As filed with the Securities and Exchange Commission
on March 7, 2000
Registration No. 333-22809
=======================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TIAA REAL ESTATE ACCOUNT
------------------------
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
(Not applicable)
(Primary Standard Industrial Classification Code Number)
(Not applicable)
(I.R.S. Employer Identification No.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
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(Address including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Peter C. Clapman, Esquire
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
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(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Steven B. Boehm, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the registration statement.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ] _______
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, please check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
Pursuant to Rule 429 under the Securities Act, the prospectus contained herein
also relates to and constitutes a post-effective amendment to Securities Act
registration statements 33-92990 and 333-13477.
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PART I
INFORMATION REQUIRED IN PROSPECTUS
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TIAA REAL ESTATE ACCOUNT
A Tax-Deferred Variable Annuity Option
Offered By
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA (TIAA)
May 1, 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 9.
We take deductions daily from the Account's net assets for the Account's
operating and investment management expenses. The Account also pays TIAA for
bearing mortality and expense risks and for providing a liquidity guarantee. The
current annual expense deductions from Account's net assets total 0.565%.
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:
o RA and GRAs (Retirement and Group Retirement Annuities)
o SRAs (Supplemental Retirement Annuities)
o GSRAs (Group Supplemental Retirement Annuities)
o Classic and Roth IRAs (Individual Retirement Annuities)
o GAs (Group Annuities)
o 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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(inside cover)
About the Real Estate Account and TIAA
The TIAA Real Estate Account was established in February 1995 as a
separate account of Teachers Insurance and Annuity Association of America
(TIAA). TIAA is a life insurance company founded in 1918 by the Carnegie
Foundation for the Advancement of Teaching. Its home office is at 730 Third
Avenue, New York, NY 10017-3206 and its telephone number is (212) 490-9000. In
addition to issuing variable annuities, whose returns depend upon the
performance of certain specified investments, TIAA also offers traditional 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 the largest retirement system 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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TABLE OF CONTENTS
THE ACCOUNT'S INVESTMENT OBJECTIVE AND STRATEGY................................
ABOUT THE ACCOUNT'S INVESTMENTS - IN GENERAL...................................
GENERAL INVESTMENT AND OPERATING POLICIES......................................
RISKS ......................................................................
ESTABLISHING AND MANAGING THE ACCOUNT - THE ROLE OF TIAA.......................
DESCRIPTION OF PROPERTIES......................................................
SELECTED FINANCIAL DATA........................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S
FINANCIAL CONDITION AND OPERATING RESULTS......................................
VALUING THE ACCOUNT'S ASSETS...................................................
EXPENSE DEDUCTIONS.............................................................
THE CONTRACTS..................................................................
RECEIVING ANNUITY INCOME.......................................................
DEATH BENEFITS.................................................................
TAXES ......................................................................
GENERAL MATTERS................................................................
DISTRIBUTOR....................................................................
STATE REGULATION...............................................................
LEGAL MATTERS..................................................................
EXPERTS ......................................................................
ADDITIONAL INFORMATION.........................................................
FINANCIAL STATEMENTS...........................................................
INDEX TO FINANCIAL STATEMENTS...............................................F-1
APPENDIX A--MANAGEMENT OF TIAA..............................................A-1
APPENDIX B-GLOSSARY.........................................................B-1
APPENDIX C-CERTAIN PROPERTY PURCHASES.......................................C-1
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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).
ABOUT THE ACCOUNT'S INVESTMENTS - IN GENERAL
Direct Investments in Real Estate
Direct Purchase: The Account will generally buy direct ownership interests
in existing or newly constructed income-producing properties, including office,
industrial, retail, and multi-family residential properties. The Account will
invest mainly in established properties with existing rent and expense schedules
or in newly-constructed properties with predictable cash flows or in which a
seller agrees to provide certain minimum income levels. On occasion the Account
might invest in real estate development projects.
Purchase-Leaseback Transactions: The Account can enter into
purchase-leaseback transactions (leasebacks) in which it typically will buy land
and income-producing improvements on the land (such as
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buildings), and simultaneously lease the land and improvements to a third party
(the lessee). 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 underlying property. These participations let the Account
receive additional interest, usually calculated as a percentage of the revenues
the borrower receives from operating, selling or refinancing the property. The
Account may also have an option to buy an interest in the property securing the
participating loan.
Managing Mortgage Loan Investments: TIAA can manage the Account's mortgage
loans in a variety of ways, including:
o renegotiating and restructuring the terms of a mortgage loan
o extending the maturity of any mortgage loan made by the Account
o consenting to a sale of the property subject to a mortgage loan
o financing the purchase of a property by making a new mortgage loan
in connection with the sale
o selling them, or portions of them, before maturity
Other Real Estate-Related Investments
Real Estate Investment Trusts: The Account may invest in real estate
investment trusts (REITs), publicly-owned entities that lease, manage, acquire,
hold mortgages on, and develop real estate. Normally the Account will buy the
common or preferred stock of a REIT, although at times it may purchase REIT debt
securities. REITs seek to optimize share value and increase cash flows by
acquiring
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and developing new projects, upgrading existing properties or renegotiating
existing arrangements to increase rental rates and occupancy levels. REITs must
distribute 95% of their net earnings to shareholders in order to benefit from a
special tax structure, which means they may pay high dividends. The value of a
particular REIT can be affected by such factors as its need for cash flow, the
skill of its management team, and defaults by its lessees or borrowers.
Stock of Companies Involved in Real Estate Activities: The Account can
invest in common or preferred stock of companies whose business involves real
estate. These stocks may be listed on U.S. or foreign stock exchanges or traded
over-the-counter in the U.S. or abroad.
Collateralized Mortgage Obligations: The Account can invest in
collateralized mortgage obligations (CMOs) that are fully collateralized by a
portfolio of mortgages or mortgage-related securities. CMO issuers distribute
principal and interest payments on the mortgages to CMO holders according to the
distribution schedules of each CMO. CMO interest rates can be fixed or variable.
Some classes of CMOs may be entitled to receive mortgage prepayments before
other classes do. Therefore, the prepayment risk for a particular CMO may be
different than for other mortgage-related securities. CMOs may also be harder to
sell than other securities.
Non-Real Estate-Related Investments
The Account can also invest in:
o U.S. government or government agency securities
o Corporate debt or asset-backed securities of U.S. or foreign
entities, or debt securities of foreign governments or
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)
o Money market instruments and other cash equivalents. These will
usually be high-quality short-term debt instruments, including U.S.
government or government agency securities, commercial paper,
certificates of deposit, bankers' acceptances, repurchase
agreements, interest-bearing time deposits, and corporate debt
securities.
o Common or preferred stock of U.S. or foreign companies that aren't
involved in real estate, to a limited extent
Foreign Real Estate and Other Foreign Investments
The Account may invest in foreign real estate or real estate-related
investments. It might also invest in securities or other instruments of foreign
government or private issuers. While the percentage will vary, we expect that
foreign investments will be no more than 25 percent of the Account's portfolio.
Depending on investment opportunities, the Account's foreign investments could
at times be concentrated in one or two foreign countries. We will consider the
special risks involved in foreign investing before investing in foreign real
estate and won't invest unless our standards are met.
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GENERAL INVESTMENT AND OPERATING POLICIES
Standards for Real Estate Investments
General Criteria for Buying Real Estate or Making Mortgage Loans: Before
the Account purchases real estate or makes a mortgage loan, TIAA will consider
such factors as:
o the location, condition, and use of the underlying property
o its operating history, its future income-producing capacity
o the quality, operating experience, and creditworthiness of the
borrower.
TIAA will analyze the fair market value of the underlying real estate,
taking into account the property's operating cash flow (based on the historical
and projected levels of rental and occupancy rates, and expenses), as well as
the general economic conditions in the area where the property is located.
Diversification: We haven't placed percentage limitations on the type and
location of properties that the Account can buy. However, the Account 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.
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.
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Joint Investments: The Account can hold property jointly through general
or limited partnerships, joint ventures, leaseholds, tenancies-in-common, or
other legal arrangements. However, the Account will not hold real property
jointly with TIAA or its affiliates.
Discretion to Evict or Foreclose: TIAA may, in its discretion, evict
defaulting tenants or foreclose on defaulting borrowers to maintain the value of
an investment, when it decides that it's in the Account's best interests.
Property Management and Leasing Services: The Account usually will hire a
local management company to perform the day-to-day management services for the
Account's properties, including supervising any on-site personnel, negotiating
maintenance and service contracts, and providing advice on major repairs and
capital improvements. The local manager will also recommend changes in rent
schedules and create marketing and advertising programs to attain and maintain
good occupancy rates by responsible tenants. The Account may also hire leasing
companies to perform or coordinate leasing and marketing services to fill any
vacancies. The fees paid to the local management company, along with any leasing
commissions and expenses, will reduce the Account's cash flow from a property.
Insurance: We will try to arrange for, or require proof of, comprehensive
insurance, including liability, fire, and extended coverage, for the Account's
real property and properties securing mortgage loans or subject to
purchase-leaseback transactions.
Other Policies
Liquid Assets: At times, a significant percentage of the Account may be
invested in liquid assets (which may or may not be real estate-related) while we
look for suitable real property investments. The Account can temporarily
increase the percentage of its liquid assets under some circumstances, including
the rapid inflow of participants' funds, lack of suitable real estate
investments, or a need for greater liquidity.
Investment Company Act of 1940: We intend to operate the Account so that
it will not have to register as an "investment company" under the Investment
Company Act of 1940 (the 1940 Act). This will require monitoring the Account's
portfolio so that it won't have more than 40 percent of total assets, other than
U.S. government securities and cash items, in investment securities. As a
result, the Account may be unable to make some potentially profitable
investments.
Changing Operating Policies or Winding Down: TIAA can decide to change the
operating policies of the Account or wind it down. If the Account is wound down,
you may need to transfer your accumulations or annuity income to TIAA's
traditional annuity or any CREF account available under your employer's plan. If
you don't tell us where to transfer your accumulations or annuity income, we'll
automatically transfer them to the CREF Money Market Account. You will be
notified in advance if we decide to change a significant policy or wind down the
Account.
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RISKS
The value of your investment in the Account will go up and down based on
the value of the Account's assets and the income the assets generate. The
Account's assets and income (particularly its real estate assets and rental
income) can be affected by many factors, and you should consider the specific
risks presented below before investing in the Account.
Risks of Real Estate Investing
General Risks of Owning Real Property: The Account will be subject to the
risks inherent in owning real property, including:
o The Account's property values or rental and occupancy rates could go
down due to general economic conditions, a weak market for real
estate generally, changing supply and demand for certain types of
properties, and natural disasters or man-made events.
o A property may be unable to attract and retain tenants, which means
that rental income would decline.
o The Account could lose revenue if tenants don't pay rent, or if the
Account is forced to terminate a lease for nonpayment. Any disputes
with tenants could also involve costly litigation.
o A property's profitability could go down if operating costs, such as
property taxes, utilities, maintenance and insurance costs, go up in
relation to gross rental income, or the property needs unanticipated
repairs and renovations.
General Risks of Selling Real Estate Investments: Among the risks of
selling real estate investments are:
o The sale price of an Account property might differ from its
estimated or appraised value, leading to losses or reduced profits
to the Account.
o Because of the nature of real estate, the Account might not be able
to sell a property at a particular time for its full value,
particularly in a poor market. This might make it difficult to raise
cash quickly and also could lead to Account losses.
o The Account may need to provide financing if no cash buyers are
available.
Regulatory Risks: Government regulation, including zoning laws, property
taxes, fiscal, environmental or other government policies, could operate or
change in a way that hurts the Account and its properties. For example,
regulations could raise the cost of owning and maintaining properties or make it
harder to sell, rent, finance, or refinance properties due to the increased
costs associated with regulatory compliance.
Environmental Risks: The Account may be liable for damage to the
environment caused by hazardous substances used or found on its properties.
Under various environmental regulations, the Account may also be liable, as a
current or previous property owner or mortgagee, for the cost of removing or
cleaning-up hazardous substances found on a property, even if it didn't know of
and wasn't responsible for the hazardous substances. If any hazardous substances
are present or the Account
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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.
Risks of Developing Real Estate or Buying Recently-Constructed Properties:
If the Account chooses to develop a property or buys a recently-constructed
property, it may face the following risks:
o If developing real estate, there may be delays or unexpected
increases in the cost of property development and construction due
to strikes, bad weather, material shortages, increases in material
and labor costs, or other events.
o Because external factors may have changed from when the project was
originally conceived (e.g., slower growth in local economy, higher
interest rates, or overbuilding in the area), the property, if
purchased when unleased, may not operate at the income and expense
levels first projected or may not be developed in the way originally
planned.
o The seller or other party may not be able to carry out any agreement
to provide certain minimum levels of income, or that agreement could
expire, which could reduce operating income and lower returns.
Risks of Joint Ownership: Investing in joint venture partnerships or other
forms of joint property ownership may involve special risks.
o The co-venturer may have interests or goals inconsistent with those
of the Account.
o If a co-venturer doesn't follow the Account's instructions or adhere
to the Account's policies, the jointly-owned properties, and
consequently the Account, might be exposed to greater liabilities
than expected.
o A co-venturer can make it harder for the Account to transfer its
property interest, particularly if the co-venturer has the right to
decide whether and when to sell the property.
o The co-venturer may become insolvent or bankrupt.
Risks with Purchase-Leaseback Transactions: The major risk of
purchase-leaseback transactions is that the third party lessee will not be able
to make required payments to the Account. If the leaseback interest is
subordinate to other interests in the real property, such as a first mortgage or
other lien, the risk to the Account increases because the lessee may have to pay
the senior lienholder to prevent foreclosure before it pays the Account. If the
lessee defaults or the leaseback is terminated prematurely, the Account might
not recover its investment unless the property is sold or leased on favorable
terms.
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Appraisal Risks
Real estate appraisals are only estimates of property values based on a
professional's opinion and may not be accurate predictors of the amount the
Account would actually receive if it sold a property. If an appraisal is too
high, the Account's value could go down upon reappraisal or if the property is
sold for a lower price than the appraisal. If appraisals are too low, those who
redeem prior to an adjustment to the valuation or a property sale will have
received less than the true value of the Account's assets .
Risks of Mortgage Loan Investments
General Risks of Mortgage Loans. The Account will be subject to the risks
inherent in making mortgage loans, including:
o The borrower may default, requiring that the Account foreclose on
the underlying property to protect the value of its mortgage loan.
Since its mortgage loans are usually non-recourse, the Account must
rely solely on the value of a property for its security. The larger
the mortgage loan compared to the value of the property securing it,
the greater the loan's risk. Upon default, the Account may not be
able to sell the property for its estimated or appraised value.
Also, certain liens on the property, such as mechanic's or tax
liens, may have priority over the Account's security interest.
o The borrower may not be able to make a lump sum principal payment
due under a mortgage loan at the end of the loan term, unless it can
refinance the mortgage loan with another lender.
o If interest rates are volatile during the loan period, the Account's
variable-rate mortgage loans could have lower yields.
Prepayment Risks. The Account's mortgage loan investments will usually be
subject to the risk that the borrower repays the loan early. Prepayments can
change the Account's return because we may be unable to reinvest the proceeds at
as high an interest rate as the original mortgage loan rate.
Interest Limitations. The interest rate we charge on mortgage loans may
inadvertently violate state usury laws that limit rates, if, for example, state
law changes during the loan term. If this happens, we could incur penalties or
may not be able to enforce payment of the loan.
Risks of Participations. Participating mortgages are subject to the
following additional risks:
o The participation element might generate insufficient returns to
make up for the higher interest rate the loan would have obtained
without the participation feature.
o In very limited circumstances, a court could possibly characterize
the Account's participation interest as a partnership or joint
venture with the borrower and the Account could lose the priority of
its security interest, or be liable for the borrower's debts.
Risks of REIT Investments
REITs are subject to many of the same general risks associated with direct
real property ownership. In particular, equity REITs may be affected by changes
in the value of the underlying
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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.
Risks of Liquid Investments
The Account's investments in securities and other liquid investments may
be subject to:
o financial risk -- for debt securities, the possibility that the
issuer won't be able to pay principal and interest when due, and for
common or preferred stock, the possibility that the issuer's current
earnings will fall or that its overall financial soundness will
decline, reducing the security's value.
o market risk -- price volatility due to changing conditions in the
financial markets and, particularly for debt securities, changes in
overall interest rates.
o interest rate volatility, which may affect current income from an
investment.
Risks of Foreign Investments
Foreign investments present the following special risks:
o Foreign real estate markets may have different liquidity and
volatility attributes than U.S. markets.
o The value of foreign investments or rental income can go up or down
from changes in currency rates, currency exchange control
regulations, possible expropriation or confiscatory taxation,
political, social, and economic developments, and foreign
regulations.
o The Account may (but is not required to) seek to hedge its exposure
to changes in currency rates, which could involve extra costs.
Hedging might not be successful.
o It may be more difficult to obtain and collect a judgment on foreign
investments than on domestic ones.
Risk of Unspecified Investments
You won't have the opportunity to evaluate the economic merit of a
property purchase before the Account completes the purchase, so you will need to
rely solely on TIAA's judgment and ability to select investments consistent with
the Account's investment objective and policies.
ESTABLISHING AND MANAGING THE ACCOUNT - THE ROLE OF TIAA
Establishing 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
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<PAGE>
Account's obligations are obligations of TIAA, the Account's income, investment
gains, and investment losses are credited to or charged against the assets of
the Account without regard to TIAA's other 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:
o identifying, recommending and purchasing appropriate real
estate-related and other investments
o providing all portfolio accounting, custodial, and related services
for the Account
o arranging for others to provide certain advisory or other management
services to the Account's joint ventures or other investments
TIAA provides all services to the Account at cost. For more about the charge for
investment management services, see "Expense Deductions" page __.
You don't have the right to vote for TIAA Trustees directly. See "Voting
Rights" page __. For information about the Trustees and principal executive
officers of TIAA, see Appendix A to this prospectus.
TIAA's ERISA Fiduciary Status. To the extent that assets of a plan subject
to ERISA are allocated to the Account, TIAA will be acting as an "investment
manager" and a fiduciary under ERISA with respect to those assets.
Liquidity Guarantee
TIAA provides the Account with a liquidity guarantee -- TIAA ensures that
the Account has funds available to meet participant transfer or cash withdrawal
requests. If the Account can't fund participant requests from the Account,
TIAA's general account will fund them by purchasing Account accumulation units
(liquidity units). TIAA guarantees that you can redeem your accumulation units
at their then current daily net asset value. Of course, you can make a cash
withdrawal only if allowed by the terms of your plan. The Account pays TIAA for
the liquidity guarantee through a daily deduction from net assets. See "Expense
Deductions," page __.
An independent fiduciary (described below) monitors the Account to ensure
that TIAA does not own too much of the Account and may require TIAA to redeem
some of its liquidity units, particularly when the Account has uninvested cash
or liquid investments available. The independent fiduciary may also propose
properties for the Account to sell so that TIAA can redeem liquidity units. TIAA
does not currently own liquidity units.
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<PAGE>
Conflicts of Interest
TIAA does not accept acquisition or placement fees for the services it
provides to the Account. However, TIAA employees who manage the Account's
investments may also manage TIAA's general account investments. It may therefore
at times face various conflicts of interest
For example, TIAA's general account may sometimes compete with the Real
Estate Account in the purchase or sale of investments. 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:
o reviewing and approving the Account's investment guidelines and
monitoring whether the Account's investments comply with those
guidelines
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<PAGE>
o reviewing and approving valuation procedures
o approving adjustments to any property valuations that change the
value of the property or the Account as a whole above or below
certain prescribed levels, or that are made within three months of
the annual independent appraisal
o reviewing and approving how we value accumulation and annuity units
o approving the appointment of all independent appraisers
o reviewing the purchase and sale of units by TIAA to ensure that we
use the correct unit values
o requiring appraisals besides those normally conducted, if the
independent fiduciary believes that any of the properties have
changed materially, or that an additional appraisal is necessary to
assure the Account has correctly valued a property
The independent fiduciary also must monitor TIAA's ownership in the
Account and supervise any winding down of the Account's operations. Its
responsibilities include:
o calculating the percentage of total accumulation units that TIAA's
ownership shouldn't exceed (the trigger point) and creating a method
for changing the trigger point
o approving any adjustment of TIAA's interest in the Account and
requiring an adjustment if TIAA's investment reaches the trigger
point
o participating in any program to reduce TIAA's ownership in the
Account or to facilitate winding down the Account, including
selecting properties for sale, providing sales guidelines, and
approving those sales that, in the independent fiduciary's opinion,
are desirable
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.
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<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.
[The following will be printed in pie chart form]
EAST - 39.0% OFFICE - 50.1%
WEST - 30.8% RESIDENTIAL - 27.7%
MIDWEST - 18.5% INDUSTRIAL - 18.7%
SOUTH - 11.7% RETAIL - 3.5%
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 Kearney 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 67,081 100% $16.99 $ 8,722,167
--------- ------------
Subtotal--Office Properties 3,521,367 $657,161,108
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
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
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 Mahwah, NJ 1999 1999 168,000 100% NA $17,051,474
Headquarters
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 131,070 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
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>
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<PAGE>
(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.
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>
=========================================================================================================
Occupied Percentage of Total Rentable
Square Area of Account's
Major Tenant 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>
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<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>
====================================================================================================================================
Percent of Total Rentable
Rentable Area Area of Account's
Number of Subject to Non-Residential Properties
Leases Expiring Leases Represented by
Expiring (sq. ft.) Expiring Leases
Year of Lease Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <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 44 327,813 9.31%
2005 and thereafter 76 1,133,358 32.19%
- ------------------------------------------------------------------------------------------------------------------------------------
Total 360 3,521,367 100.0%
====================================================================================================================================
</TABLE>
Industrial Properties
<TABLE>
<CAPTION>
====================================================================================================================================
Percent of Total Rentable
Rentable Area Area of Account's
Number of Subject to Non-Residential Properties
Leases Expiring Leases Represented by
Expiring (sq. ft.) Expiring Leases
Year of Lease Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 12 256,246 5.02%
2001 8 205,199 4.02%
2002 4 100,560 1.97%
2003 16 1,366,854 26.75%
2004 3 35,456 0.69%
2005 and thereafter 23 3,144,921 61.55%
- ------------------------------------------------------------------------------------------------------------------------------------
Total 66 5,109,236 100.0%
====================================================================================================================================
</TABLE>
Retail Properties
<TABLE>
<CAPTION>
====================================================================================================================================
Percent of Total Rentable
Rentable Area Area of Account's Non-
Number of Subject to Residential Properties
Leases Expiring Leases Represented by
Expiring (sq. ft.) Expiring Leases
Year of Lease Expiration
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2000 18 38,035 8.41%
2001 27 61,037 13.49%
2002 7 20,151 4.46%
2003 6 8,832 1.95%
2004 8 10,693 2.36%
2005 and thereafter 12 313,560 69.32%
- ------------------------------------------------------------------------------------------------------------------------------------
Total 78 452,308 100.0%
====================================================================================================================================
</TABLE>
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<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, FLA 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
[As of the date of this filing, no properties have been purchased or sold in
2000. Any properties purchased or sold prior to effectiveness will be included
here by amendment.]
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).
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<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data should be considered together with
the Account's financial statements and related notes, which are presented later
in this prospectus.
<TABLE>
<CAPTION>
July 3, 1995
Year Ended Year Ended Year Ended Year Ended (commencement of
December 31, December 31, December 31, December 31, operations) to
1999 1998 1997 1996 December 31, 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
============== ============== ============== ============== ==============
<CAPTION>
December 31, December 31, December 31, December 31, December 31,
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
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>
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<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.
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
- 22 -
<PAGE>
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 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.
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<PAGE>
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, 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.
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<PAGE>
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:
o the value of the Account's cash, cash equivalents, and short-term
and other debt instruments
o the value of the Account's other securities investments and other
assets
o the value of the individual real properties and other real
estate-related investments owned by the Account, determined as
described below
o an estimate of the net operating income accrued by the Account from
its properties and other real estate-related investments
and then reducing it by the Account's liabilities, including the daily
investment management fee and certain other expenses attributable to operating
the Account. See "Expense Deductions," page 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.
- 25 -
<PAGE>
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).
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
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<PAGE>
o is made within three months of the annual independent appraisal or
o results in an increase or decrease of:
o more than 6 percent of the value of any of the Account's
properties since the last independent annual appraisal
o more than 2 percent in the value of the Account since the prior
month or
o 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 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.
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<PAGE>
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.
The current annual expense deductions are:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Percent of
Type of Expense Deduction Net Assets Services Performed
Annually
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Management For TIAA's investment advice, portfolio accounting,
0.25% 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 For TIAA's bearing certain mortality and expense
0.07% 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's a
difference, we add it to or deduct it from the Account in equal daily
installments over the remaining days in the quarter. Since our at-cost
deductions are based on projections of Account assets and overall expenses, the
size of any adjusting payments will be directly affected by how different our
projections are from the Account's actual assets or expenses. While our
projections of Account asset size (and resulting expense fees) are based on our
best estimates, the size of the Account's assets can be affected by many
factors, including premium growth, participant transfers into or out of the
Account, and any changes in the value of portfolio holdings. Historically, the
adjusting payments have generally been small and have resulted in both upward
and downward adjustments to the Account's expense deductions for the following
quarter.
TIAA's board can revise the deduction rates from time to time to keep
deductions as close as possible to actual expenses.
Currently there are no deductions from premiums or withdrawals, but we
might change this in the future. Property expenses, brokers' commissions,
transfer taxes, and other portfolio expenses are charged directly to the
Account.
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<PAGE>
THE CONTRACTS
TIAA offers the Real Estate Account as a variable option for the annuity
contracts described below. Some employer plans may not offer the Real Estate
Account as an option for RA, GRA, GSRA, or Keogh contracts. The Account is not
available in California.
RA (Retirement Annuity) and GRA (Group Retirement Annuity)
RA and GRA contracts are used mainly for employee retirement plans. RA
contracts are issued directly to you. GRA contracts, which are group contracts,
are issued through an agreement between your employer and TIAA.
Depending on the terms of your plan, RA and GRA premiums can be paid by
your employer, you, or both. 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.
Roth IRA
Roth IRAs are also individual contracts issued directly to you. You or
your spouse can each open a Roth IRA with an annual contribution up to $2,000 or
with a rollover from another IRA or a Classic IRA issued by TIAA if you meet our
eligibility requirements. The combined limit for your contributions to a Classic
IRA and a Roth IRA for a single year is $2,000, excluding rollovers. We can't
issue you a joint contract.
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<PAGE>
[SIDEBAR
IRA and Keogh Eligibility
You or your spouse can set up a TIAA Classic or Roth IRA or a Keogh if
you're a current or retired employee or trustee of an eligible institution, or
if you own a TIAA or CREF annuity or a TIAA individual insurance contract. With
IRAs, you can also roll over funds from an eligible institution's retirement
plan or from an IRA account that was set up with money originally in an eligible
institution's plan. Eligibility may be restricted by certain income limits on
opening Roth IRA contracts.]
GA (Group Annuity)
GA contracts are used exclusively for employee retirement plans and are
issued directly to your employer or your plan's trustee. Your employer pays
premiums directly to TIAA (you can't pay GA premiums directly to TIAA) and your
employer or the plan's trustee exclusively controls the allocation of
contributions and transfers to and from these contracts. Ask your employer for
more information if your plan is funded with a GA contract.
Keoghs
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.
[SIDEBAR]
Vesting
Once you're fully vested under your employer's plan, you can't lose the
benefits you've earned under your RA, GRA or GA contract. Ask your employer for
your vesting status. Your benefits under SRAs, GSRAs, and IRAs are immediately
vested and can't be forfeited.]
Starting Out
We'll issue you a TIAA contract when we receive your completed application
or enrollment form. 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.
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
- 30 -
<PAGE>
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
o writing to our home office
o using our Inter/ACT Internet service at www.tiaa-cref.org or
o calling our Automated Telephone Service (24 hours a day) at
800-842-2252.
The Right to Cancel Your Contract
You can cancel your contract up to 30 days after you first receive it,
unless we 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
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.
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<PAGE>
[SIDEBAR - Calculating Accumulation Unit Values
We calculate the Account's accumulation unit value at the end of each
valuation day. To do that, we multiply the previous day's value by the net
investment factor for the Account. The net investment factor is calculated as A
divided by B, where A and B are defined as:
A. The value of the Account's net assets at the end of the current
valuation period, less premiums received during the current
valuation period.
B. The value of the Account's net assets at the end of the previous
valuation period, plus the net effect of transactions made at the
start of the current valuation period.]
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:
o from the Real Estate Account to a CREF investment account or TIAA's
traditional annuity
o to the Real Estate Account from a CREF investment account or TIAA's
traditional annuity (subject to certain limitations)
o from the Real Estate Account to other companies
o to the Real Estate Account from other plans
o by withdrawing cash
o by setting up a program of automatic withdrawals or transfers
These 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.
To request a transfer or to withdraw cash:
o write to TIAA's home office at 730 Third Ave., New York, NY
10017-3206
o call us at 800 842-2252 or
o for transfers, use Inter/ACT on the Internet at www.tiaa-cref.org
You may be required to complete and return certain forms to effect 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.
- 32 -
<PAGE>
Before you transfer or withdraw cash, make sure you understand the possible
federal and other income tax consequences. See "Taxes," page 43.
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.
[SIDEBAR
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, we have instituted a policy of limiting a participant's
ability to make transfers by telephone, fax or over the Internet, if the
participant has been engaging in a high level transfer activity, and has
continued to transfer frequently after being notified in writing of our policy.
We have the right to modify our policy at any time.]
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.
Transfers from Other Plans
Ordinarily you can transfer funds from another 403(b) retirement plan to a
TIAA contract. Likewise, if your TIAA contract is part of a 401(a) or 403(a)
plan, you can transfer to it from other 401(a) or 403(a) plans, if your plans
permit. Amounts transferred to TIAA may still be subject to provisions of
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<PAGE>
your original employer's plan. You can also transfer funds from 401(a), 403(a),
and 403(b) plans to a TIAA Classic IRA, or from an IRA containing funds
originally contributed to such plans, to either a Classic or Roth IRA, assuming
you meet the income eligibility criteria. 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).
[SIDEBAR
Systematic Withdrawals and Transfers
If your employer's plan allows, you can set up a program to make cash
withdrawals or transfers automatically by specifying that we withdraw or
transfer from your Real Estate Account accumulation any fixed
o number of accumulation units
o dollar amount or
o percentage of accumulation
until you tell us to stop or until your accumulation is exhausted. Currently,
the program must be set up so that at least $100 is automatically withdrawn or
transferred at a time.]
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<PAGE>
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.
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
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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 40. 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:
oOne-Life Annuity with or without Guaranteed Period: Pays income as
long as you live. If you opt for a guaranteed period (10, 15 or 20 years)
and you die before it's over, income payments will continue to your
beneficiary until the end of the period. If you don't opt for a guaranteed
period, all payments end at your death -- so that it's possible for you to
receive only one payment if you die less than a month after payments
start.
oAnnuity for a Fixed Period:. Pays income for any period you choose
from 5 to 30 years.
oTwo-Life Annuities: Pays income to you as long as you live, then
continues at either the same or a reduced level for the life of your
annuity partner. There are three types of two-life annuity options, all
available with or without a guaranteed period -- Full Benefit to Survivor,
Two- Thirds Benefit to Survivor, and a Half-Benefit to Annuity Partner.
Under the Two-Thirds Benefit to Survivor option, payments to you will be
reduced upon the death of your annuity partner.
oMinimum Distribution Option ("MDO") Annuity: Generally available
only if you must begin annuity payments under the Internal Revenue Code
minimum distribution requirements. (Some employer plans allow you to elect
this option earlier -- contact TIAA for more information.)
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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 43.
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 10-Year guaranteed
period, with your spouse as your annuity partner, paid from TIAA's traditional
annuity. If you haven't picked an income option when the annuity starting date
arrives for your IRA, we may assume you want the minimum distribution option
annuity.
Transfers During the Annuity Period
After you begin receiving annuity income, you can transfer all or part of
the future annuity income payable once each calendar quarter (i) from the Real
Estate Account into a "comparable annuity" payable from a CREF account or TIAA's
traditional annuity, or (ii) from a CREF account into a comparable annuity
payable from the Real Estate Account. Comparable annuities are those which are
payable under the same income option, and have the same first and second
annuitant, and remaining guaranteed period.
We'll process your transfer on the business day we receive your request.
You can also choose to have a transfer take effect at the close of any future
business day, or the last calendar day of the current or any future month, even
if it's not a business day. Transfers under the annual income payment method
will affect your annuity payments beginning on the May 1 following the March 31
which is on or after the effective date of the transfer. Transfers under the
monthly income payment method and all transfers into TIAA's traditional annuity
will affect your annuity payments beginning with the first payment due after the
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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.
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
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annuity unit value for each income change method is determined by updating the
annuity unit value from the previous valuation day to reflect the net investment
performance of the Account for the current valuation period relative to the 4
percent assumed investment return. In general, your payments will increase if
the performance of the Account is greater than 4 percent and decrease if the
value is less than 4 percent. The value is further adjusted to take into account
any changes expected to occur in the future at revaluation either once a year or
once a month, assuming the Account will earn the 4 percent assumed investment
return in the future.
The initial value of the annuity unit for a new annuitant is the value
determined as of the day before annuity payments start.
For participants under the annual income change method, the value of the
annuity unit for payments remains level until the following May l. For those who
have already begun receiving annuity income as of March 31, the value of the
annuity unit for payments due on and after the next succeeding May 1 is equal to
the annuity unit value determined as of such March 31.
For participants under the monthly income change method, the value of the
annuity unit for payments changes on the payment valuation day of each month for
the payment due on the first of the following month.
TIAA reserves the right, subject to approval by the Board of Trustees, to
modify the manner in which the number and/or value of annuity units is
calculated in the future.
DEATH BENEFITS
Availability; Choosing Beneficiaries
TIAA may pay death benefits if you or your annuity partner die during the
accumulation or annuity period. When you purchase your annuity contract, you
name one or more beneficiaries to receive the death benefit if you die. You can
change your beneficiaries anytime before you die, and, unless you instruct
otherwise, your annuity partner can do the same after your death.
Your Spouse's Rights
Your choice of beneficiary for death benefits may, in some cases, be
subject to the consent of your spouse. Similarly, if you are married at the time
of your death, federal law may require a portion of the death benefit be paid to
your spouse even if you have named someone else as beneficiary. If you die
without having named any beneficiary, any portion of your death benefit not
payable to your spouse will go to your estate.
Amount of Death Benefit
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If you die during the accumulation period, the death benefit is the amount
of your accumulation. If you and your annuity partner die during the annuity
period while payments are still due under a fixed- period annuity or for the
remainder of a guaranteed period, the death benefit is the value of the
remaining guaranteed payments.
Methods of Payment of Death Benefits
Generally, you can choose the method by which we'll pay the death benefit.
You can block your beneficiaries from changing the method you've chosen or you
can leave the choice to them. We can block any choice of method that provides an
initial payment of less than $25. If your beneficiary doesn't specifically
request to start receiving death benefits within a year of your death, we are
required by federal tax law to 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:
oSingle-Sum Payment, in which the entire death benefit is paid to
your beneficiary at once;
oOne-Life Annuity with or without Guaranteed Period, in which the
death benefit is paid monthly for the life of the beneficiary or through
the guaranteed period;
oAnnuity for a Fixed Period of 2 to 30 years;
oAccumulation-Unit Deposit Option, which pays a lump sum at the end
of a fixed period, ordinarily two to five years, during which period the
accumulation units deposited participate in the Account's investment
experience (generally the death benefit value must be at least $5,000);
and
othe Minimum Distribution Option (also called the TIAA-CREF Savings
and Investment Plan), which is available only to beneficiaries who must
receive income under 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.
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Ordinarily, death benefits are subject to federal estate tax. For more
detailed information on death benefits, please contact TIAA.
TAXES
[SIDEBAR- How the Real Estate Account is treated for tax purposes
The Account is not a separate taxpayer for purposes of the Internal
Revenue Code -- its earnings are taxed as part of TIAA's operations. 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.]
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 all earnings 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 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.
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
IRAs 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 [1999] is the
lesser of $8,000 or 331/3% of "includable compensation" (as defined by law).
Special catch up rules may permit a higher contribution in one or more of the
least three years prior to an individual's retirement. Contributions made on
behalf of an individual to a 403(b) plan, and 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. You won't
have to pay this tax in certain circumstances. Consult your tax advisor for more
information.
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Minimum Distribution Requirements
In most cases, payments have to begin by April 1 of the year after the
year you reach age 70 1/2, or if later, retirement. (For IRAs, payments must
begin by April 1 of the year after the year you reach age 70 1/2.) Under the
terms of certain retirement plans, the plan administrator may direct us to make
the minimum distributions required by law even if you do not elect to receive
them. In addition, if you don't begin distributions on time, you may be subject
to a 50 percent excise tax on the amount you should have received but did not.
Roth IRAs are generally not subject to these rules and do not require that any
distributions be made prior to your death.
Withholding on Distributions
If we send an "eligible rollover" distribution directly to you, federal
law requires us to withhold 20 percent from the taxable portion. If we 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. Contact TIAA or your tax advisor for more
information.
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.
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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 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
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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.
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.
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LEGAL MATTERS
All matters involving state law and relating to the contracts, including
TIAA's right to issue the contracts, have been passed upon by Charles H. Stamm,
Executive Vice President and General Counsel of TIAA. Sutherland Asbill &
Brennan LLP, Washington, D.C., have passed upon legal matters relating to the
federal securities laws.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our (i) consolidated
financial statements and financial statement schedule at December 31, 1999, 1998
and 1997, and for the years then ended, (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 Kearney Street for the year ended December 31, 1998, respectively, as set
forth in their reports. Friedman, Alpren & Green, independent auditors, have
audited our statement of revenues and certain expenses of 780 Third Avenue for
the year ended December 31, 1998. We have included these financial statements
and schedule in this prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's and Friedman, Alpren & Green'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 Page
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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-14
Proforma Condensed Financial Statements: [to be filed by amendment]
Proforma Condensed Statement of Assets and Liabilities......................F-
Proforma Condensed Statement of Operations..................................F-
Notes to Proforma Condensed Financial Statements............................F-
The Colorado: [to be filed by amendment]
Report of Independent Auditors .............................................F-
Statement of Revenues and Certain Expenses..................................F-
Notes to Statement of Revenues and Certain Expenses.........................F-
Larkspur Courts Apartments: [to be filed by amendment]
Report of Independent Auditors .............................................F-
Statement of Revenues and Certain Expenses..................................F-
Notes to Statement of Revenues and Certain Expenses.........................F-
88 Kearney Street: [to be filed by amendment]
Report of Independent Auditors .............................................F-
Statement of Revenues and Certain Expenses..................................F-
Notes to Statement of Revenues and Certain Expenses.........................F-
780 Third Avenue:[to be filed by amendment]
Report of Independent Auditors .............................................F-
Statement of Revenues and Certain Expenses..................................F-
Notes to Statement of Revenues and Certain Expenses.........................F-
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
Condensed Unaudited Statutory-Basis Financial Statements....................F-
Supplemental Information to Condensed Unaudited Statutory-Basis Financial
Statements.................................................................F-
[to be filed by amendment]
F - 1
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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.
____________________________
Chairman, President and
Chief Executive Officer
____________________________
Executive Vice President and
Principal Accounting Officer
F - 2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
[to be filed by Amendment]
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>
<CAPTION>
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.
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.
F - 8
<PAGE>
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.
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
F - 9
<PAGE>
Note 2--Significant Accounting Policies - (Concluded)
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.
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 - 10
<PAGE>
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:
Years Ending
December 31,
------------
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
============
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
F - 11
<PAGE>
Note 6--Condensed Consolidated Financial Information
Selected condensed consolidated financial information for an Accumulation Unit
of the Account is presented below.
<TABLE>
<CAPTION>
For the Years Ended July 3, 1995
December 31, (Commencement
-------------------------------------------- of Operations) to
1999 1998 1997 1996 December 31, 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 - 12
<PAGE>
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 - 13
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
December 31, 1999
REAL ESTATE PROPERTIES--77.81%
Location / Description Value
- ---------------------- -----
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
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
F - 14
<PAGE>
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
--------------
(1) Leasehold interest only.
MARKETABLE SECURITIES--22.19%
REAL ESTATE INVESTMENT TRUSTS--4.70%
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
F - 15
<PAGE>
Shares Issuer Value
- ------ ------ -----
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
-----------
CORPORATE BONDS-- 0.59%
Principal Issuer, Coupon and Maturity Date Value
- --------- -------------------------------- -----
$ 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
--------------
GOVERNMENT AGENCIES--.63%
Principal Issuer, Coupon and Maturity Date Value
- --------- -------------------------------- -----
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%
Principal Issuer, Coupon and Maturity Date Value
- --------- -------------------------------- -----
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
F - 16
<PAGE>
Principal Issuer, Coupon and Maturity Date Value
- --------- -------------------------------- -----
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
==============
See notes to consolidated financial statements.
F - 17
<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>
[BACK COVER]
HOW TO REACH US
Our Address
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, NY 10017-3206
Send all notices, forms, requests, or payments to this address only.
Internet
www.tiaa-cref.org
24 hours a day/seven days a week
Obtain general information (including Real Estate Account performance) about
TIAA-CREF; use Inter/ACT to view personal account information, reallocate
premiums and transfer funds among TIAA and CREF investment options, or to ask us
questions.
Automated Telephone Service
800 842-2252
24 hours a day/seven days a week
Change your allocation; transfer accumulations; get your accumulation unit
values; get TIAA and CREF performance (provided you've received a Real Estate
Account prospectus); confirm last premium paid.
Telephone Counseling Center
800 842-2776
8 a.m. to 11 p.m. ET Monday-Friday
Speak to a consultant about retirement savings and planning; quarterly and
annuity benefits reports; receiving annuity payments and annuity 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.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN A PROSPECTUS
<PAGE>
Item 13. Other Expenses of Issuance and Distribution.
SEC Registration Fees $1,515,152
Costs of printing and engraving $ 500,000*
Legal fees $ *
Accounting fees $ *
----------
TOTAL $ *
- -----------------
* - Approximate
Item 14. Indemnification of Directors and Officers.
Trustees, officers, and employees of TIAA may be indemnified against
liabilities and expenses incurred in such capacity pursuant to Article Six of
TIAA's bylaws (see Exhibit 3(B)). Article Six provides that, to the extent
permitted by law, TIAA will indemnify any person made or threatened to be made a
party to any action, suit or proceeding by reason of the fact that such person
is or was a trustee, officer, or employee of TIAA or, while a trustee, officer,
or employee of TIAA, served any other organization in any capacity at TIAA's
request. To the extent permitted by law, such indemnification could include
judgments, fines, amounts paid in settlement, and expenses, including attorney's
fees. TIAA has in effect an insurance policy that will indemnify its trustees,
officers, and employees for liabilities arising from certain forms of conduct.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees, officers, or employees of
TIAA, pursuant to the foregoing provision or otherwise, TIAA has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in that Act and is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment of expenses incurred or paid by a
trustee, officer, or employee in the successful defense of any action, suit or
proceeding) is asserted by a trustee, officer, or employee in connection with
the securities being registered, TIAA will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in that Act and will be governed by the final
adjudication of such issue.
Item 15. Recent Sales of Unregistered Securities.
None.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
(1) Distribution and Administrative Services Agreement by and between
TIAA and TIAA- CREF Individual & Institutional Services, Inc. (as
amended)*
II - 1
<PAGE>
(3) (A) Charter of TIAA (as amended)*
(B) Bylaws of TIAA (as amended)**
(4) (A) Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Contract
Endorsements* and Keogh Real Estate Account Contract
Endorsements***
(B) Forms of Income-Paying Contracts*
(5) Opinion and Consent of Charles H. Stamm, Esquire
(10) (A) Independent Fiduciary Agreement by and among TIAA, the
Registrant, and The Townsend Group***
(B) Custodial Services Agreement by and between TIAA and Morgan
Guaranty Trust Company of New York with respect to the Real
Estate Account*
(23) (A) Opinion and Consent of Charles H. Stamm, Esquire (filed as
Exhibit 5)
(B) Consent of Sutherland Asbill & Brennan LLP***
(C) Consent of Ernst & Young LLP***
(D) Consent of Friedman, Alpren & Green***
(27) Financial Data Schedule of the Account's Financial Statements for
the year ended December 31, 1999***
- -------------------------------
* - Previously filed and incorporated herein by reference to Post-Effective
Amendment No. 2 to the Account's previous Registration Statement on Form S-1
filed April 30, 1996 (File No. 33-92990).
** - Previously filed and incorporated herein by reference to the Account's Form
10-Q Quarterly Report for the period ended September 30, 1997, filed November
13, 1997 (File No. 33-92990).
*** - To be filed by amendment
(b) Financial Statement Schedules
Schedule III -- Real Estate Owned
All other Schedules have been omitted because they are not required under
the related instructions or are inapplicable.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
II - 2
<PAGE>
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(4) To provide the full financial statements of TIAA promptly upon written
or oral request.
Following are the full audited financial statements of TIAA.
II - 3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant, TIAA Real Estate Account, has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York, on the 6th day of March, 2000.
TIAA REAL ESTATE ACCOUNT
By: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Peter C. Clapman
-------------------------------------
Peter C. Clapman
Senior Vice President and
Chief Counsel, Investments
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, trustees and
officers of Teachers Insurance and Annuity Association of America, in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ John H. Biggs Chairman of the Board, President and Chief 3/6/00
- -------------------------- Executive Officer (Principal Executive
John H. Biggs Officer) and Trustee
/s/ Martin L. Leibowitz Vice Chairman, Chief Investment Officer 3/6/00
- -------------------------- and Trustee
Martin L. Leibowitz
/s/ Richard L. Gibbs Executive Vice President (Principal 3/6/00
- -------------------------- Financial and Accounting Officer)
Richard L. Gibbs
II - 4
<PAGE>
<TABLE>
<CAPTION>
================================================================================================================================
Signature of Trustee Date Signature of Trustee Date
- -------------------- ---- -------------------- ----
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
/s/ Marcus Alexis 3/6/00 /s/ Robert M. O'Neil 3/6/00
- --------------------------------------- ----------------------------------------------
Marcus Alexis Robert M. O'Neil
- --------------------------------------------------------------------------------------------------------------------------------
/s/ Willard T. Carleton 3/6/00 /s/ Leonard S. Simon 3/6/00
- --------------------------------------- ----------------------------------------------
Willard T. Carleton Leonard S. Simon
- --------------------------------------------------------------------------------------------------------------------------------
/s/ Robert C. Clark 3/6/00 /s/ Ronald L. Thompson 3/6/00
- --------------------------------------- ----------------------------------------------
Robert C. Clark Ronald L. Thompson
- --------------------------------------------------------------------------------------------------------------------------------
/s/ Estelle A. Fishbein 3/6/00 /s/ Paul R. Tregurtha 3/6/00
- --------------------------------------- ----------------------------------------------
Estelle A. Fishbein Paul R. Tregurtha
- --------------------------------------------------------------------------------------------------------------------------------
/s/ Frederick R. Ford 3/6/00 /s/ William H. Waltrip 3/6/00
- --------------------------------------- ----------------------------------------------
Fredeerick R. Ford William H. Waltrip
- --------------------------------------------------------------------------------------------------------------------------------
/s/ Martin J. Gruber 3/6/00 /s/ Rosalie J. Wolf 3/6/00
- --------------------------------------- ----------------------------------------------
Martin J. Gruber Rosalie J. Wolf
- --------------------------------------------------------------------------------------------------------------------------------
/s/ Ruth Simms Hamilton 3/6/00
- --------------------------------------- ----------------------------------------------
Ruth Simms Hamilton David Alexander
================================================================================================================================
</TABLE>
