATE ACCOUNT
Audited Consolidated Financial Statements:
Report of Management Responsibility ..................................... F-2
Report of Independent Auditors .......................................... F-3
Consolidated Statements of Assets and Liabilities ....................... F-4
Consolidated Statements of Operations ................................... F-5
Consolidated Statements of Changes in Net Assets ........................ F-6
Consolidated Statements of Cash Flows ................................... F-7
Notes to Consolidated Financial Statements .............................. F-8
Consolidated Statement of Investments ................................... F-15
Proforma Condensed Financial Statements:
Proforma Condensed Statement of Assets and Liabilities .................. F-19
Proforma Condensed Statement of Operations .............................. F-20
Notes to Proforma Condensed Financial Statements ........................ F-21
The Colorado:
Report of Independent Auditors .......................................... F-22
Statement of Revenues and Certain Expenses .............................. F-23
Notes to Statement of Revenues and Certain Expenses ..................... F-24
Larkspur Courts Apartments:
Report of Independent Auditors .......................................... F-25
Statement of Revenues and Certain Expenses .............................. F-26
Notes to Statement of Revenues and Certain Expenses ..................... F-27
88 Kearny Street:
Report of Independent Auditors .......................................... F-28
Statement of Revenues and Certain Expenses .............................. F-29
Notes to Statement of Revenues and Certain Expenses ..................... F-30
780 Third Avenue:
Report of Independent Auditors .......................................... F-31
Statement of Revenues and Certain Expenses .............................. F-32
Notes to Statement of Revenues and Certain Expenses ..................... F-33
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
Condensed Unaudited Statutory-Basis Financial Statements ................ F-35
Supplemental Information to Condensed Unaudited Statutory-Basis Financial
Statements ........................................................... F-37
</TABLE>
F-1
<PAGE>
[TIAA LOGO]
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT RESPONSIBILITY
To the Participants of the
TIAA Real Estate Account:
The accompanying financial statements of the TIAA Real Estate Account
("Account") of Teachers Insurance and Annuity Association of America ("TIAA")
are the responsibility of TIAA's management. They have been prepared in
accordance with accounting principles generally accepted in the United States
and have been presented fairly and objectively in accordance with such
principles.
TIAA has established and maintains a strong system of internal controls
designed to provide reasonable assurance that assets are properly safeguarded
and transactions are properly executed in accordance with management's
authorization, and to carry out the ongoing responsibilities of management for
reliable financial statements. In addition, TIAA's internal audit personnel
provide a continuing review of the internal controls and operations of TIAA,
including its separate account operations.
The accompanying financial statements have been audited by the independent
auditing firm of Ernst & Young LLP. The independent auditors' report, which
appears on the following page, expresses an independent opinion on the fairness
of presentation of these financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting of trustees who
are not officers of TIAA, meets regularly with management, representatives of
Ernst & Young LLP and internal audit personnel to review matters relating to
financial reporting, internal controls and auditing.
/s/ John H. Biggs
---------------------------------
Chairman, President and
Chief Executive Officer
/s/ Richard L. Gibbs
---------------------------------
Executive Vice President and
Principal Accounting Officer
F-2
<PAGE>
[ERNST & YOUNG LLP LOGO] - 1211 Avenue of the America - Phone 212 773 4900
New York, New York 10036 Fax: 212 773 6501
REPORT OF INDEPENDENT AUDITORS
To the Participants of the TIAA Real Estate Account and the
Board of Trustees of Teachers Insurance and Annuity Association of America:
We have audited the accompanying consolidated statements of assets and
liabilities, including the statement of investments as of December 31, 1999,
of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity
Association of America ("TIAA") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in net assets and cash
flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of TIAA's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. Our procedures included confirmation of
securities owned as of December 31, 1999, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Account at December 31, 1999 and 1998, and the results of their operations and
the changes in their net assets and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
February 4, 2000
F-3
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
Investments, at value:
Real estate properties
(cost: $1,253,650,281 and $775,801,883)..................... $1,312,503,554 $ 820,211,240
Marketable securities
(cost: $395,662,203 and $402,041,089) ...................... 374,278,801 391,033,557
Cash .......................................................... 617,599 572,343
Other ......................................................... 32,057,761 17,786,291
-------------- --------------
TOTAL ASSETS 1,719,457,715 1,229,603,431
-------------- --------------
LIABILITIES
Accrued real estate property level expenses and taxes ......... 18,425,328 11,432,529
Security deposits held ........................................ 5,549,959 1,890,423
-------------- --------------
TOTAL LIABILITIES 23,975,287 13,322,952
-------------- --------------
MINORITY INTEREST -- 19,913,592
-------------- --------------
NET ASSETS
Accumulation Fund ............................................. 1,642,327,173 1,167,591,317
Annuity Fund .................................................. 53,155,255 28,775,570
-------------- --------------
TOTAL NET ASSETS $1,695,482,428 $1,196,366,887
============== ==============
NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 6
and 7 ........................................................ 11,487,360 8,833,911
============== ==============
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6 ................. $ 142.97 $ 132.17
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Real estate income, net:
Rental income ........................................... $132,316,878 $ 81,009,203 $ 44,342,342
------------ ------------- ------------
Real estate property level expenses and taxes:
Operating expenses ..................................... 27,334,060 17,339,706 9,024,240
Real estate taxes ...................................... 15,892,736 9,103,637 4,472,311
------------ ------------- ------------
Total real estate property level expenses and taxes 43,226,796 26,443,343 13,496,551
------------ ------------- ------------
Real estate income, net 89,090,082 54,565,860 30,845,791
Interest ................................................ 17,117,917 15,588,829 12,079,600
Dividends ............................................... 7,814,816 8,354,899 4,406,679
------------ ------------- ------------
TOTAL INCOME 114,022,815 78,509,588 47,332,070
------------ ------------- ------------
Expenses--Note 3:
Investment advisory charges ............................. 4,246,911 2,999,113 1,647,689
Administrative and distribution charges ................. 3,442,282 2,498,376 1,368,501
Mortality and expense risk charges ...................... 1,027,707 675,450 400,925
Liquidity guarantee charges ............................. 561,510 101,655 109,430
------------ ------------- ------------
TOTAL EXPENSES 9,278,410 6,274,594 3,526,545
------------ ------------- ------------
INVESTMENT INCOME, NET 104,744,405 72,234,994 43,805,525
------------ ------------- ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Real estate properties .................................. 8,788,795 -- --
Marketable securities ................................... (3,022,098) (5,258,000) 1,076,725
------------ ------------- ------------
Net realized gain (loss) on investments 5,766,697 (5,258,000) 1,076,725
------------ ------------- ------------
Net change in unrealized appreciation (depreciation) on:
Real estate properties .................................. 14,443,916 33,221,281 10,234,316
Marketable securities ................................... (10,375,870) (20,098,622) 6,836,012
------------ ------------- ------------
Net change in unrealized appreciation on investments 4,068,046 13,122,659 17,070,328
------------ ------------- ------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 9,834,743 7,864,659 18,147,053
------------ ------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 114,579,148 80,099,653 61,952,578
Minority interest in net increase in net assets
resulting from operations .............................. 1,364,619 (3,487,991) (1,881,178)
------------ ------------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $115,943,767 $ 76,611,662 $ 60,071,400
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
--------------- -------------- -------------
<S> <C> <C> <C>
FROM OPERATIONS
Investment income, net ................................... $ 104,744,405 $ 72,234,994 $ 43,805,525
Net realized gain (loss) on marketable securities ........ 5,766,697 (5,258,000) 1,076,725
Net change in unrealized appreciation on investments ..... 4,068,046 13,122,659 17,070,328
Minority interest in net increase in net assets
resulting from operations .............................. 1,364,619 (3,487,991) (1,881,178)
--------------- -------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 115,943,767 76,611,662 60,071,400
--------------- -------------- -------------
FROM PARTICIPANT TRANSACTIONS
Premiums ................................................. 126,200,561 91,248,578 52,344,830
TIAA seed money withdrawn--Note 1 ........................ -- (76,666,109) (37,915,190)
Net participant transfers from TIAA ...................... 24,155,178 26,568,616 43,681,385
Net participant transfers from CREF Accounts ............. 269,199,426 310,999,448 307,493,199
Annuity and other periodic payments ...................... (6,330,436) (3,209,761) (1,499,054)
Withdrawals and death benefits ........................... (30,052,955) (15,004,262) (8,052,908)
--------------- -------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 383,171,774 333,936,510 356,052,262
--------------- -------------- -------------
NET INCREASE IN NET ASSETS 499,115,541 410,548,172 416,123,662
NET ASSETS
Beginning of year ........................................ 1,196,366,887 785,818,715 369,695,053
--------------- -------------- -------------
End of year .............................................. $1,695,482,428 $1,196,366,887 $ 785,818,715
=============== ============== =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended December 31,
------------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ..... $ 115,943,767 $ 76,611,662 $ 60,071,400
Adjustments to reconcile net increase in net assets
resulting from operations to net cash used in
operating activities:
Increase in investments ................................. (475,537,558) (409,958,664) (433,355,406)
Decrease in receivable from
securities transactions ............................... -- -- 47,480,000
Increase in other assets ................................ (14,271,470) (3,719,197) (7,087,554)
Decrease in payable for
securities transactions ............................... -- (10,463) (51,344,156)
Increase in accrued real estate property
level expenses and taxes .............................. 6,992,799 1,088,936 5,021,258
Increase in security deposits held ...................... 3,659,536 584,465 1,305,958
Increase (decrease) in minority interest ................ (19,913,592) 1,631,496 18,282,096
--------------- -------------- --------------
NET CASH USED IN
OPERATING ACTIVITIES (383,126,518) (333,771,765) (359,626,404)
--------------- -------------- --------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums ................................................. 126,200,561 91,248,578 52,344,830
TIAA seed money withdrawn--Note 1 ........................ -- (76,666,109) (37,915,190)
Net participant transfers from TIAA ...................... 24,155,178 26,568,616 43,681,385
Net participant transfers from CREF Accounts ............. 269,199,426 310,999,448 307,493,199
Annuity and other periodic payments ...................... (6,330,436) (3,209,761) (1,499,054)
Withdrawals and death benefits ........................... (30,052,955) (15,004,262) (8,052,908)
--------------- -------------- --------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 383,171,774 333,936,510 356,052,262
--------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH 45,256 164,745 (3,574,142)
CASH
Beginning of year ........................................ 572,343 407,598 3,981,740
--------------- -------------- --------------
End of year .............................................. $ 617,599 $ 572,343 $ 407,598
=============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Organization
The TIAA Real Estate Account ("Account") is a segregated investment account of
Teachers Insurance and Annuity Association of America ("TIAA") and was
established by resolution of TIAA's Board of Trustees on February 22, 1995,
under the insurance laws of the State of New York, for the purpose of funding
variable annuity contracts issued by TIAA. Teachers REA, LLC, a wholly-owned
subsidiary of the Account, began operations in July 1996 and holds two
properties in Virginia. Light Street Partners, L.P. ("Light Street"), a
partnership in which the Account holds a 100% interest, began operations in
March 1997 and holds seven office buildings throughout the United States. Prior
to April 30, 1999, when the Account purchased the remaining 10% interest, the
Account had a 90% interest in Light Street. Teachers REA II, LLC, a
wholly-owned subsidiary of the Account, began operations in October 1997 and
holds one property in Pennsylvania. Teachers REA III, LLC, a wholly-owned
subsidiary of the Account, began operations in July 1998 and holds one property
in Florida.
The Account commenced operations on July 3, 1995 with a $100,000,000 seed money
investment by TIAA. TIAA purchased 1,000,000 Accumulation Units in the Account
and such Units shared in the prorata investment experience of the Account and
were subject to the same valuation procedures and expense deductions as all
other Accumulation Units of the Account. The initial registration statement of
the Account filed by TIAA with the Securities and Exchange Commission
("Commission") under the Securities Act of 1933 became effective on October 2,
1995. The Account began to offer Accumulation Units and Annuity Units to
participants other than TIAA on October 2, and November 1, 1995, respectively.
In August 1996, the Account's net assets first reached $200 million and, as
required under a five year repayment schedule approved by the New York State
Insurance Department ("NYID"), TIAA began to redeem its seed money Accumulation
Units in monthly installments of 16,667 Units beginning in September 1996.
Since the Account's assets were growing rapidly, TIAA in October 1997, with
NYID approval, modified the seed money redemption schedule by increasing the
monthly redemption of Units to a level equal to the value of 25% of the
Account's net asset growth for the prior month, with no fewer than 16,667 Units
and no more than 100,000 Units to be redeemed each month. These withdrawals
were made at prevailing daily net asset values and are reflected in the
accompanying consolidated financial statements. By the end of 1998, all of
TIAA's Accumulation Units had been withdrawn.
The investment objective of the Account is a favorable long-term rate of return
primarily through rental income and capital appreciation from real estate
investments owned by the Account. The Account also invests in publicly-traded
securities and other instruments to maintain adequate liquidity for operating
expenses, capital expenditures and to make benefit payments.
F-8
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1--Organization (Concluded)
TIAA employees, under the direction of TIAA's Board of Trustees and its
Investment Committee, manage the investment of the Account's assets pursuant to
investment management procedures adopted by TIAA for the Account. TIAA's
investment management decisions for the Account are also subject to review by
the Account's independent fiduciary, Institutional Property Consultants, Inc.
TIAA also provides all portfolio accounting and related services for the
Account. TIAA-CREF Individual & Institutional Services, Inc. ("Services"), a
subsidiary of TIAA, which is registered with the Commission as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc.,
provides administrative and distribution services pursuant to a Distribution
and Administrative Services Agreement with the Account.
Note 2--Significant Accounting Policies
The preparation of financial statements may require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, income, expenses and related disclosures. Actual results may
differ from those estimates. The following is a summary of the significant
accounting policies consistently followed by the Account, which are in
conformity with accounting principles generally accepted in the United States.
Basis of Presentation: The accompanying consolidated financial statements
include the Account and its wholly-owned subsidiaries, Teachers REA, LLC,
Teachers REA II, LLC, Teachers REA III, LLC, Inc and Light Street. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Valuation of Real Estate Properties: Investments in real estate properties are
stated at fair value, as determined in accordance with procedures approved by
the Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole; accordingly, the Account does not
record depreciation. Fair value for real estate properties is defined as the
most probable price for which a property will sell in a competitive market
under all conditions requisite to a fair sale. Determination of fair value
involves subjective judgement because the actual market value of real estate
can be determined only by negotiation between the parties in a sales
transaction. Real estate properties owned by the Account are initially valued
at their respective purchase prices (including acquisition costs).
Subsequently, independent appraisers value each real estate property at least
once a year. The independent fiduciary must approve all independent appraisers
used by the Account. The independent fiduciary can also require additional
appraisals if it believes that a property's value has changed materially or
otherwise to assure that the Account is valued correctly. TIAA's appraisal
staff performs a valuation review of each real estate property on a quarterly
basis and updates the property value if it believes that the value of the
property has changed since the previous valuation review or appraisal. The
independent fiduciary reviews and approves any such valuation adjustments which
exceed certain prescribed limits. TIAA continues to use the revised value to
calculate the Account's net asset value until the next valuation review or
appraisal.
F-9
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2--Significant Accounting Policies (Concluded)
Valuation of Marketable Securities: Equity securities listed or traded on any
United States national securities exchange are valued at the last sale price as
of the close of the principal securities exchange on which such securities are
traded or, if there is no sale, at the mean of the last bid and asked prices on
such exchange. Short-term money market instruments are stated at market value.
Portfolio securities for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole.
Accounting for Investments: Real estate transactions are accounted for as of
the date on which the purchase or sale transactions for the real estate
properties close (settlement date). Rent from real estate properties consists
of all amounts earned under tenant operating leases, including base rent,
recoveries of real estate taxes and other expenses and charges for
miscellaneous services provided to tenants. Rental income is recognized in
accordance with the billing terms of the lease agreements. The Account bears
the direct expenses of the real estate properties owned. These expenses
include, but are not limited to, fees to local property management companies,
property taxes, utilities, maintenance, repairs, insurance and other operating
and administrative costs. An estimate of the net operating income earned from
each real estate property is accrued by the Account on a daily basis and such
estimates are adjusted as soon as actual operating results are determined.
Realized gains and losses on real estate transactions are accounted for under
the specific identification method.
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and, for
short-term money market instruments, includes accrual of discount and
amortization of premium. Dividend income is recorded on the ex-dividend date.
Realized gains and losses on securities transactions are accounted for on the
average cost basis.
Federal Income Taxes: Based on provisions of the Internal Revenue Code, the
Account is taxed as a segregated asset account of TIAA. The Account should
incur no material federal income tax attributable to the net investment
experience of the Account.
F-10
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3--Management Agreements
Under established management agreements, various services necessary for the
operation of the Account are provided, at cost, by TIAA and Services. TIAA
provides investment management services for the Account while distribution and
administrative services are provided by Services in accordance with a
Distribution and Administrative Services Agreement between the Account and
Services. Prior to April 30, 1999, an affiliate of the former minority partner
in Light Street provided certain management services for the properties owned
by Light Street. The charges for such services, for the year ended December 31,
1999 amounted to $345,928 ($855,810 in 1998 and 507,829 in 1997) for investment
advisory expenses and $104,673 ($102,953 in 1998 and $0 in 1997) for
administrative expenses which are recorded accordingly in the accompanying
consolidated statements of operations. TIAA also provides a liquidity guarantee
to the Account, for a fee, to ensure that sufficient funds are available to
meet participant transfer and cash withdrawal requests in the event that the
Account's cash flows and liquid investments are insufficient to fund such
requests. TIAA also receives a fee for assuming certain mortality and expense
risks.
Fee payments are made from the Account on a daily basis to TIAA and Services
according to formulas established each year with the objective of keeping the
fees as close as possible to the Account's actual expenses. Any differences
between actual expenses and daily charges are adjusted quarterly.
Note 4--Real Estate Properties
Had the Account's real estate properties which were purchased during the year
ended December 31, 1999 been acquired at the beginning of the period (January
1, 1999), rental income and real estate property level expenses and taxes for
the year ended December 31, 1999 would have increased by approximately
$30,886,000 and $11,806,000 respectively. In addition, interest income for the
year ended December 31, 1999 would have decreased by approximately $15,431,000.
Accordingly, the total proforma effect on the Account's net investment income
for the year ended December 31, 1999 would have been an increase of
approximately $3,649,000, if the real estate properties acquired during the
year ended December 31, 1999 had been acquired at the beginning of the period.
F-11
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5--Leases
The Account's real estate properties are leased to tenants under operating
lease agreements which expire on various dates through 2021. Aggregate minimum
annual rentals for the properties owned, excluding short-term residential
leases, are as follows:
<TABLE>
Years Ending
December 31,
------------
<S> <C>
2000 $ 91,384,000
2001 81,019,000
2002 70,055,000
2003 59,368,000
2004 50,531,000
Thereafter 139,129,000
------------
Total $491,486,000
============
</TABLE>
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
F-12
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6--Condensed Consolidated Financial Information
Selected condensed consolidated financial information for an Accumulation Unit
of the Account is presented below.
<TABLE>
<CAPTION>
July 3, 1995
For the Years Ended (Commencement
December 31, of Operations) to
---------------------------------------------------- December 31,
1999 1998 1997 1996 1995 (1)
--------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Per Accumulation Unit Data:
Rental income ...................... $ 12.168 $ 10.425 $ 7.288 $ 6.012 $ 0.159
Real estate property level
expenses and taxes ............... 3.975 3.403 2.218 1.850 0.042
--------- --------- --------- --------- ---------
Real estate income, net 8.193 7.022 5.070 4.162 0.117
Dividends and interest ............. 2.292 3.082 2.709 3.309 2.716
--------- --------- --------- --------- ---------
Total income 10.485 10.104 7.779 7.471 2.833
Expense charges (2) ................ 0.853 0.808 0.580 0.635 0.298
--------- --------- --------- --------- ---------
Investment income, net 9.632 9.296 7.199 6.836 2.535
Net realized and unrealized
gain on investments .............. 1.164 .579 3.987 1.709 0.031
--------- --------- --------- --------- ---------
Net increase in
Accumulation Unit Value .......... 10.796 9.875 11.186 8.545 2.566
Accumulation Unit Value:
Beginning of period ............... 132.172 122.297 111.111 102.566 100.000
--------- --------- --------- --------- ---------
End of period ..................... $ 142.968 $ 132.172 $ 122.297 $ 111.111 $ 102.566
========= ========= ========= ========= =========
Total return ....................... 8.17% 8.07% 10.07% 8.33% 2.57%
Ratios to Average Net Assets:
Expenses (2) ...................... 0.63% 0.64% 0.58% 0.61% 0.30%
Investment income, net ............ 7.13% 7.34% 7.25% 6.57% 2.51%
Portfolio turnover rate:
Real estate properties ............ 4.46% 0% 0% 0% 0%
Securities ........................ 27.68% 24.54% 7.67% 15.04% 0%
Thousands of Accumulation Units
outstanding at end of period ..... 11,487 8,834 6,313 3,296 1,172
</TABLE>
(1) The percentages shown for this period are not annualized.
(2) Expense charges per Accumulation Unit and the Ratio of Expenses to Average
Net Assets include the portion of expenses related to the 10% minority
interest in Light Street and exclude real estate property level expenses
and taxes. If the real estate property level expenses and taxes were
included, the expense charge per Accumulation Unit for the year ended
December 31, 1999 would be $4.828 ($4.211, $2.798 and $2.485 for the years
ended December 31, 1998, 1997 and 1996 respectively, and $0.340 for the
period July 3, 1995 through December 31, 1995) and the Ratio of Expenses
to Average Net Assets for the year ended December 31, 1999 would be 3.58%
(3.32%, 2.82% and 2.39% for the years ended December 31, 1998, 1997 and
1996 respectively, and 0.34% for the period July 3, 1995 through December
31, 1995).
F-13
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7--Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Accumulation Units:
Credited for premiums ........................ 918,728 511,462 448,822
Credited for transfers, net disbursements and
amounts applied to the Annuity Fund ......... 1,734,721 2,009,434 2,568,407
Outstanding:
Beginning of year ........................... 8,833,911 6,313,015 3,295,786
---------- --------- ---------
End of year .................................. 11,487,360 8,833,911 6,313,015
========== ========= =========
</TABLE>
F-14
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
December 31, 1999
REAL ESTATE PROPERTIES--77.81%
<TABLE>
<CAPTION>
Location/Description Value
- -------------------- -----
<S> <C>
Arizona:
Biltmore Commerce Center -- Office building .................. $38,500,000
Southbank Building -- Office building ........................ 13,000,000
California:
88 Kearny Street -- Office building .......................... 72,400,000
Eastgate Distribution Center -- Industrial building .......... 13,300,000
IDI California Portfolio -- Industrial building .............. 36,500,000
Larkspur Courts -- Apartments ................................ 55,300,000
Ontario Industrial Properties -- Industrial building ......... 24,650,000
Westcreek -- Apartments ...................................... 15,511,245
Colorado:
Arapahoe Park East -- Industrial building .................... 11,850,000
The Lodge at Willow Creek -- Apartments ...................... 30,000,000
Monte Vista -- Apartments .................................... 20,500,000
Florida:
Corporate Center at Sawgrass -- Office building .............. 14,200,000
Golfview -- Apartments ....................................... 27,510,000
The Greens at Metrowest -- Apartments ........................ 14,100,000
Plantation Grove -- Shopping center .......................... 7,350,000
Royal St. George -- Apartments ............................... 16,500,000
Sawgrass Portfolio -- Office building ........................ 25,000,000
Westinghouse Facility -- Industrial building ................. 6,200,000
Illinois:
Columbia Center III -- Office building ....................... 42,100,000
Glenpointe Business Park -- Industrial building .............. 16,100,000
Parkview Plaza -- Office building ............................ 52,436,321
Rockrun Business Park -- Industrial building ................. 9,350,000
Rolling Meadows -- Shopping center ........................... 12,110,000
Woodcreek Business Park -- Industrial building ............... 6,976,343
Iowa:
Interstate Acres -- Industrial building ...................... 14,100,000
Kentucky:
IDI Kentucky Portfolio -- Industrial building ................ 25,400,000
Maryland:
FedEx Distribution Facility -- Industrial building ........... 7,800,000
Longview Executive Park -- Office building ................... 28,400,000
Saks Distribution Center -- Industrial building .............. 30,325,000
Massachusetts:
Two Newton Center -- Office building ......................... 20,300,000
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
Location/Description Value
- -------------------- -----
<S> <C>
Michigan:
Indian Creek -- Apartments ....................................... $ 17,108,785
Minnesota:
Interstate Crossing -- Industrial building ....................... 6,400,000
River Road Distribution Center -- Industrial building ............ 4,300,000
Nevada:
UPS Distribution Facility -- Industrial building ................. 11,000,000
New Jersey:
371 Hoes Lane -- Office building ................................. 16,800,000
10 Waterview Boulevard -- Office building ........................ 31,200,000
Konica Photo Imaging Headquarters -- Industrial building ......... 17,051,474
New York:
780 Third Avenue -- Office building .............................. 162,500,000
The Colorado -- Apartments ....................................... 56,547,289
North Carolina:
Lynnwood Collection -- Shopping center ........................... 7,700,000
Millbrook Collection -- Shopping center .......................... 7,100,000
Ohio:
Bent Tree -- Apartments .......................................... 14,500,000
Columbus Portfolio -- Office building ............................ 33,701,672
Northmark Business Center -- Office building ..................... 13,000,000
Oregon:
Five Centerpointe -- Office building ............................. 18,000,948
Pennsylvania:
Lincoln Woods -- Apartments ...................................... 22,952,310
Texas:
Butterfield Industrial Park -- Industrial building ............... 4,850,000(1)
The Crest at Shadow Mountain -- Apartments ....................... 9,700,000
The Legends at Chase Oaks -- Apartments .......................... 27,800,000
Utah:
USF&G Building -- Office building ................................ 8,722,167
Virginia:
Fairgate at Ballston -- Office building .......................... 30,800,000
Monument Place -- Office building ................................ 36,100,000
River Oaks -- Shopping center .................................... 12,100,000
Washington:
The Bay Court at Harbour Pointe -- Apartments .................... 34,800,000
-------------
TOTAL REAL ESTATE PROPERTIES (Cost $1,253,650,281)................. 1,312,503,554
-------------
</TABLE>
(1) Leasehold interest only.
F-16
<PAGE>
MARKETABLE SECURITIES--22.19%
REAL ESTATE INVESTMENT TRUSTS--4.70%
<TABLE>
<S> <C> <C>
Shares Issuer Value
89,900 AMB Property Corporation Series A ...................... $1,781,144
19,200 Avalon Bay Communities, Inc. Pfd Series F .............. 386,400
46,800 Boston Properties, Inc ................................. 1,456,650
102,400 Bradley Real Estate, Inc. .............................. 1,785,600
130,400 Brandywine Realty Trust ................................ 2,135,300
200,000 Carramerica Realty Corporation, Pfd Series B. .......... 3,225,000
58,000 Centerpoint Properties Corp. ........................... 2,080,750
42,500 Colonial Properties Trust .............................. 985,469
158,400 Cornerstone Properties, Inc ............................ 2,316,600
113,100 Corporate Office Properties Trust, Inc ................. 862,387
90,000 Developers Diversified Realty Corp. .................... 1,541,250
221,300 Duke-Weeks Realty Corp. ................................ 4,315,350
214,100 Equity Office Properties Trust. ........................ 5,272,212
200,000 Equity Office Properties Trust Pfd Series A. ........... 4,200,000
121,700 Equity Residential Properties Trust. ................... 5,195,069
100,000 Equity Residential, Pfd Series G. ...................... 1,975,000
100,000 Equity Residential Properties, Pfd Series L. ........... 1,887,500
25,000 Federal Realty Investment Trust Pfd. ................... 432,812
100,000 First Industrial Realty Trust, Inc. Pfd ................ 1,912,500
98,300 Gables Residential Trust, Pfd Series A. ................ 1,800,119
74,900 Hospitality Properties Trust ........................... 1,427,781
149,800 Macerich Company ....................................... 3,117,713
25,159 New Plan Excel Realty Trust ............................ 397,827
25,000 Prologis Trust ......................................... 481,250
19,900 Prologis Trust-Pfd Series A ............................ 398,000
127,700 Public Storage, Inc. ................................... 2,897,193
93,600 Rouse Company .......................................... 1,989,000
280,900 Simon Property Group, Inc. ............................. 6,443,144
84,750 Spieker Properties, Inc ................................ 3,088,078
174,455 Starwood Financial Trust ............................... 2,954,832
26,000 Starwood Financial, Inc Series C Pfd ................... 373,750
140,000 Starwood Hotels & Resorts Worldwide .................... 3,290,000
35,500 Storage USA, Inc ....................................... 1,073,875
100,400 Taubman Centers, Inc ................................... 1,079,300
35,000 Taubman Centers, Inc Pfd Series A ...................... 529,375
62,800 United Dominion Realty Trust, Inc ...................... 1,122,550
112,100 Urban Shopping Centers, Inc. ........................... 3,040,712
----------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $100,498,293).............. 79,251,492
----------
</TABLE>
CORPORATE BONDS--0.59%
<TABLE>
Principal Issuer, Coupon and Maturity Date
--------- --------------------------------
<S> <C> <C>
$ 5,000,000 Avco Financial Services, Inc.
5.75% 01/23/01 ................................... 4,936,150
5,000,000 Ford Motor Credit Co.
5.75% 01/25/01 ................................... 4,944,350
---------
TOTAL CORPORATE BONDS (Cost $10,034,650) 9,880,500
=========
</TABLE>
F-17
<PAGE>
<TABLE>
Principal Issuer, Coupon and Maturity Date Value
--------- -------------------------------- -----
<S> <C> <C>
GOVERNMENT AGENCIES--0.63%
10,640,000 Federal Home Loan Mortgage Corporation ..........
5.59% 01/11/00 ................................. $ 10,623,907
--------------
TOTAL GOVERNMENT AGENCIES (Amortized cost $10,623,478)........ 10,623,907
--------------
COMMERCIAL PAPER--16.27%
15,000,000 Asset Securitization Cooperative Corp
5.90% 01/31/00 ................................. 14,927,667
10,000,000 Corporate Asset Funding Corp, Inc.
5.92% 02/01/00 ................................. 9,950,222
14,000,000 Deutsche Bank
5.80% 03/31/00 ................................. 13,991,218
17,725,000 Dupont (E.I.) De Nemours & Co.
5.76% 01/26/00 ................................. 17,653,056
7,140,000 Equilon Enterprises LLC
6.25% 01/11/00 ................................. 7,127,848
13,850,000 Equilon Enterprises LLC
6.55% 01/13/00 ................................. 13,822,142
3,375,000 Equilon Enterprises LLC
5.87% 02/03/00 ................................. 3,357,150
6,175,000 General Electric Capital Corp.
6.02% 01/24/00 ................................. 6,151,864
20,000,000 Goldman Sachs Group, LP
6.07% 02/07/00 ................................. 19,881,778
13,100,000 J.P. Morgan & Co.
6.15% 01/10/00 ................................. 13,079,732
12,675,000 Lucent Technologies Inc.
5.72% 02/15/00 ................................. 12,583,980
12,150,000 McGraw Hill, Inc.
5.25% 01/28/00 ................................. 12,096,891
15,275,000 Merck, Inc.
5.72% 02/03/00 ................................. 15,194,212
10,000,000 Morgan Stanley Dean Witter
6.00% 01/07/00 ................................. 9,992,514
15,000,000 National Fuel Gas Co.
6.20% 02/23/00 ................................. 14,870,625
1,350,000 National Fuel Gas Co.
5.87% 03/01/00 ................................. 1,336,584
20,000,000 National Rural Utilities Coop Finance
5.78% 02/14/00 ................................. 19,860,000
15,000,000 National Rural Utilities Coop Finance
5.92% 03/07/00 ................................. 14,841,991
10,000,000 Park Avenue Receivables Corp.
6.06% 01/27/00 ................................. 9,957,850
17,006,000 Pfizer, Inc.
5.76% 02/29/00 ................................. 16,846,710
14,000,000 Receivables Capital Corp.
6.40% 01/14/00 ................................. 13,969,675
13,070,000 Salomon Smith Barney Holdings, Inc.
6.00% 01/20/00 ................................. 13,029,193
--------------
TOTAL COMMERCIAL PAPER (Amortized cost $274,505,782).......... 274,522,902
--------------
TOTAL MARKETABLE SECURITIES (Cost $395,662,203)............... 374,278,801
--------------
TOTAL INVESTMENTS--100.00% (Cost $1,649,312,484).............. $1,686,782,355
==============
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
TIAA REAL ESTATE ACCOUNT
PROFORMA CONDENSED
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
December 31, 1999
<TABLE>
<CAPTION>
Proforma
Historical Adjustments Proforma
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Investments, at value:
Real estate properties ................... $1,312,503,554 $ 19,431,200 (a) $1,331,934,754
Marketable securities .................... 374,278,801 (19,431,200)(a) 354,847,601
Cash ...................................... 617,599 -- 617,599
Other ..................................... 32,057,761 -- 32,057,761
-------------- -------------- --------------
TOTAL ASSETS 1,719,457,715 -- 1,719,457,715
-------------- -------------- --------------
LIABILITIES
Accrued real estate property level expenses
and taxes ............................... 18,425,328 -- 18,425,328
Security deposits held .................... 5,549,959 -- 5,549,959
-------------- -------------- --------------
TOTAL LIABILITIES 23,975,287 -- 23,975,287
-------------- -------------- --------------
NET ASSETS
Accumulation Fund ......................... 1,642,327,173 -- 1,642,327,173
Annuity Fund .............................. 53,155,255 -- 53,155,255
-------------- -------------- --------------
TOTAL NET ASSETS $1,695,482,428 -- $1,695,482,428
============== ============== ==============
</TABLE>
See notes to proforma condensed financial statements.
F-19
<PAGE>
TIAA REAL ESTATE ACCOUNT
PROFORMA CONDENSED
STATEMENT OF OPERATIONS (Unaudited)
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Proforma
Historical Adjustments Proforma
---------- ----------- --------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Real estate income, net:
Rental income ................................ $132,316,878 $ 32,626,389(b) $164,943,267
------------ -------------- ------------
Real estate property level expenses and taxes:
Operating expenses .......................... 27,334,060 7,893,196(b) 35,227,256
Real estate taxes ........................... 15,892,736 4,692,572(b) 20,585,308
------------ -------------- ------------
Total real estate property level expenses and
taxes ...................................... 43,226,796 12,585,768 55,812,564
------------ -------------- ------------
Real estate income, net ....................... 89,090,082 20,040,621 109,130,703
Interest and dividends ........................ 24,932,733 (16,759,357)(c) 8,173,376
------------ -------------- ------------
TOTAL INCOME ................................... 114,022,815 3,281,264 117,304,079
EXPENSES ....................................... 9,278,410 551,000(d) 9,829,410
------------ -------------- ------------
INVESTMENT INCOME--NET ......................... 104,744,405 2,730,264 107,474,669
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS .......................... 9,834,743 -- 9,834,743
------------ -------------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS
BEFORE MINORITY INTEREST ..................... 114,579,148 2,730,264 117,309,412
MINORITY INTEREST .............................. 1,364,619 -- 1,364,619
------------ -------------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................... $115,943,767 $ 2,730,264 $118,674,031
============ ============== ============
</TABLE>
See notes to proforma condensed financial statements.
F-20
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO PROFORMA CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1--Purpose and Assumptions
As required by the Securities and Exchange Commission under Regulation S-X
Article 11-01(5), these proforma condensed financial statements of the TIAA
Real Estate Account ("Account") have been prepared because the Account has made
significant purchases of real estate properties during the period January 1,
1999 through the date of this prospectus. Various assumptions have been made in
order to prepare these proforma condensed financial statements. The proforma
condensed statement of assets and liabilities has been prepared assuming real
estate properties purchased during the period January 1, 2000 through the date
of this prospectus were purchased as of December 31, 1999. The proforma
condensed statement of operations has been prepared assuming all real estate
properties purchased during the period January 1, 1999 through the date of this
prospectus were purchased as of January 1, 1999.
Note 2--Proforma Adjustments
The following proforma adjustments were made in preparing the proforma
condensed financial statements to reflect the purpose described in Note 1.
Proforma Condensed Statement of Assets and Liabilities:
(a) To record the cost of the properties purchased during the period January 1,
2000 through the date of this prospectus, assuming such properties were
purchased as of December 31, 1999.
Proforma Condensed Statement of Operations:
(b) To record the rental income and real estate property level expenses of the
real estate properties purchased during the period January 1, 1999 through
the date of this prospectus, assuming such properties were owned for the
period January 1, 1999 through December 31, 1999.
(c) To record the decrease in interest and dividend income from having less
cash to invest in marketable securities, assuming the real estate
properties purchased during the period January 1, 1999 through the date of
this prospectus had been purchased as of January 1, 1999.
(d) To record additional investment advisory charges which would have been
incurred during 1999, assuming the real estate properties purchased during
the period January 1, 1999 through the date of this prospectus had been
purchased as of January 1, 1999.
F-21
<PAGE>
[ERNST & YOUNG LLP LOGO] - 1211 Avenue of the America - Phone 212 773 4900
New York, New York 10036 Fax: 212 773 6501
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of TIAA
We have audited the statement of revenues and certain expenses of the property
("The Colorado") as described in Note 2 for the year ended December 31, 1997.
The financial statement is the responsibility of the The Colorado's management.
Our responsibility is to express an opinion on the financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-1 of the TIAA Real Estate Account
and is not intended to be a complete presentation of the The Colorado's
revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of The Colorado, as
described in Note 2, for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
March 26, 1999
F-22
<PAGE>
The Colorado
Statement of Revenues and Certain Expenses
Year ended December 31, 1997
<TABLE>
<S> <C>
Revenues:
Rental income ................................. $5,732,550
Other income .................................. 155,611
Interest income ............................... 32,440
----------
Total revenues ................................. 5,920,601
----------
Certain expenses:
Property operating and maintenance ............ 979,498
Real estate taxes ............................. 1,342,944
Management fees ............................... 85,004
General and administrative .................... 87,578
----------
Total expenses ................................. 2,495,024
----------
Revenues in excess of certain expenses ......... $3,425,577
==========
</TABLE>
See accompanying notes.
F-23
<PAGE>
The Colorado
Notes to Statement of Revenues and Certain Expenses
December 31, 1997
1. Business
The accompanying statement of revenues and certain expenses relates to the
operations of The Colorado (the "Property"). The Property was acquired in
December 1998 by the TIAA Real Estate Account.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenues and certain expenses was prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission. Accordingly, the financial statement excludes certain
expenses that may not be comparable to those expected to be incurred by the
TIAA Real Estate Account in the future operations of the aforementioned
property. Expenses excluded consist of interest, depreciation and amortization.
Use of Estimates
The preparation of the statement of revenues and certain expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the statement of
revenues and certain expenses and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
The Property is leased to tenants under operating leases. Rental revenue
attributable to leases is recognized on a straight line basis over the term of
the respective lease, which are generally one year.
3. Management Agreement
Management services for the Property are provided by Charles H. Greenthal and
Company, Inc.
F-24
<PAGE>
[ERNST & YOUNG LLP LOGO] - 1211 Avenue of the America - Phone 212 773 4900
New York, New York 10036 Fax: 212 773 6501
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of TIAA
We have audited the statement of revenues and certain expenses of the property
("Larkspur Courts Apartments") as described in Note 2 for the year ended
December 31, 1998. The financial statement is the responsibility of Larkspur
Courts Apartments' management. Our responsibility is to express an opinion on
the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-1 of the TIAA Real Estate Account
and is not intended to be a complete presentation of the Larkspur Courts
Apartments' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of Larkspur Courts
Apartments, as described in Note 2, for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
August 11, 1999
F-25
<PAGE>
Larkspur Courts Apartments
Statement of Revenues and Certain Expenses
Year ended December 31, 1998
<TABLE>
<S> <C>
Revenues:
Rental income ................................. $4,941,728
Other income .................................. 103,020
----------
Total revenues ................................. 5,044,748
----------
Certain expenses:
Property operating and maintenance ............ 852,561
Real estate taxes ............................. 616,613
Management fees ............................... 171,434
----------
1,640,608
----------
Revenues in excess of certain expenses ......... $3,404,140
==========
</TABLE>
See accompanying notes.
F-26
<PAGE>
Larkspur Courts Apartments
Statement of Revenues and Certain Expenses
Year ended December 31, 1998
1. Business
The accompanying statement of revenues and certain expenses relates to the
operations of Larkspur Courts Apartments (the "Property") located in Larkspur,
Mann County, California. The Property was acquired in August 1999 by the TIAA
Real Estate Account.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenues and certain expenses was prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission. Accordingly, the financial statement excludes certain
expenses that may not be comparable to those expected to be incurred by the
TIAA Real Estate Account in the future operations of the aforementioned
property. Expenses excluded consist of interest, depreciation and amortization.
Use of Estimates
The preparation of the statement of revenues and certain expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the statement of
revenues and certain expenses and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
The property is leased to tenants under operating leases. Rental revenue
attributable to leases is recognized on a straight line basis over the term of
the respective lease, which are generally one year.
3. Management Agreement
Management services for the Property are provided by Legacy Partners. Fees paid
for such services are generally based on 2.0% of monthly rent, plus 1% of
Controllable Profit, plus 18% of the improvement of Controllable Profit over
the profit year as defined in the Management Agreement.
F-27
<PAGE>
[ERNST & YOUNG LLP LOGO] - 1211 Avenue of the America - Phone 212 773 4900
New York, New York 10036 Fax: 212 773 6501
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of TIAA
We have audited the statement of revenues and certain expenses of the property
("88 Kearny Street") as described in Note 2 for the year ended December 31,
1998. The financial statement is the responsibility of 88 Kearny Street's
management. Our responsibility is to express an opinion on the financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-1 of the TIAA Real Estate Account
and is not intended to be a complete presentation of the 88 Kearny Street's
revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of 88 Kearny Street,
as described in Note 2, for the year ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
July 21, 1999
F-28
<PAGE>
88 Kearny Street
Statement of Revenues and Certain Expenses
Year Ended December 31, 1998
<TABLE>
<S> <C>
Revenues:
Rental income ................................. $7,871,914
Other income .................................. 65,421
----------
Total revenues ................................. 7,937,335
----------
Certain expenses:
Property operating and maintenance ............ 1,696,019
Real estate taxes ............................. 502,244
Management fees ............................... 432,676
----------
2,630,939
----------
Revenues in excess of certain expenses ......... $5,306,396
==========
</TABLE>
See accompanying notes.
F-29
<PAGE>
88 Kearny Street
Notes to the Statement of Revenues and Certain Expenses
December 31, 1998
1. Business
The accompanying statement of revenues and certain expenses relates to the
operations of 88 Kearny Street (the "Property") located in San Francisco,
California. The Property was acquired in July 1999 by the TIAA Real Estate
Account.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenues and certain expenses was prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission. Accordingly, the financial statement excludes certain
expenses that may not be comparable to those expected to be incurred by the
TIAA Real Estate Account in the future operations of the aforementioned
property. Expenses excluded consist of interest, partnership expense,
depreciation and amortization.
Use of Estimates
The preparation of the statement of revenues and certain expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the statement of
revenues and certain expenses and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
The property is leased to tenants under operating leases. Rental revenue
attributable to leases is recognized on a straight line basis over the term of
the respective lease.
3. Management Agreement
Management services for the Property are provided by Jay Mont Properties. Fees
paid for such services are generally based on 2.5% of monthly rent as defined
in the Management Agreement.
F-30
<PAGE>
[Friedman Alpren & Green LOGO]
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 1700 BROADWAY
NEW YORK, NY 10019
212-582-1600
FAX 212-265-4761
www.nyccpas.com
INDEPENDENT AUDITORS' REPORT
To the Management of Teachers Insurance
and Annuity Association
We have audited the accompanying statement of revenues and certain expenses of
the property located at 780 Third Avenue, New York, New York, described in Note
1 (the "Property"), for the year ended December 31, 1998. This financial
statement is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and, as described in Note 1, is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Property for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Friedman Alpren & Green LLP
June 17, 1999
F-31
<PAGE>
780 THIRD AVENUE
NEW YORK, NEW YORK
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended
1999 December 31,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
Revenues
Base rents ...................................... $4,561 $17,517
Escalation charges .............................. 244 1,161
Conference center income ........................ 68 295
Storage and tenant services ..................... 24 113
Miscellaneous ................................... -- 6
------ -------
4,897 19,092
------ -------
Certain expenses
Operating ....................................... 707 2,691
Administrative .................................. 222 784
Real estate taxes ............................... 1,000 3,861
Bad debts ....................................... -- 107
------ -------
1,929 7,443
------ -------
Excess of revenues over certain expenses ......... $2,968 $11,649
====== =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-32
<PAGE>
780 THIRD AVENUE
NEW YORK, NEW YORK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1--ORGANIZATION AND BASIS OF PRESENTATION
The Property is a 50-story office building located at 780 Third Avenue in New
York City and is owned by 780 Third Avenue Associates (a general partnership).
It has an aggregate net rentable area of approximately 487,000 square feet
(approximately 92% of which is leased at March 31, 1999). The Property's
accounting records are maintained in accordance with generally accepted
accounting principles.
The accompanying financial statement is presented in conformity with Rule 3-14
of the Securities and Exchange Commission. Accordingly, the financial statement
is not representative of the actual operations for the periods presented, as
certain expenses, which may not be comparable to the expenses expected to be
incurred in the future operations of the acquired property, have been excluded.
Expenses excluded consist of interest, depreciation and amortization, leasing
expenses and certain professional fees not directly related to the future
operations of the Property.
The preparation of the financial statement in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
The statement of revenues and certain expenses for the three months ended March
31, 1999 is unaudited. However, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for the fair
presentation of this statement of revenues and certain expenses for the interim
period on the basis described above have been included. The results for such
interim period are not necessarily indicative of the results for an entire
year.
2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
Revenue Recognition
Rental income is recognized from leases with scheduled rent increases on a
straight-line basis over the lease term. Escalation rents based on payments for
real estate taxes and operating expenses are estimated and accrued.
F-33
<PAGE>
780 THIRD AVENUE
NEW YORK, NEW YORK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (Continued)
3--OPERATING LEASES
Office and retail space in the Property is rented to tenants under various
operating leases. Approximate minimum future rentals required under these
leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
- ------------
<S> <C>
1999 ................... $15,511,000
2000 ................... 12,976,000
2001 ................... 11,154,000
2002 ................... 9,179,000
2003 ................... 7,071,000
Thereafter ............. 15,876,000
-----------
$71,767,000
===========
</TABLE>
F-34
<PAGE>
Teachers Insurance and Annuity Association of America
Condensed Unaudited Financial Statements
(These condensed unaudited financial statements have been derived from
audited financial statements which are available upon request)
TIAA Condensed Balance Sheets
<TABLE>
<CAPTION>
(in thousands)
December 31,
-----------------------------
1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Bonds ...................................................... $ 75,394,268 $ 69,067,549
Mortgages .................................................. 21,412,239 20,248,446
Real Estate ................................................ 5,192,229 6,099,403
Stocks ..................................................... 1,247,242 1,257,044
Other long-term investments ................................ 2,116,490 1,513,274
Cash and short-term investments ............................ 410,053 511,966
Investment income due and accrued .......................... 1,233,604 1,181,140
Separate account assets .................................... 2,751,054 1,965,047
Other assets ............................................... 740,252 372,369
------------ ------------
TOTAL ASSETS $110,497,431 $102,216,238
------------ ------------
LIABILITIES, CAPITAL AND CONTINGENCY RESERVES
Policy and contract reserves ............................... $ 93,869,708 $ 87,772,711
Dividends declared for the following year .................. 2,039,605 1,923,463
Asset Valuation Reserve .................................... 2,637,779 2,454,123
Interest Maintenance Reserve ............................... 1,110,349 936,641
Separate account liabilities ............................... 2,751,054 1,965,047
Other liabilities .......................................... 1,063,508 841,044
------------ ------------
TOTAL LIABILITIES 103,472,003 95,893,029
------------ ------------
Capital and paid-in surplus ................................ 3,050 2,500
------------ ------------
Contingency reserves:
For group life insurance .................................. 12,218 11,013
For investment losses, annuity and insurance mortality, and
other risks ............................................. 7,010,160 6,309,696
------------ ------------
TOTAL CONTINGENCY RESERVES 7,022,378 6,320,709
------------ ------------
TOTAL CAPITAL AND CONTINGENCY RESERVES 7,025,428 6,323,209
------------ ------------
TOTAL LIABILITIES, CAPITAL AND CONTINGENCY RESERVES $110,497,431 $102,216,238
============ ============
</TABLE>
F-35
<PAGE>
Teachers Insurance and Annuity Association of America
TIAA Condensed Unaudited Statements of Operations and
Changes in Capital and Contingency Reserves
<TABLE>
<CAPTION>
(in thousands)
For the Years Ended December 31,
--------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME
Insurance and annuity premiums and deposits .................... $ 3,087,045 $ 2,957,870
Transfers from CREF, net ....................................... 752,512 1,274,152
Annuity dividend additions ..................................... 2,553,655 2,427,685
Net investment income .......................................... 7,923,564 7,446,656
Supplementary contract consideration ........................... 325,704 297,074
----------- -----------
TOTAL INCOME $14,642,480 $14,403,437
=========== ===========
DISTRIBUTION OF INCOME
Policy and contract benefits ................................... $ 2,653,962 $ 2,413,220
Dividends ...................................................... 4,026,907 3,844,313
Increase in policy and contract reserves ....................... 6,100,240 6,636,704
Operating expenses ............................................. 335,039 327,085
Transfers to Separate Accounts, net ............................ 490,880 487,976
Federal income taxes ........................................... (25,213) (11,854)
Other, net ..................................................... (11,437) (4,639)
Increase in contingency reserves from operations ............... 1,072,102 710,632
----------- -----------
TOTAL DISTRIBUTION OF INCOME $14,642,480 $14,403,437
=========== ===========
CHANGES IN CAPITAL AND CONTINGENCY RESERVES:
From operations ................................................ $ 1,072,102 $ 710,632
Net realized capital gain on investments ....................... 282,079 394,727
Net unrealized capital gain (loss) on investments .............. (112,613) (171,049)
Transfer to the Interest Maintenance Reserve ................... (330,107) (264,997)
Transfers to the Asset Valuation Reserve ....................... (183,656) (115,481)
Increase in non-admitted assets other than investments ......... (25,586) (17,829)
Change in valuation basis of policy reserves ................... -- 8,671
Stock dividend ................................................. (550) --
Contribution to paid-in surplus ................................ 550 --
Other, net ..................................................... -- 1,960
----------- -----------
NET CHANGE IN CAPITAL AND CONTINGENCY RESERVES 702,219 546,634
CAPITAL AND CONTINGENCY RESERVES AT BEGINNING OF YEAR 6,323,209 5,776,575
----------- -----------
CAPITAL AND CONTINGENCY RESERVES AT END OF YEAR $ 7,025,428 $ 6,323,209
=========== ===========
</TABLE>
F-36
<PAGE>
Teachers Insurance and Annuity Association of America
Supplemental Information to
Condensed Unaudited Financial Statements
Valuation of Investments: Bonds and short-term investments (debt securities
with maturities of one year or less at the time of acquisition) not in default
are generally stated at amortized cost; medium to highest quality preferred
stocks at cost; common stocks at market value; and all other bond, short-term
and preferred stock investments at the lower of amortized cost or market value.
For loan-backed bonds and structured securities, amortized cost is determined
using actual and anticipated cash flows under the prospective method for
interest-only securities and under the retrospective method for all other
securities. Anticipated prepayments are based on life-to-date payment speeds,
using historical cash flows and internal estimates. Mortgages are stated at
amortized cost, and directly-owned real estate at depreciated cost (net of
encumbrances). Investments in wholly-owned subsidiaries, real estate limited
partnerships and securities limited partnerships are stated at TIAA's equity in
the net admitted assets of the underlying entities. Policy loans are stated at
outstanding principal amounts. Separate account assets are generally stated at
market value. Seed money investments in the TIAA-CREF Mutual Funds, TIAA-CREF
Institutional Funds, and in new accounts established by College Retirement
Equities Fund ("CREF"), a companion organization, are stated at market value.
All investments are stated net of any permanent impairments, which are
determined on an individual asset basis. Depreciation is generally computed
over a 40 year period on the constant yield method for properties acquired
prior to 1991, and on the straight-line method for properties acquired
thereafter. For properties acquired after 1997, depreciation is generally
computed over a 39 year period.
Additional Information:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
As a percentage of total bond investments:
Below investment grade bonds ........................... 6% 6%
As a percentage of total mortgage investments:
Total mortgage investments in California ............... 18% 17%
Total mortgage investments in office buildings ......... 39% 39%
Total mortgage investments in shopping centers ......... 29% 32%
As a percentage of total real estate investments:
Two states with highest real estate investment ......... California 14% California 12%
Florida 12% Florida 11%
TOTAL REAL ESTATE INVESTMENTS IN OFFICE BUILDINGS 65% 64%
- ----------------------------------------------------------------------------------------------
</TABLE>
Derivative Positions: TIAA makes limited use of derivatives to reduce interest
rate risks and foreign currency risks associated with certain investments. TIAA
is exposed to the risk of default of the counterparties, although TIAA does not
anticipate non-performance by such counterparties. In order to minimize the
risk associated with potential counterparty default, TIAA monitors the credit
quality of its counterparties. At December 31, 1999 and 1998, TIAA had
outstanding foreign currency swap contracts with a total notional value of
approximately $891,159,000 and $654,242,000, respectively, foreign currency
forward contracts with a total notional value of approximately $230,259,000 and
$179,820,000, respectively, interest rate swap contracts with a total notional
value of approximately $388,411,000 and $451,366,000, respectively, and
interest rate cap contracts with a total notional value of approximately
$137,550,000 and $110,270,000, respectively. At December 31, 1999, TIAA had
swap options outstanding with a total notional value of $54,000,000. At
December 31, 1998, TIAA had no swap options outstanding.
F-37
<PAGE>
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, 67.
President Emeritus, Pomona College. Formerly, Trustees' Professor, Pomona
College and American Secretary, Rhodes Scholarship Trust.
Marcus Alexis, 68.
Board of Trustees Professor of Economics and Professor of Management and
Strategy, J.L. Kellogg Graduate School of Management, Northwestern University.
Willard T. Carleton, 65.
Donald R. Diamond Professor of Finance, College of Business and Public
Administration, University of Arizona.
Robert C. Clark, 56.
Dean and Royall Professor of Law, Harvard Law School, Harvard University.
Estelle A. Fishbein, 65.
Vice President and General Counsel, The Johns Hopkins University.
Frederick R. Ford, 63.
Executive Vice President and Treasurer Emeritus, Purdue University. Formerly,
Executive Vice President and Treasurer, Purdue University.
Martin J. Gruber, 62.
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, 62.
Professor, Department of Sociology, and Director, African Diaspora Research
Project, Michigan State University.
Robert M. O'Neil, 65.
Professor of Law, University of Virginia and Director, The Thomas Jefferson
Center for the Protection of Free Expression.
Leonard S. Simon, 63.
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, 50.
Chairman and Chief Executive Officer, Midwest Stamping Co.
A-1
<PAGE>
Paul R. Tregurtha, 64.
Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran
Transportation Company, Inc.; Chairman, Meridian Aggregates, L.P.; Vice
Chairman, The Interlake Steamship Company and Lakes Shipping Company.
William H. Waltrip, 62.
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, 58.
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, 63.
Chairman, President and Chief Executive Officer, TIAA and CREF.
Martin L. Leibowitz, 63.
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, 57.
Vice President and Treasurer, TIAA and CREF.
Richard L. Gibbs, 52.
Executive Vice President, Finance and Planning, TIAA and CREF.
E. Laverne Jones, 50.
Vice President and Corporate Secretary, TIAA and CREF.
A-2
<PAGE>
Appendix B--Glossary
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 nonproprietary 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.
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-1
<PAGE>
Appendix C--Description of Certain Properties
Larkspur Courts Apartments--Larkspur, CA
On August 17, 1999, the Account purchased the Larkspur Courts apartment complex
located in Larkspur, California (18 miles north of downtown San Francisco) for
a purchase price of approximately $52,850,000. Larkspur Courts was built in
1991 and contains 248 one, two and three bedroom units averaging 1,001 square
feet in 17 two-story and 10 four-story buildings. The amenities include a
recreation club with a fitness center, an outdoor heated pool, 3 spas and a
children's playground. It is currently 99% leased, with monthly rents averaging
$1,935 per unit. As part of an agreement between the City of Larkspur and the
Marin County Housing Authority, 15% or 37 units, are designated as Below Market
Rentals (BMR). The BMR rents are adjusted annually in conformity with the
percent change in the published median household income level for the area. The
market consists of 5,500 units with a vacancy rate of 2%.
Columbus Office Portfolio--Columbus, Ohio
On November 30, 1999, the Account purchased three suburban office buildings,
one located in Dublin, Ohio (12 miles northwest of downtown Columbus) and two
located in Easton, Ohio (8 miles northeast of downtown Columbus) for a purchase
price of approximately $33,650,000.
The Metro South Building, built in 1997, located in the Metro Center Business
Park in Dublin, Ohio, contains 90,726 rentable square feet and is situated on
5.30 acres of land with 385 parking spaces. The building is approximately 91%
leased to various tenants, with rents averaging $11.47 per square foot. The
Metro Business Park contains 1.3 million square feet and presently has a
vacancy rate of 5% overall. The BISYS Fund Services Building, built in 1995,
and the Vision Service Plan Building, built in 1997, are located in Eaton,
Ohio, contain 155,964 and 50,000 rentable square feet, respectively. Both are
100% leased. The BISYS Fund Building, situated on 11.20 acres of land with 829
parking spaces, is leased to various tenants at an average rental rate of
$11.29 per square foot. The Vision Plan Building, situated on 4.14 acres with
264 parking spaces is leased 100% to Vision Service Plan at a rental rate of
$11.88 per square foot. All three buildings are in the Columbus Suburban office
market which contains 22.5 million square feet of office space and has a
vacancy rate of 11%.
Konica Photo Imaging Headquarters--Mahwah, New Jersey
On December 21, 1999, the Account purchased the Konica Photo Imaging
Headquarters, an office/distribution building in Mahwah, New Jersey, for a
purchase price of approximately $17, 000,000. Konica Photo Imaging
Headquarters, built in 1999, is located within the Northwest Bergen County
submarket in the Ramapo Ridge Corporate Park. The building contains 168,000
rentable square feet, and is situated on 20.26 acres with 306 parking spaces.
It is 100% leased to Konica Photo Imaging, Inc. for a term of 15 years at a
current rental rate of $9.06 per square foot which increases by 3% every year
until year 11. The Northwest Bergen submarket contains approximately 18.6
million square feet of industrial space with a vacancy of 4.6%.
C-1
<PAGE>
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 income
options; tax reports.
IRA Enrollment Hotline
800 842-2888
Speak with a service agent about our IRA products.
We can suspend or terminate your ability to transact by telephone, over the
Internet or by fax at any time, for any reason.
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