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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 26, 2000
Registration No. 333-22809
--------------------------------
--------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 6
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TIAA REAL ESTATE ACCOUNT
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(NOT APPLICABLE)
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(NOT APPLICABLE)
(I.R.S. EMPLOYER IDENTIFICATION NO.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212)490-9000
------------------------
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Peter C. Clapman, Esquire
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212)490-9000
------------------------
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
Steven B. Boehm, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the registration statement.
<PAGE>
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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May 1, 2000
TIAA Real Estate Account
P r o s p e c t u s
| A Variable Annuity Offered Through
| Individual, Group and Tax-Deffered
| Annuity Contracts
[TIAA LOGO]
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About the Real Estate Account and TIAA
The TIAA Real Estate Account was established in February 1995 as a separate
account of Teachers Insurance and Annuity Association of America (TIAA). TIAA
is a life insurance company founded in 1918 by the Carnegie Foundation for the
Advancement of Teaching. Its home office is at 730 Third Avenue, New York, NY
10017-3206 and its telephone number is (212) 490-9000. In addition to issuing
variable annuities, whose returns depend upon the performance of certain
specified investments, TIAA also offers traditional fixed annuities.
With its 50 years in the real estate business and interests in properties
located across the U.S., TIAA is one of the nation's largest and most
experienced investors in mortgages and real estate equity interests. As of
December 31, 1999, TIAA's general account had a mortgage portfolio of $21.4
billion and a real property portfolio of $5.7 billion.
TIAA is the companion organization of the College Retirement Equities Fund
(CREF), the first company in the United States to issue a variable annuity.
Together, TIAA and CREF form the principal retirement system for the nation's
education and research communities and one of the largest pension systems in
the U.S., based on assets under management. TIAA-CREF serves approximately 2.2
million people at over 9,500 institutions. As of December 31, 1999, TIAA's
assets were approximately $110 billion; the combined assets for TIAA and CREF
totalled approximately $288 billion.
The Real Estate Account offered by this prospectus is only being offered in
those jurisdictions where it is legal to do so. No person may make any
representation to you or give you any information about the offering that is
not in the prospectus. If anyone provides you with information about the
offering that is not in the prospectus, you shouldn't rely on it.
<PAGE>
TIAA Real Estate Account
A Tax-Deferred Variable Annuity Option
Offered By
Teachers Insurance and Annuity
Association of America (TIAA)
May 1, 2000
This prospectus tells you about the TIAA Real Estate Account, an investment
option offered through individual and group variable annuity contracts issued
by TIAA. Please read it carefully before investing and keep it for future
reference.
The Real Estate Account invests primarily in real estate and real
estate-related investments. TIAA, one of the largest and most experienced
mortgage and real estate investors in the nation, manages the Account's assets.
The value of your investment in the Real Estate Account will go up or down
depending on how the Account performs and you could lose money. The Account's
performance depends mainly on the value of the Account's real estate and other
real estate-related investments, and the income generated by those investments.
The Account's returns could go down if, for example, real estate values or
rental and occupancy rates decrease due to general economic conditions or a
weak market for real estate generally. Property operating costs and government
regulations, such as zoning or environmental laws, could also affect a
property's profitability. TIAA does not guarantee the investment performance of
the Account, and you bear the entire investment risk. For a detailed discussion
of the specific risks of investing in the Account, see "Risks," page 8.
We take deductions daily from the Account's net assets for the Account's
operating and investment management expenses. The Account also pays TIAA for
bearing mortality and expense risks and for providing a liquidity guarantee.
The current estimated annual expense deductions from Account's net assets total
0.565%.
The Real Estate Account is designed as an option for retirement and
tax-deferred savings plans for employees of colleges, universities, and other
educational and research institutions. TIAA offers the Real Estate Account
under the following annuity contracts:
- RA and GRAs (Retirement and Group Retirement Annuities)
- SRAs (Supplemental Retirement Annuities)
- GSRAs (Group Supplemental Retirement Annuities)
- Classic and Roth IRAs (Individual Retirement Annuities)
- GAs (Group Annuities)
- Keoghs (subject to regulatory approval)
The Securities and Exchange Commission (SEC) has not approved or disapproved
these securities or passed upon the adequacy of the information in this
prospectus. Any representation to the contrary is a criminal offense.
An investment in the Real Estate Account is not a bank deposit and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency.
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Table of Contents
<TABLE>
<S> <C>
3 The Account's Investment Objective and Strategy
4 About the Account's Investments--In General
6 General Investment and Operating Policies
8 Risks
12 Establishing and Managing the Account--
The Role of TIAA
16 Description of Properties
23 Selected Financial Data
24 Management's Discussion and Analysis of Account's Financial Condition and
Operating Results
27 Valuing the Account's Assets
30 Expense Deductions
32 The Contracts
35 How to Transfer and Withdraw Your Money
38 Receiving Annuity Income
44 Death Benefits
45 Taxes
48 General Matters
50 Distributor
50 State Regulation
50 Legal Matters
51 Experts
51 Additional Information
52 Financial Statements
F-1 Index to Financial Statements
A-1 Appendix A--Management of TIAA
B-1 Appendix B--Glossary
C-1 Appendix C--Description of Certain Properties
</TABLE>
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The Account's Investment Objective and Strategy
Investment Objective: The Real Estate Account seeks favorable long term
returns primarily through rental income and appreciation of real estate
investments owned by the Account. The Account also will invest in
publicly-traded securities and other investments that are easily converted to
cash to make redemptions, purchase or improve properties or cover other
expenses.
Investment Strategy: The Account seeks to invest between 70 percent to 95
percent of its assets directly in real estate or real estate-related
investments. The Account's principal strategy is to purchase direct ownership
interests in income-producing real estate, such as office, industrial, retail,
and multi-family residential properties. The Account can also invest in other
real estate or real estate-related investments, through joint ventures, real
estate partnerships or real estate investment trusts (REITs). To a limited
extent, the Account can also invest in conventional mortgage loans,
participating mortgage loans, common or preferred stock of companies whose
operations involve real estate (i.e., that primarily own or manage real
estate), and collateralized mortgage obligations (CMOs).
The Account will invest the remaining portion of its assets in government and
corporate debt securities, money market instruments and other cash equivalents,
and, at times, stock of companies that don't primarily own or manage real
estate. In some circumstances, the Account can increase the portion of its
assets invested in debt securities or money market instruments. This could
happen if the Account receives a large inflow of money in a short period of
time, there is a lack of attractive real estate investments available on the
market, or the Account anticipates a need to have more cash available.
The amount the Account invests in real estate and real estate-related
investments at a given time will vary depending on market conditions and real
estate prospects, among other factors. On December 31, 1999, the Account had
82.5 percent of its net assets invested in real estate and real estate-related
investments (including REITs).
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About the Account's Investments--In General
Direct Investments in Real Estate
Direct Purchase: The Account will generally buy direct ownership interests in
existing or newly constructed income-producing properties, including office,
industrial, retail, and multi-family residential properties. The Account will
invest mainly in established properties with existing rent and expense
schedules or in newly-constructed properties with predictable cash flows or in
which a seller agrees to provide certain minimum income levels. On occasion the
Account might invest in real estate development projects.
Purchase-Leaseback Transactions: The Account can enter into purchase-leaseback
transactions (leasebacks) in which it typically will buy land and
income-producing improvements on the land (such as buildings), and
simultaneously lease the land and improvements to a third party (the lessee).
Leasebacks are generally for very long terms. Usually, the lessee is
responsible for operating the property and paying all operating costs,
including taxes and mortgage debt. The Account can also give the lessee an
option to buy the land and improvements.
In some leasebacks, the Account may purchase only the land under an income-
producing building and lease the land to the building owner. In those cases,
the Account will often seek to share (or "participate") in any increase in
property value from building improvements or in the lessee's revenues from the
building above a base amount. The Account can invest in leasebacks that are
subordinated to other interests in the land, buildings, and improvements (e.g.,
first mortgages); in that case, the leaseback interest will be subject to
greater risks.
Investments in Mortgages
General: The Account can originate or acquire interests in mortgage loans,
generally on the same types of properties it might otherwise buy. These
mortgage loans may pay fixed or variable interest rates or have "participating"
features (as described below). Normally the Account's mortgage loans will be
secured by properties that have income-producing potential. They usually will
not be insured or guaranteed by the U.S. government, its agencies or anyone
else. They usually will be non-recourse, which means they won't be the
borrower's personal obligations. Most will be first mortgage loans on existing
income-producing property, with first-priority liens on the property. These
loans may be amortized, or may provide for interest-only payments, with a
balloon payment at maturity.
Participating Mortgage Loans: The Account may make mortgage loans which permit
the Account to share (have a "participation") in the income from or
appreciation of the
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underlying property. These participations let the Account receive additional
interest, usually calculated as a percentage of the revenues the borrower
receives from operating, selling or refinancing the property. The Account may
also have an option to buy an interest in the property securing the
participating loan.
Managing Mortgage Loan Investments: TIAA can manage the Account's mortgage
loans in a variety of ways, including:
- - renegotiating and restructuring the terms of a mortgage loan
- - extending the maturity of any mortgage loan made by the Account
- - consenting to a sale of the property subject to a mortgage loan
- - financing the purchase of a property by making a new mortgage loan in
connection with the sale
- - selling them, or portions of them, before maturity
Other Real Estate-Related Investments
Real Estate Investment Trusts: The Account may invest in real estate
investment trusts (REITs), publicly-owned entities that lease, manage, acquire,
hold mortgages on, and develop real estate. Normally the Account will buy the
common or preferred stock of a REIT, although at times it may purchase REIT
debt securities. REITs seek to optimize share value and increase cash flows by
acquiring and developing new projects, upgrading existing properties or
renegotiating existing arrangements to increase rental rates and occupancy
levels. REITs must distribute 95% of their net earnings to shareholders in
order to benefit from a special tax structure, which means they may pay high
dividends. The value of a particular REIT can be affected by such factors as
its need for cash flow, the skill of its management team, and defaults by its
lessees or borrowers.
Stock of Companies Involved in Real Estate Activities: The Account can invest
in common or preferred stock of companies whose business involves real estate.
These stocks may be listed on U.S. or foreign stock exchanges or traded
over-the-counter in the U.S. or abroad.
Collateralized Mortgage Obligations: The Account can invest in collateralized
mortgage obligations (CMOs) that are fully collateralized by a portfolio of
mortgages or mortgage-related securities. CMO issuers distribute principal and
interest payments on the mortgages to CMO holders according to the distribution
schedules of each CMO. CMO interest rates can be fixed or variable. Some
classes of CMOs may be entitled to receive mortgage prepayments before other
classes do. Therefore, the prepayment risk for a particular CMO may be
different than for other mortgage-related securities. CMOs may also be harder
to sell than other securities.
Non-Real Estate-Related Investments
The Account can also invest in:
- - U.S. government or government agency securities
- - Corporate debt or asset-backed securities of U.S. or foreign entities, or
debt securi-
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ties of foreign governments or multi-national organizations, but only if
they're investment-grade and rated in the top four categories by a
nationally recognized rating organization (or, if not rated, deemed by
TIAA to be of equal quality)
- - Money market instruments and other cash equivalents. These will usually be
high-quality short-term debt instruments, including U.S. government or
government agency securities, commercial paper, certificates of deposit,
bankers' acceptances, repurchase agreements, interest-bearing time
deposits, and corporate debt securities.
- - Common or preferred stock of U.S. or foreign companies that aren't involved
in real estate, to a limited extent
Foreign Real Estate and Other Foreign Investments
The Account may invest in foreign real estate or real estate-related
investments. It might also invest in securities or other instruments of foreign
government or private issuers. While the percentage will vary, we expect that
foreign investments will be no more than 25 percent of the Account's portfolio.
Depending on investment opportunities, the Account's foreign investments could
at times be concentrated in one or two foreign countries. We will consider the
special risks involved in foreign investing before investing in foreign real
estate and won't invest unless our standards are met.
General Investment and Operating Policies
Standards for Real Estate Investments
General Criteria for Buying Real Estate or Making Mortgage Loans: Before the
Account purchases real estate or makes a mortgage loan, TIAA will consider such
factors as:
- - the location, condition, and use of the underlying property
- - its operating history, its future income-producing capacity
- - the quality, operating experience, and creditworthiness of the borrower.
TIAA will analyze the fair market value of the underlying real estate, taking
into account the property's operating cash flow (based on the historical and
projected levels of rental and occupancy rates, and expenses), as well as the
general economic conditions in the area where the property is located.
Diversification: We haven't placed percentage limitations on the type and
location of properties that the Account can buy. However, the Account seeks to
diversify its investments by type of property and geographic location. How much
the Account diversifies will depend upon whether suitable investments are
available and how much the Account has available to invest.
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Special Criteria for Making Mortgage Loans: Ordinarily, the Account will only
make a mortgage loan if the loan, when added to any existing debt, will not
exceed 85 percent of the appraised value of the mortgaged property when the
loan is made, unless the Account is compensated for taking additional risk.
Selling Real Estate Investments: The Account doesn't intend to buy and sell
its real estate investments simply to make short-term profits. But the Account
may sell investments if market conditions are favorable or to raise cash. The
Account will reinvest any sale proceeds that it doesn't need to pay operating
expenses or to meet redemption requests (e.g., cash withdrawals or transfers).
Other Real Estate-Related Policies
Appraisals: The Account will rely on TIAA's own analysis to appraise a
property when it first buys it. After that, normally the Account's properties
and participating mortgage loans will be appraised or valued once a year by an
independent state-certified appraiser who is a member of a professional
appraisal organization. While the Account usually won't receive an independent
appraisal before it buys real estate, it will get an independent appraisal when
it makes mortgage loans.
Borrowing: Usually, the Account won't borrow money to purchase real estate.
However, to meet short-term cash needs, the Account may obtain a line of credit
whose terms require that the Account secure a loan with one or more of its
properties. On a limited basis, the Account may place a mortgage on an Account
property held by one of its subsidiaries for tax planning
or other purposes.
Joint Investments: The Account can hold property jointly through general or
limited partnerships, joint ventures, leaseholds, tenancies-in-common, or other
legal arrangements. However, the Account will not hold real property jointly
with TIAA or its affiliates.
Discretion to Evict or Foreclose: TIAA may, in its discretion, evict
defaulting tenants or foreclose on defaulting borrowers to maintain the value
of an investment, when it decides that it's in the Account's best interests.
Property Management and Leasing Services: The Account usually will hire a
local management company to perform the day-to-day management services for
the Account's properties, including supervising any on-site personnel,
negotiating maintenance and service contracts, and providing advice on major
repairs and capital improvements. The local manager will also recommend
changes in rent schedules and create marketing and advertising programs to
attain and maintain good occupancy rates by responsible tenants. The Account
may also hire leasing companies to perform or coordinate leasing and
marketing services to fill any vacancies. The fees paid to the local
management company, along with any leasing commissions and expenses, will
reduce the Account's cash flow from a property.
Insurance: We will try to arrange for, or require proof of, comprehensive
insurance, including liability, fire, and extended coverage, for the Account's
real property and properties securing mortgage loans or subject to
purchase-leaseback transactions.
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Other Policies
Liquid Assets: At times, a significant percentage of the Account may be
invested in liquid assets (which may or may not be real estate-related) while
we look for suitable real property investments. The Account can temporarily
increase the percentage of its liquid assets under some circumstances,
including the rapid inflow of participants' funds, lack of suitable real estate
investments, or a need for greater liquidity.
Investment Company Act of 1940: We intend to operate the Account so that it
will not have to register as an "investment company" under the Investment
Company Act of 1940 (the 1940 Act). This will require monitoring the Account's
portfolio so that it won't have more than 40 percent of total assets, other
than U.S. government securities and cash items, in investment securities. As a
result, the Account may be unable to make some potentially profitable
investments.
Changing Operating Policies or Winding Down: TIAA can decide to change the
operating policies of the Account or wind it down. If the Account is wound
down, you may need to transfer your accumulations or annuity income to TIAA's
traditional annuity or any CREF account available under your employer's plan.
If you don't tell us where to transfer your accumulations or annuity income,
we'll automatically transfer them to the CREF Money Market Account. You will
be notified in advance if we decide to change a significant policy or wind
down the Account.
Risks
The value of your investment in the Account will go up and down based on the
value of the Account's assets and the income the assets generate. The Account's
assets and income (particularly its real estate assets and rental income) can
be affected by many factors, and you should consider the specific risks
presented below before investing in the Account.
Risks of Real Estate Investing
General Risks of Owning Real Property: The Account will be subject to the
risks inherent in owning real property, including:
- - The Account's property values or rental and occupancy rates could go down
due to general economic conditions, a weak market for real estate
generally, changing supply and demand for certain types of properties, and
natural disasters or man-made events.
- - A property may be unable to attract and retain tenants, which means that
rental income would decline.
- - The Account could lose revenue if tenants don't pay rent, or if the Account
is forced to terminate a lease for nonpayment. Any disputes with tenants
could also involve costly litigation.
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- - A property's profitability could go down if operating costs, such as
property taxes, utilities, maintenance and insurance costs, go up in
relation to gross rental income, or the property needs unanticipated
repairs and renovations.
General Risks of Selling Real Estate Investments:
Among the risks of selling real estate investments are:
- - The sale price of an Account property might differ from its estimated or
appraised value, leading to losses or reduced profits to the Account.
- - Because of the nature of real estate, the Account might not be able to sell
a property at a particular time for its full value, particularly in a poor
market. This might make it difficult to raise cash quickly and also could
lead to Account losses.
- - The Account may need to provide financing if no cash buyers are available.
Regulatory Risks: Government regulation, including zoning laws, property
taxes, fiscal, environmental or other government policies, could operate or
change in a way that hurts the Account and its properties. For example,
regulations could raise the cost of owning and maintaining properties or make
it harder to sell, rent, finance, or refinance properties due to the increased
costs associated with regulatory compliance.
Environmental Risks: The Account may be liable for damage to the environment
caused by hazardous substances used or found on its properties. Under various
environmental regulations, the Account may also be liable, as a current or
previous property owner or mortgagee, for the cost of removing or cleaning-up
hazardous substances found on a property, even if it didn't know of and wasn't
responsible for the hazardous substances. If any hazardous substances are
present or the Account doesn't properly clean up any hazardous substances, or
if the Account fails to comply with regulations requiring it to actively
monitor the business activities on its premises, the Account may have
difficulty selling or renting a property or be liable for monetary penalties.
The cost of any required clean-up and the Account's potential liability for
environmental damage to a single real estate investment could exceed the value
of the Account's investment in a property, the property's value, or in an
extreme case, a significant portion of the Account's assets.
Casualty Losses: Certain catastrophic losses (e.g., from earthquakes, wars,
nuclear accidents, floods, or environmental or industrial hazards or accidents)
are uninsurable or so expensive to insure against that it doesn't make sense to
buy insurance for them. If a disaster that we haven't insured against occurs,
the Account could lose both its original investment and any future profits from
the property affected. In addition, some leases may permit a tenant to
terminate its obligations in certain situations, regardless of whether those
events are fully covered by insurance. In that case, the Account would not
receive rental income from the property while that tenant's space is vacant.
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Risks of Developing Real Estate or Buying Recently-Constructed Properties: If
the Account chooses to develop a property or buys a recently-constructed
property, it may face the following risks:
- - If developing real estate, there may be delays or unexpected increases in
the cost of property development and construction due to strikes, bad
weather, material shortages, increases in material and labor costs, or
other events.
- - Because external factors may have changed from when the project was
originally conceived (e.g., slower growth in local economy, higher
interest rates, or overbuilding in the area), the property, if purchased
when unleased, may not operate at the income and expense levels first
projected or may not be developed in the way originally planned.
- - The seller or other party may not be able to carry out any agreement to
provide certain minimum levels of income, or that agreement could expire,
which could reduce operating income and lower returns.
Risks of Joint Ownership: Investing in joint venture partnerships or other
forms of joint property ownership may involve special risks.
- - The co-venturer may have interests or goals inconsistent with those of the
Account.
- - If a co-venturer doesn't follow the Account's instructions or adhere to the
Account's policies, the jointly-owned properties, and consequently the
Account, might be exposed to greater liabilities than expected.
- - A co-venturer can make it harder for the Account to transfer its property
interest, particularly if the co-venturer has the right to decide whether
and when to sell the property.
- - The co-venturer may become insolvent or bankrupt.
Risks with Purchase-Leaseback Transactions:
The major risk of purchase-leaseback transactions is that the third party
lessee will not be able to make required payments to the Account. If the
leaseback interest is subordinate to other interests in the real property, such
as a first mortgage or other lien, the risk to the Account increases because
the lessee may have to pay the senior lienholder to prevent foreclosure before
it pays the Account. If the lessee defaults or the leaseback is terminated
prematurely, the Account might not recover its investment unless the property
is sold or leased on favorable terms.
Appraisal Risks
Real estate appraisals are only estimates of property values based on a
professional's opinion and may not be accurate predictors of the amount the
Account would actually receive if it sold a property. If an appraisal is too
high, the Account's value could go down upon reappraisal or if the property is
sold for a lower price than the appraisal. If appraisals are too low, those who
redeem prior to an adjustment to the valuation or a property sale will have
received less than the true value of the Account's assets.
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Risks of Mortgage Loan Investments
General Risks of Mortgage Loans. The Account will be subject to the risks
inherent in making mortgage loans, including:
- - The borrower may default, requiring that the Account foreclose on the
underlying property to protect the value of its mortgage loan. Since its
mortgage loans are usually non-recourse, the Account must rely solely on
the value of a property for its security. The larger the mortgage loan
compared to the value of the property securing it, the greater the loan's
risk. Upon default, the Account may not be able to sell the property for
its estimated or appraised value. Also, certain liens on the property,
such as mechanic's or tax liens, may have priority over the Account's
security interest.
- - The borrower may not be able to make a lump sum principal payment due under
a mortgage loan at the end of the loan term, unless it can refinance the
mortgage loan with another lender.
- - If interest rates are volatile during the loan period, the Account's
variable-rate mortgage loans could have lower yields.
Prepayment Risks. The Account's mortgage loan investments will usually be
subject to the risk that the borrower repays the loan early. Prepayments can
change the Account's return because we may be unable to reinvest the proceeds
at as high an interest rate as the original mortgage loan rate.
Interest Limitations. The interest rate we charge on mortgage loans may
inadvertently violate state usury laws that limit rates, if, for example, state
law changes during the loan term. If this happens, we could incur penalties or
may not be able to enforce payment of the loan.
Risks of Participations. Participating mortgages are subject to the following
additional risks:
- - The participation element might generate insufficient returns to make up for
the higher interest rate the loan would have obtained without the
participation feature.
- - In very limited circumstances, a court could possibly characterize the
Account's participation interest as a partnership or joint venture with
the borrower and the Account could lose the priority of its security
interest, or be liable for the borrower's debts.
Risks of REIT Investments
REITs are subject to many of the same general risks associated with direct real
property ownership. In particular, equity REITs may be affected by changes in
the value of the underlying property owned by the trust, while mortgage REITs
may be affected by the quality of any credit extended. In addition to these
risks, because REIT investments are securities, they may be exposed to market
risk--price volatility due to changing conditions in the financial markets and,
in particular, changes in overall interest rates.
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Risks of Liquid Investments
The Account's investments in securities and other liquid investments may be
subject to:
- - financial risk--for debt securities, the possibility that the issuer won't
be able to pay principal and interest when due, and for common or
preferred stock, the possibility that the issuer's current earnings will
fall or that its overall financial soundness will decline, reducing the
security's value.
- - market risk--price volatility due to changing conditions in the financial
markets and, particularly for debt securities, changes in overall interest
rates.
- - interest rate volatility, which may affect current income from an
investment.
Risks of Foreign Investments
Foreign investments present the following special risks:
- - Foreign real estate markets may have different liquidity and volatility
attributes than U.S. markets.
- - The value of foreign investments or rental income can go up or down from
changes in currency rates, currency exchange control regulations, possible
expropriation or confiscatory taxation, political, social, and economic
developments, and foreign regulations.
- - The Account may (but is not required to) seek to hedge its exposure to
changes in currency rates, which could involve extra costs. Hedging might
not be successful.
- - It may be more difficult to obtain and collect a judgment on foreign
investments than on domestic ones.
Risk of Unspecified Investments
You won't have the opportunity to evaluate the economic merit of a property
purchase before the Account completes the purchase, so you will need to rely
solely on TIAA's judgment and ability to select investments consistent with the
Account's investment objective and policies.
Establishing and Managing the Account--The Role of TIAA
Establishing the Account
TIAA's Board of Trustees established the Real Estate Account as a separate
account of TIAA under New York law on February 22, 1995. The Account is
regulated by the State of New York Insurance Department (NYID) and the
insurance departments of some other jurisdictions in which the annuity
contracts are offered. Although TIAA owns the assets of the Real Estate
Account, and the Account's obligations are obligations of TIAA, the Account's
income, investment gains, and investment losses are credited to
12
<PAGE>
or charged against the assets of the Account without regard to TIAA's other
income, gains, or losses. Under New York insurance law, we can't charge the
Account with liabilities incurred by any other TIAA business activities or any
other TIAA separate account.
Managing the Account
TIAA employees, under the direction and control of TIAA's Board of Trustees and
its Investment Committee, manage the investment of the Account's assets,
following investment management procedures TIAA adopted for the Account. TIAA's
investment management responsibilities include:
- - identifying, recommending and purchasing appropriate real estate-related and
other investments
- - providing all portfolio accounting, custodial, and related services for the
Account
- - arranging for others to provide certain advisory or other management
services to the Account's joint ventures or other investments
TIAA provides all services to the Account at cost. For more about the charge
for investment management services, see "Expense Deductions" page 30.
You don't have the right to vote for TIAA Trustees directly. See "Voting
Rights" page 48. For information about the Trustees and principal executive
officers of TIAA, see Appendix A to this prospectus.
TIAA's ERISA Fiduciary Status. To the extent that assets of a plan subject to
ERISA are allocated to the Account, TIAA will be acting as an "investment
manager" and a fiduciary under ERISA with respect to those assets.
Liquidity Guarantee
TIAA provides the Account with a liquidity guarantee--TIAA ensures that the
Account has funds available to meet participant transfer or cash withdrawal
requests. If the Account can't fund participant requests from the Account,
TIAA's general account will fund them by purchasing Account accumulation units
(liquidity units). TIAA guarantees that you can redeem your accumulation units
at their then current daily net asset value. Of course, you can make a cash
withdrawal only if allowed by the terms of your plan. The Account pays TIAA for
the liquidity guarantee through a daily deduction from net assets. See "Expense
Deductions," page 30.
An independent fiduciary (described below) monitors the Account to ensure that
TIAA does not own too much of the Account and may require TIAA to redeem some
of its liquidity units, particularly when the Account has uninvested cash or
liquid investments available. The independent fiduciary may also propose
properties for the Account to sell so that TIAA can redeem liquidity units.
TIAA does not currently own liquidity units.
Conflicts of Interest
TIAA does not accept acquisition or placement fees for the services it provides
to the Account. However, TIAA employees who manage the Account's investments
may also
13
<PAGE>
manage TIAA's general account investments. It may therefore at times face
various conflicts of interest
For example, TIAA's general account may sometimes compete with the Real Estate
Account in the purchase or sale of investments. A special TIAA Allocation
Committee will seek to resolve any conflict by determining which account has
cash available to make the purchase, the effect the purchase or sale will have
on the diversification of each account's portfolio, the estimated future cash
flow of the portfolios with regard to both purchases or sales, and other
relevant legal or investment policy factors. If this analysis does not clearly
determine which account should participate in a transaction, a rotation system
will be used.
Conflicts could also arise because some properties in TIAA's general account
may compete for tenants with the Account's properties. We will seek to resolve
this conflict by determining the tenant's preference between the two
properties, how much the tenant is willing to pay for rent, and which property
can best afford to pay any required costs associated with such leasing.
Many of the personnel of TIAA involved in performing services to the Real
Estate Account will have competing demands on their time. The personnel will
devote such time to the affairs of the Account as TIAA's management determines,
in its sole discretion exercising good faith, is necessary to properly service
the Account. TIAA believes that it has sufficient personnel to discharge its
responsibility to both the general account and the Real Estate Account and to
avoid conflicts of interest.
Indemnification
The Account has agreed to indemnify TIAA and its affiliates, including its
officers and directors, against certain liabilities, including liabilities
under the Securities Act of 1933. The Account may make such indemnification out
of its assets.
Role of the Independent Fiduciary
Because TIAA's ability to purchase and sell liquidity units raises certain
technical issues under ERISA, TIAA applied for and received a prohibited
transaction exemption from the U.S. Department of Labor (PTE 96-76). In
connection with the exemption, TIAA has appointed an "independent fiduciary"
for the Real Estate Account, with overall responsibility for reviewing Account
transactions to determine whether they are fair and in the Account's best
interest.
The Townsend Group, an institutional real estate consulting firm whose
principal offices are located in Cleveland, Ohio, recently has been engaged to
serve as the Account's independent fiduciary, replacing Institutional Property
Consultants, Inc. The independent fiduciary's responsibilities include:
- - reviewing and approving the Account's investment guidelines and monitoring
whether the Account's investments comply with those guidelines
- - reviewing and approving valuation procedures
14
<PAGE>
- - approving adjustments to any property valuations that change the value of
the property or the Account as a whole above or below certain prescribed
levels, or that are made within three months of the annual independent
appraisal
- - reviewing and approving how we value accumulation and annuity units
- - approving the appointment of all independent appraisers
- - reviewing the purchase and sale of units by TIAA to ensure that we use the
correct unit values
- - requiring appraisals besides those normally conducted, if the independent
fiduciary believes that any of the properties have changed materially, or
that an additional appraisal is necessary to assure the Account has
correctly valued a property
The independent fiduciary also must monitor TIAA's ownership in the Account and
supervise any winding down of the Account's operations. Its responsibilities
include:
- - calculating the percentage of total accumulation units that TIAA's ownership
shouldn't exceed (the trigger point) and creating a method for changing
the trigger point
- - approving any adjustment of TIAA's interest in the Account and requiring an
adjustment if TIAA's investment reaches the trigger point
- - participating in any program to reduce TIAA's ownership in the Account or to
facilitate winding down the Account, including selecting properties for
sale, providing sales guidelines, and approving those sales that, in the
independent fiduciary's opinion, are desirable
A special subcommittee of the Investment Committee of TIAA's Board of Trustees
appointed The Townsend Group as the independent fiduciary starting March 1,
2000, for a three-year term. This subcommittee may renew the independent
fiduciary appointment, remove the independent fiduciary, or appoint its
successor. The independent fiduciary can be removed for cause by the vote of a
majority of subcommittee members or it can resign after at least 180 days'
written notice. The independent fiduciary will not be reappointed unless more
than 60 percent of the subcommittee members approve.
TIAA pays the independent fiduciary directly. The investment management charge
paid to TIAA includes TIAA's costs for retaining the independent fiduciary. The
independent fiduciary will receive less than 5 percent of its annual income
(including payment for its services to the Account) from TIAA.
When you decide as a participant or plan fiduciary to invest in the Account,
after TIAA has provided you with full and fair disclosure including the
disclosure in this prospectus, you are also acknowledging that you approve and
accept The Townsend Group or any successor to serve as the Account's
independent fiduciary.
15
<PAGE>
Description of Properties
The Properties--In General
As of December 31, 1999, the Account had 54 properties in its real estate
portfolio. The following charts break down the Account's real estate assets by
region and property type.
[Start Pie Chart]
West--30.8%
East--39.0%
Midwest--18.5%
South--11.7%
[End Pie Chart]
[Start Pie Chart
Office--50.1%
Residential--27.7%
Industrial--18.7%
Retail--3.5%
[End Pie Chart]
In the table below you will find general information about each of the
Account's portfolio properties as of December 31, 1999.
<TABLE>
<CAPTION>
Annual Avg.
Rentable Base Rent
Year Year Area Percent per Leased Market
Property Location Built Purchased (sq. ft.) Leased Sq. Ft.(1) Value(2)
- -------- -------- ----- --------- --------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OFFICE PROPERTIES
780 Third Avenue New York, NY 1984 1999 487,501 90% $ 40.44 $162,500,000
88 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 87% $ 16.99 $ 8,722,167
--------- ------------
Subtotal--Office Properties 3,521,367 $657,161,108
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Rentable Base Rent
Year Year Area Percent per Leased Market
Property Location Built Purchased (sq. ft.) Leased Sq. Ft.(1) Value(2)
- -------- -------- ----- --------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
INDUSTRIAL PROPERTIES
IDI California Portfolio $ 36,500,000
Timberland Building Ontario, CA 1998 1998 414,435 100% $ 3.52 --
Park Mira Loma West Mira Loma, CA 1998 1998 557,500 100% $ 3.18 --
Saks Distribution Facility Aberdeen, MD 1997 1997 470,707 100% $ 4.98 $ 30,325,000
Park West Int'l Industrial Pk $ 25,400,000
Building C Hebron, KY 1998 1998 520,000 100% $ 2.85 --
Buidling D Hebron, KY 1998 1998 184,800 100% $ 3.26 --
Ontario Portfolio $ 24,650,000
5200 Airport Drive Ontario, CA 1997 1998 404,500 100% $ 3.48 --
1200 S. Etiwanda Ave. Ontario, CA 1998 1998 223,170 100% $ 3.16 --
Konica Photo Imaging
Headquarters Mahwah, NJ 1999 1999 168,000 100% NA $ 17,051,474
Glen Pointe Business Park $ 16,100,000
Building V Chicago, IL 1997 1998 117,600 100% $ 5.89 --
Building VII Chicago, IL 1997 1998 92,543 100% $ 7.24 --
Interstate Acres Urbandale, IA 1981-88 1997 440,000 97% $ 3.12 $ 14,100,000
Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $ 5.51 $ 13,300,000
Arapahoe Park E. Boulder, CO 1979-82 1996 129,425 100% $ 9.22 $ 11,850,000
UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $ 3.54 $ 11,000,000
Rockrun Business Park Chicago, IL 1998 1998 258,000 100% $ 2.92 $ 9,350,000
FedEx Distribution Facility Crofton, MD 1998 1998 111,191 100% $ 6.39 $ 7,800,000
Woodcreek Business Park Chicago, IL 1995 1998 149,907 100% $ 4.11 $ 6,976,343
Westinghouse Coral Springs, FL 1997 1997 75,630 100% $ 5.47 $ 6,200,000
Interstate Crossing Eagan, MN 1995 1996 131,380 100% $ 5.05 $ 6,400,000
Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $ 2.89 $ 4,850,000
River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $ 3.44 $ 4,300,000
--------- ------------
Subtotal--Industrial Properties 5,188,754 $246,152,817
RETAIL PROPERTIES
Rolling Meadows Rolling Meadows, IL 1957(4) 1997 130,910 91% $ 10.19 $ 12,110,000
River Oaks Woodbridge, VA 1995 1996 90,885 91% $ 14.41 $ 12,100,000
Lynnwood Collection Raleigh, NC 1988 1996 86,362 98% $ 8.66 $ 7,700,000
Millbrook Collection Raleigh, NC 1988 1996 102,221 93% $ 7.99 $ 7,100,000
Plantation Grove Ocoee, FL 1995 1995 73,655 100% $ 10.40 $ 7,350,000
--------- ------------
Subtotal--Retail Properties 484,033 $ 46,360,000
--------- ------------
Subtotal--Commercial Properties 9,194,154 $949,673,925
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Annual Avg.
Rentable Base Rent
Year Year Area Percent per Leased Market
Property Location Built Purchased (sq. ft.) Leased Sq. Ft.(1) Value(2)
- -------- -------- ----- --------- --------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
RESIDENTIAL PROPERTIES(5)
The Colorado New York, NY 1987 1999 NA 98% NA $ 56,547,289
Larkspur Courts Apartments Larkspur, CA 1991 1999 NA 99% NA $ 55,300,000
Bay Court at Harbour Pointe Mulkiteo, WA 1991 1998 NA 96% NA $ 34,800,000
Lodge at Willow Creek Douglas County, CO 1997 1997 NA 93% NA $ 30,000,000
The Legends at Chase Oaks Plano, TX 1997 1998 NA 96% NA $ 27,800,000
Golfview Apartments Lake Mary, FL 1998 1998 NA 92% NA $ 27,510,000
Lincoln Woods Lafayette Hill, PA 1991 1997 NA 99% NA $ 22,952,310
Monte Vista Littleton, CO 1995 1996 NA 94% NA $ 20,500,000
Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 95% NA $ 17,108,785
Royal St. George W. Palm Beach, FL 1995 1996 NA 95% NA $ 16,500,000
Westcreek Westlake Village, CA 1988 1997 NA 98% NA $ 15,511,245
Bent Tree Apartments Columbus, OH 1987 1998 NA 99% NA $ 14,500,000
The Greens at Metrowest Orlando, FL 1990 1995 NA 92% NA $ 14,100,000
The Crest at Shadow Mt. El Paso, TX 1992 1997 NA 95% NA $ 9,700,000
--------- --------------
Subtotal--Residential Properties NA $ 362,829,629
--------- --------------
Total--All Properties 9,194,154 $1,312,503,554
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based on total rent (excluding tenant payments for real estate taxes and
operating expenses) on leases existing at December 31, 1999. For those
properties purchased in 1999, the number was derived by annualizing the
rents charged by the Account since acquiring the property.
(2) Market value reflects the value determined in accordance with the
procedures described in the Account's prospectus.
(3) Purchased through Light Street Partners, L.P. (now 100% owned by the
Account).
(4) Renovated in 1991 and 1995.
(5) For the average unit size and annual average rent per unit for each
residential property, see "Residential Properties" below.
18
<PAGE>
Commercial (Non-Residential)
Properties
In General. At December 31, 1999, the Account held 40 commercial (non-
residential) properties in its portfolio. None of these properties is subject
to a mortgage, and although the terms vary under each lease, certain expenses,
such as real estate taxes and other operating expenses, are paid or reimbursed
by the tenants.
At December 31, 1999, the Account's office property portfolio consisted of 18
office properties located in metropolitan areas throughout the United States.
The office properties together are approximately 96 percent leased with 360
leases.
At December 31, 1999, the Account's industrial property portfolio consisted of
17 properties used primarily for warehousing, distribution, or light
manufacturing activities. The Account's industrial properties together are 98.5
percent leased with 66 leases.
At December 31, 1999, the Account's retail property portfolio consisted of 5
neighborhood shopping centers, each of which is anchored by a supermarket
tenant. These retail properties together are approximately 93.4 percent leased
with 78 leases.
Major Tenants: The following table lists the Account's major commercial tenants
based on the total space they occupy in the Account's properties.
<TABLE>
<CAPTION>
Percentage of Total Rentable
Occupied Area of Account's
Major Tenant Square Feet Non-Residential Properties Property Type
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The GAP 520,000 5.7% Industrial
Saks & Company 470,000 5.1% Industrial
Meiko-America 463,235 5.0% Industrial
Timberland 414,435 4.5% Industrial
New Breed Transfer Company 404,500 4.4% Industrial
Petco 258,000 2.8% Industrial
UPS 256,000 2.8% Industrial
Louisville Bedding Company 223,170 2.4% Industrial
VanKampen American Capital 208,821 2.3% Office
PHH Vehicle Management Services 199,563 2.2% Office
- -----------------------------------------------------------------------------------------------------
</TABLE>
19
<PAGE>
Lease Expirations: The following charts provide lease expiration information
for the Account's commercial properties, categorized by property type. While
many of the leases contain renewal options with varying terms, these charts
assume that none of the tenants exercise their renewal options.
Office Properties
<TABLE>
<CAPTION>
Rentable Area
Number of Subject to Percent of Total Rentable Area of
Leases Expiring Leases Account's Non-Residential Properties
Year of Lease Expiration Expiring (sq. ft.) Represented by Expiring Leases
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 47 357,148 10.14%
2001 67 440,670 12.51%
2002 64 558,166 15.85%
2003 62 659,643 18.73%
2004 44 316,570 8.99%
2005 and thereafter 76 1,034,093 29.37%
- ----------------------------------------------------------------------------------------------------
Total 360 3,366,290 95.59%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Industrial Properties
<TABLE>
<CAPTION>
Rentable Area
Number of Subject to Percent of Total Rentable Area of
Leases Expiring Leases Account's Non-Residential Properties
Year of Lease Expiration Expiring (sq. ft.) Represented by Expiring Leases
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 12 256,246 4.94%
2001 8 205,199 3.95%
2002 4 100,560 1.94%
2003 16 1,366,854 26.34%
2004 3 35,456 0.68%
2005 and thereafter 23 3,144,921 60.61%
- ----------------------------------------------------------------------------------------------------
Total 66 5,109,236 98.47%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Retail Properties
<TABLE>
<CAPTION>
Rentable Area
Number of Subject to Percent of Total Rentable Area of
Leases Expiring Leases Account's Non-Residential Properties
Year of Lease Expiration Expiring (sq. ft.) Represented by Expiring Leases
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2000 18 38,035 7.86%
2001 27 61,037 12.61%
2002 7 20,151 4.16%
2003 6 8,832 1.82%
2004 8 10,693 2.21%
2005 and thereafter 12 313,560 64.78%
- ----------------------------------------------------------------------------------------------------
Total 78 452,308 93.44%
- ----------------------------------------------------------------------------------------------------
</TABLE>
20
<PAGE>
Residential Properties
The Account's residential property portfolio currently consists of 13 first
class or luxury multi-family garden apartment complexes and one high rise
apartment building. None of the properties in the portfolio is subject to a
mortgage. The complexes generally contain one- to three-bedroom apartment
units, with a range of amenities, such as patios or balconies, washers and
dryers, and central air conditioning. Many of these apartment communities have
use of on-site fitness facilities, including some with swimming pools. Rents on
each of the properties tend to be comparable with competitive communities and
are not subject to rent regulation. The Account is responsible for the expenses
of operating the properties.
In the table below you will find more detailed information regarding the
apartment complexes in the Account's portfolio as of December 31, 1999.
<TABLE>
<CAPTION>
Average Avg. Rent
Number Unit Size Per Unit/ Percent
Property Location of Units (Square Feet) Per Month Leased
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The Colorado New York, NY 256 631 $1,338 98%
Larkspur Courts Apartments Larkspur, CA 248 1001 $1,935 99%
Bay Court at Harbour Pointe Mulkiteo, WA 420 970 $ 765 96%
The Legends at Chase Oaks Plano, TX 346 972 $ 904 93%
Lodge at Willow Creek Douglas County, CO 316 1001 $1,035 96%
Golfview Apartments Lake Mary, 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
On April 4, 2000, the Account purchased Satellite Distribution Center, three
warehouse/distribution buildings located in Atlanta, Georgia, for a purchase
price of approximately $19,350,000. The properties are not subject to a
mortgage. 1600 Distribution Drive, built in 1997, contains 265,200 square feet
of rentable area and is situated on 16.2 acres of land with 176 parking spaces.
The building is 100% leased to three tenants, with rents averaging $3.33 per
square foot. 1620 Satellite Boulevard, built in 1999, contains 115,520 square
feet of rentable area and is situated on 9.1 acres of land with 106 parking
spaces. The building is 75% leased to two tenants, with rents averaging $4.22
per square foot. 1600 Satellite Boulevard, built in 1999, contains 114,720
square feet of rentable area and is situated on 9.1 acres of land with 105
parking spaces. The building is 100% leased to two tenants, with rents
averaging $3.61 per square foot. All of the expenses for operating each
property are either borne or reimbursed by the tenants.
21
<PAGE>
For a discussion of the Account's real estate holdings and recent acquisitions
in the context of the Account's performance as a whole, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
below. Real estate investments made by the Account after the date of this
prospectus will be described in supplements to the prospectus, as appropriate.
(Note that the Account made a number of property purchases in 1999 that were
not described in supplements to its prospectus. These properties are briefly
described in Appendix C to this prospectus).
22
<PAGE>
Selected Financial Data
The following selected financial data should be considered together with the
Account's financial statements and related notes, which are presented later in
this prospectus.
<TABLE>
<CAPTION>
July 3, 1995
(commencement
Year Ended December 31, of operations) to
--------------------------------------------------------------------------- December 31,
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income:
Real estate income, net:
Rental income $ 132,316,878 $ 81,009,203 $ 44,342,342 $ 10,951,183 $ 165,762
-------------- -------------- ------------ ------------ ------------
Real estate property level
expenses and taxes:
Operating expenses 27,334,060 17,339,706 9,024,240 2,116,334 29,173
Real estate taxes 15,892,736 9,103,637 4,472,311 1,254,163 14,659
-------------- -------------- ------------ ------------ ------------
Total real estate
property level
expenses and taxes 43,226,796 26,443,343 13,496,551 3,370,497 43,832
-------------- -------------- ------------ ------------ ------------
Real estate income, net 89,090,082 54,565,860 30,845,791 7,580,686 121,930
Dividends and interest 24,932,733 23,943,728 16,486,279 6,027,486 2,828,900
-------------- -------------- ------------ ------------ ------------
Total investment income $ 114,022,815 $ 78,509,588 $ 47,332,070 $ 13,608,172 $ 2,950,830
============== ============== ============ ============ ============
Net realized and unrealized
gain on investments $ 9,834,743 $ 7,864,659 $ 18,147,053 $ 3,330,539 $ 35,603
============== ============== ============ ============ ============
Net increase in net assets
resulting from operations $ 115,943,767 $ 76,611,662 $ 60,071,400 $ 15,782,915 $ 2,676,000
============== ============== ============ ============ ============
Net increase in net assets
resulting from participant
transactions $ 383,171,774 $ 333,936,510 $356,052,262 $233,653,793 $117,582,345
============== ============== ============ ============ ============
Net increase in net assets $ 499,115,541 $ 410,548,172 $416,123,662 $249,436,708 $120,258,345
============== ============== ============ ============ ============
December 31,
----------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
Total assets $1,719,457,715 $1,229,603,431 $815,760,825 $426,372,007 $143,177,421
============== ============== ============ ============ ============
Total liabilities and
minority interest $ 23,975,287 $ 33,236,544 $ 29,942,110 $ 56,676,954 $ 22,919,076
============== ============== ============ ============ ============
Total net assets $1,695,482,428 $1,196,366,887 $785,818,715 $369,695,053 $120,258,345
============== ============== ============ ============ ============
Accumulation units
outstanding 11,487,360 8,833,911 6,313,015 3,295,786 1,172,498
============== ============== ============ ============ ============
Accumulation unit value $ 142.97 $ 132.17 $ 122.30 $ 111.11 $ 102.57
============== ============== ============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
Management's Discussion and Analysis of Account's Financial Condition and
Operating Results
The Real Estate Account continues to grow and passed the $1.6 billion mark in
net assets during 1999. Through December 31, 1999, the Account had a total of
54 real estate properties, including 18 office properties, 17 industrial
properties, 5 neighborhood shopping enters and 14 apartment complexes. At
December 31, 1999, these properties represented 77.8% of the Account's total
investment portfolio. This is in contrast to the end of 1998, when real estate
represented 67.7% of the Account's total investment portfolio.
In 1999, the Account purchased ten properties (seven office properties, one
industrial property and two apartment properties), sold two properties (one
office property and one apartment property), and purchased the remaining 10%
interest in a partnership owning a portfolio of office buildings, in which the
Account already owned the controlling 90% interest. Because the Account is now
at a size where it can absorb larger properties, this year the Account began to
pursue and make larger property purchases, including a $161 million purchase of
an office building. The Account continues to pursue suitable properties, and is
currently in various stages of negotiations with a number of prospective
sellers. While attractive acquisition prospects are available in the current
market, there is significant competition for the most desirable properties.
As of December 31, 1999, the Account also held investments in commercial paper,
representing 16.3% of the portfolio, real estate investment trusts (REITs),
representing 4.7% of the portfolio, U.S. government agencies, representing 0.6%
of the portfolio, and corporate bonds, representing 0.6% of the portfolio.
Results of Operations
Year Ended December 31, 1999 Compared to
Year Ended December 31, 1998
The Account's total net return was 8.17% for the year ended December 31, 1999
and 8.07% for 1998. The Account's net investment income, after deducting all
expenses, was $104,744,405 for the year ended December 31, 1999 and $72,234,994
for 1998, a 45% increase. This increase was the result of a 42% increase in net
assets and an increase in the Account's real estate holdings from December 31,
1998 to December 31, 1999. The Account had net realized and unrealized gains on
investments of $9,834,743 and $7,864,659 for the year ended December 31, 1999
and December 31, 1998, respectively. The gains on the Account's real estate
properties of $23,232,711 and $33,221,281 for 1999 and 1998, respectively, were
offset by net realized and unrealized losses on the Account's marketable
securities of $13,397,968 and $25,356,622 for 1999 and 1998 respectively.
24
<PAGE>
The Account's real estate holdings generated approximately 78% of the Account's
total investment income (before deducting Account level expenses) during 1999
compared with 70% during 1998. The remaining portion of the Account's total
investment income was generated by investments in marketable securities.
Gross real estate rental income was $132,316,878 for the year ended December
31, 1999 and $81,009,203 for the same period in 1998. This increase was
primarily due to the increase in the number of properties owned by the
Account--from 46 properties at the end of 1998 to 54 properties at the end of
1999. Interest and dividend income on the Account's marketable securities
investments increased from $23,943,728 for 1998 to $24,932,733 in 1999.
Total property level expenses for the year ended December 31, 1999 were
$43,226,796, of which $27,334,060 represented operating expenses and
$15,892,736 was attributable to real estate taxes. Total property level
expenses for the year ended December 31, 1998 were $26,443,343 of which
$17,339,706 was attributable to operating expenses and $9,103,637 was
attributable to real estate taxes. The increase in property level expenses
during 1999 reflected the increased number of properties in the Account.
The Account also incurred expenses for the years ended December 31, 1999 and
1998 of $4,246,911 and $2,999,113, respectively, for investment advisory
services, $3,442,282 and $2,498,376, respectively, for administrative and
distribution services, and $1,589,217 and $777,105, respectively, for mortality
and expense risk charges and liquidity guarantee charges. Such expenses
increased as a result of the larger net asset base of the Account for 1999 over
1998.
Year Ended December 31, 1998 Compared to
Year Ended December 31, 1997
The Account's total net return was 8.07% for the year ended December 31, 1998
and 10.07% for 1997. This decline was primarily due to the decline in value of
the Account's REIT holdings. The Account's net investment income, after
deduction of all expenses, was $72,234,994 for the year ended December 31, 1998
and $43,805,525 for the year ended December 31, 1997, a 65% increase. This
increase was the result of a 52% increase in net assets and also an increase in
the Account's real estate holdings from December 31, 1997 to December 31, 1998.
The Account had net realized and unrealized gains on investments of $7,864,659
and $18,147,053 for the year ended December 31, 1998 and December 31, 1997,
respectively. This decrease was primarily the result of the decline in price of
the Account's REITs and other marketable securities, as well as the losses
incurred from the sale of certain of those investments. These realized and
unrealized losses on marketable securities diminished the increase in
unrealized appreciation on the Account's real estate properties, which was
$33,221,281 in 1998 compared with $10,234,316 in 1997. That increase was the
result of the increased values
25
<PAGE>
assigned to many of the properties after periodic revaluations from internal or
independent appraisals.
The Account's real estate holdings generated approximately 70% of the Account's
total investment income (before deducting Account level expenses) during 1998
and 65% during 1997. The remaining portion of the Account's total investment
income was generated by investments in marketable securities.
Gross real estate rental income was $81,009,203 for the year ended December 31,
1998 and $44,342,342 for the same period in 1997. This increase was primarily
due to the increase in the number of properties owned by the Account--from 33
properties at the end of 1997 to 46 properties at the end of 1998. Interest and
dividend income on the Account's marketable securities investments increased
from $16,486,279 for 1997 to $23,943,728 for 1998. This increase was due to the
fact that the actual amount of money the Account had invested in marketable
securities went up as the Account's net asset base grew.
Total property level expenses for the year ended December 31, 1998 were
$26,443,343 of which $17,339,706 was attributable to operating expenses and
$9,103,637 was attributable to real estate taxes. Total property level expenses
for the year ended December 31, 1997 were $13,496,551, of which $9,024,240
represented operating expenses and $4,472,311 was attributable to real estate
taxes. The increase in property level expenses during 1998 reflected the
increased number of properties in the Account.
The Account also incurred expenses for the year ended December 31, 1998 and
1997 of $2,999,113 and $1,647,689, respectively, for investment advisory
services, $2,498,376 and $1,368,501, respectively, for administrative and
distribution services, and $777,105 and $510,355, respectively, for mortality
and expense risk charges and liquidity guarantee charges. Such expenses
increased as a result of the larger net asset base of the Account for 1998 over
1997.
Liquidity and Capital Resources
The Account earned $104,744,405 in 1999 and $72,234,994 in net investment
income in 1998. During 1999, the Account received $126,200,561 in premiums and
$293,354,604 in net participant transfers from other TIAA and CREF accounts,
while in 1998 the Account received $91,248,578 in premiums and $337,568,064 in
net participant transfers from other TIAA and CREF accounts. Real estate
properties costing $511,878,000 and $259,746,550 were purchased during 1999 and
1998, respectively. In 1999, the Account also received $45,927,000 in proceeds
from the sale of two properties. By year end 1999, the Account's liquid assets
(i.e., its cash, REITs, short- and intermediate-term investments, and
government securities) had a value of $374,896,400, while at the end of 1998
those assets were valued at $391,605,900. We anticipate that much of the
Account's liquid assets as of December 31, 1999,
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<PAGE>
exclusive of the REITs, will be used by the Account to purchase additional
suitable real estate properties. The remaining liquid assets, exclusive of the
REITs, will continue to be available to meet expense needs and redemption
requests (e.g., cash withdrawals or transfers).
If the Account's liquid assets and its cash flow from operating activities and
participant transactions are not sufficient to meet its cash needs, including
redemption requests, TIAA's general account will purchase liquidity units in
accordance with TIAA's liquidity guarantee to the Account.
The Account spent approximately $4,343,000 in 1999 for capital (long-term)
expenses, including ongoing tenant improvements and leasing commissions at the
commercial properties relating to the renewal of existing tenants or re-leasing
of space to new tenants during the normal course of business. For the apartment
complexes, in addition to the routine recurring costs, e.g., painting and
carpet cleaning and minor replacements to re-lease apartments that become
vacant, the Account will be expending capital to renovate the lobby and upgrade
the elevators of The Colorado in New York City and the kitchens in the Larkspur
apartments.
Effects of Inflation
In recent years, inflation has been modest. To the extent that inflation may
increase property operating expenses in the future, we anticipate that
increases will generally be billed to tenants either through contractual lease
provisions in office, industrial, and retail properties or through rent
increases in apartment complexes. However, depending on how long any vacant
space in a property remains unleased, the Account may not be able to recover
the full amount of such increases in operating expenses.
Valuing the Account's Assets
We value the Account's assets as of the close of each valuation day by taking
the sum of:
- - the value of the Account's cash, cash equivalents, and short-term and other
debt instruments
- - the value of the Account's other securities investments and other assets
- - the value of the individual real properties and other real estate-related
investments owned by the Account, determined as described below
- - an estimate of the net operating income accrued by the Account from its
properties and other real estate-related investments
and then reducing it by the Account's liabilities, including the daily
investment management fee and certain other expenses
27
<PAGE>
attributable to operating the Account. See "Expense Deductions," page 30.
Valuing Real Estate and
Related Investments
Valuing Real Property: Individual real properties will be valued initially at
their purchase prices. (Prices include all expenses related to purchase, such
as acquisition fees, legal fees and expenses, and other closing costs.) We
could use a different value in appropriate circumstances.
After this initial valuation, an independent appraiser, approved by the
independent fiduciary, will value properties at least once a year. The
independent fiduciary can require additional appraisals if it believes that a
property has changed materially or otherwise to assure that the Account is
valued correctly.
Quarterly, we will conduct an internal review of each of the Account's
properties. We'll adjust a valuation if we believe that the value of the
property has changed since the previous valuation. We'll continue to use the
revised value to calculate the Account's net asset value until the next review
or appraisal. However, we can adjust the value of a property in the interim to
reflect what we believe are actual changes in property value.
The Account's net asset value will include the current value of any note
receivable (an amount that someone else owes the Account) from selling a real
estate-related investment. We'll estimate the value of the note by applying a
discount rate appropriate to then-current market conditions.
Because of the nature of real estate assets, the Account's net asset value
won't necessarily reflect the true or realizable value of those assets (i.e.,
what the Account would get if it sold them).
Valuing Conventional Mortgages: Individual mortgages will be valued initially
at their face amount. Thereafter, quarterly, we'll value the Account's fixed
interest mortgage loans by discounting payments of principal and interest to
their present value (using a rate at which commercial lenders would make
similar mortgage loans). We'll also use this method for foreign mortgages with
conventional terms. We can adjust the mortgage value more frequently if
circumstances require it.
Valuing Participating Mortgages: Individual mortgages will initially be valued
at their face amount. Thereafter, quarterly, we'll estimate the values of the
participating mortgages by making various assumptions about occupancy rates,
rental rates, expense levels, and other things. We'll use these assumptions to
project the cash flow and anticipated sale proceeds from each investment over
the term of the loan, or sometimes over a shorter period. To calculate sale
proceeds, we'll assume that the real property underlying each investment will
be sold at the end of the period used in the valuation at a price based on
market assumptions for the time of the projected sale. We'll then discount the
estimated cash flows and sale proceeds to their present value (using rates
appropriate to then-current market conditions).
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<PAGE>
Net Operating Income: The Account usually receives operating income from its
investments intermittently, not daily. In fairness to participants, we estimate
the Account's net operating income rather than applying it when we actually
receive it, and assume that the Account has earned (accrued) a proportionate
amount of that estimated amount daily. You bear the risk that, until we adjust
the estimates when we receive actual income reports, we could be under- or
overvaluing the Account.
Every year, we prepare a month-by-month estimate of the revenues and expenses
(estimated net operating income) for each of the Account's properties. Each
day, we add the appropriate fraction of the estimated net operating income for
the month to the Account's net asset value.
Every month, the Account receives a report of the actual operating results for
the prior month for each property (actual net operating income). We then
recognize the actual net operating income on the accounting records of the
Account and adjust the outstanding daily accrued receivable accordingly. As the
Account actually receives cash from a property, we'll adjust the daily accrued
receivable and other accounts appropriately.
Adjustments: We can adjust the value of an investment if we believe events or
market conditions (such as a borrower's or tenant's default) have affected how
much the Account could get if it sold the investment. We may not always be
aware of each event that might require a valuation adjustment, and because our
evaluation is based on subjective factors, we may not in all cases make
adjustments where changing conditions could affect the value of an investment.
The independent fiduciary will need to approve adjustments to any valuation of
one or more properties that
- - is made within three months of the annual independent appraisal or
- - results in an increase or decrease of:
- more than 6 percent of the value of any of the Account's properties
since the last independent annual appraisal
- more than 2 percent in the value of the Account since the prior month
or
- more than 4 percent in the value of the Account within any quarter.
Right to Change Valuation Methods: If we decide that a different valuation
method would reflect the value of a real estate-related investment more
accurately, we may use that method if the independent fiduciary consents.
Changes in TIAA's valuation methods could change the Account's net asset value
and change the values at which participants purchase or redeem Account
interests.
Valuing Other Investments
Debt Securities and Money Market Instruments:
We value fixed income securities (including money market instruments) for which
market quotations are readily available at the most recent bid price or the
equivalent quoted yield for those securities (or those of comparable maturity,
quality, and type). We obtain
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<PAGE>
values for money market instruments with maturities of one year or less either
from one or more of the major market makers for those securities or from one or
more financial information services. We use an independent pricing service to
value securities with maturities longer than one year except when we believe
prices do not accurately reflect the fair value of these securities.
Equity Securities: We value equity securities (including REITs) listed or
traded on the New York Stock Exchange or the American Stock Exchange at their
last sale price on the valuation day. If no sale is reported that day, we use
the mean of the closing bid and asked prices. Equity securities listed or
traded on any other exchange are valued in a comparable manner on the principal
exchange where traded.
We value equity securities traded on the NASDAQ Stock Market's National Market
at their last sale price on the valuation day. If no sale is reported that day,
we use the mean of the closing bid and asked prices. Other U.S.
over-the-counter equity securities are valued at the mean of the closing bid
and asked prices.
Foreign Securities: To value investments traded on a foreign exchange or in
foreign markets, we use their closing values under the generally accepted
valuation method in the country where traded, as of the valuation date. We
convert this to U.S. dollars at the exchange rate in effect on the valuation
day.
Investments Lacking Current Market Quotations:
We value securities or other assets for which current market quotations are not
readily available at fair value as determined in good faith under the direction
of the Investment Committee of TIAA's Board of Trustees and in accordance with
the responsibilities of TIAA's Board as a whole.
Expense Deductions
Deductions are made each valuation day from the net assets of the Account for
various services required to manage investments, administer the Account and the
contracts, and to cover certain risks borne by TIAA. Services are performed at
cost by TIAA and TIAA-CREF Individual & Institutional Services, Inc.
("Services"), a subsidiary of TIAA. Because services are provided at cost, we
expect that expense deductions will be relatively low. TIAA guarantees that in
the aggregate, the expense charges will never be more than 2.50% of average net
assets per year.
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The current annual expense deductions are:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Percent of
Net Assets
Type of Expense Deduction Annually Services Performed
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Investment Management 0.25% For TIAA's investment advice, portfolio accounting,
custodial services, and similar services, including
independent fiduciary and appraisal fees
- ----------------------------------------------------------------------------------------------------------------
Administration 0.185% For Services' administrative services, such as allocating
premiums and paying annuity income
- ----------------------------------------------------------------------------------------------------------------
Distribution 0.03% For Services' expenses related to distributing the annuity
contracts
- ----------------------------------------------------------------------------------------------------------------
Mortality and Expense Risk 0.07% For TIAA's bearing certain mortality and expense risks
- ----------------------------------------------------------------------------------------------------------------
Liquidity Guarantee 0.03% For TIAA's liquidity guarantee
- ----------------------------------------------------------------------------------------------------------------
Total Annual Expense Deduction 0.565% For total services to the Account
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
After the end of every quarter, we reconcile how much we deducted as discussed
above with the expenses the Account actually incurred. If there is a
difference, we add it to or deduct it from the Account in equal daily
installments over the remaining days in the quarter. Since our at-cost
deductions are based on projections of Account assets and overall expenses, the
size of any adjusting payments will be directly affected by how different our
projections are from the Account's actual assets or expenses. While our
projections of Account asset size (and resulting expense fees) are based on our
best estimates, the size of the Account's assets can be affected by many
factors, including premium growth, participant transfers into or out of the
Account, and any changes in the value of portfolio holdings. Historically, the
adjusting payments have generally been small and have resulted in both upward
and downward adjustments to the Account's expense deductions for the following
quarter.
TIAA's board can revise the deduction rates from time to time to keep
deductions as close as possible to actual expenses.
Currently there are no deductions from premiums or withdrawals, but we might
change this in the future. Property expenses, brokers' commissions, transfer
taxes, and other portfolio expenses are charged directly to the Account.
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The Contracts
TIAA offers the Real Estate Account as a variable option for the annuity
contracts described below. Some employer plans may not offer the Real Estate
Account as an option for RA, GRA, GSRA, or Keogh contracts. The Account is not
available in California.
RA (Retirement Annuity) and GRA (Group Retirement Annuity)
RA and GRA contracts are used mainly for employee retirement plans. RA
contracts are issued directly to you. GRA contracts, which are group contracts,
are issued through an agreement between your employer and TIAA.
Depending on the terms of your plan, RA and GRA premiums can be paid by your
employer, you, or both. If you're paying some of or the entire periodic
premium, your contributions can be in either pre-tax dollars by salary
reduction or after-tax dollars by payroll deduction. You can also transfer
funds from another investment choice under your employer's plan to your
contract. For RAs only, you can make contributions directly to TIAA. Ask your
employer for more information about these contracts.
SRA (Supplemental Retirement Annuity) and GSRA (Group Supplemental Retirement
Annuity)
These are for voluntary tax-deferred annuity (TDA) plans. SRA contracts are
issued directly to you. GSRA contracts, which are group contracts, are issued
through an agreement between your employer and TIAA. Your employer pays
premiums in pre-tax dollars through salary reduction. Although you can't pay
premiums directly, you can transfer amounts from other TDA plans.
Classic IRA
Classic IRAs are individual contracts issued directly to you. You and your
spouse can each open a Classic IRA with an annual contribution of up to $2,000
or by rolling over funds from another IRA or retirement plan, if you meet our
eligibility requirements. The combined limit for your contributions to a
Classic IRA and a Roth IRA for a single year is $2,000, excluding rollovers. We
can't issue you a joint contract.
IRA and Keogh Eligibility
You or your spouse can set up a TIAA
Classic or Roth IRA or a Keogh if you're a
current or retired employee or trustee of an eligible
institution, or if you own a TIAA or CREF annuity or a TIAA
individual insurance contract. To be considered a retired
employee for this purpose, an individual must be at least
55 years old and have completed at least three years of
service at an eligible institution. In the case of
partnerships that wish to establish Keoghs, at least half
the partners must be eligible individuals and the
partnership itself must be primarily engaged in education
or research. With IRAs, you can also roll over funds from
an eligible institution's retirement plan or from an IRA
account that was set up with money originally in an
eligible institution's plan. Eligibility may be restricted
by certain income limits on opening Roth IRA contracts.
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<PAGE>
Roth IRA
Roth IRAs are also individual contracts issued directly to you. You or your
spouse can each open a Roth IRA with an annual contribution up to $2,000 or
with a rollover from another IRA or a Classic IRA issued by TIAA if you meet
our eligibility requirements. The combined limit for your contributions to a
Classic IRA and a Roth IRA for a single year is $2,000, excluding rollovers. We
can't issue you a joint contract.
Classic and Roth IRAs may together be referred to as "IRAs" in this prospectus.
GA (Group Annuity)
GA contracts are used exclusively for employee retirement plans and are issued
directly to your employer or your plan's trustee. Your employer pays premiums
directly to TIAA (you can't pay GA premiums directly to TIAA) and your employer
or the plan's trustee exclusively controls the allocation of contributions and
transfers to and from these contracts. If a GA contract is issued pursuant to
your plan, the rules relating to transferring and withdrawing your money,
receiving any annuity income or death benefits, and the timing of payments may
be different, and are determined by your plan. Ask your employer or plan
administrator for more information.
Keoghs
Subject to regulatory approval, TIAA also offers contracts for Keogh plans. If
you own an unincorporated business, you can use our Keogh contracts and
prototype plan, provided you are eligible.
Starting Out
We'll issue you a TIAA contract when we receive your completed application or
enrollment form. Your premiums will be credited to the Real Estate Account as
of the business day we receive them.
If we receive premiums from your employer before your application or enrollment
form, we'll credit the premiums to the CREF Money Market Account until we
receive your form. We'll transfer and credit the amount you've specified to the
Real Estate Account as of end of the business day we receive your completed
form. If the allocation instructions on your application or enrollment form are
incomplete, violate plan restrictions, or don't total 100 percent, we'll credit
your premiums to the CREF Money Market Account until we do receive complete
instructions. Any amounts that we credited to the CREF Money Market Account
before we received correct instructions will be transferred to the Real Estate
Account only on request, and will be credited as of the business day we receive
that request.
Vesting
Once you're fully vested under your
employer's plan, you can't lose the
benefits you've earned under your RA, GRA or GA
contract. Ask your employer for your vesting
status. Your benefits under SRAs, GSRAs, and
IRAs are immediately vested and can't be
forfeited.
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TIAA doesn't restrict the amount or frequency of premiums to your RA, GRA, and
IRA contracts, although we may in the future. Your employer's retirement plan
may limit your premium amounts, while the Internal Revenue Code limits the
total annual premiums you may invest in plans qualified for favorable tax
treatment. If you pay premiums directly to an RA or IRA, the premiums and any
earnings are not subject to your employer's plan.
In most cases (subject to any restriction we may impose, as described in this
prospectus), TIAA will accept premiums to a contract at any time during your
accumulation period. Once your first premium has been paid, your TIAA contract
can't lapse or be forfeited for nonpayment of premiums. TIAA can stop accepting
premiums to GRA, GSRA, or Keogh contracts at any time.
Allocating Your Premiums Among the Account and other TIAA and CREF Accounts
You can allocate all or part of your premiums to the Real Estate Account,
unless your employer's plan precludes that choice. You can also allocate
premiums to TIAA's traditional annuity or any of the CREF variable investment
accounts, if the account is available under your employer's plan.
You can change your allocation choices for future premiums by
- - writing to our home office
- - using our Inter/ACT Internet service at www.tiaa-cref.org or
- - calling our Automated Telephone Service (24 hours a day) at 800-842-2252.
The Right to Cancel Your Contract
You can cancel your contract up to 30 days after you first receive it, unless
we have begun making annuity payments from it. If you already had a TIAA
contract prior to investing in the Real Estate Account, you have no 30-day
right to cancel the contract. To cancel, mail or deliver the contract with a
signed Notice of Cancellation (available by contacting TIAA) to our home
office. We'll cancel the contract, then send the entire current accumulation to
whomever sent the premiums. You bear the investment risk during this period
(although some states require us to send back your entire premium without
accounting for investment results).
Determining the Value of Your Interest in the Account--Accumulation Units
When you pay premiums or make transfers to the Real Estate Account, you buy
accumulation units. When you take a cash withdrawal, transfer from the Account,
or apply funds to begin annuity income, the number of your accumulation units
decrease. We calculate how many accumulation units to credit by dividing the
amount you applied to the Account by its accumulation unit value at the end of
the business day when we received your premium or transfer. To determine how
many accumulation units to subtract for cash withdrawals and transfers, we use
the accumulation unit value for the end of the business day when we receive
your
34
<PAGE>
transaction request and all required information and documents (unless you ask
for a later date).
The accumulation unit value reflects the Account's investment experience (i.e.,
the real estate net operating income accrued, as well as dividends, interest
and other income accrued), realized and unrealized capital gains and losses, as
well as Account expense charges.
Calculating Accumulation Unit Values
We calculate the Account's accumulation
unit value at the end of each valuation
day. To do that, we multiply the previous
day's value by the net investment factor
for the Account. The net investment factor is
calculated as A divided by B, where A and B are defined as:
A. The value of the Account's net assets at the
end of the current valuation period, less premiums received
during the current valuation period.
B. The value of the Account's net assets
at the end of the previous valuation
period, plus the net effect of transactions
made at the start of the current valuation period.
How to Transfer and Withdraw Your Money
Generally TIAA allows you to move your money to or from the Real Estate Account
in the following ways:
- - from the Real Estate Account to a CREF investment account or TIAA's
traditional annuity
- - to the Real Estate Account from a CREF investment account or TIAA's
traditional annuity (subject to certain limitations)
- - from the Real Estate Account to other companies
- - to the Real Estate Account from other plans
- - by withdrawing cash
- - by setting up a program of automatic withdrawals or transfers
These transactions generally must be for at least $1,000 at a time (or your
entire Account accumulation, if less). These options may be limited by the
terms of your employer's plan or by current tax law. Transfers and cash
withdrawals are currently free.
Transfers and cash withdrawals are effective at the end of the business day we
receive your request and all required documentation. You can also choose to
have transfers and withdrawals take effect at the close of any future business
day or the last calendar day of the current or any future month, even if it's
not a business day. If you request a transfer at any time other than during a
business day, it will be effective at the close of the next business day.
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<PAGE>
To request a transfer or to withdraw cash:
- - write to TIAA's home office at 730 Third Ave., New York, NY 10017-3206
- - call us at 800 842-2252 or
- - for transfers, use Inter/ACT on the Internet at www.tiaa-cref.org
You may be required to complete and return certain forms to effect these
transactions. We can suspend or terminate your ability to transact by
telephone, over the Internet, or by fax at any time, for any reason.
Before you transfer or withdraw cash, make sure you understand the possible
federal and other income tax consequences. See "Taxes," page 45.
Transfers Between the Real Estate Account and Other TIAA-CREF Accounts
Once every calendar quarter you can transfer some or all of your accumulation
in the Real Estate Account to TIAA's traditional annuity or to one of the CREF
accounts. Transfers to certain CREF accounts may be restricted by your
employer's plan.
You can also transfer some or all of your accumulation in TIAA's traditional
annuity or in your CREF accounts to the Real Estate Account, if your employer's
plan offers the Account. Transfers from TIAA's traditional annuity to the Real
Estate Account under RA and GRA contracts take place in roughly equal
installments over a ten-year period through a TIAA transfer payout annuity.
There are no similar restrictions on transfers from TIAA's traditional annuity
under SRA, GSRA, IRA, or Keogh contracts.
Because excessive transfer activity can hurt Account performance and other
participants, we may further limit how often you transfer or otherwise modify
the transfer privilege.
Transfers to Other Companies
Generally you may transfer funds from the Real Estate Account to a company
other than TIAA or CREF, subject to certain tax restrictions. This right may be
limited by your employer's plan. If your employer participates in our special
transfer services program, we can make automatic monthly transfers from your RA
or GRA contract to another company, and the $1,000 minimum will not apply to
these transfers.
Market Timing Policy
There are participants who may try to
profit from transferring money back and
forth among the CREF accounts and the
Real Estate Account in an effort to
"time" the market. As money is shifted
in and out of these accounts, we incur
transaction costs, including, among
other things, expenses for buying and
selling securities. These costs are
borne by all participants, including
long-term investors who do not generate
the costs. To discourage this
market-timing activity, participants who
make more than three transfers out of
any account (other than the CREF Money
Market Account) in a calendar month will
be advised that if this transfer
frequency continues, we will suspend
their ability to make telephone, fax and
internet transfers. We have the right to
modify our policy at any time without
advance notice.
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<PAGE>
Transfers from Other Plans
Subject to your employer's plan, you can usually transfer money from another
403(b) retirement plan to your TIAA contract. Similarly, you can transfer money
to the Real Estate Account from other 401(a) and 403(a) plans. Amounts
transferred to TIAA may be subject to the provisions of your original
employer's plan. Similarly, subject to your employer's plan, you may be able to
rollover funds from 401(a), 403(a), and 403(b) plans to a TIAA Classic IRA, or
subject to applicable income limits, from an IRA containing funds originally
contributed to such plans, to either a TIAA Classic or Roth IRA. Funds in a
457(b) plan can be transferred to another 457(b) plan only. Accumulations in
457(b) plans may not be rolled over to a qualified plan (e.g., a 401(a) plan),
a 403(b) plan or an IRA.
Withdrawing Cash
You may withdraw cash from your SRA, GSRA, IRA, or Keogh Real Estate Account
accumulation at any time during the accumulation period, provided federal tax
law permits it (see below). Cash withdrawals from your RA or GRA accumulation
may be limited by the terms of your employer's plan and federal tax law.
Normally, you can't withdraw money from a contract if you've already begun
receiving lifetime annuity income.
Current federal tax law restricts your ability to make cash withdrawals from
your accumulation under most voluntary salary reduction agreements. Withdrawals
are generally available only if you reach age 59 1/2, leave your job, become
disabled, or die, or if your employer terminates its retirement plan. If your
employer's plan permits, you may also be able to withdraw money if you
encounter hardship, as defined by the IRS, but hardship withdrawals can be from
contributions only, not investment earnings. Different restrictions apply to
withdrawals from Classic and Roth IRAs. You may be subject to a 10 percent
penalty tax if you make a withdrawal before you reach age 59 1/2, unless an
exception applies to your situation.
Under current federal tax law, you are not permitted to withdraw from 457(b)
plans earlier than the calendar year in which you reach age 70 1/2 or separate
from service or are faced with an unforeseeable emergency (as defined by law).
There are no early withdrawal tax penalties if you withdraw under any of these
circumstances (i.e., no 10% tax on distributions prior to age 59 1/2).
Systematic Withdrawals and Transfers
If your employer's plan allows, you can set up a program to make cash
withdrawals or transfers automatically by specifying that we withdraw or
transfer from your Real Estate Account accumulation any fixed number of
accumulation units, dollar amount, or percentage of accumulation until you tell
us to stop or until your accumulation is exhausted. Currently, the program must
be set up so that at least $100 is automatically withdrawn or transferred at a
time.
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Possible Restrictions on Premiums and Transfers to the Account
From time to time we may stop accepting premiums for and/or transfers into the
Account. We might do so if, for example, we can't find enough appropriate real
estate-related investment opportunities at a particular time. Whenever
reasonably possible, we will notify you before we decide to restrict premiums
and/or transfers. However, because we may need to respond quickly to changing
market conditions, we reserve the right to stop accepting premiums and/or
transfers at any time without prior notice.
If we decide to stop accepting premiums into the Account, amounts that would
otherwise be allocated to the Account will be allocated to the CREF Money
Market Account instead, unless you give us other allocation instructions. We
will not transfer these amounts out of the CREF Money Market Account when the
restriction period is over, unless you request that we do so. However, we will
resume allocating premiums to the Account on the date we remove the
restrictions.
Receiving Annuity Income
The Annuity Period in General
You can receive an income stream from all or part of your Real Estate Account
accumulation. Unless you opt for a lifetime annuity, generally you must be at
least age 59 1/2 to begin receiving annuity income payments from your annuity
contract free of a 10 percent early distribution penalty tax. Your employer's
plan may also restrict when you can begin income payments. Under the minimum
distribution rules, you generally must begin receiving some payments from your
contract shortly after you reach the later of age 70 1/2 or you retire. Also,
you can't begin a one-life annuity after you reach age 90, nor may you begin a
two-life annuity after either you or your annuity partner reach age 90.
Your income payments may be paid out from the Real Estate Account through a
variety of income options. You can pick a different income option for different
portions of your accumulation, but once you've started payments you usually
can't change your income option or annuity partner for that payment stream.
Usually income payments are monthly. You can choose quarterly, semi-annual, and
annual payments as well. (TIAA has the right to not make payments at any
interval that would cause the initial payment to be less than $100.) We'll send
your payments by mail to your home address or, on your request, by mail or
electronic funds transfer to your bank.
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Your initial income payments are based on the value of your accumulation on the
last valuation day before the annuity starting date. Your payments change after
the initial payment based on the Account's investment experience and the income
change method you choose.
There are two income change methods for annuity payments: annual and monthly.
Under the annual income change method, payments from the Account change each
May 1, based on the net investment results during the prior year (April 1
through March 31). Under the monthly income change method, payments from the
Account change every month, based on the net investment results during the
previous month. For the formulas used to calculate the amount of annuity
payments, see page 41. The total value of your annuity payments may be more or
less than your total premiums.
Annuity Starting Date
Generally, you pick an annuity starting date when you first apply for a TIAA
contract but you can change this date at any time prior to the day before that
annuity starting date. Ordinarily, annuity payments begin on your annuity
starting date, provided we have received all documentation necessary for the
income option you've picked. If something's missing, we'll defer your annuity
starting date until we receive it. Your first annuity check may be delayed
while we process your choice of income options and calculate the amount of your
initial payment. Any premiums received within 70 days after payments begin may
be used to provide additional annuity income. Premiums received after 70 days
will remain in your accumulating annuity contract until you give us further
instructions. Ordinarily, your first annuity payment will begin on any business
day between the first and twentieth of any month.
Income Options
Both the number of annuity units you purchase and the amount of your income
payments will depend on which income option you pick. Your employer's plan, tax
law and ERISA may limit which income options you can use to receive income from
an RA or GRA, GSRA or Keogh. Ordinarily you'll choose your income options
shortly before you want payments to begin, but you can make or change your
choice any time before your annuity starting date.
All Real Estate Account income options provide variable payments, and the
amount of income you receive depends in part on the investment experience of
the Account. The current options are:
- - One-Life Annuity with or without Guaranteed Period: Pays income as long as
you live. If you opt for a guaranteed period (10, 15 or 20 years) and you
die before it's over, income payments will continue to your beneficiary
until the end of the period. If you don't opt for a guaranteed period, all
payments end at your death--so that it's possible for you to receive only
one payment if you die less than a month after payments start.
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- - Annuity for a Fixed Period: Pays income for any period you choose from 5 to
30 years.
- - Two-Life Annuities: Pays income to you as long as you live, then continues at
either the same or a reduced level for the life of your annuity partner.
There are three types of two-life annuity options, all available with or
without a guaranteed period--Full Benefit to Survivor, Two-Thirds Benefit to
Survivor, and a Half-Benefit to Annuity Partner. Under the Two-Thirds Benefit
to Survivor option, payments to you will be reduced upon the death of your
annuity partner.
- - Minimum Distribution Option ("MDO") Annuity: Generally available only if you
must begin annuity payments under the Internal Revenue Code minimum
distribution requirements. (Some employer plans allow you to elect this
option earlier--contact TIAA for more information.) The option pays an amount
designed to fulfill the distribution requirements under federal tax law. You
must apply your entire accumulation under a contract if you want to use the
MDO annuity; however, it's possible you won't receive income for life under
an MDO. Up to age 90, you can apply any remaining part of an accumulation
applied to the MDO annuity to any other income option for which you're
eligible. Using an MDO won't affect your right to take a cash withdrawal of
any accumulation not yet distributed.
For any of the income options described above, current federal tax law says
that your guaranteed period can't exceed the joint life expectancy of you and
your beneficiary or annuity partner.
Other income options may become available in the future, subject to the terms
of your retirement plan and relevant federal and state laws. For more
information about any annuity option, please contact us.
Receiving Lump Sum Payments (Retirement Transition Benefit): If your
employer's plan allows, you may be able to receive a single sum payment of up
to 10 percent of the value of any part of an RA or GRA accumulation being
converted to annuity income on the annuity starting date. Of course, if your
employer's plan allows cash withdrawals, you can take a larger amount (up to
100 percent) of your Real Estate Account accumulation as a cash payment. The
retirement transition benefit will be subject to current federal income tax
requirements and possible early distribution penalties. See "Taxes," page 45.
If you haven't picked an income option when the annuity starting date arrives
for your RA, GRA, SRA or GSRA contract, TIAA usually will assume you want the
one-life annuity with 10-year guaranteed period if you're unmarried, paid from
TIAA's traditional annuity. If you're married, we may assume for you a survivor
annuity with half-benefit to annuity partner with a 10-Year guaranteed period,
with your spouse as your annuity partner, paid from TIAA's traditional annuity.
If you haven't picked an income option when the annuity starting date arrives
for your IRA, we
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may assume you want the minimum distribution option annuity.
Transfers During the Annuity Period
After you begin receiving annuity income, you can transfer all or part of the
future annuity income payable once each calendar quarter (i) from the Real
Estate Account into a "comparable annuity" payable from a CREF account or
TIAA's traditional annuity, or (ii) from a CREF account into a comparable
annuity payable from the Real Estate Account. Comparable annuities are those
which are payable under the same income option, and have the same first and
second annuitant, and remaining guaranteed period.
We'll process your transfer on the business day we receive your request. You
can also choose to have a transfer take effect at the close of any future
business day, or the last calendar day of the current or any future month, even
if it's not a business day. Transfers under the annual income payment method
will affect your annuity payments beginning on the May 1 following the March 31
which is on or after the effective date of the transfer. Transfers under the
monthly income payment method and all transfers into TIAA's traditional annuity
will affect your annuity payments beginning with the first payment due after
the monthly payment valuation day that is on or after the transfer date. You
can switch between the annual and monthly income change methods, and the switch
will go into effect on the following March 31.
Annuity Payments
The amount of annuity payments we pay you or your beneficiary (annuitant) will
depend upon the number and value of the annuity units payable. The number of
annuity units is first determined on the day before the annuity starting date.
The amount of the annuity payments will change according to the income change
method chosen.
Under the annual income change method, the value of an annuity unit for payments
is redetermined on March 31 of each year--the payment valuation day. Annuity
payments change beginning May 1. The change reflects the net investment
experience of the Real Estate Account. The net investment experience for the
twelve months following each March 31 revaluation will be reflected in the
following year's value.
Under the monthly income change method, the value of an annuity unit for
payments is determined on the payment valuation day, which is the 20th day of
the month preceding the payment due date or, if the 20th is not a business day,
the preceding business day. The monthly changes in the value of an annuity unit
reflect the net investment experience of the Real Estate Account.
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The formulas for calculating the number and value of annuity units payable are
described below.
Calculating of the Number of Annuity Units Payable: When a participant or a
beneficiary converts the value of all or a portion of his or her accumulation
into an income-paying contract, the number of annuity units payable from the
Real Estate Account under an income change method is determined by dividing the
value of the Account accumulation to be applied to provide the annuity payments
by the product of the annuity unit value for that income change method and an
annuity factor. The annuity factor as of the annuity starting date is the value
of an annuity in the amount of $1.00 per month beginning on the first day such
annuity units are payable, and continuing for as long as such annuity units are
payable.
The annuity factor will reflect interest assumed at the effective annual rate
of 4 percent, and the mortality assumptions for the person(s) on whose life
(lives) the annuity payments will be based. Mortality assumptions will be based
on the then-current settlement mortality schedules for this Account. Annuitants
bear no mortality risk under their contracts--actual mortality experience will
not reduce annuity payments after they have started. TIAA may change the
mortality assumptions used to determine the number of annuity units payable for
any future accumulations converted to provide annuity payments.
The number of annuity units payable under an income change method under your
contract will be reduced by the number of annuity units you transfer out of
that income change method under your contract. The number of annuity units
payable will be increased by any internal transfers you make to that income
change method under your contract.
Value of Annuity Units: The Real Estate Account's annuity unit value is
calculated separately for each income change method for each business day and
for the last calendar day of each month. The annuity unit value for each income
change method is determined by updating the annuity unit value from the
previous valuation day to reflect the net investment performance of the Account
for the current valuation period relative to the 4 percent assumed investment
return. In general, your payments will increase if the performance of the
Account is greater than 4 percent and decrease if the value is less than 4
percent. The value is further adjusted to take into account any changes
expected to occur in the future at revaluation either once a year or once a
month, assuming the Account will earn the 4 percent assumed investment return
in the future.
The initial value of the annuity unit for a new annuitant is the value
determined as of the day before annuity payments start.
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For participants under the annual income change method, the value of the
annuity unit for payments remains level until the following May 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.
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Death Benefits
Availability; Choosing Beneficiaries
TIAA may pay death benefits if you or your annuity partner die during the
accumulation or annuity period. When you purchase your annuity contract, you
name one or more beneficiaries to receive the death benefit if you die. You can
change your beneficiaries anytime before you die, and, unless you instruct
otherwise, your annuity partner can do the same after your death.
Your Spouse's Rights
Your choice of beneficiary for death benefits may, in some cases, be subject to
the consent of your spouse. Similarly, if you are married at the time of your
death, federal law may require a portion of the death benefit be paid to your
spouse even if you have named someone else as beneficiary. If you die without
having named any beneficiary, any portion of your death benefit not payable to
your spouse will go to your estate.
Amount of Death Benefit
If you die during the accumulation period, the death benefit is the amount of
your accumulation. If you and your annuity partner die during the annuity
period while payments are still due under a fixed-period annuity or for the
remainder of a guaranteed period, the death benefit is the value of the
remaining guaranteed payments.
Methods of Payment of Death Benefits
Generally, you can choose for your beneficiary the method we'll use to pay the
death benefit, but few participants do this. If you choose a payment method,
you can also block your beneficiaries from changing it. Most people leave the
choice to their beneficiaries. We can block any choice if its initial payment
is less than $25. Beginning late in 2000 or early 2001, if death occurs while
your contract is in the accumulation stage, in most cases we'll pay the death
benefit using the TIAA-CREF Savings & Investment Plan (described on page 45).
We won't do this if you preselected another option or if the beneficiary elects
another option. Some beneficiaries aren't eligible for the TIAA-CREF Savings &
Investment Plan. If your beneficiary isn't eligible and doesn't specifically
tell us to start paying death benefits within a year of your death, we can
start making payments to them over five years using the fixed-period annuity
method of payment.
Payments During the Accumulation Period:
Currently, the available methods of payment for death benefits from funds in
the accumulation period are:
- - Single-Sum Payment, in which the entire death benefit is paid to your
beneficiary at once;
- - One-Life Annuity with or without Guaranteed Period, in which the death
benefit is paid monthly for the life of the beneficiary or through the
guaranteed period;
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- - Annuity for a Fixed Period of 2 to 30 years;
- - Accumulation-Unit Deposit Option, which pays a lump sum at the end of a
fixed period, ordinarily two to five years, during which period the
accumulation units deposited participate in the Account's investment
experience (generally the death benefit value must be at least $5,000);
and
- - Minimum Distribution Option (also called the TIAA-CREF Savings &
Investment Plan), which automatically pays income according to the Internal
Revenue Code's minimum distribution requirements. It operates in much the
same way as the MDO annuity income option. It's possible, under this method,
that your beneficiary won't receive income for life.
Death benefits are usually paid monthly (unless you chose a single-sum method
of payment), but your beneficiary can switch them to quarterly, semi-annual, or
annual payments.
Payments During the Annuity Period: If you and your annuity partner die during
the annuity period, your beneficiary can choose to receive any remaining
guaranteed periodic payments due under your contract. Alternatively, your
beneficiary can choose to receive the commuted value of those payments in a
single sum unless you have indicated otherwise. The amount of the commuted
value will be different than the total of the periodic payments that would
otherwise be paid.
Ordinarily, death benefits are subject to federal estate tax. For more detailed
information on death benefits, please contact TIAA.
Taxes
This section offers general information concerning federal taxes. It doesn't
cover every situation. Tax treatment varies depending on the circumstances, and
state and local taxes may also be involved. For complete information on your
personal tax situation, check with a qualified tax advisor.
Taxes In General
During the accumulation period, Real Estate Account premiums paid in before-tax
dollars, employer contributions and earnings attributable to these amounts are
not taxed until they're withdrawn. Annuity payments, single-sum withdrawals,
systematic withdrawals, and death benefits are usually taxed as ordinary
income. Premiums paid in after-tax dollars aren't taxable when withdrawn, but
earnings attributable to these amounts are taxable. Death benefits are usually
also subject to federal estate and state estate or inheritance taxation.
Generally, transfers between qualified retirement plans are not taxed.
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Generally, contributions you can make under an employer's plan are limited by
federal tax law. Employee voluntary salary reduction contributions to 403(b)
and 401(k) plans are limited to $10,500 per year. Certain long-term employees
may be able to defer up to $13,500 per year in a 403(b) plan. Contributions to
Classic and Roth IRAs, other than rollover contributions, cannot generally
exceed $2,000 per year.
The maximum contribution limit to a 457(b) non-qualified deferred compensation
plan for employees of state and local governments for 2000 is the lesser of
$8,000 or 33 1/3% of "includable compensation" (as defined by law). Special
catch up rules may permit a higher contribution in one or more of the last
three years prior to an individual's normal retirement age under the plan. All
pre-tax contributions made on behalf of an individual to a 403(b) plan, and
pre-tax elective deferrals made on behalf of an individual to a 401(k) plan, a
simple IRA or to a Simplified Employee Pension Plan are aggregated with
contributions to a 457(b) plan to calculate the maximum contribution that may
be made to the 457(b) plan.
Early Distributions
If you want to withdraw funds or begin receiving income from any 401(a),
403(a), or 403(b) retirement plan or an IRA before you reach age 59 1/2, you may
have to pay a 10 percent early distribution tax on the taxable amount.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to any Roth IRA. A 10% penalty tax
may apply to amounts attributable to a conversion from an IRA if they are
distributed during the five taxable years beginning with the year in which the
conversion was made. You won't have to pay this tax in certain circumstances.
Consult your tax advisor for more information.
Minimum Distribution Requirements
In most cases, payments have to begin by April 1 of the year after the year you
reach age 70 1/2, or if later, retirement. (For Classic IRAs, payments must
begin by April 1 of the year after you reach age 70 1/2.) Under the terms of
certain retirement plans, the plan administrator may direct us to make the
minimum distributions required by law even if you do not elect to receive them.
In addition, if you don't begin distributions on time, you may be subject to a
50 percent excise tax on the amount you should have received but did not. Roth
IRAs are generally not subject to these rules and do not require that any
distributions be made prior to your death.
How the Real Estate Account is treated
for tax purposes
The Account is not a separate taxpayer
for purposes of the Internal Revenue
Code--its earnings are taxed as part of
TIAA's operations. Although TIAA is not
expected to owe any federal income taxes
on the Account's earnings, if TIAA does
incur taxes attributable to the Account,
it may make a corresponding charge
against the Account.
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Withholding on Distributions
If we send an "eligible rollover" distribution directly to you, federal law
requires us to withhold 20 percent from the taxable portion. If we roll over
such a distribution directly to an IRA or to an employer plan that is similar
to the plan making the distribution, we do not withhold any federal income tax.
The 20 percent withholding also does not apply to certain "non-eligible"
rollover distributions such as payments from IRAs, lifetime annuity payments,
or minimum distribution payments.
For the taxable portion of non-eligible rollover distributions, we will usually
withhold federal income taxes unless you tell us not to and you are eligible to
avoid withholding. Nonresident aliens who pay U.S. taxes are subject to
different withholding rules. In general, all amounts received under a section
457 plan are taxable and are subject to federal income tax withholding as
wages. Contact TIAA or your tax advisor for more information.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of your contract could change by
legislation or otherwise. Consult a tax adviser with respect to legislative
developments and their effect on your contract.
We have the right to modify the contract in response to legislative changes
that could otherwise diminish the favorable tax treatment that annuity contract
owners currently receive. We make no guarantee regarding the tax status of any
contract and do not intend the above discussion as tax advice.
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General Matters
Making Choices and Changes
You may have to make certain choices or changes (e.g., changing your income
option, making a cash withdrawal) by written notice satisfactory to us and
received at our home office. When we receive a notice of a change in
beneficiary or other person named to receive payments, we'll execute the change
as of the date it was signed, even if the signer has died in the meantime. We
execute all other changes as of the date received.
Telephone and Internet Transactions
You can use our Automated Telephone Service (ATS) or our Inter/ACT system over
the Internet to check your account balances, transfer to TIAA's traditional
annuity or CREF, and/or allocate future premiums among the Real Estate Account,
TIAA's traditional annuity, and CREF. You will be asked to enter your Personal
Identification Number (PIN) and social security number for both systems. (You
can establish a PIN by calling us.) Both will lead you through the transaction
process and will use reasonable procedures to confirm that instructions given
are genuine. If we use such procedures, we are not responsible for incorrect or
fraudulent transactions. All transactions made over the ATS and Inter/ACT are
electronically recorded.
To use the ATS, you need a touch-tone phone. The toll free number for the ATS
is 800 842-2252. To use Inter/ACT, access the TIAA-CREF Internet home page at
http://www.tiaa-cref.org.
We can suspend or terminate your ability to transact by telephone, over the
Internet, or by fax at any time, for any reason.
Voting Rights
You don't have the right to vote on the management and operation of the Account
directly; however, you may send ballots to advise the TIAA Board of Overseers
about voting for nominees for the TIAA Board of Trustees.
Electronic Prospectus
If you received this prospectus electronically and would like a paper copy,
please call 800 842-2733, extension 5509, and we will send it to you. Under
certain circumstances where we are legally required to deliver a prospectus to
you, we cannot send you a prospectus electronically unless you've consented.
Householding
To lower costs and eliminate duplicate documents sent to your home, we may
begin mailing only one copy of the Account's prospectus, prospectus supplements
or any other required documents to your household, even if more than one
participant lives there. If you would prefer to continue receiving
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your own copy of any of these documents, you may call us toll-free at 800
842-2733, extension 5509, or write us.
Miscellaneous Policies
If You're Married: If you're married, you may be required by law or your
employer's plan to get advance written consent from your spouse before we make
certain transactions for you. If you're married at your annuity starting date,
you may also be required by law or your employer's plan to choose an income
option that provides survivor annuity income to your spouse, unless he or she
waives that right in writing. There are limited exceptions to the waiver
requirement.
Texas Optional Retirement Program Restrictions: If you're in the Texas
Optional Retirement Program, you or your beneficiary can redeem some or all
of your accumulation only if you retire, die, or leave your job in the
state's public institutions of higher education.
Assigning Your Contract: Generally, neither you nor your beneficiaries can
assign your ownership of a TIAA retirement contract to anyone else.
Overpayment of Premiums: If your employer mistakenly sends more premiums on
your behalf than you're entitled to under your employer's retirement plan or
the Internal Revenue Code, we'll refund them to your employer as long as we're
requested to do so (in writing) before you start receiving annuity income. Any
time there's a question about premium refunds, TIAA will rely on information
from your employer. If you've withdrawn or transferred the amounts involved
from your accumulation, we won't refund them.
Errors or Omissions: We reserve the right to correct any errors or omissions
on any form, report, or statement that we send you.
Payment to an Estate, Guardian, Trustee, etc.: We reserve the right to pay in
one sum the commuted value of any benefits due an estate, corporation,
partnership, trustee, or other entity not a natural person. Neither TIAA nor the
Account will be responsible for the conduct of any executor, trustee, guardian,
or other third party to whom payment is made.
Benefits Based on Incorrect Information: If the amounts of benefits provided
under a contract were based on information that is incorrect, benefits will be
recalculated on the basis of the correct data. If the Account has overpaid or
underpaid, appropriate adjustments will be made.
Proof of Survival: We reserve the right to require satisfactory proof that
anyone named to receive benefits under a contract is living on the date payment
is due. If we have not received this proof after we request it in writing, the
Account will have the right to make reduced payments or to withhold payments
entirely until such proof is received.
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Distributor
The annuity contracts are offered continuously by TIAA-CREF Individual &
Institutional Services, Inc. (Services), which is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc. (NASD). Teachers Personal Investors Services, Inc. (TPIS), which
is also registered with the SEC and is a member of the NASD, may participate in
the distribution of the contracts on a limited basis. Services and TPIS are
direct or indirect subsidiaries of TIAA. As already noted, distribution costs
are covered by a deduction from the assets of the Account; no commissions are
paid for distributing the contracts. Anyone distributing the contracts must be
a registered representative of Services or TPIS, whose main offices are both at
730 Third Avenue, New York, NY 10017-3206.
State Regulation
TIAA, the Real Estate Account, and the contracts are subject to regulation by
the New York Insurance Department (NYID) as well as by the insurance regulatory
authorities of certain other states and jurisdictions.
TIAA and the Real Estate Account must file with the NYID both quarterly and
annual statements. The Account's books and assets are subject to review and
examination by the NYID at all times, and a full examination into the affairs
of the Account is made at least every five years. In addition, a full
examination of the Real Estate Account operations is usually conducted
periodically by some other states.
Legal Matters
All matters involving state law and relating to the contracts, including TIAA's
right to issue the contracts, have been passed upon by Charles H. Stamm,
Executive Vice President and General Counsel of TIAA. Sutherland Asbill &
Brennan LLP, Washington, D.C., have passed upon legal matters relating to the
federal securities laws.
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Experts
Ernst & Young LLP, independent auditors, have audited our (i) consolidated
financial statements and financial statement schedule at December 31, 1999
and 1998 and for each of the years in the period ended December 31, 1999,
(ii) statement of revenues and certain expenses of The Colorado for the year
ended December 31, 1997, (iii) statement of revenues and certain expenses of
Larkspur Courts Apartments for the year ended December 31, 1998, and (iv)
statement of revenues and certain expenses of 88 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've included these financial statements and schedule in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's and Friedman, Alpren & Green'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.
51
<PAGE>
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.
52
<PAGE>
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
TIAA REAL ESTATE ACCOUNT
Audited Consolidated Financial Statements:
Report of Management Responsibility ..................................... F-2
Report of Independent Auditors .......................................... F-3
Consolidated Statements of Assets and Liabilities ....................... F-4
Consolidated Statements of Operations ................................... F-5
Consolidated Statements of Changes in Net Assets ........................ F-6
Consolidated Statements of Cash Flows ................................... F-7
Notes to Consolidated Financial Statements .............................. F-8
Consolidated Statement of Investments ................................... F-15
Proforma Condensed Financial Statements:
Proforma Condensed Statement of Assets and Liabilities .................. F-19
Proforma Condensed Statement of Operations .............................. F-20
Notes to Proforma Condensed Financial Statements ........................ F-21
The Colorado:
Report of Independent Auditors .......................................... F-22
Statement of Revenues and Certain Expenses .............................. F-23
Notes to Statement of Revenues and Certain Expenses ..................... F-24
Larkspur Courts Apartments:
Report of Independent Auditors .......................................... F-25
Statement of Revenues and Certain Expenses .............................. F-26
Notes to Statement of Revenues and Certain Expenses ..................... F-27
88 Kearney Street:
Report of Independent Auditors .......................................... F-28
Statement of Revenues and Certain Expenses .............................. F-29
Notes to Statement of Revenues and Certain Expenses ..................... F-30
780 Third Avenue:
Report of Independent Auditors .......................................... F-31
Statement of Revenues and Certain Expenses .............................. F-32
Notes to Statement of Revenues and Certain Expenses ..................... F-33
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
Condensed Unaudited Statutory-Basis Financial Statements ................ F-35
Supplemental Information to Condensed Unaudited Statutory-Basis Financial
Statements ........................................................... F-37
</TABLE>
F-1
<PAGE>
[TIAA LOGO]
- --------------------------------------------------------------------------------
REPORT OF MANAGEMENT RESPONSIBILITY
To the Participants of the
TIAA Real Estate Account:
The accompanying financial statements of the TIAA Real Estate Account
("Account") of Teachers Insurance and Annuity Association of America ("TIAA")
are the responsibility of TIAA's management. They have been prepared in
accordance with accounting principles generally accepted in the United States
and have been presented fairly and objectively in accordance with such
principles.
TIAA has established and maintains a strong system of internal controls
designed to provide reasonable assurance that assets are properly safeguarded
and transactions are properly executed in accordance with management's
authorization, and to carry out the ongoing responsibilities of management for
reliable financial statements. In addition, TIAA's internal audit personnel
provide a continuing review of the internal controls and operations of TIAA,
including its separate account operations.
The accompanying financial statements have been audited by the independent
auditing firm of Ernst & Young LLP. The independent auditors' report, which
appears on the following page, expresses an independent opinion on the fairness
of presentation of these financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting of trustees who
are not officers of TIAA, meets regularly with management, representatives of
Ernst & Young LLP and internal audit personnel to review matters relating to
financial reporting, internal controls and auditing.
/s/ John H. Biggs
---------------------------------
Chairman, President and
Chief Executive Officer
/s/ Richard L. Gibbs
---------------------------------
Executive Vice President and
Principal Accounting Officer
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Participants of the TIAA Real Estate Account and the
Board of Trustees of Teachers Insurance and Annuity Association of America:
We have audited the accompanying consolidated statements of assets and
liabilities, including the statement of investments as of December 31, 1999,
of the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity
Association of America ("TIAA") as of December 31, 1999 and 1998, and the
related consolidated statements of operations, changes in net assets and cash
flows for each of the three years in the period ended December 31, 1999.
These consolidated financial statements are the responsibility of TIAA's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. Our procedures included confirmation of
securities owned as of December 31, 1999, by correspondence with the custodian
and brokers. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Account at December 31, 1999 and 1998, and the results of their operations and
the changes in their net assets and their cash flows for each of the three years
in the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 4, 2000
F-3
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
Investments, at value:
Real estate properties
(cost: $1,253,650,281 and $775,801,883)..................... $1,312,503,554 $ 820,211,240
Marketable securities
(cost: $395,662,203 and $402,041,089) ...................... 374,278,801 391,033,557
Cash .......................................................... 617,599 572,343
Other ......................................................... 32,057,761 17,786,291
-------------- --------------
TOTAL ASSETS 1,719,457,715 1,229,603,431
-------------- --------------
LIABILITIES
Accrued real estate property level expenses and taxes ......... 18,425,328 11,432,529
Security deposits held ........................................ 5,549,959 1,890,423
-------------- --------------
TOTAL LIABILITIES 23,975,287 13,322,952
-------------- --------------
MINORITY INTEREST -- 19,913,592
-------------- --------------
NET ASSETS
Accumulation Fund ............................................. 1,642,327,173 1,167,591,317
Annuity Fund .................................................. 53,155,255 28,775,570
-------------- --------------
TOTAL NET ASSETS $1,695,482,428 $1,196,366,887
============== ==============
NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 6
and 7 ........................................................ 11,487,360 8,833,911
============== ==============
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 6 ................. $ 142.97 $ 132.17
============== ==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------ ------------- ------------
<S> <C> <C> <C>
INVESTMENT INCOME
Real estate income, net:
Rental income ........................................... $132,316,878 $ 81,009,203 $ 44,342,342
------------ ------------- ------------
Real estate property level expenses and taxes:
Operating expenses ..................................... 27,334,060 17,339,706 9,024,240
Real estate taxes ...................................... 15,892,736 9,103,637 4,472,311
------------ ------------- ------------
Total real estate property level expenses and taxes 43,226,796 26,443,343 13,496,551
------------ ------------- ------------
Real estate income, net 89,090,082 54,565,860 30,845,791
Interest ................................................ 17,117,917 15,588,829 12,079,600
Dividends ............................................... 7,814,816 8,354,899 4,406,679
------------ ------------- ------------
TOTAL INCOME 114,022,815 78,509,588 47,332,070
------------ ------------- ------------
Expenses--Note 3:
Investment advisory charges ............................. 4,246,911 2,999,113 1,647,689
Administrative and distribution charges ................. 3,442,282 2,498,376 1,368,501
Mortality and expense risk charges ...................... 1,027,707 675,450 400,925
Liquidity guarantee charges ............................. 561,510 101,655 109,430
------------ ------------- ------------
TOTAL EXPENSES 9,278,410 6,274,594 3,526,545
------------ ------------- ------------
INVESTMENT INCOME, NET 104,744,405 72,234,994 43,805,525
------------ ------------- ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Real estate properties .................................. 8,788,795 -- --
Marketable securities ................................... (3,022,098) (5,258,000) 1,076,725
------------ ------------- ------------
Net realized gain (loss) on investments 5,766,697 (5,258,000) 1,076,725
------------ ------------- ------------
Net change in unrealized appreciation (depreciation) on:
Real estate properties .................................. 14,443,916 33,221,281 10,234,316
Marketable securities ................................... (10,375,870) (20,098,622) 6,836,012
------------ ------------- ------------
Net change in unrealized appreciation on investments 4,068,046 13,122,659 17,070,328
------------ ------------- ------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS 9,834,743 7,864,659 18,147,053
------------ ------------- ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 114,579,148 80,099,653 61,952,578
Minority interest in net increase in net assets
resulting from operations .............................. 1,364,619 (3,487,991) (1,881,178)
------------ ------------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $115,943,767 $ 76,611,662 $ 60,071,400
============ ============= ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
--------------- -------------- -------------
<S> <C> <C> <C>
FROM OPERATIONS
Investment income, net ................................... $ 104,744,405 $ 72,234,994 $ 43,805,525
Net realized gain (loss) on marketable securities ........ 5,766,697 (5,258,000) 1,076,725
Net change in unrealized appreciation on investments ..... 4,068,046 13,122,659 17,070,328
Minority interest in net increase in net assets
resulting from operations .............................. 1,364,619 (3,487,991) (1,881,178)
--------------- -------------- -------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 115,943,767 76,611,662 60,071,400
--------------- -------------- -------------
FROM PARTICIPANT TRANSACTIONS
Premiums ................................................. 126,200,561 91,248,578 52,344,830
TIAA seed money withdrawn--Note 1 ........................ -- (76,666,109) (37,915,190)
Net participant transfers from TIAA ...................... 24,155,178 26,568,616 43,681,385
Net participant transfers from CREF Accounts ............. 269,199,426 310,999,448 307,493,199
Annuity and other periodic payments ...................... (6,330,436) (3,209,761) (1,499,054)
Withdrawals and death benefits ........................... (30,052,955) (15,004,262) (8,052,908)
--------------- -------------- -------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 383,171,774 333,936,510 356,052,262
--------------- -------------- -------------
NET INCREASE IN NET ASSETS 499,115,541 410,548,172 416,123,662
NET ASSETS
Beginning of year ........................................ 1,196,366,887 785,818,715 369,695,053
--------------- -------------- -------------
End of year .............................................. $1,695,482,428 $1,196,366,887 $ 785,818,715
=============== ============== =============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Years Ended December 31,
------------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations ..... $ 115,943,767 $ 76,611,662 $ 60,071,400
Adjustments to reconcile net increase in net assets
resulting from operations to net cash used in
operating activities:
Increase in investments ................................. (475,537,558) (409,958,664) (433,355,406)
Decrease in receivable from
securities transactions ............................... -- -- 47,480,000
Increase in other assets ................................ (14,271,470) (3,719,197) (7,087,554)
Decrease in payable for
securities transactions ............................... -- (10,463) (51,344,156)
Increase in accrued real estate property
level expenses and taxes .............................. 6,992,799 1,088,936 5,021,258
Increase in security deposits held ...................... 3,659,536 584,465 1,305,958
Increase (decrease) in minority interest ................ (19,913,592) 1,631,496 18,282,096
--------------- -------------- --------------
NET CASH USED IN
OPERATING ACTIVITIES (383,126,518) (333,771,765) (359,626,404)
--------------- -------------- --------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums ................................................. 126,200,561 91,248,578 52,344,830
TIAA seed money withdrawn--Note 1 ........................ -- (76,666,109) (37,915,190)
Net participant transfers from TIAA ...................... 24,155,178 26,568,616 43,681,385
Net participant transfers from CREF Accounts ............. 269,199,426 310,999,448 307,493,199
Annuity and other periodic payments ...................... (6,330,436) (3,209,761) (1,499,054)
Withdrawals and death benefits ........................... (30,052,955) (15,004,262) (8,052,908)
--------------- -------------- --------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 383,171,774 333,936,510 356,052,262
--------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH 45,256 164,745 (3,574,142)
CASH
Beginning of year ........................................ 572,343 407,598 3,981,740
--------------- -------------- --------------
End of year .............................................. $ 617,599 $ 572,343 $ 407,598
=============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Organization
The TIAA Real Estate Account ("Account") is a segregated investment account of
Teachers Insurance and Annuity Association of America ("TIAA") and was
established by resolution of TIAA's Board of Trustees on February 22, 1995,
under the insurance laws of the State of New York, for the purpose of funding
variable annuity contracts issued by TIAA. Teachers REA, LLC, a wholly-owned
subsidiary of the Account, began operations in July 1996 and holds two
properties in Virginia. Light Street Partners, L.P. ("Light Street"), a
partnership in which the Account holds a 100% interest, began operations in
March 1997 and holds seven office buildings throughout the United States. Prior
to April 30, 1999, when the Account purchased the remaining 10% interest, the
Account had a 90% interest in Light Street. Teachers REA II, LLC, a
wholly-owned subsidiary of the Account, began operations in October 1997 and
holds one property in Pennsylvania. Teachers REA III, LLC, a wholly-owned
subsidiary of the Account, began operations in July 1998 and holds one property
in Florida.
The Account commenced operations on July 3, 1995 with a $100,000,000 seed money
investment by TIAA. TIAA purchased 1,000,000 Accumulation Units in the Account
and such Units shared in the prorata investment experience of the Account and
were subject to the same valuation procedures and expense deductions as all
other Accumulation Units of the Account. The initial registration statement of
the Account filed by TIAA with the Securities and Exchange Commission
("Commission") under the Securities Act of 1933 became effective on October 2,
1995. The Account began to offer Accumulation Units and Annuity Units to
participants other than TIAA on October 2, and November 1, 1995, respectively.
In August 1996, the Account's net assets first reached $200 million and, as
required under a five year repayment schedule approved by the New York State
Insurance Department ("NYID"), TIAA began to redeem its seed money Accumulation
Units in monthly installments of 16,667 Units beginning in September 1996.
Since the Account's assets were growing rapidly, TIAA in October 1997, with
NYID approval, modified the seed money redemption schedule by increasing the
monthly redemption of Units to a level equal to the value of 25% of the
Account's net asset growth for the prior month, with no fewer than 16,667 Units
and no more than 100,000 Units to be redeemed each month. These withdrawals
were made at prevailing daily net asset values and are reflected in the
accompanying consolidated financial statements. By the end of 1998, all of
TIAA's Accumulation Units had been withdrawn.
The investment objective of the Account is a favorable long-term rate of return
primarily through rental income and capital appreciation from real estate
investments owned by the Account. The Account also invests in publicly-traded
securities and other instruments to maintain adequate liquidity for operating
expenses, capital expenditures and to make benefit payments.
F-8
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 1--Organization (Concluded)
TIAA employees, under the direction of TIAA's Board of Trustees and its
Investment Committee, manage the investment of the Account's assets pursuant to
investment management procedures adopted by TIAA for the Account. TIAA's
investment management decisions for the Account are also subject to review by
the Account's independent fiduciary, Institutional Property Consultants, Inc.
TIAA also provides all portfolio accounting and related services for the
Account. TIAA-CREF Individual & Institutional Services, Inc. ("Services"), a
subsidiary of TIAA, which is registered with the Commission as a broker-dealer
and is a member of the National Association of Securities Dealers, Inc.,
provides administrative and distribution services pursuant to a Distribution
and Administrative Services Agreement with the Account.
Note 2--Significant Accounting Policies
The preparation of financial statements may require management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, income, expenses and related disclosures. Actual results may
differ from those estimates. The following is a summary of the significant
accounting policies consistently followed by the Account, which are in
conformity with accounting principles generally accepted in the United States.
Basis of Presentation: The accompanying consolidated financial statements
include the Account and its wholly-owned subsidiaries, Teachers REA, LLC,
Teachers REA II, LLC, Teachers REA III, LLC, Inc and Light Street. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Valuation of Real Estate Properties: Investments in real estate properties are
stated at fair value, as determined in accordance with procedures approved by
the Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole; accordingly, the Account does not
record depreciation. Fair value for real estate properties is defined as the
most probable price for which a property will sell in a competitive market
under all conditions requisite to a fair sale. Determination of fair value
involves subjective judgement because the actual market value of real estate
can be determined only by negotiation between the parties in a sales
transaction. Real estate properties owned by the Account are initially valued
at their respective purchase prices (including acquisition costs).
Subsequently, independent appraisers value each real estate property at least
once a year. The independent fiduciary must approve all independent appraisers
used by the Account. The independent fiduciary can also require additional
appraisals if it believes that a property's value has changed materially or
otherwise to assure that the Account is valued correctly. TIAA's appraisal
staff performs a valuation review of each real estate property on a quarterly
basis and updates the property value if it believes that the value of the
property has changed since the previous valuation review or appraisal. The
independent fiduciary reviews and approves any such valuation adjustments which
exceed certain prescribed limits. TIAA continues to use the revised value to
calculate the Account's net asset value until the next valuation review or
appraisal.
F-9
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 2--Significant Accounting Policies (Concluded)
Valuation of Marketable Securities: Equity securities listed or traded on any
United States national securities exchange are valued at the last sale price as
of the close of the principal securities exchange on which such securities are
traded or, if there is no sale, at the mean of the last bid and asked prices on
such exchange. Short-term money market instruments are stated at market value.
Portfolio securities for which market quotations are not readily available are
valued at fair value as determined in good faith under the direction of the
Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole.
Accounting for Investments: Real estate transactions are accounted for as of
the date on which the purchase or sale transactions for the real estate
properties close (settlement date). Rent from real estate properties consists
of all amounts earned under tenant operating leases, including base rent,
recoveries of real estate taxes and other expenses and charges for
miscellaneous services provided to tenants. Rental income is recognized in
accordance with the billing terms of the lease agreements. The Account bears
the direct expenses of the real estate properties owned. These expenses
include, but are not limited to, fees to local property management companies,
property taxes, utilities, maintenance, repairs, insurance and other operating
and administrative costs. An estimate of the net operating income earned from
each real estate property is accrued by the Account on a daily basis and such
estimates are adjusted as soon as actual operating results are determined.
Realized gains and losses on real estate transactions are accounted for under
the specific identification method.
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and, for
short-term money market instruments, includes accrual of discount and
amortization of premium. Dividend income is recorded on the ex-dividend date.
Realized gains and losses on securities transactions are accounted for on the
average cost basis.
Federal Income Taxes: Based on provisions of the Internal Revenue Code, the
Account is taxed as a segregated asset account of TIAA. The Account should
incur no material federal income tax attributable to the net investment
experience of the Account.
F-10
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 3--Management Agreements
Under established management agreements, various services necessary for the
operation of the Account are provided, at cost, by TIAA and Services. TIAA
provides investment management services for the Account while distribution and
administrative services are provided by Services in accordance with a
Distribution and Administrative Services Agreement between the Account and
Services. Prior to April 30, 1999, an affiliate of the former minority partner
in Light Street provided certain management services for the properties owned
by Light Street. The charges for such services, for the year ended December 31,
1999 amounted to $345,928 ($855,810 in 1998 and 507,829 in 1997) for investment
advisory expenses and $104,673 ($102,953 in 1998 and $0 in 1997) for
administrative expenses which are recorded accordingly in the accompanying
consolidated statements of operations. TIAA also provides a liquidity guarantee
to the Account, for a fee, to ensure that sufficient funds are available to
meet participant transfer and cash withdrawal requests in the event that the
Account's cash flows and liquid investments are insufficient to fund such
requests. TIAA also receives a fee for assuming certain mortality and expense
risks.
Fee payments are made from the Account on a daily basis to TIAA and Services
according to formulas established each year with the objective of keeping the
fees as close as possible to the Account's actual expenses. Any differences
between actual expenses and daily charges are adjusted quarterly.
Note 4--Real Estate Properties
Had the Account's real estate properties which were purchased during the year
ended December 31, 1999 been acquired at the beginning of the period (January
1, 1999), rental income and real estate property level expenses and taxes for
the year ended December 31, 1999 would have increased by approximately
$30,886,000 and $11,806,000 respectively. In addition, interest income for the
year ended December 31, 1999 would have decreased by approximately $15,431,000.
Accordingly, the total proforma effect on the Account's net investment income
for the year ended December 31, 1999 would have been an increase of
approximately $3,649,000, if the real estate properties acquired during the
year ended December 31, 1999 had been acquired at the beginning of the period.
F-11
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 5--Leases
The Account's real estate properties are leased to tenants under operating
lease agreements which expire on various dates through 2021. Aggregate minimum
annual rentals for the properties owned, excluding short-term residential
leases, are as follows:
<TABLE>
Years Ending
December 31,
------------
<S> <C>
2000 $ 91,384,000
2001 81,019,000
2002 70,055,000
2003 59,368,000
2004 50,531,000
Thereafter 139,129,000
------------
Total $491,486,000
============
</TABLE>
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
F-12
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 6--Condensed Consolidated Financial Information
Selected condensed consolidated financial information for an Accumulation Unit
of the Account is presented below.
<TABLE>
<CAPTION>
July 3, 1995
For the Years Ended (Commencement
December 31, of Operations) to
---------------------------------------------------- December 31,
1999 1998 1997 1996 1995 (1)
--------- --------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C>
Per Accumulation Unit Data:
Rental income ...................... $ 12.168 $ 10.425 $ 7.288 $ 6.012 $ 0.159
Real estate property level
expenses and taxes ............... 3.975 3.403 2.218 1.850 0.042
--------- --------- --------- --------- ---------
Real estate income, net 8.193 7.022 5.070 4.162 0.117
Dividends and interest ............. 2.292 3.082 2.709 3.309 2.716
--------- --------- --------- --------- ---------
Total income 10.485 10.104 7.779 7.471 2.833
Expense charges (2) ................ 0.853 0.808 0.580 0.635 0.298
--------- --------- --------- --------- ---------
Investment income, net 9.632 9.296 7.199 6.836 2.535
Net realized and unrealized
gain on investments .............. 1.164 .579 3.987 1.709 0.031
--------- --------- --------- --------- ---------
Net increase in
Accumulation Unit Value .......... 10.796 9.875 11.186 8.545 2.566
Accumulation Unit Value:
Beginning of period ............... 132.172 122.297 111.111 102.566 100.000
--------- --------- --------- --------- ---------
End of period ..................... $ 142.968 $ 132.172 $ 122.297 $ 111.111 $ 102.566
========= ========= ========= ========= =========
Total return ....................... 8.17% 8.07% 10.07% 8.33% 2.57%
Ratios to Average Net Assets:
Expenses (2) ...................... 0.63% 0.64% 0.58% 0.61% 0.30%
Investment income, net ............ 7.13% 7.34% 7.25% 6.57% 2.51%
Portfolio turnover rate:
Real estate properties ............ 4.46% 0% 0% 0% 0%
Securities ........................ 27.68% 24.54% 7.67% 15.04% 0%
Thousands of Accumulation Units
outstanding at end of period ..... 11,487 8,834 6,313 3,296 1,172
</TABLE>
(1) The percentages shown for this period are not annualized.
(2) Expense charges per Accumulation Unit and the Ratio of Expenses to Average
Net Assets include the portion of expenses related to the 10% minority
interest in Light Street and exclude real estate property level expenses
and taxes. If the real estate property level expenses and taxes were
included, the expense charge per Accumulation Unit for the year ended
December 31, 1999 would be $4.828 ($4.211, $2.798 and $2.485 for the years
ended December 31, 1998, 1997 and 1996 respectively, and $0.340 for the
period July 3, 1995 through December 31, 1995) and the Ratio of Expenses
to Average Net Assets for the year ended December 31, 1999 would be 3.58%
(3.32%, 2.82% and 2.39% for the years ended December 31, 1998, 1997 and
1996 respectively, and 0.34% for the period July 3, 1995 through December
31, 1995).
F-13
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Note 7--Accumulation Units
Changes in the number of Accumulation Units outstanding were as follows:
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------------------
1999 1998 1997
---------- --------- ---------
<S> <C> <C> <C>
Accumulation Units:
Credited for premiums ........................ 918,728 511,462 448,822
Credited for transfers, net disbursements and
amounts applied to the Annuity Fund ......... 1,734,721 2,009,434 2,568,407
Outstanding:
Beginning of year ........................... 8,833,911 6,313,015 3,295,786
---------- --------- ---------
End of year .................................. 11,487,360 8,833,911 6,313,015
========== ========= =========
</TABLE>
F-14
<PAGE>
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
December 31, 1999
REAL ESTATE PROPERTIES--77.81%
<TABLE>
<CAPTION>
Location/Description Value
- -------------------- -----
<S> <C>
Arizona:
Biltmore Commerce Center -- Office building .................. $38,500,000
Southbank Building -- Office building ........................ 13,000,000
California:
88 Kearny Street -- Office building .......................... 72,400,000
Eastgate Distribution Center -- Industrial building .......... 13,300,000
IDI California Portfolio -- Industrial building .............. 36,500,000
Larkspur Courts -- Apartments ................................ 55,300,000
Ontario Industrial Properties -- Industrial building ......... 24,650,000
Westcreek -- Apartments ...................................... 15,511,245
Colorado:
Arapahoe Park East -- Industrial building .................... 11,850,000
The Lodge at Willow Creek -- Apartments ...................... 30,000,000
Monte Vista -- Apartments .................................... 20,500,000
Florida:
Corporate Center at Sawgrass -- Office building .............. 14,200,000
Golfview -- Apartments ....................................... 27,510,000
The Greens at Metrowest -- Apartments ........................ 14,100,000
Plantation Grove -- Shopping center .......................... 7,350,000
Royal St. George -- Apartments ............................... 16,500,000
Sawgrass Portfolio -- Office building ........................ 25,000,000
Westinghouse Facility -- Industrial building ................. 6,200,000
Illinois:
Columbia Center III -- Office building ....................... 42,100,000
Glenpointe Business Park -- Industrial building .............. 16,100,000
Parkview Plaza -- Office building ............................ 52,436,321
Rockrun Business Park -- Industrial building ................. 9,350,000
Rolling Meadows -- Shopping center ........................... 12,110,000
Woodcreek Business Park -- Industrial building ............... 6,976,343
Iowa:
Interstate Acres -- Industrial building ...................... 14,100,000
Kentucky:
IDI Kentucky Portfolio -- Industrial building ................ 25,400,000
Maryland:
FedEx Distribution Facility -- Industrial building ........... 7,800,000
Longview Executive Park -- Office building ................... 28,400,000
Saks Distribution Center -- Industrial building .............. 30,325,000
Massachusetts:
Two Newton Center -- Office building ......................... 20,300,000
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
Location/Description Value
- -------------------- -----
<S> <C>
Michigan:
Indian Creek -- Apartments ....................................... $ 17,108,785
Minnesota:
Interstate Crossing -- Industrial building ....................... 6,400,000
River Road Distribution Center -- Industrial building ............ 4,300,000
Nevada:
UPS Distribution Facility -- Industrial building ................. 11,000,000
New Jersey:
371 Hoes Lane -- Office building ................................. 16,800,000
10 Waterview Boulevard -- Office building ........................ 31,200,000
Konica Photo Imaging Headquarters -- Industrial building ......... 17,051,474
New York:
780 Third Avenue -- Office building .............................. 162,500,000
The Colorado -- Apartments ....................................... 56,547,289
North Carolina:
Lynnwood Collection -- Shopping center ........................... 7,700,000
Millbrook Collection -- Shopping center .......................... 7,100,000
Ohio:
Bent Tree -- Apartments .......................................... 14,500,000
Columbus Portfolio -- Office building ............................ 33,701,672
Northmark Business Center -- Office building ..................... 13,000,000
Oregon:
Five Centerpointe -- Office building ............................. 18,000,948
Pennsylvania:
Lincoln Woods -- Apartments ...................................... 22,952,310
Texas:
Butterfield Industrial Park -- Industrial building ............... 4,850,000(1)
The Crest at Shadow Mountain -- Apartments ....................... 9,700,000
The Legends at Chase Oaks -- Apartments .......................... 27,800,000
Utah:
USF&G Building -- Office building ................................ 8,722,167
Virginia:
Fairgate at Ballston -- Office building .......................... 30,800,000
Monument Place -- Office building ................................ 36,100,000
River Oaks -- Shopping center .................................... 12,100,000
Washington:
The Bay Court at Harbour Pointe -- Apartments .................... 34,800,000
-------------
TOTAL REAL ESTATE PROPERTIES (Cost $1,253,650,281)................. 1,312,503,554
-------------
</TABLE>
(1) Leasehold interest only.
F-16
<PAGE>
MARKETABLE SECURITIES--22.19%
REAL ESTATE INVESTMENT TRUSTS--4.70%
<TABLE>
<S> <C> <C>
Shares Issuer Value
89,900 AMB Property Corporation Series A ...................... $1,781,144
19,200 Avalon Bay Communities, Inc. Pfd Series F .............. 386,400
46,800 Boston Properties, Inc ................................. 1,456,650
102,400 Bradley Real Estate, Inc. .............................. 1,785,600
130,400 Brandywine Realty Trust ................................ 2,135,300
200,000 Carramerica Realty Corporation, Pfd Series B. .......... 3,225,000
58,000 Centerpoint Properties Corp. ........................... 2,080,750
42,500 Colonial Properties Trust .............................. 985,469
158,400 Cornerstone Properties, Inc ............................ 2,316,600
113,100 Corporate Office Properties Trust, Inc ................. 862,387
90,000 Developers Diversified Realty Corp. .................... 1,541,250
221,300 Duke-Weeks Realty Corp. ................................ 4,315,350
214,100 Equity Office Properties Trust. ........................ 5,272,212
200,000 Equity Office Properties Trust Pfd Series A. ........... 4,200,000
121,700 Equity Residential Properties Trust. ................... 5,195,069
100,000 Equity Residential, Pfd Series G. ...................... 1,975,000
100,000 Equity Residential Properties, Pfd Series L. ........... 1,887,500
25,000 Federal Realty Investment Trust Pfd. ................... 432,812
100,000 First Industrial Realty Trust, Inc. Pfd ................ 1,912,500
98,300 Gables Residential Trust, Pfd Series A. ................ 1,800,119
74,900 Hospitality Properties Trust ........................... 1,427,781
149,800 Macerich Company ....................................... 3,117,713
25,159 New Plan Excel Realty Trust ............................ 397,827
25,000 Prologis Trust ......................................... 481,250
19,900 Prologis Trust-Pfd Series A ............................ 398,000
127,700 Public Storage, Inc. ................................... 2,897,193
93,600 Rouse Company .......................................... 1,989,000
280,900 Simon Property Group, Inc. ............................. 6,443,144
84,750 Spieker Properties, Inc ................................ 3,088,078
174,455 Starwood Financial Trust ............................... 2,954,832
26,000 Starwood Financial, Inc Series C Pfd ................... 373,750
140,000 Starwood Hotels & Resorts Worldwide .................... 3,290,000
35,500 Storage USA, Inc ....................................... 1,073,875
100,400 Taubman Centers, Inc ................................... 1,079,300
35,000 Taubman Centers, Inc Pfd Series A ...................... 529,375
62,800 United Dominion Realty Trust, Inc ...................... 1,122,550
112,100 Urban Shopping Centers, Inc. ........................... 3,040,712
----------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $100,498,293).............. 79,251,492
----------
</TABLE>
CORPORATE BONDS--0.59%
<TABLE>
Principal Issuer, Coupon and Maturity Date
--------- --------------------------------
<S> <C> <C>
$ 5,000,000 Avco Financial Services, Inc.
5.75% 01/23/01 ................................... 4,936,150
5,000,000 Ford Motor Credit Co.
5.75% 01/25/01 ................................... 4,944,350
---------
TOTAL CORPORATE BONDS (Cost $10,034,650) 9,880,500
=========
</TABLE>
F-17
<PAGE>
<TABLE>
Principal Issuer, Coupon and Maturity Date Value
--------- -------------------------------- -----
<S> <C> <C>
GOVERNMENT AGENCIES--0.63%
10,640,000 Federal Home Loan Mortgage Corporation ..........
5.59% 01/11/00 ................................. $ 10,623,907
--------------
TOTAL GOVERNMENT AGENCIES (Amortized cost $10,623,478)........ 10,623,907
--------------
COMMERCIAL PAPER--16.27%
15,000,000 Asset Securitization Cooperative Corp
5.90% 01/31/00 ................................. 14,927,667
10,000,000 Corporate Asset Funding Corp, Inc.
5.92% 02/01/00 ................................. 9,950,222
14,000,000 Deutsche Bank
5.80% 03/31/00 ................................. 13,991,218
17,725,000 Dupont (E.I.) De Nemours & Co.
5.76% 01/26/00 ................................. 17,653,056
7,140,000 Equilon Enterprises LLC
6.25% 01/11/00 ................................. 7,127,848
13,850,000 Equilon Enterprises LLC
6.55% 01/13/00 ................................. 13,822,142
3,375,000 Equilon Enterprises LLC
5.87% 02/03/00 ................................. 3,357,150
6,175,000 General Electric Capital Corp.
6.02% 01/24/00 ................................. 6,151,864
20,000,000 Goldman Sachs Group, LP
6.07% 02/07/00 ................................. 19,881,778
13,100,000 J.P. Morgan & Co.
6.15% 01/10/00 ................................. 13,079,732
12,675,000 Lucent Technologies Inc.
5.72% 02/15/00 ................................. 12,583,980
12,150,000 McGraw Hill, Inc.
5.25% 01/28/00 ................................. 12,096,891
15,275,000 Merck, Inc.
5.72% 02/03/00 ................................. 15,194,212
10,000,000 Morgan Stanley Dean Witter
6.00% 01/07/00 ................................. 9,992,514
15,000,000 National Fuel Gas Co.
6.20% 02/23/00 ................................. 14,870,625
1,350,000 National Fuel Gas Co.
5.87% 03/01/00 ................................. 1,336,584
20,000,000 National Rural Utilities Coop Finance
5.78% 02/14/00 ................................. 19,860,000
15,000,000 National Rural Utilities Coop Finance
5.92% 03/07/00 ................................. 14,841,991
10,000,000 Park Avenue Receivables Corp.
6.06% 01/27/00 ................................. 9,957,850
17,006,000 Pfizer, Inc.
5.76% 02/29/00 ................................. 16,846,710
14,000,000 Receivables Capital Corp.
6.40% 01/14/00 ................................. 13,969,675
13,070,000 Salomon Smith Barney Holdings, Inc.
6.00% 01/20/00 ................................. 13,029,193
--------------
TOTAL COMMERCIAL PAPER (Amortized cost $274,505,782).......... 274,522,902
--------------
TOTAL MARKETABLE SECURITIES (Cost $395,662,203)............... 374,278,801
--------------
TOTAL INVESTMENTS--100.00% (Cost $1,649,312,484).............. $1,686,782,355
==============
</TABLE>
See notes to consolidated financial statements.
F-18
<PAGE>
TIAA REAL ESTATE ACCOUNT
PROFORMA CONDENSED
STATEMENT OF ASSETS AND LIABILITIES (Unaudited)
December 31, 1999
<TABLE>
<CAPTION>
Proforma
Historical Adjustments Proforma
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Investments, at value:
Real estate properties ................... $1,312,503,554 $ 19,431,200 (a) $1,331,934,754
Marketable securities .................... 374,278,801 (19,431,200)(a) 354,847,601
Cash ...................................... 617,599 -- 617,599
Other ..................................... 32,057,761 -- 32,057,761
-------------- -------------- --------------
TOTAL ASSETS 1,719,457,715 -- 1,719,457,715
-------------- -------------- --------------
LIABILITIES
Accrued real estate property level expenses
and taxes ............................... 18,425,328 -- 18,425,328
Security deposits held .................... 5,549,959 -- 5,549,959
-------------- -------------- --------------
TOTAL LIABILITIES 23,975,287 -- 23,975,287
-------------- -------------- --------------
NET ASSETS
Accumulation Fund ......................... 1,642,327,173 -- 1,642,327,173
Annuity Fund .............................. 53,155,255 -- 53,155,255
-------------- -------------- --------------
TOTAL NET ASSETS $1,695,482,428 -- $1,695,482,428
============== ============== ==============
</TABLE>
See notes to proforma condensed financial statements.
F-19
<PAGE>
TIAA REAL ESTATE ACCOUNT
PROFORMA CONDENSED
STATEMENT OF OPERATIONS (Unaudited)
For the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Proforma
Historical Adjustments Proforma
---------- ----------- --------
<S> <C> <C> <C>
INVESTMENT INCOME
Income:
Real estate income, net:
Rental income ................................ $132,316,878 $ 32,626,389(b) $164,943,267
------------ -------------- ------------
Real estate property level expenses and taxes:
Operating expenses .......................... 27,334,060 7,893,196(b) 35,227,256
Real estate taxes ........................... 15,892,736 4,692,572(b) 20,585,308
------------ -------------- ------------
Total real estate property level expenses and
taxes ...................................... 43,226,796 12,585,768 55,812,564
------------ -------------- ------------
Real estate income, net ....................... 89,090,082 20,040,621 109,130,703
Interest and dividends ........................ 24,932,733 (16,759,357)(c) 8,173,376
------------ -------------- ------------
TOTAL INCOME ................................... 114,022,815 3,281,264 117,304,079
EXPENSES ....................................... 9,278,410 551,000(d) 9,829,410
------------ -------------- ------------
INVESTMENT INCOME--NET ......................... 104,744,405 2,730,264 107,474,669
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS .......................... 9,834,743 -- 9,834,743
------------ -------------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS
BEFORE MINORITY INTEREST ..................... 114,579,148 2,730,264 117,309,412
MINORITY INTEREST .............................. 1,364,619 -- 1,364,619
------------ -------------- ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS .................... $115,943,767 $ 2,730,264 $118,674,031
============ ============== ============
</TABLE>
See notes to proforma condensed financial statements.
F-20
<PAGE>
TIAA REAL ESTATE ACCOUNT
NOTES TO PROFORMA CONDENSED FINANCIAL STATEMENTS (Unaudited)
Note 1--Purpose and Assumptions
As required by the Securities and Exchange Commission under Regulation S-X
Article 11-01(5), these proforma condensed financial statements of the TIAA
Real Estate Account ("Account") have been prepared because the Account has made
significant purchases of real estate properties during the period January 1,
1999 through the date of this prospectus. Various assumptions have been made in
order to prepare these proforma condensed financial statements. The proforma
condensed statement of assets and liabilities has been prepared assuming real
estate properties purchased during the period January 1, 2000 through the date
of this prospectus were purchased as of December 31, 1999. The proforma
condensed statement of operations has been prepared assuming all real estate
properties purchased during the period January 1, 1999 through the date of this
prospectus were purchased as of January 1, 1999.
Note 2--Proforma Adjustments
The following proforma adjustments were made in preparing the proforma
condensed financial statements to reflect the purpose described in Note 1.
Proforma Condensed Statement of Assets and Liabilities:
(a) To record the cost of the properties purchased during the period January 1,
2000 through the date of this prospectus, assuming such properties were
purchased as of December 31, 1999.
Proforma Condensed Statement of Operations:
(b) To record the rental income and real estate property level expenses of the
real estate properties purchased during the period January 1, 1999 through
the date of this prospectus, assuming such properties were owned for the
period January 1, 1999 through December 31, 1999.
(c) To record the decrease in interest and dividend income from having less
cash to invest in marketable securities, assuming the real estate
properties purchased during the period January 1, 1999 through the date of
this prospectus had been purchased as of January 1, 1999.
(d) To record additional investment advisory charges which would have been
incurred during 1999, assuming the real estate properties purchased during
the period January 1, 1999 through the date of this prospectus had been
purchased as of January 1, 1999.
F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of TIAA
We have audited the statement of revenues and certain expenses of the property
("The Colorado") as described in Note 2 for the year ended December 31, 1997.
The financial statement is the responsibility of the The Colorado's management.
Our responsibility is to express an opinion on the financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-1 of the TIAA Real Estate Account
and is not intended to be a complete presentation of the The Colorado's
revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of The Colorado, as
described in Note 2, for the year ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
March 26, 1999
F-22
<PAGE>
The Colorado
Statement of Revenues and Certain Expenses
Year ended December 31, 1997
<TABLE>
<S> <C>
Revenues:
Rental income ................................. $5,732,550
Other income .................................. 155,611
Interest income ............................... 32,440
----------
Total revenues ................................. 5,920,601
----------
Certain expenses:
Property operating and maintenance ............ 979,498
Real estate taxes ............................. 1,342,944
Management fees ............................... 85,004
General and administrative .................... 87,578
----------
Total expenses ................................. 2,495,024
----------
Revenues in excess of certain expenses ......... $3,425,577
==========
</TABLE>
See accompanying notes.
F-23
<PAGE>
The Colorado
Notes to Statement of Revenues and Certain Expenses
December 31, 1997
1. Business
The accompanying statement of revenues and certain expenses relates to the
operations of The Colorado (the "Property"). The Property was acquired in
December 1998 by the TIAA Real Estate Account.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenues and certain expenses was prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission. Accordingly, the financial statement excludes certain
expenses that may not be comparable to those expected to be incurred by the
TIAA Real Estate Account in the future operations of the aforementioned
property. Expenses excluded consist of interest, depreciation and amortization.
Use of Estimates
The preparation of the statement of revenues and certain expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the statement of
revenues and certain expenses and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
The Property is leased to tenants under operating leases. Rental revenue
attributable to leases is recognized on a straight line basis over the term of
the respective lease, which are generally one year.
3. Management Agreement
Management services for the Property are provided by Charles H. Greenthal and
Company, Inc.
F-24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of TIAA
We have audited the statement of revenues and certain expenses of the property
("Larkspur Courts Apartments") as described in Note 2 for the year ended
December 31, 1998. The financial statement is the responsibility of Larkspur
Courts Apartments' management. Our responsibility is to express an opinion on
the financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-1 of the TIAA Real Estate Account
and is not intended to be a complete presentation of the Larkspur Courts
Apartments' revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of Larkspur Courts
Apartments, as described in Note 2, for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
August 11, 1999
F-25
<PAGE>
Larkspur Courts Apartments
Statement of Revenues and Certain Expenses
Year ended December 31, 1998
<TABLE>
<S> <C>
Revenues:
Rental income ................................. $4,941,728
Other income .................................. 103,020
----------
Total revenues ................................. 5,044,748
----------
Certain expenses:
Property operating and maintenance ............ 852,561
Real estate taxes ............................. 616,613
Management fees ............................... 171,434
----------
1,640,608
----------
Revenues in excess of certain expenses ......... $3,404,140
==========
</TABLE>
See accompanying notes.
F-26
<PAGE>
Larkspur Courts Apartments
Statement of Revenues and Certain Expenses
Year ended December 31, 1998
1. Business
The accompanying statement of revenues and certain expenses relates to the
operations of Larkspur Courts Apartments (the "Property") located in Larkspur,
Mann County, California. The Property was acquired in August 1999 by the TIAA
Real Estate Account.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenues and certain expenses was prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission. Accordingly, the financial statement excludes certain
expenses that may not be comparable to those expected to be incurred by the
TIAA Real Estate Account in the future operations of the aforementioned
property. Expenses excluded consist of interest, depreciation and amortization.
Use of Estimates
The preparation of the statement of revenues and certain expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the statement of
revenues and certain expenses and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
The property is leased to tenants under operating leases. Rental revenue
attributable to leases is recognized on a straight line basis over the term of
the respective lease, which are generally one year.
3. Management Agreement
Management services for the Property are provided by Legacy Partners. Fees paid
for such services are generally based on 2.0% of monthly rent, plus 1% of
Controllable Profit, plus 18% of the improvement of Controllable Profit over
the profit year as defined in the Management Agreement.
F-27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of TIAA
We have audited the statement of revenues and certain expenses of the property
("88 Kearny Street") as described in Note 2 for the year ended December 31,
1998. The financial statement is the responsibility of 88 Kearny Street's
management. Our responsibility is to express an opinion on the financial
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission for inclusion in Form S-1 of the TIAA Real Estate Account
and is not intended to be a complete presentation of the 88 Kearny Street's
revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of 88 Kearny Street,
as described in Note 2, for the year ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
New York, New York
July 21, 1999
F-28
<PAGE>
88 Kearny Street
Statement of Revenues and Certain Expenses
Year Ended December 31, 1998
<TABLE>
<S> <C>
Revenues:
Rental income ................................. $7,871,914
Other income .................................. 65,421
----------
Total revenues ................................. 7,937,335
----------
Certain expenses:
Property operating and maintenance ............ 1,696,019
Real estate taxes ............................. 502,244
Management fees ............................... 432,676
----------
2,630,939
----------
Revenues in excess of certain expenses ......... $5,306,396
==========
</TABLE>
See accompanying notes.
F-29
<PAGE>
88 Kearny Street
Notes to the Statement of Revenues and Certain Expenses
December 31, 1998
1. Business
The accompanying statement of revenues and certain expenses relates to the
operations of 88 Kearny Street (the "Property") located in San Francisco,
California. The Property was acquired in July 1999 by the TIAA Real Estate
Account.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying statement of revenues and certain expenses was prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission. Accordingly, the financial statement excludes certain
expenses that may not be comparable to those expected to be incurred by the
TIAA Real Estate Account in the future operations of the aforementioned
property. Expenses excluded consist of interest, partnership expense,
depreciation and amortization.
Use of Estimates
The preparation of the statement of revenues and certain expenses in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the statement of
revenues and certain expenses and accompanying notes. Actual results could
differ from those estimates.
Revenue Recognition
The property is leased to tenants under operating leases. Rental revenue
attributable to leases is recognized on a straight line basis over the term of
the respective lease.
3. Management Agreement
Management services for the Property are provided by Jay Mont Properties. Fees
paid for such services are generally based on 2.5% of monthly rent as defined
in the Management Agreement.
F-30
<PAGE>
[Friedman Alpren & Green LOGO]
CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS 1700 BROADWAY
NEW YORK, NY 10019
212-582-1600
FAX 212-265-4761
www.nyccpas.com
INDEPENDENT AUDITORS' REPORT
To the Management of Teachers Insurance
and Annuity Association
We have audited the accompanying statement of revenues and certain expenses of
the property located at 780 Third Avenue, New York, New York, described in Note
1 (the "Property"), for the year ended December 31, 1998. This financial
statement is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and, as described in Note 1, is not intended to be a
complete presentation of the Property's revenues and expenses.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of the Property for
the year ended December 31, 1998, in conformity with generally accepted
accounting principles.
/s/ Friedman Alpren & Green LLP
June 17, 1999
F-31
<PAGE>
780 THIRD AVENUE
NEW YORK, NEW YORK
STATEMENT OF REVENUES AND CERTAIN EXPENSES
(In Thousands)
<TABLE>
<CAPTION>
Three Months
Ended
March 31, Year Ended
1999 December 31,
(Unaudited) 1998
------------ ------------
<S> <C> <C>
Revenues
Base rents ...................................... $4,561 $17,517
Escalation charges .............................. 244 1,161
Conference center income ........................ 68 295
Storage and tenant services ..................... 24 113
Miscellaneous ................................... -- 6
------ -------
4,897 19,092
------ -------
Certain expenses
Operating ....................................... 707 2,691
Administrative .................................. 222 784
Real estate taxes ............................... 1,000 3,861
Bad debts ....................................... -- 107
------ -------
1,929 7,443
------ -------
Excess of revenues over certain expenses ......... $2,968 $11,649
====== =======
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-32
<PAGE>
780 THIRD AVENUE
NEW YORK, NEW YORK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1--ORGANIZATION AND BASIS OF PRESENTATION
The Property is a 50-story office building located at 780 Third Avenue in New
York City and is owned by 780 Third Avenue Associates (a general partnership).
It has an aggregate net rentable area of approximately 487,000 square feet
(approximately 92% of which is leased at March 31, 1999). The Property's
accounting records are maintained in accordance with generally accepted
accounting principles.
The accompanying financial statement is presented in conformity with Rule 3-14
of the Securities and Exchange Commission. Accordingly, the financial statement
is not representative of the actual operations for the periods presented, as
certain expenses, which may not be comparable to the expenses expected to be
incurred in the future operations of the acquired property, have been excluded.
Expenses excluded consist of interest, depreciation and amortization, leasing
expenses and certain professional fees not directly related to the future
operations of the Property.
The preparation of the financial statement in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
The statement of revenues and certain expenses for the three months ended March
31, 1999 is unaudited. However, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for the fair
presentation of this statement of revenues and certain expenses for the interim
period on the basis described above have been included. The results for such
interim period are not necessarily indicative of the results for an entire
year.
2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICY
Revenue Recognition
Rental income is recognized from leases with scheduled rent increases on a
straight-line basis over the lease term. Escalation rents based on payments for
real estate taxes and operating expenses are estimated and accrued.
F-33
<PAGE>
780 THIRD AVENUE
NEW YORK, NEW YORK
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES (Continued)
3--OPERATING LEASES
Office and retail space in the Property is rented to tenants under various
operating leases. Approximate minimum future rentals required under these
leases at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
- ------------
<S> <C>
1999 ................... $15,511,000
2000 ................... 12,976,000
2001 ................... 11,154,000
2002 ................... 9,179,000
2003 ................... 7,071,000
Thereafter ............. 15,876,000
-----------
$71,767,000
===========
</TABLE>
F-34
<PAGE>
Teachers Insurance and Annuity Association of America
Condensed Unaudited Financial Statements
(These condensed unaudited financial statements have been derived from
audited financial statements which are available upon request)
TIAA Condensed Balance Sheets
<TABLE>
<CAPTION>
(in thousands)
December 31,
-----------------------------
1999 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Bonds ...................................................... $ 75,394,268 $ 69,067,549
Mortgages .................................................. 21,412,239 20,248,446
Real Estate ................................................ 5,192,229 6,099,403
Stocks ..................................................... 1,247,242 1,257,044
Other long-term investments ................................ 2,116,490 1,513,274
Cash and short-term investments ............................ 410,053 511,966
Investment income due and accrued .......................... 1,233,604 1,181,140
Separate account assets .................................... 2,751,054 1,965,047
Other assets ............................................... 740,252 372,369
------------ ------------
TOTAL ASSETS $110,497,431 $102,216,238
------------ ------------
LIABILITIES, CAPITAL AND CONTINGENCY RESERVES
Policy and contract reserves ............................... $ 93,869,708 $ 87,772,711
Dividends declared for the following year .................. 2,039,605 1,923,463
Asset Valuation Reserve .................................... 2,637,779 2,454,123
Interest Maintenance Reserve ............................... 1,110,349 936,641
Separate account liabilities ............................... 2,751,054 1,965,047
Other liabilities .......................................... 1,063,508 841,044
------------ ------------
TOTAL LIABILITIES 103,472,003 95,893,029
------------ ------------
Capital and paid-in surplus ................................ 3,050 2,500
------------ ------------
Contingency reserves:
For group life insurance .................................. 12,218 11,013
For investment losses, annuity and insurance mortality, and
other risks ............................................. 7,010,160 6,309,696
------------ ------------
TOTAL CONTINGENCY RESERVES 7,022,378 6,320,709
------------ ------------
TOTAL CAPITAL AND CONTINGENCY RESERVES 7,025,428 6,323,209
------------ ------------
TOTAL LIABILITIES, CAPITAL AND CONTINGENCY RESERVES $110,497,431 $102,216,238
============ ============
</TABLE>
F-35
<PAGE>
Teachers Insurance and Annuity Association of America
TIAA Condensed Unaudited Statements of Operations and
Changes in Capital and Contingency Reserves
<TABLE>
<CAPTION>
(in thousands)
For the Years Ended December 31,
--------------------------------
1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME
Insurance and annuity premiums and deposits .................... $ 3,087,045 $ 2,957,870
Transfers from CREF, net ....................................... 752,512 1,274,152
Annuity dividend additions ..................................... 2,553,655 2,427,685
Net investment income .......................................... 7,923,564 7,446,656
Supplementary contract consideration ........................... 325,704 297,074
----------- -----------
TOTAL INCOME $14,642,480 $14,403,437
=========== ===========
DISTRIBUTION OF INCOME
Policy and contract benefits ................................... $ 2,653,962 $ 2,413,220
Dividends ...................................................... 4,026,907 3,844,313
Increase in policy and contract reserves ....................... 6,100,240 6,636,704
Operating expenses ............................................. 335,039 327,085
Transfers to Separate Accounts, net ............................ 490,880 487,976
Federal income taxes ........................................... (25,213) (11,854)
Other, net ..................................................... (11,437) (4,639)
Increase in contingency reserves from operations ............... 1,072,102 710,632
----------- -----------
TOTAL DISTRIBUTION OF INCOME $14,642,480 $14,403,437
=========== ===========
CHANGES IN CAPITAL AND CONTINGENCY RESERVES:
From operations ................................................ $ 1,072,102 $ 710,632
Net realized capital gain on investments ....................... 282,079 394,727
Net unrealized capital gain (loss) on investments .............. (112,613) (171,049)
Transfer to the Interest Maintenance Reserve ................... (330,107) (264,997)
Transfers to the Asset Valuation Reserve ....................... (183,656) (115,481)
Increase in non-admitted assets other than investments ......... (25,586) (17,829)
Change in valuation basis of policy reserves ................... -- 8,671
Stock dividend ................................................. (550) --
Contribution to paid-in surplus ................................ 550 --
Other, net ..................................................... -- 1,960
----------- -----------
NET CHANGE IN CAPITAL AND CONTINGENCY RESERVES 702,219 546,634
CAPITAL AND CONTINGENCY RESERVES AT BEGINNING OF YEAR 6,323,209 5,776,575
----------- -----------
CAPITAL AND CONTINGENCY RESERVES AT END OF YEAR $ 7,025,428 $ 6,323,209
=========== ===========
</TABLE>
F-36
<PAGE>
Teachers Insurance and Annuity Association of America
Supplemental Information to
Condensed Unaudited Financial Statements
Valuation of Investments: Bonds and short-term investments (debt securities
with maturities of one year or less at the time of acquisition) not in default
are generally stated at amortized cost; medium to highest quality preferred
stocks at cost; common stocks at market value; and all other bond, short-term
and preferred stock investments at the lower of amortized cost or market value.
For loan-backed bonds and structured securities, amortized cost is determined
using actual and anticipated cash flows under the prospective method for
interest-only securities and under the retrospective method for all other
securities. Anticipated prepayments are based on life-to-date payment speeds,
using historical cash flows and internal estimates. Mortgages are stated at
amortized cost, and directly-owned real estate at depreciated cost (net of
encumbrances). Investments in wholly-owned subsidiaries, real estate limited
partnerships and securities limited partnerships are stated at TIAA's equity in
the net admitted assets of the underlying entities. Policy loans are stated at
outstanding principal amounts. Separate account assets are generally stated at
market value. Seed money investments in the TIAA-CREF Mutual Funds, TIAA-CREF
Institutional Funds, and in new accounts established by College Retirement
Equities Fund ("CREF"), a companion organization, are stated at market value.
All investments are stated net of any permanent impairments, which are
determined on an individual asset basis. Depreciation is generally computed
over a 40 year period on the constant yield method for properties acquired
prior to 1991, and on the straight-line method for properties acquired
thereafter. For properties acquired after 1997, depreciation is generally
computed over a 39 year period.
Additional Information:
<TABLE>
<CAPTION>
1999 1998
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
As a percentage of total bond investments:
Below investment grade bonds ........................... 6% 6%
As a percentage of total mortgage investments:
Total mortgage investments in California ............... 18% 17%
Total mortgage investments in office buildings ......... 39% 39%
Total mortgage investments in shopping centers ......... 29% 32%
As a percentage of total real estate investments:
Two states with highest real estate investment ......... California 14% California 12%
Florida 12% Florida 11%
TOTAL REAL ESTATE INVESTMENTS IN OFFICE BUILDINGS 65% 64%
- ----------------------------------------------------------------------------------------------
</TABLE>
Derivative Positions: TIAA makes limited use of derivatives to reduce interest
rate risks and foreign currency risks associated with certain investments. TIAA
is exposed to the risk of default of the counterparties, although TIAA does not
anticipate non-performance by such counterparties. In order to minimize the
risk associated with potential counterparty default, TIAA monitors the credit
quality of its counterparties. At December 31, 1999 and 1998, TIAA had
outstanding foreign currency swap contracts with a total notional value of
approximately $891,159,000 and $654,242,000, respectively, foreign currency
forward contracts with a total notional value of approximately $230,259,000 and
$179,820,000, respectively, interest rate swap contracts with a total notional
value of approximately $388,411,000 and $451,366,000, respectively, and
interest rate cap contracts with a total notional value of approximately
$137,550,000 and $110,270,000, respectively. At December 31, 1999, TIAA had
swap options outstanding with a total notional value of $54,000,000. At
December 31, 1998, TIAA had no swap options outstanding.
F-37
<PAGE>
Appendix A--Management of TIAA
The Trustees and principal executive officers of TIAA, and their principal
occupations during the last five years, are as follows:
Trustees
David Alexander, 67.
President Emeritus, Pomona College. Formerly, Trustees' Professor, Pomona
College and American Secretary, Rhodes Scholarship Trust.
Marcus Alexis, 68.
Board of Trustees Professor of Economics and Professor of Management and
Strategy, J.L. Kellogg Graduate School of Management, Northwestern University.
Willard T. Carleton, 65.
Donald R. Diamond Professor of Finance, College of Business and Public
Administration, University of Arizona.
Robert C. Clark, 56.
Dean and Royall Professor of Law, Harvard Law School, Harvard University.
Estelle A. Fishbein, 65.
Vice President and General Counsel, The Johns Hopkins University.
Frederick R. Ford, 63.
Executive Vice President and Treasurer Emeritus, Purdue University. Formerly,
Executive Vice President and Treasurer, Purdue University.
Martin J. Gruber, 62.
Nomura Professor of Finance, New York University Stern School of Business.
Formerly, Chairman, Department of Finance, New York University Stern School of
Business.
Ruth Simms Hamilton, 62.
Professor, Department of Sociology, and Director, African Diaspora Research
Project, Michigan State University.
Robert M. O'Neil, 65.
Professor of Law, University of Virginia and Director, The Thomas Jefferson
Center for the Protection of Free Expression.
Leonard S. Simon, 63.
Vice Chairman, Charter One Financial Inc. Formerly, Chairman, President and
Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief Executive
Officer, The Rochester Community Savings Bank.
Ronald L. Thompson, 50.
Chairman and Chief Executive Officer, Midwest Stamping Co.
A-1
<PAGE>
Paul R. Tregurtha, 64.
Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran
Transportation Company, Inc.; Chairman, Meridian Aggregates, L.P.; Vice
Chairman, The Interlake Steamship Company and Lakes Shipping Company.
William H. Waltrip, 62.
Chairman, Technology Solutions Company. Formerly, Chairman and Chief Executive
Officer, Bausch & Lomb Inc., and Chairman and Chief Executive Officer, Biggers
Brothers, Inc.
Rosalie J. Wolf, 58.
Treasurer and Chief Investment Officer, The Rockefeller Foundation. Formerly,
Executive Vice President, Sithe Energies, Inc., and Managing Director--Merchant
Banking, Bankers Trust Company.
Officer-Trustees
John H. Biggs, 63.
Chairman, President and Chief Executive Officer, TIAA and CREF.
Martin L. Leibowitz, 63.
Vice Chairman and Chief Investment Officer, TIAA and CREF, since November 1995.
Executive Vice President, TIAA and CREF, from June 1995 to November 1995.
Formerly, Managing Director --Director of Research and member of the Executive
Committee, Salomon Brothers Inc.
Other Officers
Richard J. Adamski, 57.
Vice President and Treasurer, TIAA and CREF.
Richard L. Gibbs, 52.
Executive Vice President, Finance and Planning, TIAA and CREF.
E. Laverne Jones, 50.
Vice President and Corporate Secretary, TIAA and CREF.
A-2
<PAGE>
Appendix B--Glossary
Accumulation: The total value of your accumulation units in the Real Estate
Account.
Accumulation Period: The period that begins with your first premium and
continues until the entire accumulation has been applied to purchase annuity
income, transferred from the Account, or paid to you or a beneficiary.
Accumulation Unit: A share of participation in the Real Estate Account for
someone in the accumulation period. The Account's accumulation unit value
changes daily.
Annuity Unit: A measure used to calculate the amount of annuity payments due a
participant.
Beneficiary: Any person or institution named to receive benefits if you die
during the accumulation period or if you (and your annuity partner, if you have
one) die before the guaranteed period of your annuity ends.
Business Day: Any day the New York Stock Exchange (NYSE) is open for trading. A
business day ends at 4 p.m. eastern time, or when trading closes on the NYSE,
if earlier.
Calendar Day: Any day of the year. Calendar days end at the same time as
business days.
Commuted Value: The present value of annuity payments due under an income
option or method of payment not based on life contingencies. Present value is
adjusted for investment gains or losses since the annuity unit value was last
calculated.
Eligible Institution: A public or private institution in the United States that
is nonproprietary and nonprofit, and whose main purpose is to offer
instruction, conduct research, or serve and support education or research, or
perform ancillary functions for such institutions.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
General Account: All of TIAA's assets other than those allocated to the Real
Estate Account or to other existing or future TIAA separate accounts.
Income Change Method: The method under which you choose to have your annuity
payments revalued. Under the annual income change method, your payments are
revalued once each year. Under the monthly income change method, your payments
are revalued every month.
Separate Account: An investment account legally separated from the general
assets of TIAA, whose income and investment gains and losses are credited to or
charged against its own assets, without regard to TIAA's other income, gains or
losses.
Valuation Day: Any day the NYSE is open for trading, as well as the last
calendar day of each month. Valuation days end as of the close of all U.S.
national exchanges where securities or other investments of the Account are
principally traded. Valuation days that aren't business days will end at 4 p.m.
eastern time.
Valuation Period: The time from the end of one valuation day to the end of the
next.
B-1
<PAGE>
Appendix C--Description of Certain Properties
Larkspur Courts Apartments--Larkspur, CA
On August 17, 1999, the Account purchased the Larkspur Courts apartment complex
located in Larkspur, California (18 miles north of downtown San Francisco) for
a purchase price of approximately $52,850,000. Larkspur Courts was built in
1991 and contains 248 one, two and three bedroom units averaging 1,001 square
feet in 17 two-story and 10 four-story buildings. The amenities include a
recreation club with a fitness center, an outdoor heated pool, 3 spas and a
children's playground. It is currently 99% leased, with monthly rents averaging
$1,935 per unit. As part of an agreement between the City of Larkspur and the
Marin County Housing Authority, 15% or 37 units, are designated as Below Market
Rentals (BMR). The BMR rents are adjusted annually in conformity with the
percent change in the published median household income level for the area. The
market consists of 5,500 units with a vacancy rate of 2%.
Columbus Office Portfolio--Columbus, Ohio
On November 30, 1999, the Account purchased three suburban office buildings,
one located in Dublin, Ohio (12 miles northwest of downtown Columbus) and two
located in Easton, Ohio (8 miles northeast of downtown Columbus) for a purchase
price of approximately $33,650,000.
The Metro South Building, built in 1997, located in the Metro Center Business
Park in Dublin, Ohio, contains 90,726 rentable square feet and is situated on
5.30 acres of land with 385 parking spaces. The building is approximately 91%
leased to various tenants, with rents averaging $11.47 per square foot. The
Metro Business Park contains 1.3 million square feet and presently has a
vacancy rate of 5% overall. The BISYS Fund Services Building, built in 1995,
and the Vision Service Plan Building, built in 1997, are located in Eaton,
Ohio, contain 155,964 and 50,000 rentable square feet, respectively. Both are
100% leased. The BISYS Fund Building, situated on 11.20 acres of land with 829
parking spaces, is leased to various tenants at an average rental rate of
$11.29 per square foot. The Vision Plan Building, situated on 4.14 acres with
264 parking spaces is leased 100% to Vision Service Plan at a rental rate of
$11.88 per square foot. All three buildings are in the Columbus Suburban office
market which contains 22.5 million square feet of office space and has a
vacancy rate of 11%.
Konica Photo Imaging Headquarters--Mahwah, New Jersey
On December 21, 1999, the Account purchased the Konica Photo Imaging
Headquarters, an office/distribution building in Mahwah, New Jersey, for a
purchase price of approximately $17, 000,000. Konica Photo Imaging
Headquarters, built in 1999, is located within the Northwest Bergen County
submarket in the Ramapo Ridge Corporate Park. The building contains 168,000
rentable square feet, and is situated on 20.26 acres with 306 parking spaces.
It is 100% leased to Konica Photo Imaging, Inc. for a term of 15 years at a
current rental rate of $9.06 per square foot which increases by 3% every year
until year 11. The Northwest Bergen submarket contains approximately 18.6
million square feet of industrial space with a vacancy of 4.6%.
C-1
<PAGE>
How To Reach Us
Our Address
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, NY 10017-3206
Send all notices, forms, requests, or payments to this address only.
Internet
www.tiaa-cref.org
24 hours a day/seven days a week
Obtain general information (including Real Estate Account performance) about
TIAA-CREF; use Inter/ACT to view personal account information, reallocate
premiums and transfer funds among TIAA and CREF investment options, or to ask
us questions.
Automated Telephone Service
800 842-2252
24 hours a day/seven days a week
Change your allocation; transfer accumulations; get your accumulation unit
values; get TIAA and CREF performance (provided you've received a Real Estate
Account prospectus); confirm last premium paid.
Telephone Counseling Center
800 842-2776
8 a.m. to 11 p.m. ET Monday-Friday
Speak to a consultant about retirement savings and planning; quarterly and
annuity benefits reports; receiving annuity payments and annuity income
options; tax reports.
IRA Enrollment Hotline
800 842-2888
Speak with a service agent about our IRA products.
We can suspend or terminate your ability to transact by telephone, over the
Internet or by fax at any time, for any reason.
<PAGE>
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SEC Registration Fees $1,515,152
Costs of printing and engraving $ 500,000*
Legal fees $ 10,000*
Accounting fees $ 10,000*
----------
TOTAL $1,565,152*
</TABLE>
- -----------------
* - 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)*and Amendment thereto***
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 Contract***
(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).
*** - Filed herewith
(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>
[TIAA LOGO]
CHAIRMAN'S LETTER
To the Policyholders of
Teachers Insurance and Annuity
Association of America:
We are pleased to provide you with the accompanying audited statutory-basis
financial statements of Teachers Insurance and Annuity Association of America
("TIAA") for the year ended December 31, 1999. We continue to manage TIAA in a
prudent manner with the goal of maximizing our long-term performance within
reasonable risk parameters for the long-term benefit of our policyholders. As
you review these statements, it is also important to note that TIAA continues
to maintain the highest possible financial strength ratings from each of the
four nationally recognized independent rating organizations.
The report of management responsibility, on the following page, demonstrates
our ongoing commitment to conduct TIAA's activities in a well-controlled
management environment. Additionally, the accompanying audit report indicates
an unqualified opinion regarding TIAA's statutory-basis financial statements
from the independent auditing firm of Ernst & Young LLP. These statements have
been prepared consistently in accordance with statutory acconting practices, a
comprehensive basis of accounting comprised of accounting practices prescribed
or permitted by the New York State Insurance Department ("Department").
There is also a reference in the auditors' report to accounting principles
generally accepted in the United States ("GAAP"); this reference to GAAP is
required by the auditors' professional standards. GAAP is an overall accounting
methodology that, while similar in many respects to statutory accounting
practices, is a separate basis of accounting. Statutory accounting is generally
more conservative than GAAP, and these statutory-basis financial statements are
not intended to be in conformity with GAAP.
Statutory accounting is the only basis of accounting recognized by the
Department for regulatory purposes, and it is the only basis of accounting used
by the Department in measuring the financial condition and results of
operations of an insurance company. It is also the basis for determining
insurance company solvency under the New York Insurance Law. While we could
prepare a separate set of GAAP financial statements, there is no legal
requirement for us to do so. Additionally, TIAA does not believe at this time
that it would be a worthwhile expenditure to maintain another separate set of
financial records, particularly since it would provide little added value for
our policyholders. Accordingly, we believe that it is prudent for us to
continue to manage and report on the operations of TIAA under the conservative
statutory accounting methodology that we have always utilized.
/s/ John H. Biggs
-----------------------------
Chairman, President and
Chief Executive Officer
II-4
<PAGE>
[TIAA LOGO]
REPORT OF MANAGEMENT RESPONSIBILITY
To the Policyholders of
Teachers Insurance and Annuity
Association of America:
The accompanying statutory-basis financial statements of Teachers Insurance and
Annuity Association of America ("TIAA") are the responsibility of management.
They have been prepared on the basis of statutory accounting practices, a
comprehensive basis of accounting comprised of accounting practices prescribed
or permitted by the New York State Insurance Department. The financial
statements of TIAA have been presented fairly and objectively in accordance
with such statutory accounting practices.
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,
and the internal Auditor regularly reports to the Audit Committee of the TIAA
Board of Trustees.
The accompanying statutory-basis financial statements of TIAA 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 statutory-basis financial
statements.
The Audit Committee of the TIAA Board of Trustees, comprised entirely of
independent, nonmanagement trustees, meets regularly with management,
representatives of Ernst & Young LLP and internal auditing personnel to review
matters relating to financial reporting, internal controls and auditing. In
addition to the annual audit of the TIAA financial statements, the New York
State Insurance Department and other state insurance departments regularly
examine the financial statements of TIAA as part of their periodic corporate
examinations.
/S/ John H. Biggs
------------------------------------
Chairman, President and
Chief Executive Officer
/s/ Richard L. Gibbs
------------------------------------
Executive Vice President and
Principal Accounting Officer
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Trustees of
Teachers Insurance and Annuity
Association of America:
We have audited the accompanying statutory-basis balance sheets of Teachers
Insurance and Annuity Association of America ("TIAA") as of December 31, 1999
and 1998, and the related statutory-basis statements of operations, changes in
capital and contingency reserves, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of TIAA's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 2 to the financial statements, TIAA presents its financial
statements in conformity with accounting practices prescribed or permitted by
the New York State Insurance Department, which practices differ from accounting
principles generally accepted in the United States. The variances between such
practices and accounting principles generally accepted in the United States and
the effects on the accompanying financial statements are described in Note 2.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of TIAA at December 31, 1999 and 1998, or the results of
its operations or its cash flows for each of the three years in the period
ended December 31, 1999.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TIAA at December
31, 1999 and 1998, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1999 in conformity
with accounting practices prescribed or permitted by the New York State
Insurance Department.
New York, New York
March 9, 2000
/s/ Ernst & Young LLP
II-6
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------
1999 1998
-------------- --------------
<S> <C> <C>
ASSETS
Bonds .......................................................... $ 75,394,268 $ 69,067,549
Mortgages ...................................................... 21,412,239 20,248,446
Real estate .................................................... 5,192,229 6,099,403
Stocks ......................................................... 1,247,242 1,257,044
Other long-term investments .................................... 2,116,490 1,513,274
Cash and short-term investments ................................ 410,053 511,966
Investment income due and accrued .............................. 1,233,604 1,181,140
Separate account assets ........................................ 2,751,054 1,965,047
Other assets ................................................... 740,252 372,369
------------ ------------
TOTAL ASSETS $110,497,431 $102,216,238
============ ============
LIABILITIES, CAPITAL AND CONTINGENCY RESERVES
Policy and contract reserves ................................... $ 93,869,708 $ 87,772,711
Dividends declared for the following year ...................... 2,039,605 1,923,463
Asset Valuation Reserve ........................................ 2,637,779 2,454,123
Interest Maintenance Reserve ................................... 1,110,349 936,641
Separate account liabilities ................................... 2,751,054 1,965,047
Other liabilities .............................................. 1,063,508 841,044
------------ ------------
Total Liabilities 103,472,003 95,893,029
------------ ------------
Capital (2,500 shares of $1,000 par value common stock
issued and outstanding) and paid-in surplus (in 1999) ......... 3,050 2,500
------------ ------------
Contingency reserves:
For group life insurance ...................................... 12,218 11,013
For investment losses, annuity and insurance mortality, and
other risks ................................................... 7,010,160 6,309,696
------------ ------------
Total Contingency Reserves 7,022,378 6,320,709
------------ ------------
Total Capital and Contingency Reserves 7,025,428 6,323,209
------------ ------------
TOTAL LIABILITIES, CAPITAL AND CONTINGENCY RESERVES $110,497,431 $102,216,238
============ ============
</TABLE>
See notes to statutory-basis financial statements.
II-7
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF OPERATIONS
(amounts in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
INCOME
Insurance and annuity premiums and deposits ......... $ 3,087,045 $ 2,957,870 $ 2,844,792
Transfers from CREF, net ............................ 752,512 1,274,152 686,373
Annuity dividend additions .......................... 2,553,655 2,427,685 2,284,029
Net investment income ............................... 7,923,564 7,446,656 6,902,123
Supplementary contract considerations ............... 325,704 297,074 227,936
----------- ----------- -----------
TOTAL INCOME $14,642,480 $14,403,437 $12,945,253
=========== =========== ===========
DISTRIBUTION OF INCOME
Policy and contract benefits ........................ $ 2,653,962 $ 2,413,220 $ 2,138,424
Dividends ........................................... 4,026,907 3,844,313 3,617,551
Increase in policy and contract reserves ............ 6,100,240 6,636,704 5,234,590
Operating expenses .................................. 335,039 327,085 272,584
Transfers to separate accounts, net ................. 490,880 487,976 543,891
Federal income tax expense (benefit) ................ (25,213) (11,854) 24,194
Other, net .......................................... (11,437) (4,639) 307
Increase in contingency reserves .................... 1,072,102 710,632 1,113,712
----------- ----------- -----------
TOTAL DISTRIBUTION OF INCOME $14,642,480 $14,403,437 $12,945,253
=========== =========== ===========
</TABLE>
See notes to statutory-basis financial statements.
II-8
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL AND CONTINGENCY RESERVES
(amounts in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
CHANGES IN CAPITAL AND CONTINGENCY RESERVES
From operations .............................................. $1,072,102 $ 710,632 $1,113,712
Net realized capital gains on investments .................... 282,079 394,727 249,412
Net unrealized capital gains (losses) on investments ......... (112,613) (171,049) (2,482)
Transfers to the Interest Maintenance Reserve ................ (330,107) (264,997) (136,512)
Transfers to the Asset Valuation Reserve ..................... (183,656) (115,481) (203,721)
Decrease (increase) in non-admitted assets,
other than investments ...................................... (25,586) (17,829) 1,200
Change in valuation basis of policy reserves ................. -- 8,671 (4,657)
Stockholder dividend ......................................... (550) -- --
Contribution to paid-in surplus .............................. 550 -- --
Other, net ................................................... -- 1,960 8,918
---------- ---------- ----------
NET CHANGE IN CAPITAL AND CONTINGENCY RESERVES 702,219 546,634 1,025,870
CAPITAL AND CONTINGENCY RESERVES
AT BEGINNING OF YEAR 6,323,209 5,776,575 4,750,705
---------- ---------- ----------
CAPITAL AND CONTINGENCY RESERVES
AT END OF YEAR $7,025,428 $6,323,209 $5,776,575
========== ========== ==========
</TABLE>
See notes to statutory-basis financial statements.
II-9
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
CASH PROVIDED
By operating activities:
Insurance and annuity premiums,
deposits and considerations ...................... $ 3,408,713 $ 3,254,238 $ 3,053,452
Transfers from CREF, net .......................... 752,512 1,274,152 686,373
Annuity dividend additions ........................ 2,553,651 2,427,685 2,284,029
Investment income, net ............................ 7,692,392 7,338,368 6,777,023
----------- ----------- -----------
Total Receipts 14,407,268 14,294,443 12,800,877
----------- ----------- -----------
Policy and contract benefits ...................... 2,655,772 2,410,824 2,143,927
Dividends ......................................... 3,910,764 3,699,582 3,475,557
Operating expenses ................................ 325,039 311,460 269,041
Federal Income tax expense (benefit) .............. (43,713) 506 27,277
Transfers to separate accounts, net ............... 492,504 486,945 543,933
Separate account seed money redemptions ........... -- (76,666) (37,915)
Other, net ........................................ 183,783 494 (46,076)
----------- ----------- -----------
Total Disbursements 7,524,149 6,833,145 6,375,744
----------- ----------- -----------
Cash Provided by Operating Activities 6,883,119 7,461,298 6,425,133
----------- ----------- -----------
By financing activities:
Stockholder dividend .............................. (550) -- --
Contribution to paid-in surplus ................... 550 -- --
----------- ----------- -----------
Cash Provided by Financing Activities -- -- --
----------- ----------- -----------
By investing activities:
Sales and redemptions of bonds and stocks ......... 10,428,890 9,781,071 4,716,915
Repayment of mortgage principal ................... 3,716,069 2,129,896 3,773,723
Sales of real estate .............................. 1,500,916 834,298 1,030,385
Other, net ........................................ 448,429 279,097 258,489
----------- ----------- -----------
Cash Provided by Investing Activities 16,094,304 13,024,362 9,779,512
----------- ----------- -----------
TOTAL CASH PROVIDED 22,977,423 20,485,660 16,204,645
----------- ----------- -----------
DISBURSEMENTS FOR NEW INVESTMENTS
Investments acquired:
Bonds and stocks .................................. 16,695,529 15,298,648 12,711,227
Mortgages ......................................... 4,894,308 3,704,940 3,152,563
Real estate ....................................... 590,720 351,109 310,159
Other, net ........................................ 898,779 797,849 466,926
----------- ----------- -----------
TOTAL DISBURSEMENTS FOR NEW INVESTMENTS 23,079,336 20,152,546 16,640,875
----------- ----------- -----------
INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (101,913) 333,114 (436,230)
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR 511,966 178,852 615,082
----------- ----------- -----------
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR $ 410,053 $ 511,966 $ 178,852
=========== =========== ===========
</TABLE>
See notes to statutory-basis financial statements.
II-10
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
December 31, 1999
NOTE 1--ORGANIZATION
Teachers Insurance and Annuity Association of America ("TIAA") was established
as a legal reserve life insurance company under the insurance laws of the State
of New York in 1918. TIAA was formed by the Carnegie Foundation for the
Advancement of Teaching for the express purpose of aiding and strengthening
nonprofit educational and research organizations by providing retirement and
insurance benefits for their faculties and other staff members, and by
counseling these organizations and their employees on benefit plans and other
measures of economic security. All of the outstanding common stock of TIAA is
collectively held by the TIAA Board of Overseers, a nonprofit corporation
created solely for the purpose of holding the stock of TIAA.
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES
TIAA's statutory-basis financial statements have been prepared on the basis of
statutory accounting practices prescribed or permitted by the New York State
Insurance Department ("Department"), a comprehensive basis of accounting that
differs from accounting principles generally accepted in the United States
("GAAP"). (Refer to the separate sections, entitled "Permitted Statutory
Accounting Practices" and "Accounting Principles Generally Accepted in the
United States", within this note.)
The preparation of TIAA's financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses. Actual results could differ from those
estimates. The following is a summary of the significant accounting policies
consistently followed by TIAA.
Valuation of Investments: Bonds and short-term investments (debt securities
with maturities of one year or less at the time of acquisition) not in default
are generally stated at amortized cost; medium to highest quality preferred
stocks at cost; common stocks at market value; and all other bond, short-term
and preferred stock investments at the lower of amortized cost or market value.
For loan-backed bonds and structured securities, amortized cost is determined
using actual and anticipated cash flows under the prospective method for
interest-only securities and under the retrospective method for all other
securities. Anticipated prepayments are based on life-to-date prepayment
speeds, using historical cash flows, and internal estimates. Mortgages are
stated at amortized cost, and directly-owned real estate at depreciated cost
(net of encumbrances). Investments in wholly-owned subsidiaries, real estate
limited partnerships and securities limited partnerships are stated at TIAA's
equity in the net admitted assets of the underlying entities. Policy loans are
stated at outstanding principal amounts. Separate account assets are generally
stated at market value. Seed money investments in the TIAA-CREF Mutual Funds,
TIAA-CREF Institutional Mutual Funds, and in new accounts established by
College Retirement Equities Fund ("CREF"), a companion organization, are stated
at market value. All investments are stated net of any permanent impairments,
which are determined on an individual asset basis. Depreciation is generally
computed over a 40 year period on the constant yield method for properties
acquired prior to 1991, and on the straight-line method for properties acquired
thereafter. For properties acquired after 1997, depreciation is generally
computed over a 39 year period.
Accounting for Investments: Investment transactions are accounted for as of the
date the investments are purchased or sold (trade date) for publicly traded
common stocks and as of the date the investment transactions are settled
(settlement date) for all other investments. Realized capital gains and losses
on investment transactions are accounted for under the specific identification
method.
Foreign Currency Transactions and Translation: Investments denominated in
foreign currencies and foreign currency contracts are valued in U.S. dollars,
based on exchange rates at the end of the period. Investment transactions in
foreign currencies are recorded at the exchange rates prevailing on the
respective transaction dates. All other asset and liability accounts that are
denominated in foreign currencies are adjusted to reflect exchange rates at the
end of the period. Realized and unrealized gains and losses due to foreign
exchange transactions, and those due to translation adjustments, are not
separately reported and are reflected in realized and unrealized capital gains
and losses, respectively.
Securities Lending: TIAA has a securities lending program whereby it loans
securities to qualified brokers in exchange for cash collateral, generally at
least equal to 102% of the market value of the securities loaned. When
securities are loaned, TIAA receives additional income on the collateral and
continues to receive income on the securities loaned. The collateral liability
is netted against the balance sheet caption, "Cash and short-term investments".
TIAA may bear the risk of delay in recovery of, or loss of rights in, the
securities loaned should a borrower of securities fail to return the securities
in a timely manner.
II-11
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Foreign Currency Swap Contracts: TIAA enters into foreign currency swap
contracts to exchange fixed and variable amounts of foreign currency at
specified future dates and at specified rates (in U.S. dollars) to hedge
against currency risks on investments denominated in foreign currencies.
Changes in the value of the contracts related to foreign currency exchange
rates are recognized at the end of the period as unrealized gains or losses.
Foreign currency swap contracts incorporate a series of swap transactions which
result in the exchange of TIAA's fixed and variable foreign currency cash flows
into fixed amounts of U.S. dollar cash flows. Foreign currency swap contracts
are entered into directly with a counterparty and TIAA is exposed to the risk
of default of such counterparty, although TIAA does not anticipate
non-performance by any of its counterparties. The maximum potential loss from
such risk is equal to the change in the value of the foreign currency swap
during the term of the contract. In order to minimize the risk associated with
potential counterparty default, TIAA monitors the credit quality of its
counterparties.
Foreign Currency Forward Contracts: TIAA enters into foreign currency forward
contracts to exchange fixed amounts of foreign currency at specified future
dates and at specified rates (in U.S. dollars) to hedge against currency risks
on investments denominated in foreign currencies. Changes in the value of the
contracts related to foreign currency exchange rates are recognized at the end
of the period as unrealized gains or losses. Forward contracts incorporate one
swap transaction which results in the exchange of TIAA's fixed foreign currency
cash flows into a fixed amount of U.S. dollar cash flows. A foreign exchange
premium (discount) is recorded at the time the contract is opened, and it is
calculated based on the difference between the forward exchange rate and the
spot rate. TIAA amortizes the foreign exchange premium (discount) into
investment income over the life of the forward contract, or at the settlement
date if the forward contract is less than a year. TIAA is subject to
counterparty credit risk upon entering into foreign currency forward contracts
and monitors that risk, as discussed above for foreign currency swap contracts.
Interest Rate Swap Contracts: TIAA enters into interest rate swap contracts to
hedge against the effect of interest rate fluctuations on certain variable
interest rate bonds. These contracts allow TIAA to lock in a fixed interest
rate and to transfer the risk of higher or lower interest rates. TIAA also
enters into interest rate swap contracts to exchange the cash flows on certain
fixed interest rate bonds into variable interest rate cash flows in connection
with certain interest sensitive products. Payments received and payments made
under interest rate swap contracts are reflected in net investment income.
Interest rate swap contracts subject TIAA to credit risk should the
counterparties not perform according to the terms of the contracts. However,
the maximum potential loss from such credit risk is much smaller than the par
value of the related notes, and TIAA does not anticipate non-performance by any
of its counterparties. In order to minimize the risk associated with potential
counterparty default, TIAA monitors the credit quality of its counterparties.
Swap Options: TIAA writes (sells) swap options on selected bonds to hedge
against the effect of interest rate fluctuations as part of TIAA's asset and
liability management program. Swap options give the holder the right, but not
the obligation, to enter into an interest rate swap contract with TIAA where
TIAA would pay a fixed interest rate and would receive a variable interest rate
on a specified notional amount. When a swap option is written, the premium
received is recorded as a liability. Because the swap options expire within one
year of their inception date, the premium is recognized as investment income at
the earlier of the exercise date or the expiration of the swap option. TIAA
would be exposed to counterparty credit risk upon entering into an interest
rate swap contract and monitors that risk, as discussed above.
Interest Rate Cap Contracts: TIAA purchases interest rate cap contracts to
hedge against the risk of a rising interest rate environment as part of TIAA's
asset and liability management program. Under the terms of the interest rate
cap contracts, the selling entity makes payments to TIAA on a specified
notional amount if an agreed-upon index exceeds a predetermined strike rate.
Such payments received under interest rate cap contracts are recognized as
investment income. When an interest rate cap contract is purchased, the premium
paid is recorded as an asset, and the premium is amortized into investment
expense from the date of purchase of the cap to the maturity of the hedged item
or program. Upon expiration of the cap, any unamortized premium will be treated
as a loss subject to the Interest Maintenance Reserve. TIAA would be subject to
counterparty credit risk if the index exceeds the predetermined strike rate,
causing a payment to be payable to TIAA. In order to minimize the risk
associated with potential counterparty default, TIAA monitors the credit
quality of its counterparties.
II-12
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--(Continued)
Non-Admitted Assets: Certain investment balances and corresponding investment
income due and accrued are designated as non-admitted assets by the Department,
based on delinquencies, defaults, and other statutory criteria, and, cannot be
included in life insurance company balance sheets filed with the Department.
Such investment-related non-admitted assets totaled approximately $450,804,000
and $466,107,000 at December 31, 1999 and 1998, respectively. Income on bonds
in default is not accrued and, therefore, is not included in the non-admitted
totals. Certain non-investment assets, such as furniture and fixtures and
various receivables, are also designated as non-admitted assets. Such
non-admitted assets approximated $221,573,000 at December 31, 1999 and
$195,987,000 at December 31, 1998. Changes in such non-admitted assets are
charged or credited directly to contingency reserves.
Policy and Contract Reserves: TIAA offers a range of group and individual
retirement annuities and group and individual life and other insurance
products. Policy and contract reserves for such products are determined in
accordance with standard valuation methods permitted or approved by the
Department and are computed in accordance with standard actuarial formulas. The
reserves established utilize assumptions for interest (at an average rate of
approximately 3%), mortality and other risks insured. Such reserves establish a
sufficient provision for all contractual benefits guaranteed under policy and
contract provisions.
Dividends Declared for the Following Year: Dividends on insurance policies and
pension annuity contracts in the payout phase are generally declared by the
TIAA Board of Trustees ("Board") in November of each year, and such dividends
are credited to policyholders in the following calendar year. Dividends on
pension annuity contracts in the accumulation phase are generally declared by
the Board in February of each year and such dividends on the various existing
vintages of pension annuity contracts in the accumulation phase are credited to
policyholders during the ensuing twelve month period beginning March 1.
Asset Valuation Reserve: The Asset Valuation Reserve ("AVR"), which covers all
invested asset classes, is an explicit liability reserve required by the
National Association of Insurance Commissioners ("NAIC") and is intended to
provide for potential future credit and equity losses. Reserve components of
the AVR are maintained for bonds, stocks, mortgages, real estate and other
invested assets. Realized and unrealized credit and equity capital gains and
losses, net of capital gains taxes, are credited to or charged against the
related components of the AVR. Formula calculations determine the required
contribution amounts for each component, and insurance companies may also make
voluntary contributions to any component; however, the resulting ending balance
can not exceed the computed maximum reserve for that component. Any computed
excess amounts are eliminated through transfers to other components or
adjustments down to the maximum reserve amounts. Contributions and adjustments
to the AVR are reported as transfers to or from contingency reserves.
Interest Maintenance Reserve: The Interest Maintenance Reserve ("IMR") is a
liability reserve required by the NAIC which accumulates realized capital gains
and losses resulting from interest rate fluctuations. Such capital gains and
losses are amortized out of the IMR, under the grouped method of amortization,
as an adjustment to net investment income over the remaining lives of the
assets sold.
Contingency Reserves: By charter, TIAA operates without profit to the
corporation or its sole shareholder, the TIAA Board of Overseers. As a result,
all contingency reserves are held solely to provide benefits in accordance with
TIAA's charter purpose. In 1999, TIAA paid a dividend of $550,000 to the TIAA
Board of Overseers. This amount was recontributed as paid-in surplus. This was
done to satisfy a regulatory licensing requirement.
Income and Expenses: Premiums, investment income and expenses are reported as
earned/incurred.
Federal Income Taxes: TIAA is a nonprofit organization and, through December
31, 1997, was exempt from federal income taxation under the Internal Revenue
Code ("Code"). Any non-pension related income, however, was subject to federal
income taxation as unrelated business income. Effective January 1, 1998, as a
result of federal legislation, TIAA is no longer exempt from federal income
taxation and is taxed as a stock life insurance company. Beginning with 1998,
TIAA is filing a consolidated federal income tax return with its subsidiary
affiliates. The tax sharing agreement follows the current reimbursement method,
whereby members of the consolidated group will generally be reimbursed for
their losses on a pro-rata basis by other members of the group to the extent
that they have taxable income, subject to limitations imposed under the Code.
The federal income tax provisions included in the accompanying statements of
operations are based on taxes actually paid or recovered or anticipated to be
paid or recovered with the tax return filings. The income tax recoverable for
1999 and 1998 of $25.2 million and $11.9 million, respectively, that is
reflected in the accompanying statements of operations is the amount that is
receivable from certain of TIAA's subsidiaries which generated
II-13
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 2--SIGNIFICANT ACCOUNTING POLICIES--(Concluded)
taxable income, under such tax sharing agreement. TIAA reported a significant
net tax loss for 1998 and expects to report a net tax loss for 1999, due
primarily to required increases in policy and contract reserves computed for
tax reporting purposes in accordance with the requirements of the Code, as well
as deductions related to certain assets. The reserve increases will reverse
over time, thereby increasing TIAA's taxable income in future years. Under the
Code, tax loss carryforwards will generally expire after fifteen years, if not
previously used, and capital loss carryforwards will expire in five years, if
not previously used.
Permitted Statutory Accounting Practices: Statutory accounting practices
prescribed by the Department include accounting requirements contained in New
York State Insurance Laws and Regulations as well as in NAIC publications.
Permitted statutory accounting practices encompass all accounting practices
which are allowed by the Department but which are not prescribed. The
Department permits TIAA to follow certain reporting and disclosure conventions
reflected in these statutory-basis financial statements. Such reporting and
disclosure conventions include the following: (i) the classification of real
estate subsidiaries and real estate limited partnerships in the "Real estate"
caption in the accompanying balance sheets, (ii) the netting of securities
lending collateral against the "Cash and short-term investments" caption in the
accompanying balance sheets, (iii) the preceding federal income taxes
disclosure, and (iv) the recognition of permanent impairments of individual
assets.
Accounting Principles Generally Accepted in the United States: The Financial
Accounting Standards Board ("FASB") requires that financial statements that are
intended to be in conformity with GAAP should follow all applicable
authoritative accounting pronouncements. As a result, TIAA cannot refer to
financial statements prepared in accordance with statutory accounting practices
as having been prepared in accordance with GAAP. The differences between
accounting principles generally accepted in the United States and statutory
accounting practices would have a material effect on TIAA's financial
statements, and the primary differences can be summarized as follows. Under
GAAP:
- - The AVR is eliminated and valuation allowances are established as contra
assets based on asset-specific analyses rather than the formula-based AVR
being reflected as a liability reserve;
- - The IMR is eliminated and realized gains and losses resulting from interest
rate fluctuations are reported as a component of net income rather than
being accumulated in and subsequently amortized out of the IMR;
- - Dividends on insurance policies and annuity contracts are accrued as the
necessary earnings emerge from operations rather than being accrued in the
year when they are declared;
- - The "non-admitted" asset designation is not utilized;
- - Policy acquisition costs are deferred and amortized over the lives of the
policies issued rather than being charged to operations as incurred;
- - Policy and contract reserves are based on estimates of expected mortality and
interest rather than being based on statutory mortality and interest
requirements;
- - Investments in wholly-owned subsidiaries are consolidated in the parent's
financial statements rather than being carried at the parent's equity in the
net assets of the subsidiaries;
- - Long-term bond investments considered to be "available for sale" are carried
at fair value rather than at amortized cost;
- - Deferred tax assets and liabilities are determined based on the differences
between the financial statement amounts and the tax bases of assets and
liabilities rather than not being recognized.
Management believes that the effects of these differences would increase TIAA's
total capital if GAAP were implemented.
Reclassifications: Certain amounts in the 1998 and 1997 financial statements
have been reclassified to conform with the 1999 presentation.
II-14
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 3--INVESTMENTS
Securities Investments: At December 31, 1999 and 1998, the carrying values
(balance sheet amounts) and estimated market values of long-term bond
investments, and the gross unrealized gains and losses with respect to such
market values, are shown below:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Estimated
Value Gains Losses Market Value
------------------ ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
December 31, 1999
- -----------------
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations ............... $ 24,001,927 $ 4,768,518 $ (9,636) $ 28,760,809
Debt securities issued by foreign
governments ............................. 1,998,851,102 136,709,413 (38,121,907) 2,097,438,608
Corporate securities ..................... 36,859,895,277 570,889,898 (1,590,960,444) 35,839,824,731
Mortgage-backed securities ............... 20,891,933,456 252,833,375 (851,223,861) 20,293,542,970
Asset-backed securities .................. 15,619,586,502 64,165,497 (1,003,669,811) 14,680,082,188
--------------- -------------- ---------------- ---------------
Total ............... $75,394,268,264 $1,029,366,701 $ (3,483,985,659) $72,939,649,306
=============== ============== ================ ===============
December 31, 1998
- -----------------
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations ............... $ 23,269,573 $ 8,137,457 $ (618,292) $ 30,788,738
Debt securities issued by foreign
governments ............................. 1,781,100,902 303,678,284 (13,984,906) 2,070,794,280
Corporate securities ..................... 33,871,645,660 2,726,722,179 (89,947,572) 36,508,420,267
Mortgage-backed securities ............... 20,554,922,491 1,152,206,546 (66,142,150) 21,640,986,887
Asset-backed securities .................. 12,836,610,014 462,036,065 (207,160,470) 13,091,485,609
--------------- -------------- ---------------- ---------------
Total ............... $69,067,548,640 $4,652,780,531 $ (377,853,390) $73,342,475,781
=============== ============== ================ ===============
</TABLE>
At December 31, 1999 and 1998, approximately 93.9% and 94.5%, respectively, of
the long-term bond portfolio was comprised of investment grade securities. At
December 31, 1999, outstanding forward commitments for future long-term bond
and equity investments approximated $2,940,494,000. Of this, $1,943,894,000 is
scheduled for disbursement in 2000, $364,883,000 in 2001, $386,196,000 in 2002
and $245,521,000 in later years. The funding of bond commitments is contingent
upon the continued favorable financial performance of the potential borrowers.
Debt securities amounting to approximately $2,574,000 and $2,587,000 at
December 31, 1999 and 1998, respectively, were on deposit with governmental
authorities or trustees, as required by law.
The carrying values and estimated market values of long-term bond investments
at December 31, 1999, by contractual maturity, are shown below:
<TABLE>
<CAPTION>
Carrying Estimated
Value Market Value
----------------- -----------------
<S> <C> <C>
December 31, 1999
- -----------------
Due in one year or less ................................. $ 328,768,748 $ 332,490,422
Due after one year through five years ................... 9,281,015,203 9,227,495,604
Due after five years through ten years .................. 12,052,312,032 11,689,540,814
Due after ten years ..................................... 17,220,652,323 16,716,497,308
--------------- ---------------
Subtotal ................ 38,882,748,306 37,966,024,148
Mortgage-backed securities .............................. 20,891,933,456 20,293,542,970
Asset-backed securities ................................. 15,619,586,502 14,680,082,188
--------------- ---------------
Total ................ $75,394,268,264 $72,939,649,306
=============== ===============
</TABLE>
II-15
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 3--INVESTMENTS--(Continued)
Bonds not due at a single maturity date have been included in the preceding
table based on the year of final maturity. Actual maturities may differ from
contractual maturities because borrowers may have the right to prepay
obligations, although prepayment premiums may be applicable.
At December 31, 1999 and 1998, the carrying values of long-term bond
investments were diversified by industry classification as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Mortgage-backed securities .......................... 27.7% 29.8%
Asset-backed securities ............................. 12.0 11.3
Manufacturing ....................................... 11.9 11.7
Finance and financial services ...................... 9.0 9.1
Commercial mortgage-backed securities ............... 8.7 7.3
Public utilities .................................... 8.4 9.7
Communications ...................................... 3.8 3.7
Oil and gas ......................................... 3.6 3.7
Retail and wholesale trade .......................... 3.5 3.6
Government .......................................... 3.0 3.1
Real estate investment trusts ....................... 2.3 1.9
Other ............................................... 6.1 5.1
----- -----
Total ............. 100.0% 100.0%
===== =====
</TABLE>
The approximate carrying values and market values of debt securities loaned,
and the cash collateral received in connection therewith, were as follows:
<TABLE>
<CAPTION>
Carrying Value Market Value Cash Collateral
---------------- ----------------- ----------------
<S> <C> <C> <C>
December 31, 1999 .......... $2,321,999,000 $2,303,125,000 $2,380,927,000
December 31, 1998 .......... $1,687,699,000 $1,803,100,000 $1,844,563,000
</TABLE>
At December 31, 1999 and 1998, TIAA had interest rate swap contracts
outstanding with a total notional value of $388,411,000 and $451,366,000,
respectively.
At December 31, 1999 and 1998, TIAA had foreign currency swap contracts
outstanding with a total notional value of approximately $891,159,000 and
$654,242,000, respectively. The unrealized gains (losses) on foreign currency
swap contracts outstanding at year-end was approximately $25,575,000,
$(6,511,000), and $25,864,000 at December 31, 1999, 1998 and 1997,
respectively.
At December 31, 1999 and 1998, TIAA had foreign currency forward contracts
outstanding with a total notional value of approximately $230,259,000 and
$179,820,000, respectively, and the unamortized value of the premiums was
approximately $16,952,000 and $621,000, respectively. The unrealized gains on
the forward contracts outstanding at year-end were approximately $20,395,000,
$1,143,000, and $65,000 at December 31, 1999, 1998 and 1997, respectively.
At December 31, 1999, TIAA had swap options outstanding with a total notional
value of $54,000,000, and the unamortized value of the premiums received were
approximately $511,000. At December 31, 1998, TIAA had no swap options
outstanding. The interest rate swap contracts created from the exercise of the
swap options are reflected in the aggregate totals for the interest rate swap
contracts disclosed in the related paragraph above.
At December 31, 1999 and 1998, TIAA had interest rate cap contracts outstanding
with a total notional value of $137,550,000 and $110,270,000, respectively, and
the unamortized value of the premiums paid were approximately $658,000 and
$669,000, respectively.
Mortgage Loan and Real Estate Investments: TIAA makes mortgage loans,
principally collateralized by commercial real estate, and direct investments in
real estate. TIAA's mortgage underwriting standards generally result in first
mortgage liens on completed income-producing properties for which the
loan-to-value ratio at the time of closing generally ranges between 65% and
75%. TIAA employs a system to monitor the effects of current and expected
market conditions and other factors on the collectability of mortgage loans and
the realizability of real estate investments. This system is utilized to
identify and quantify any permanent impairments in value. The range of coupon
rates for mortgage loans issued during 1999 was from 6.65% to 8.74%. At
December 31, 1999 and 1998, TIAA's mortgage portfolio included loans totaling
approximately $312,251,000 and $308,570,000, respectively, which were
collateralized by real estate with prior liens not held by TIAA.
II-16
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 3--INVESTMENTS--(Continued)
At December 31, 1999 and 1998, the carrying values of mortgage loan investments
were diversified by property type and geographic region as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Property Type
- -------------
Office buildings ................... 39.4% 39.2%
Shopping centers ................... 29.3 31.6
Mixed-use projects ................. 10.4 11.1
Industrial buildings ............... 7.7 6.0
Apartments ......................... 7.3 6.6
Hotels ............................. 3.4 3.5
Other .............................. 2.5 2.0
----- -----
Total ................ 100.0% 100.0%
===== =====
Geographic Region
- -----------------
Pacific ............................ 23.6% 22.3%
South Atlantic ..................... 20.5 18.7
East North Central ................. 12.2 12.4
New England ........................ 9.3 9.6
Middle Atlantic .................... 9.3 11.7
West North Central ................. 9.0 9.0
West South Central ................. 7.3 7.5
Mountain ........................... 7.2 7.2
East South Central ................. 1.4 1.6
Other .............................. 0.2 0.0
----- -----
Total ................ 100.0% 100.0%
===== =====
</TABLE>
At December 31, 1999 and 1998, approximately 18% and 17%, respectively, of the
mortgage portfolio was invested in California and is included in the Pacific
region shown above.
At December 31, 1999, the contractual maturity schedule of mortgage loans is
shown below:
<TABLE>
<CAPTION>
Carrying Value
-----------------
<S> <C>
Due in one year or less .............................. $ 633,786,121
Due after one year through five years ................ 4,117,386,284
Due after five years through ten years ............... 13,385,265,691
Due after ten years .................................. 3,275,800,745
---------------
Total ........................ $21,412,238,841
===============
</TABLE>
Actual maturities may differ from contractual maturities because borrowers may
have the right to prepay mortgage loans, although prepayment premiums may be
applicable.
At December 31, 1999, outstanding forward commitments for future mortgage loan
investments approximated $1,555,790,000, including a commitment under
litigation. Of this, $1,227,604,000 is scheduled for disbursement in 2000 and
$328,186,000 in 2001. The funding of mortgage loan commitments is contingent
upon the underlying properties meeting specified requirements, including
construction, leasing and occupancy.
At December 31, 1999, 1998 and 1997, the aggregate carrying values of mortgages
with restructured or modified terms, as defined by GAAP, were approximately
$43,489,000, $44,153,000 and $552,070,000, respectively. For the years ended
December 31, 1999, 1998 and 1997, the investment income earned on such
mortgages was approximately $809,000, $7,381,000 and $39,945,000, respectively,
which would have been approximately $4,950,000, $5,030,000 and $56,034,000,
respectively, if they had performed in accordance with their original terms.
When restructuring mortgage loans, TIAA generally requires participation
features, yield maintenance stipulations, and/or the establishment of
property-specific escrow accounts funded by the borrowers.
II-17
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 3--INVESTMENTS--(Concluded)
At December 31, 1999 and 1998, the carrying values of real estate investments
were diversified by property type and geographic region as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Property Type
- -------------
Office buildings .................................................... 65.2% 64.3%
Shopping centers .................................................... 10.4 17.2
Mixed-use projects .................................................. 6.2 4.8
Land held for future development .................................... 3.9 2.6
Industrial buildings ................................................ 3.3 2.9
Income-producing land underlying improved real estate ............... 3.0 4.2
Apartments .......................................................... 0.4 0.3
Other ............................................................... 7.6 3.7
----- -----
Total ........................................ 100.0% 100.0%
===== =====
Geographic Region
- -----------------
South Atlantic ...................................................... 26.8% 22.6%
East North Central .................................................. 18.1 18.5
Pacific ............................................................. 16.5 17.1
Middle Atlantic ..................................................... 8.8 11.0
West South Central .................................................. 8.0 7.5
West North Central .................................................. 7.3 12.9
Mountain ............................................................ 3.6 3.3
New England ......................................................... 1.1 1.3
East South Central .................................................. 1.0 0.8
Other ............................................................... 8.8 5.0
----- -----
Total ........................................ 100.0% 100.0%
===== =====
</TABLE>
At December 31, 1999 and 1998, approximately 14% and 12%, respectively, of the
real estate portfolio was invested in both California and Florida. California
is included in the Pacific region shown above, and Florida is included in the
South Atlantic region shown above.
At December 31, 1999, outstanding forward commitments for future real estate
investments approximated $114,023,000. Under these commitments, it is estimated
that $100,746,000 will be disbursed in 2000 and $13,277,000 in 2001. The
funding of real estate investment commitments is contingent upon the properties
meeting specified requirements, including construction, leasing and occupancy.
Depreciation expense on real estate investments for the years ended December
31, 1999, 1998 and 1997, was approximately $179,605,000, $176,237,000 and
$147,494,000, respectively; the amount of accumulated depreciation at December
31, 1999 and 1998 was approximately $799,927,000 and $674,541,000,
respectively.
Asset Valuation Reserves: The AVR balances at December 31, 1999 and 1998 were
comprised of the following asset-specific reserves:
<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
<S> <C> <C>
Bonds and preferred stocks ............... $ 701,676,744 $ 560,477,946
Mortgages ................................ 1,106,387,507 1,117,503,060
Real estate .............................. 502,041,173 689,550,807
Common stocks ............................ 238,268,926 48,573,376
Other invested assets .................... 89,404,877 38,018,128
-------------- --------------
Total ........................ $2,637,779,227 $2,454,123,317
============== ==============
</TABLE>
II-18
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 4--INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
Net Investment Income: For the years ended December 31, 1999, 1998 and 1997,
the components of net investment income were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Gross investment income:
Bonds ........................................... $5,775,161,816 $5,441,796,398 $4,919,147,802
Mortgages ....................................... 1,699,019,031 1,569,281,835 1,561,650,688
Real estate (net of property
expenses, taxes and
depreciation) .................................. 282,344,126 275,402,304 282,710,437
Stocks .......................................... 92,223,815 82,871,728 45,018,729
Other long-term investments ..................... 58,021,764 46,399,969 49,877,245
Cash and short-term investments ................. 22,452,106 59,637,401 81,908,105
Other ........................................... 8,703,697 4,430,354 1,863,273
-------------- -------------- --------------
Total ......................... 7,937,926,355 7,479,819,989 6,942,176,279
Less investment expenses ......................... (170,761,251) (142,791,775) (124,382,062)
-------------- -------------- --------------
Net investment income before
amortization of net IMR gains ................... 7,767,165,104 7,337,028,214 6,817,794,217
Plus amortization of net IMR gains ............... 156,399,394 109,627,953 84,329,279
-------------- -------------- --------------
Net investment income ............................ $7,923,564,498 $7,446,656,167 $6,902,123,496
============== ============== ==============
</TABLE>
Participation income received on securities, mortgages and real estate included
in the above table was approximately $14,112,000, $12,512,000 and $20,894,000
in 1999, 1998 and 1997, respectively.
The net earned rates of investment income on total invested assets (computed as
net investment income before amortization of net IMR gains divided by mean
invested assets) were 7.82%, 7.95% and 7.99% in 1999, 1998 and 1997,
respectively.
Future rental income expected to be received during the next five years under
existing real estate leases in effect as of December 31, 1999 is approximately
$519,230,000 in 2000, $456,602,000 in 2001, $388,428,000 in 2002, $301,182,000
in 2003 and $254,646,000 in 2004.
Realized Capital Gains and Losses: For the years ended December 31, 1999, 1998
and 1997, the net realized capital gains (losses) on sales, redemptions and
writedowns of investments were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- ----------------
<S> <C> <C> <C>
Bonds ......................................... $ 65,207,048 $ 398,363,008 $ 99,205,212
Mortgages ..................................... (22,897,373) (50,492,383) (18,206,968)
Real estate ................................... 136,719,085 76,983,899 172,463,239
Stocks ........................................ 46,209,893 15,778,492 651,273
Other long-term investments ................... 49,549,108 (49,832,409) (2,552,791)
Cash and short-term investments ............... 1,471,501 3,926,077 (121,752)
------------- ------------- -------------
Total realized gains before capital
gains tax .................................... 276,259,262 394,726,684 251,438,213
Capital gains (tax) benefit ................... 5,819,369 -- (2,026,003)
------------- ------------- -------------
Total ...................... $ 282,078,631 $ 394,726,684 $ 249,412,210
============= ============= =============
</TABLE>
II-19
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 4--INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES--(Concluded)
Writedowns of investments resulting from permanent impairments and mortgage
foreclosures, reflected in the preceding table as realized capital losses, were
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------- -------------
<S> <C> <C> <C>
Permanent impairments:
Bonds ............................... $21,137,423 $ 9,345,164 $ 1,499,190
Mortgages ........................... 31,752,909 23,344,175 38,855,209
Real estate ......................... -- 4,468,490 20,797,149
----------- ----------- -----------
Total ....................... $52,890,332 $37,157,829 $61,151,548
=========== =========== ===========
Mortgage foreclosures ............... $14,984,688 $63,907,494 $31,579,934
=========== =========== ===========
</TABLE>
Proceeds from sales and redemptions of long-term bond investments during 1999,
1998 and 1997 were approximately $10,137,343,000, $9,445,709,000 and
$4,652,635,000, respectively. Gross gains of approximately $177,537,000,
$422,231,000 and $111,635,000 and gross losses of approximately $91,193,000,
$14,523,000 and $10,931,000 were realized on these sales and redemptions during
1999, 1998 and 1997, respectively.
Unrealized Capital Gains and Losses: For the years ended December 31, 1999,
1998 and 1997, the net changes in unrealized capital gains (losses) on
investments, resulting in a net increase (decrease) in the valuation of
investments, were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Bonds ......................................... $ (69,713,061) $ (48,352,549) $ (68,528,047)
Mortgages ..................................... 6,617,678 (6,500,000) 1,232,724
Real estate ................................... (33,864,537) (8,435,351) 14,315,196
Stocks ........................................ (118,886,764) (31,866,148) 30,350,946
Other long-term investments ................... 103,233,602 19,347,901 20,169,489
Cash and short-term investments ............... -- -- (21,987)
Other ......................................... -- (95,242,707) --
-------------- -------------- -------------
Total ........................... $ (112,613,082) $ (171,048,854) $ (2,481,679)
============== ============== =============
</TABLE>
II-20
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 5--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value amounts of financial instruments presented in the
following tables have been determined by TIAA using market information
available as of December 31, 1999 and 1998 and appropriate valuation
methodologies. However, considerable judgment is necessarily required to
interpret market data in developing the estimates of fair value for financial
instruments for which there are no available market value quotations. The
estimates presented are not necessarily indicative of the amounts TIAA could
have realized in a market exchange. The use of different market assumptions
and/or estimation methodologies may have a material effect on the estimated
fair value amounts.
<TABLE>
<CAPTION>
Notional Carrying Estimated
Value Value Fair Value
--------------- ------------------ ------------------
<S> <C> <C> <C>
December 31, 1999
- -----------------
Assets
Bonds ................................. $75,394,268,264 $72,939,649,306
Mortgages ............................. 21,412,238,841 20,780,780,466
Common stocks ......................... 422,555,522 422,555,522
Preferred stocks ...................... 824,686,388 765,075,902
Cash and short-term investments ....... 410,052,667 410,052,667
Policy loans .......................... 393,614,559 393,614,559
Seed money investments ................ 263,018,916 263,018,916
Liabilities
Teachers Personal Annuity-Fixed
Account ............................. 1,298,856,541 1,298,856,541
Commercial Paper ...................... 248,319,000 248,319,000
Other financial instruments
Foreign currency swap contracts ....... $891,158,813 44,252,417 18,274,618
Foreign currency forward contracts..... 230,258,539 37,347,930 35,671,514
Interest rate swap contracts .......... 388,411,461 -- 6,550,357
Swap options .......................... 54,000,000 (510,600) --
Interest rate cap contracts ........... 137,550,000 657,599 1,955,483
December 31, 1998
- -----------------
Assets
Bonds ................................. $69,067,548,640 $73,342,475,781
Mortgages ............................. 20,248,445,832 21,556,575,796
Common stocks ......................... 240,209,436 240,209,436
Preferred stocks ...................... 1,016,834,232 1,020,529,083
Cash and short-term investments ....... 511,966,433 511,966,433
Policy loans .......................... 317,939,719 317,939,719
Seed money investments ................ 383,288,422 383,288,422
Liabilities
Teachers Personal Annuity-Fixed
Account ............................. 1,089,268,569 1,089,268,569
Other financial instruments
Foreign currency swap contracts ....... $654,241,992 18,569,714 4,938,964
Foreign currency forward contracts..... 179,820,224 1,764,608 1,929,656
Interest rate swap contracts .......... 451,365,681 -- 16,874,273
Interest rate cap contracts ........... 110,270,000 668,710 114,699
Stock warrants ........................ -- 8,987,029
</TABLE>
II-21
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 5--DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS--(Concluded)
Bonds: The fair values for publicly traded long-term bond investments are
determined using quoted market prices. For privately placed long-term bond
investments without a readily ascertainable market value, such values are
determined with the assistance of an independent pricing service utilizing a
discounted cash flow methodology based on coupon rates, maturity provisions and
assigned credit ratings. The aggregate carrying values and estimated fair
values of publicly traded and privately placed bonds at December 31, 1999 and
1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------------------------- ---------------------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Publicly traded bonds ................ $46,676,624,017 $45,416,831,387 $41,212,863,245 $43,921,621,760
Privately placed bonds ............... 28,717,644,247 27,522,817,919 27,854,685,395 29,420,854,021
--------------- --------------- --------------- ---------------
Total ........................ $75,394,268,264 $72,939,649,306 $69,067,548,640 $73,342,475,781
=============== =============== =============== ===============
</TABLE>
Mortgages: The fair values of mortgages are generally determined with the
assistance of an independent pricing service utilizing a discounted cash flow
methodology based on coupon rates, maturity provisions and assigned credit
ratings.
Common Stocks, Cash and Short-Term Investments, Policy Loans, and Seed Money
Investments: The carrying values are reasonable estimates of their fair values.
Preferred Stocks: The fair values of preferred stocks are determined using
quoted market prices or valuations from the NAIC.
Teachers Personal Annuity--Fixed Account: The carrying values of the
liabilities are reasonable estimates of their fair values.
Commercial Paper: The carrying values of the commercial paper liabilities are
reasonable estimates of their fair values.
Foreign Currency Swap Contracts: The fair values of foreign currency swap
contracts, which are used for hedging purposes, are the estimated net gains
that TIAA would record if the foreign currency swaps were liquidated at
year-end. The fair values of foreign currency swap contracts are estimated
internally based on future cash flows and anticipated exchange relationships,
and such values are reviewed for reasonableness with values from TIAA's
counterparties.
Foreign Currency Forward Contracts: The fair values of foreign currency forward
contracts, which are used for hedging purposes, are the estimated net gains
that TIAA would record if the foreign currency forward contracts were
liquidated at year-end. The fair values of the foreign currency forward
contracts are estimated internally based on future cash flows and anticipated
exchange relationships, and such values are reviewed for reasonableness with
estimates from TIAA's counterparties.
Interest Rate Swap Contracts: The fair values of interest rate swap contracts,
which are used for hedging purposes, are the estimated net gains that TIAA
would record if the interest rate swaps were liquidated at year-end. The swap
agreements have no carrying value. The fair values of interest rate swap
contracts are estimated internally based on anticipated interest rates and
estimated future cash flows, and such values are reviewed for reasonableness
with estimates from TIAA's counterparties.
Swap Options: The fair values of swap options, which are used for hedging
purposes, are the estimated amounts that TIAA would receive (pay) if the swap
options were liquidated at year-end. The fair values of the swap options are
estimated by external parties, including TIAA's counterparties, and such values
are reviewed internally for reasonableness based on anticipated interest rates
and estimated future cash flows.
Interest Rate Cap Contracts: The fair values of interest rate cap contracts,
which are used for hedging purposes, are the estimated amounts that TIAA would
receive if the interest rate cap contracts were liquidated at year-end. The
fair values of the interest rate cap contracts are estimated by external
parties, including TIAA's counterparties, and such values are reviewed
internally for reasonableness based on anticipated interest rates and estimated
future cash flows.
Stock Warrants: The fair values of stock warrants represent the excess, if any,
of the market values of the related stocks over the exercise prices associated
with the stock warrants. The stock warrants have no carrying value.
Commitments to Extend Credit or Purchase Investments: TIAA does not charge
commitment fees on these agreements, and the related interest rates reflect
market levels at the time of the commitments.
Insurance and Annuity Contracts: TIAA's insurance and annuity contracts, other
than the Teachers Personal Annuity--Fixed Account disclosed above, entail
mortality risks and are, therefore, exempt from the fair value disclosure
requirements related to financial instruments.
II-22
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 6--MANAGEMENT AGREEMENTS
Services necessary for the operation of CREF are provided, at cost, by two
subsidiaries of TIAA, TIAA-CREF Investment Management, LLC ("Investment
Management") and TIAA-CREF Individual & Institutional Services, Inc.
("Services"), which provide investment advisory, administrative and
distribution services for CREF. Such services are provided in accordance with
an Investment Management Services Agreement between CREF and Investment
Management, and in accordance with a Principal Underwriting and Administrative
Services Agreement between CREF and Services. Investment Management is
registered with the Securities and Exchange Commission ("Commission") as an
investment adviser; Services is registered with the Commission as a
broker-dealer and is a member of the National Association of Securities
Dealers, Inc. ("NASD"). Investment Management and Services receive management
fee payments from each CREF account on a daily basis according to formulas
established each year with the objective of keeping the management fees as
close as possible to each account's actual expenses. Any differences between
the actual expenses incurred and the management fees received are adjusted
quarterly. Such fees and the equivalent allocated expenses, which amounted to
approximately $493,399,000, $474,611,000 and $340,898,000 in 1999, 1998 and
1997, respectively, are not included in the statements of operations and had no
effect on TIAA's operations. Beginning in 1998, TIAA provides guarantees for
the CREF Accounts for certain mortality and expense risks pursuant to an
Immediate Annuity Purchase Rate Guarantee Agreement.
NOTE 7--PENSION PLAN AND POSTRETIREMENT BENEFITS
TIAA maintains a qualified, noncontributory defined contribution pension plan
covering substantially all employees. All pension plan liabilities are fully
funded through retirement annuity contracts. Contributions are made
semi-monthly to each participant's contract based on a percentage of salary,
with the applicable percentage varying by attained age. All contributions are
fully vested after five years of service. Forfeitures arising from terminations
prior to vesting are used to reduce future employer contributions. The
accompanying statements of operations include contributions to the pension plan
of approximately $23,865,000, $22,640,000 and $20,862,000 in 1999, 1998 and
1997, respectively. This includes supplemental contributions made to company
owned annuity contracts under a non-qualified deferred compensation plan.
In addition to the pension plan, TIAA provides certain other postretirement
life and health insurance benefits to eligible retired employees who meet
prescribed age and service requirements. The postretirement benefit obligation
for retirees and fully eligible employees was approximately $35,309,000 as of
January 1, 1999 and $31,672,000 as of January 1, 1998. The postretirement
benefit obligation for non-vested employees was approximately $28,580,000 as of
January 1, 1999 and $25,823,000 as of January 1, 1998. The cost of such
benefits reflected in the accompanying statements of operations was
approximately $3,180,000, $3,008,000 and $3,398,000 for 1999, 1998 and 1997,
respectively. The discount rate used in determining the postretirement benefit
obligations was 6.75% per year and the medical care cost trend rate was 8% per
year in 1999, decreasing by 1% in each future year, to an ultimate rate of 6%
per year in 2001. As the plan is not prefunded, the value of plan assets is
zero. The accrued postretirement benefit liabilities were approximately
$27,312,000 and $22,438,000, as of December 31, 1999 and 1998, respectively.
TIAA maintains a non-qualified deferred compensation plan for non-employee
trustees and members of the TIAA Board of Overseers. Prior to January 2, 1998,
this plan provided each eligible trustee or member with a single-sum payment
upon leaving the board equal to 50% of the annual stipend then in effect
multiplied by years of service, up to a maximum of 20 years. Effective January
2, 1998, the plan provides a total award each year equal to 50% of the basic
annual stipend. Each award is invested in company-owned annuity contracts.
Payout of accumulations in the company-owned contracts is normally made as a
lump sum following the trustee's or member's separation from the Board.
NOTE 8--UNCONSOLIDATED SUBSIDIARIES AND OTHER AFFILIATES
TIAA's unconsolidated subsidiaries and affiliates primarily consist of
TIAA-CREF Enterprises, Inc. ("Enterprises") and wholly-owned investment
subsidiaries, which are primarily involved in real estate investment
activities. The carrying value of TIAA's investments in unconsolidated
subsidiaries and affiliates totaled approximately $5,284,313,000 and
$5,564,491,000 at December 31, 1999 and 1998, respectively. TIAA's investment
in Enterprises is included in the other long-term investments caption on the
accompanying balance sheets and totaled approximately $305,326,000 and
$285,528,000 at December 31, 1999 and 1998, respectively. At December 31, 1999
and 1998, the carrying values of TIAA's investments in real estate subsidiaries
and other affiliates were approximately $3,902,522,000 and $4,643,100,000,
respectively.
II-23
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 8--UNCONSOLIDATED SUBSIDIARIES AND OTHER AFFILIATES--(Concluded)
Total assets, liabilities and gross rental income of real estate subsidiaries,
at December 31, 1999, 1998 and 1997 and for the years then ended, were
approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Assets ....................... $4,841,501,000 $5,723,222,000 $4,387,482,000
Liabilities .................. 772,068,000 724,361,000 792,142,000
Gross rental income .......... 826,366,000 783,261,000 688,963,000
</TABLE>
Earnings of approximately $186,329,000, $161,885,000 and $156,648,000 in 1999,
1998 and 1997, respectively, primarily from real estate subsidiaries are
included in net investment income in the accompanying statements of operations.
Some of the real estate subsidiaries referred to above are partners in joint
ventures. At December 31, 1999 and 1998, the carrying values of TIAA real
estate subsidiaries that are partners in joint ventures were approximately
$610,277,000 and $1,147,216,000, respectively. Joint venture total assets,
liabilities and gross rental income, at December 31, 1999, 1998 and 1997 and
for the years then ended, were approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Assets ....................... $1,410,531,000 $1,709,297,000 $2,075,352,000
Liabilities .................. 730,980,000 556,823,000 997,969,000
Gross rental income .......... 185,306,000 274,106,000 377,919,000
</TABLE>
The subsidiaries' equity share in these total assets, liabilities and gross
rental income were approximately as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Assets ....................... $1,392,388,000 $1,701,668,000 $1,960,400,000
Liabilities .................. 720,127,000 554,451,000 577,826,000
Gross rental income .......... 183,907,000 270,208,000 349,770,000
</TABLE>
Net income earned by the subsidiaries from joint venture investments was
approximately $40,507,000, $16,123,000 and $56,362,000 in 1999, 1998 and 1997,
respectively. Some of the real estate joint ventures have loans from TIAA. At
December 31, 1999 and 1998, the unpaid principal of such loans was
approximately $577,277,000 and $529,504,000, respectively.
NOTE 9--ANNUITY RESERVES
At December 31, 1999 and 1998, TIAA's general account annuity reserves are
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
Amount Percent Amount Percent
------------------ --------- ----------------- ----------
<S> <C> <C> <C> <C>
Subject to discretionary withdrawal:
At book value without adjustment $10,298,969,000 11.1% $ 9,066,467,000 10.4%
At market value ........................... -- -- -- --
Not subject to discretionary
withdrawal ................................ 82,594,306,000 88.9 77,797,831,000 89.6
--------------- ----- --------------- -----
Total annuity reserves ..................... 92,893,275,000 100.0% 86,864,298,000 100.0%
===== =====
Reconciliation to total policy and
contract reserves shown on the
balance sheet:
Reserves on other life policies
and contracts ............................ 399,675,000 377,741,000
Reserves on accident and
health policies .......................... 576,758,000 530,672,000
--------------- ---------------
Total policy and contract reserves ......... $93,869,708,000 $87,772,711,000
=============== ===============
</TABLE>
II-24
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Continued)
NOTE 10--SEPARATE ACCOUNTS
TIAA currently has two separate accounts. The TIAA Separate Account VA-1
("VA-1") is a segregated investment account and was organized on February 16,
1994 under the insurance laws of the State of New York for the purpose of
issuing and funding variable annuity contracts. VA-1 was registered with the
Commission effective November 1, 1994 as an open-end, diversified management
investment company under the Investment Company Act of 1940. Currently, VA-1
consists of a single investment portfolio, the Stock Index Account ("SIA"). SIA
was established on October 3, 1994 and invests in a diversified portfolio of
equity securities selected to track the overall United States stock market.
The TIAA Real Estate Account ("REA") is a segregated investment account and was
organized on February 22, 1995 under the insurance laws of the State of New
York for the purpose of funding variable annuity contracts. REA was registered
with the Commission under the Securities Act of 1933 effective October 2, 1995.
REA's target is to invest between 70% and 95% of its assets directly in real
estate or in real estate-related investments, with the remainder of its assets
invested in publicly-traded securities to maintain adequate liquidity. REA was
established on July 3, 1995 with a $100,000,000 seed money investment by TIAA.
TIAA purchased 1,000,000 Accumulation Units of REA and such units shared in the
pro rata investment experience of REA and were subject to the same valuation
procedures and expense deductions as all other Accumulation Units in REA. On
October 2, 1995, TIAA began to offer Accumulation Units of REA to participants
other than TIAA. TIAA redeemed all of its REA units by the end of 1998.
The balance sheet captions for separate account assets and liabilities (which
represent participant account values) are stated at market value. The separate
accounts' operating results are reflected in the changes to these assets and
liabilities. Total separate account premiums were approximately $256,706,000,
$226,984,000 and $206,808,000 in 1999, 1998 and 1997 respectively. Total
separate account net transfers from other accounts were approximately
$310,791,000, $300,737,000 and $360,391,000 in 1999, 1998 and 1997,
respectively. Annuities offered through VA-1 include a nominal guaranteed
minimum death benefit. For the REA, TIAA guarantees that actual mortality
experience will not reduce payments once they have begun. Both accounts offer
full or partial withdrawal at market value with no surrender charge.
NOTE 11--MUTUAL FUNDS
On July 17, 1997, TIAA made a $250,000,000 seed money investment to launch the
TIAA-CREF Mutual Funds (the "Funds"), a Delaware business trust that was
organized on January 13, 1997 and is registered with the Commission under the
Investment Company Act of 1940 as an open-end management investment company.
The Funds consist of six series, each of which commenced operations on July 17,
1997. TIAA invested $48,000,000 in the Money Market Fund; $32,000,000 in the
Bond Plus Fund; $38,000,000 in the Growth & Income Fund; $38,000,000 in the
Growth Equity Fund; $44,000,000 in the International Equity Fund; and
$50,000,000 in the Managed Allocation Fund. Shortly after being seeded, the
Managed Allocation Fund invested its seed money and its earnings to date in the
other Funds. On September 2, 1997, the Funds began to publicly offer their
shares, without a sales load, through their distributor, Teachers Personal
Investors Services, Inc. ("TPIS"). Teachers Advisors, Inc. ("Advisors")
provides investment management services for the Funds and is also responsible
for providing, or obtaining at its own expense, the services reasonably
necessary for the ordinary operation of the Funds. During 1999, TIAA began to
redeem its seed money investments. TIAA's remaining seed money investment in
the Funds, plus reinvested dividends and undistributed earnings, totaled
approximately $85,174,000 and $303,017,000 at December 31, 1999 and 1998,
respectively, and such amounts are reflected in the "Other long-term
investments" caption in the accompanying balance sheets.
On June 14, 1999, TIAA made a $175,000,000 seed money investment to launch the
TIAA-CREF Institutional Mutual Funds (the "Institutional Funds"), a Delaware
business trust that was organized on April 15, 1999, and is registered with the
Commission under the Investment Company Act of 1940 as an open-end management
investment company. The Institutional Funds consist of seven series, each of
which commenced operations on June 14, 1999 when TIAA invested $25,000,000 in
each of the Institutional Funds. On July 1, 1999, the Institutional Funds began
to offer their shares, without a sales load, to participating institutions
through their principal underwriter, TPIS. Advisors provides investment
management services for the Institutional Funds. During 1999, TIAA began to
redeem its seed money investments. TIAA's remaining seed money investment in
the Institutional Funds, plus reinvested dividends and undistributed earnings,
totaled approximately $144,017,000 at December 31, 1999, and is reflected in
the "Other long-term investments" caption in the accompanying balance sheets.
NOTE 12--COMMERCIAL PAPER/LIQUIDITY FACILITY
TIAA began issuing commercial paper in May 1999 under a maximum authorized
program of $2 billion and, at December 31, 1999, had an outstanding obligation
of $248,319,000. Interest rates on outstanding obligations ranged from 5.90% to
6.35%. During 1999, interest expense totaled approximately $24,585,000. TIAA
maintains a short-term revolving credit liquidity facility of approximately $1
billion to support TIAA's commercial paper program, but this liquidity facility
has not been utilized.
II-25
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS--(Concluded)
NOTE 13--CONTINGENCIES
It is the opinion of management that any liabilities which might arise from
litigation, state guaranty fund assessments, and other matters, over and above
amounts already provided for in the financial statements, are not considered
material in relation to TIAA's financial position or the results of its
operations.
NOTE 14--SUBSEQUENT EVENT--CODIFICATION
The Department has announced its intentions to implement, subject to any
conflicting provisions in New York statute, the new Accounting Practices and
Procedures Manual ("Codification") adopted by the NAIC to become effective
January 1, 2001. Because the Department has not yet determined the extent to
which Codification will be implemented, the effect on TIAA's statutory-basis
financial statements cannot yet be quantified.
NOTE 15--IMPACT OF YEAR 2000 (UNAUDITED)
In prior years, Management discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, TIAA completed its remediation and
testing of mission critical systems. As a result of those planning and
implementation efforts, TIAA has made a successful transition into the Year
2000. To the best of our knowledge, all of TIAA's internal systems and those of
its service providers are functioning normally in the Year 2000 environment.
TIAA will continue to monitor its mission critical computer applications and
those of its suppliers and vendors throughout the Year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
II-26
<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 26th day of April, 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 date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C>
/s/ John H. Biggs Chairman of the Board, President and Chief 4/26/00
- ------------------------- Executive Officer (Principal Executive
John H. Biggs Officer) and Trustee
/s/ Martin L. Leibowitz Vice Chairman, Chief Investment Officer and 4/26/00
- ------------------------- Trustee
Martin L. Leibowitz
/s/ Richard L. Gibbs Executive Vice President (Principal Financial 4/26/00
- ------------------------ and Accounting Officer)
Richard L. Gibbs
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
/s/ Marcus Alexis 4/26/00 /s/ Robert M. O'Neil 4/26/00
- --------------------- ----------------------
Marcus Alexis Robert M. O'Neil
- -------------------------------------------------------------------------------
/s/ Willard T. Carleton 4/26/00 /s/ Leonard S. Simon 4/26/00
- --------------------- ----------------------
Willard T. Carleton Leonard S. Simon
- -------------------------------------------------------------------------------
/s/ Robert C. Clark 4/26/00 /s/ Ronald L. Thompson 4/26/00
- --------------------- ----------------------
Robert C. Clark Ronald L. Thompson
- -------------------------------------------------------------------------------
/s/ Estelle A. Fishbein 4/26/00 /s/ Paul R. Tregurtha 4/26/00
- --------------------- ----------------------
Estelle A. Fishbein Paul R. Tregurtha
- -------------------------------------------------------------------------------
/s/ Frederick R. Ford 4/26/00 /s/ William H. Waltrip 4/26/00
- --------------------- ----------------------
Frederick R. Ford William H. Waltrip
- -------------------------------------------------------------------------------
/s/ Martin J. Gruber 4/26/00 /s/ Rosalie J. Wolf 4/26/00
- --------------------- ----------------------
Martin J. Gruber Rosalie J. Wolf
- -------------------------------------------------------------------------------
/s/ Ruth Simms Hamilton 4/26/00
- --------------------- ----------------------
Ruth Simms Hamilton David Alexander
</TABLE>
- -------------------------------------------------------------------------------
II-27
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Participants of the TIAA Real Estate Account and the Board of
Trustees of Teachers Insurance and Annuity Association of America:
We have audited the financial statements of the TIAA Real Estate Account
("Account") of Teachers Insurance and Annuity Association of America ("TIAA") as
of December 31, 1999 and have issued our report thereon dated February 4, 2000.
Our audit also included the financial statement schedule - Schedule III - Real
Estate Owned. This financial statement schedule is the responsibility of the
TIAA's management. Our responsibility is to express an opinion based on our
audit. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
February 4, 2000
S-1
<PAGE>
TIAA REAL ESTATE ACCOUNT
SCHEDULE III - REAL ESTATE OWNED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1999 Completed Acquired
- ---------------------------------- --------- --------------- ------------------ --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
River Road Distribution Center $-0- $4,166,787 $133,213 $4,300,000 1995 11/22/95
Industrial Building
Fridley, Minnesota
The Greens At Metrowest -0- 12,490,895 1,609,105 14,100,000 1990 12/15/95
Apartments
Orlando, Florida
Butterfield Industrial Park -0- 4,431,166 418,834 4,850,000 1981 12/22/95
Industrial Building
El Paso, Texas (1)
Plantation Grove Shopping Center -0- 7,326,170 23,830 7,350,000 1995 12/28/95
Shopping Center
Ocoee, Florida
Southbank Business Park -0- 10,069,898 2,930,102 13,000,000 1995 02/27/96
Office Building
Phoenix, Arizona
Millbrook Collection -0- 6,774,711 325,289 7,100,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
Lynnwood Collection -0- 6,708,120 991,880 7,700,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1999 Completed Acquired
- ---------------------------------- --------- --------------- ------------------ --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Monte Vista Apartments $-0- 17,664,247 2,835,753 20,500,000 1995 06/21/96
Apartments
Littleton, Colorado
River Oaks Shopping Center -0- 13,036,153 (936,153) 12,100,000 1995 07/12/96
Shopping Center
Woodbridge, Virginia
Arapahoe Park East -0- 9,920,680 1,929,320 11,850,000 1982 10/31/96
Industrial Building
Boulder, Colorado
Royal St. George Apartments -0- 16,072,275 427,725 16,500,000 1995 12/20/96
Apartments
West Palm Beach, Florida
Interstate Crossing -0- 6,485,249 (85,249) 6,400,000 1995 12/31/96
Industrial Building
Eagan, Minnesota
West Creek Apartments -0- 13,488,279 2,022,966 15,511,245 1988 01/02/97
Apartments
Westlake Village, California
Interstate Acres -0- 13,610,294 489,706 14,100,000 1988 01/24/97
Industrial Building
Urbandale, Iowa
The Crest at Shadow Mountain -0- 9,192,389 507,611 9,700,000 1992 01/31/97
Apartments
El Paso, Texas
</TABLE>
S-3
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1999 Completed Acquired
- ---------------------------------- --------- --------------- ------------------ --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Westinghouse Facility $-0- 6,089,473 110,527 6,200,000 1997 02/05/97
Industrial Building
Coral Springs, Florida
Rolling Meadows -0- 12,930,463 (820,463) 12,110,000 1957 05/28/97
Shopping Center
Rolling Meadows, Illinois
Saks Distribution Center -0- 26,908,401 3,416,599 30,325,000 1997 05/15/97
Industrial Building
Aberdeen, Maryland
Eastgate Distribution Center -0- 11,941,992 1,358,008 13,300,000 1996 05/29/97
Industrial Building
San Diego, California
Five Centerpointe -0- 15,429,103 2,571,845 18,000,948 1988 04/21/97
Office Building
Lake Oswego, Oregon
Longview Executive Park -0- 23,249,805 5,150,195 28,400,000 1988 04/21/97
Office Building
Longview, Maryland
Northmark Business Center III -0- 8,591,636 4,408,364 13,000,000 1985 04/21/97
Office Building
Blue Ash, Ohio
USF&G Building -0- 6,195,142 2,527,025 8,722,167 1988 04/21/97
Office Building
Salt Lake City, Utah
</TABLE>
S-4
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1999 Completed Acquired
- ---------------------------------- --------- --------------- ------------------ --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Two Newton Place $-0- $16,368,169 $3,931,831 $20,300,000 1987 04/21/97
Office Building
Newton, Massachusetts
Fairgate at Ballston -0- 26,790,792 4,009,208 30,800,000 1988 04/21/97
Office Building
Arlington, Virginia
Parkview Plaza -0- 49,139,012 3,297,309 52,436,321 1990 04/29/97
Office Building
Oakbrook Terrace, Illinois
Lincoln Woods Apartments -0- 21,476,050 1,476,260 22,952,310 1991 10/20/97
Apartments
Lafayette Hill, Pennsylvania
Corporate Center at Sawgrass -0- 12,956,957 1,243,043 14,200,000 1997 12/02/97
Office Building
Sunrise, Florida
371 Hoes Lane -0- 15,499,306 1,300,694 16,800,000 1986 12/15/97
Office Building
Piscataway, New Jersey
Columbia Centre III -0- 38,580,850 3,519,150 42,100,000 1989 12/23/97
Office Building
Rosemont, Illinois
The Lodge at Willow Creek -0- 27,562,882 2,437,118 30,000,000 1997 12/24/97
Apartments
Douglas County, Colorado
</TABLE>
S-5
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1999 Completed Acquired
- ---------------------------------- --------- --------------- ------------------ --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
The Legends at Chase Oaks $-0- $29,701,668 ($1,901,668) $27,800,000 1997 03/31/98
Apartments
Plano, Texas
Glen Pointe Business Park -0- 15,279,508 820,492 16,100,000 1997 06/30/98
Industrial Building
Glendale Heights, Illinois
Wood Creek Business Park -0- 7,222,421 (246,078) 6,976,343 1995 06/30/98
Industrial Building
Boilingbrook, Illinois
Rock Run Business Park -0- 9,325,421 24,579 9,350,000 1998 06/30/98
Industrial Building
Joliet, Illinois
Golfview Apartments -0- 28,066,591 (556,591) 27,510,000 1998 07/31/98
Apartments
Lake Mary, Florida
Indian Creek Apartments -0- 17,003,388 105,397 17,108,785 1988 10/08/98
Apartments
Farmington Hills, Michigan
Bent Tree Apartments -0- 14,412,235 87,765 14,500,000 1987 10/22/98
Apartments
Columbus, Ohio
UPS Distribution Center -0- 10,989,393 10,607 11,000,000 1998 11/13/98
Industrial Building
Fernly, Nevada
</TABLE>
S-6
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1999 Completed Acquired
- ---------------------------------- --------- --------------- ------------------ --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Ontario Industrial Properties $-0- $24,433,584 $216,416 $24,650,000 1997 12/17/98
Industrial Building
Ontario, California
IDI California Portfolio -0- 35,668,791 831,209 36,500,000 1998 12/17/98
Industrial Building
Ontario, California
IDI Kentucky Portfolio -0- 24,651,154 748,846 25,400,000 1998 12/17/98
Industrial Building
Hebron, Kentucky
Fedex Distribution Center -0- 7,828,025 (28,025) 7,800,000 1998 12/18/98
Industrial Building
Crofton, Maryland
The Bay Court at Harbor Pointe -0- 35,164,373 (364,373) 34,800,000 1991 12/18/98
Apartments
Mukilteo, Washington
Biltmore Commerce Center -0- 37,323,057 1,176,943 38,500,000 1985 02/23/99
Office Building
Phoenix, Arizona
The Colorado -0- 52,687,840 3,859,449 56,547,289 1987 04/14/99
Apartments
New York, New York
Sawgrass Portfolio -0- 24,916,713 83,287 25,000,000 1998 05/11/99
Office Building
Sunrise, Florida
</TABLE>
S-7
<PAGE>
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Acquisition
Initial cost (Including Value at Year
Encum- to Acquire Unrealized Gains December 31, Construction Date
Description brances Property and Losses) 1999 Completed Acquired
- ---------------------------------- --------- --------------- ------------------ --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
780 Third Avenue $-0- $161,511,019 $988,981 $162,500,000 1984 07/08/99
Office Building
New York, New York
Monument Place -0- 34,597,698 1,502,302 36,100,000 1990 07/15/99
Office Building
Fairfax, Virginia
88 Kearny Street -0- 65,995,171 6,404,829 72,400,000 1986 07/22/99
Office Building
San Francisco, California
10 Waterview Boulevard -0- 31,063,636 136,364 31,200,000 1984 07/27/99
Office Building
Parsippany, New Jersey
Larkspur Courts -0- 53,038,988 2,261,012 55,300,000 1991 08/17/99
Apartments
Larkspur, California
Columbus Portfolio -0- 33,701,672 0 33,701,672 1997 11/30/99
Office Building
Columbus, Ohio
Konica Photo Imaging Headquarters -0- 17,051,474 0 17,051,474 1999 12/21/99
Industrial Building
Mahwah, New Jersey
--------- --------------- ------------------ ---------------
$ -0- $1,242,781,166 $69,722,388 $1,312,503,554
--------- --------------- ------------------ ---------------
--------- --------------- ------------------ ---------------
</TABLE>
(1) Leasehold interest only
S-8
<PAGE>
<TABLE>
<S> <C>
Reconciliation of investment property owned:
Balance at beginning of period $820,211,242
Acquisitions 511,887,268
Dispositions
(Initial cost 36,659,857 costs capitalized 12,398,881) (49,058,738)
Capital improvements and carrying costs
(including unrealized gains and losses) 29,463,782
---------------
Balance at end of period $1,312,503,554
---------------
---------------
</TABLE>
S-9
<PAGE>
EXHIBIT INDEX
(1) Amendment to Distribution and Administrative Services Agreement by and
between TIAA and TIAA-CREF Individual & Institutional Services, Inc.
(4) (A) Form of Keogh Contract
(5) Opinion and Consent of Charles H. Stamm, Esquire
(10) (A) Independent Fiduciary Agreement by and among TIAA, the Registrant,
and The Townsend Group
(23) (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
<PAGE>
AMENDMENT TO THE DISTRIBUTION AND
ADMINISTRATIVE SERVICES AGREEMENT
This Amendment is to the Distribution and Administrative Services
Agreement, dated September 29, 1995, as amended from time to time (the
"Agreement"), by and between the Teachers Insurance and Annuity Association of
America ("TIAA"), on its own behalf and with respect to the TIAA Real Estate
Account ("Real Estate Account"), and TIAA-CREF Individual & Institutional
Services, Inc. ("Services"). TIAA and Services mutually agree that upon
execution of this Amendment, the Agreement shall be amended as set forth below:
Sections (c) and (d) of paragraph 7 of the Agreement are amended to
read as follows:
(c) For the services rendered and expenses incurred in connection
with distribution of the Contracts as provided herein, the amount
currently payable from the net assets of the Real Estate Account each
Valuation Day for each Calendar Day of the Valuation Period ending on
that Valuation Day will be 0.0000822% (corresponding to an annual rate
of 0.03% of average daily net assets).
(d) For the services rendered and expenses incurred in connection
with administration as provided in Section 5 and otherwise herein, the
amount currently payable from the net assets of each Account each
Valuation Day for each Calendar Day of the Valuation Period ending on
that Valuation Day will be 0.0005068% (corresponding to an annual rate
of 0.185% of average daily net assets).
For purposes of this Agreement, "Valuation Day," "Calendar Day," and
"Valuation Period" shall each be defined as specified in the TIAA Real Estate
Account's current Registration Statement.
<PAGE>
IN WITNESS WHEREOF, TIAA and Services have caused this Amendment to
the Agreement to be executed in their names and on their behalf and under their
trust and corporate seals as of this 17th day of April, 2000 by and through
their duly authorized officers effective as provided above.
TEACHERS INSURANCE AND ANNUITY
ATTEST: ASSOCIATION OF AMERICA
By:
- ------------------------------ -----------------------------------
Title:
TIAA-CREF INDIVIDUAL &
ATTEST: INSTITUTIONAL SERVICES, INC.
By:
- ------------------------------ -----------------------------------
Title:
<PAGE>
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
730 THIRD AVENUE, NEW YORK, N.Y. 10017-3206
TELEPHONE: 800-842-2733
KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
ANNUITANT: [ John D. Professor ]
CERTIFICATE NUMBER: [ B-xxxxxx-x ]
DATE OF ISSUE: [ 07 01 1999 ]
This certificate states the rights that you, the annuitant, have under a Keogh
Group Retirement Annuity contract (the Contract) issued by Teachers Insurance
and Annuity Association of America (TIAA) to [The Chase Manhattan Bank, N.A.]
(the contractholder) under a trust agreement. PLEASE READ YOUR CERTIFICATE. IT
IS IMPORTANT.
GENERAL DESCRIPTION
All premiums for this certificate must be remitted under the terms of your Keogh
plan. You can allocate your TIAA premiums under your certificate between the
Traditional Annuity and the Real Estate Account.
TRADITIONAL ANNUITY. Each premium allocated to the Traditional Annuity under
your certificate buys a definite amount of lifetime income for you, based on the
rate schedule in effect for your certificate at the time the premium is paid.
Your Traditional Annuity accumulation will be credited with a guaranteed
interest rate, and may also be credited with additional amounts declared by
TIAA.
REAL ESTATE ACCOUNT. Each premium allocated to the Real Estate Account under
your certificate buys a number of accumulation units. YOUR REAL ESTATE ACCOUNT
ACCUMULATION IS NOT GUARANTEED, AND MAY INCREASE OR DECREASE DEPENDING ON
INVESTMENT RESULTS.
You may, subject to the terms of your Keogh plan, withdraw all or part of your
accumulation before beginning to receive annuity income. You may transfer
between your Traditional Annuity accumulation and your Real Estate Account
accumulation, or from either of those accumulations to your companion CREF
certificate. Withdrawals and transfers from the Traditional Annuity are subject
to the withdrawal charges, if any, specified in your certificate's rate
schedule. TIAA can establish new rate schedules in the future, but any such
changes would not effect benefits purchased before the change.
When you are ready to start receiving your income, you choose an option from
among those described in your certificate. If you die before you start receiving
your income, your accumulation will provide a death benefit for your
beneficiary.
30 DAY RIGHT TO EXAMINE YOUR CERTIFICATE. You have 30 days from the day you
receive this certificate to examine it and to cancel it if you decide not to
keep it. To cancel this certificate, return it to us at the address shown above.
TIAA will refund all premiums allocated to the Traditional Annuity and the
accumulated value of all premiums allocated to the Real Estate Account. Any
premium taxes and expense charges deducted from premiums will also be refunded.
The certificate will be void as of the issue date, and no benefits will be
provided. If this certificate was issued as a result of a transfer from another
contract or certificate issued by TIAA or CREF, the refund will be reinstated in
such contract or certificate as of the date of cancellation.
THIS CERTIFICATE CANNOT BE ASSIGNED AND IT DOES
NOT PROVIDE FOR LOANS.
If you have any questions about your certificate
or need help to resolve a problem, you can
contact us at the address or phone number above.
/s/ John H. Biggs
Chairman, President and
Chief Executive Officer
GROUP FLEXIBLE PREMIUM
DEFERRED ANNUITY
FIXED AND VARIABLE ACCUMULATIONS
- -------------------------------------------------------------------------------
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<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
INDEX OF PROVISIONS
SECTION
Accumulation
- Definition............................1
- Real Estate Account..................32
- Traditional Annuity..................29
Accumulation Units
- Definition...........................31
- Number of............................35
Additional Amounts.........................30
Annuity Starting Date
- Definition............................2
- Required Beginning...................17
Assignment - Void and of no effect.........60
Benefits
- Based on Incorrect Data..............68
- Requests for.........................71
Business Day................................4
Claims of Creditors
- Protection Against...................61
Commuted Value..............................5
Companion CREF Certificate.................24
Contract
- Consists of..........................23
Correspondence with us.....................71
Death Benefit
- Amount of Payments...................43
- Beneficiary...........................3
- Definition............................6
- Methods of Payment...................42
- Naming Your Beneficiary..............41
- Payment of...........................40
- Payments after Death of Beneficiary..44
Elections and Changes - Procedure for......64
ERISA.......................................7
Funding Vehicle.............................8
General Account.............................9
Income Benefit
- Amount of payments...................39
- Definition...........................10
- Options..............................37
- Post-mortem payments during a 38
guaranteed or fixed period
- Starting payments....................36
Internal Transfers
- Amount................................46
- Availability..........................45
- Crediting.............................49
- Definition............................11
- Effective Date........................47
- Systematic transfers..................48
IRC........................................12
Keogh Plan.................................13
Lapse or Forfeiture
- Protection against...................28
Laws and Regulations
- Compliance with......................70
Lump-sum Benefit
- Amount...............................53
- Availability of......................50
- Definition...........................14
- Effective Date.......................51
- Payment of...........................52
- Systematic withdrawals...............54
Net Investment Factor......................33
Non-Forfeiture of Benefits.................62
Payee......................................15
Payment to an Estate, Trustee, etc.........66
Premiums
- Allocation of........................26
- Payment of...........................25
- Taxes................................27
Proof of Survival..........................69
Rate Schedule
- Benefits Bought under................73
- Change of............................72
- Definition...........................16
Real Estate Account
- Deletion of..........................58
Report of Accumulation.....................59
Second Annuitant...........................18
Separate Account
- Charge................................34
- Definition............................19
- Insulation of.........................57
Service of Process upon TIAA...............67
Spouse's Rights
- Definition............................20
- Right to Benefits.....................55
- Waiver of Rights......................56
Surrender charge...........................21
Tax-Free Rollover
- Right to..............................65
Valuation Day and Valuation Period.........22
Vesting....................................63
- -------------------------------------------------------------------------------
Page 2
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
PART A: ANNUITANT DATA
Certificate Number: [B-xxxxxx-x]
Companion CREF Certificate Number: [P-xxxxxx-x]
Issue Date: [07 01 1999]
Annuity Starting Date: [04 01 2028]
Annuitant: [John D. Professor]
Social Security Number: [xxx-xx-xxxx]
Date of Birth: [03 17 1963]
The validity and effect of the contract under which this certificate is issued
are governed by the laws of the state of [New York].
- -------------------------------------------------------------------------------
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<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
This page has been left blank intentionally.
- -------------------------------------------------------------------------------
Page 4
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
PART B: TERMS USED IN THIS CERTIFICATE
1. Your ACCUMULATION is equal to the sum of your Traditional Annuity
accumulation (described in part D) and your Real Estate Account
accumulation (described in part E). Your accumulation will provide the
benefits described in your certificate.
2. Your ANNUITY STARTING DATE is the date as of which you begin to receive
income benefits from your accumulation under this certificate. Your
scheduled annuity starting date is shown on page 3. You may change your
annuity starting date, as explained in section 36. You must begin to
receive benefits no later than your required beginning date, as described
in section 17.
3. BENEFICIARIES are persons you name, in a form satisfactory to TIAA as
explained in section 41, to receive the death benefit if you die before
your annuity starting date.
4. A BUSINESS DAY is any day that the New York Stock Exchange is open for
trading. A business day ends at 4:00 P.M. Eastern time, or when trading
closes on the New York Stock Exchange, if earlier.
5. The COMMUTED (discounted) VALUE is a one-sum amount paid in lieu of a
series of payments that are not contingent upon the survival of an
annuitant. It is less than the total of those payments, because future
interest, included when computing the series of payments, will not be
earned if payment is to be made in one sum. The commuted value of future
payments is therefore the sum of those payments less the interest from the
date of commutation to the date each payment would have been made. The same
interest rate or rates used in computing the benefit payments will be used
to determine the commuted value.
6. The DEATH BENEFIT is the current value of your accumulation under this
certificate at your death. It will be paid to your beneficiary under one of
the methods set forth in part G if you die before your annuity starting
date.
7. ERISA is the Employee Retirement Income Security Act of 1974, as amended.
8. A FUNDING VEHICLE is an annuity or an investment fund established to
provide retirement benefits from funds remitted under a Keogh retirement
plan.
9. The GENERAL ACCOUNT consists of all of TIAA's assets other than those in
separate accounts.
10. The INCOME BENEFIT is the periodic amount payable to you under one of the
income options set forth in part F. The first payment will be payable as of
your annuity starting date.
11. An INTERNAL TRANSFER is the movement of accumulations between your
Traditional Annuity accumulation and your Real Estate Account accumulation,
or between this certificate and your companion CREF certificate. The
provisions concerning internal transfers are set forth in part H.
- -------------------------------------------------------------------------------
Page 5
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
12. The IRC is the Internal Revenue Code of 1986, as amended. All references to
any section shall be deemed to refer not only to such section but also to
any amendment thereof and any successor statutory provisions.
13. YOUR KEOGH PLAN is a Keogh retirement plan qualifying under IRC section
401(a) or 403(a), in which you are participating as a self-employed person
or an employee of a self-employed person.
14. A LUMP-SUM BENEFIT is a withdrawal in a single sum of all or part of your
accumulation. A withdrawal may be paid to you, to a TIAA IRA contract, or
to another funding vehicle whether or not it is offered by TIAA or CREF.
The amount of a lump-sum benefit paid will be the amount withdrawn, less
any surrender charge assessed against the amount withdrawn from your
Traditional Annuity accumulation in accordance with the applicable rate
schedule or schedules. The provisions concerning lump-sum benefits are set
forth in part I.
15. The PAYEE is a person named to receive any periodic payments or amounts due
under an income option or method of payment of the death benefit:
A) after your death, if the income option that had been chosen was a
one-life annuity with a guaranteed period, the fixed period
annuity, or the minimum distribution annuity;
B) after the death of both you and your second annuitant, if the
income option that had been chosen was a two-life annuity with a
guaranteed period; or
C) after the death of a beneficiary, if the death benefit payment
method that had been chosen was a one-life annuity with a
guaranteed period, a fixed-period annuity, the principal and
interest payment method, or the minimum distribution annuity.
16. The RATE SCHEDULE sets forth the bases for computing the Traditional
Annuity accumulation and the income benefits, death benefits, lump-sum
benefits, and internal transfers arising from it. To the extent permitted
by law, TIAA may change the rate schedule, after no less than three months'
notice to you, for any premiums, additional amounts, or internal transfers
applied to the Traditional Annuity accumulation after the change. No change
of rate schedule will affect benefits bought by premiums, additional
amounts, or internal transfers applied to the Traditional Annuity
accumulation prior to the change. The rate schedule is described in Part L.
17. Your REQUIRED BEGINNING DATE is the latest date on which you can begin to
receive your accumulation in accordance with the minimum distribution rules
of the IRC, without being subject to a federal excise tax. Generally, it is
the April 1 following the calendar year in which you attain 70 1/2 or, if
later, the April 1 following the calendar year in which you retire.
18. The SECOND ANNUITANT is the person you name, when starting to receive your
income under a two-life annuity, to receive an income for life if he or she
survives you. You may name your spouse, or any other person eligible under
TIAA's practices then in effect, to be a second annuitant, subject to the
rights of your spouse, if any, as described in part J.
- -------------------------------------------------------------------------------
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<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
19. SEPARATE ACCOUNT. All premiums and internal transfers credited to the Real
Estate Account become part of a separate account. The Real Estate account
is designated as "VA-2" and was established by TIAA in accordance with New
York law to provide benefits under this certificate and other contracts.
The assets and liabilities of separate account VA-2 are segregated from the
assets and liabilities of the general account, and from the assets and
liabilities of any other TIAA separate account.
20. SPOUSE'S RIGHTS. If you are married, then your spouse is entitled to
benefits, as described in part J.
21. A SURRENDER CHARGE will be assessed against the portion of your Traditional
Annuity accumulation withdrawn or transferred to provide any lump-sum
benefit or internal transfer, as shown in the rate schedule.
22. A VALUATION DAY is any business day, as well as the last calendar day of
each month. A VALUATION PERIOD is the time from the end of a valuation day
to the end of the next valuation day.
PART C: CONTRACT AND PREMIUMS
23. The CONTRACT (including this certificate) constitutes the entire contract
between TIAA and the contractholder, and the provisions therein alone will
govern with respect to the rights and obligations of TIAA, the
contractholder, and you. The sole responsibility of the contractholder is
to serve as a party to the contract. Any employer or trustee of a plan
paying premiums under the contract shall be deemed to accept its terms and
those of the trust agreement under which it has been issued. The payment of
premiums is the consideration for the contract. We have issued this
certificate in return for premiums paid on your behalf.
The contract may be amended by agreement of TIAA and the
contractholder without the consent of any other person, provided that such
change does not reduce any benefit purchased under the contract up to that
time. Any endorsement or amendment of this certificate, waiver of any of
its provisions, or change in rate schedule will be valid only if in writing
and signed by an executive officer or registrar of TIAA. All benefits are
payable at TIAA's home office in New York, NY.
24. COMPANION CREF CERTIFICATE. CREF issued a companion CREF Keogh Group
Retirement Unit-Annuity certificate to you when you received this
certificate. The certificate number is shown on page 3. The College
Retirement Equities Fund (CREF) is a companion organization to TIAA.
25. PREMIUMS for this certificate must be remitted under the terms of your
Keogh plan. Premiums may be stopped at any time without notice to TIAA and
then resumed without payment of any past due premium or penalty of any
kind.
TIAA reserves the right to limit to $300,000 the total premiums
paid on this certificate and any other TIAA annuity contract on your life
in any twelve-month period. TIAA reserves the right to stop accepting
premiums under the contract at any time. TIAA will not accept premiums
after your annuity starting date or prior death. Premiums will be credited
to your
- -------------------------------------------------------------------------------
Page 7
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
certificate as of the end of the business day in which they are
received by TIAA at the location that TIAA will designate by prior written
notice to you.
Elective deferral contributions made to your TIAA or CREF
contracts or certificates may not exceed the annual limits on elective
deferrals described in section 402(g) of the IRC. TIAA will refund the
accumulated value of all excess premiums made to this certificate, as
required by law.
26. ALLOCATION OF PREMIUMS. You allocate premiums between the Traditional
Annuity and the Real Estate Account. If you allocate premiums to the
Traditional Annuity, they increase your Traditional Annuity accumulation.
If you allocate premiums to the Real Estate Account, they purchase
accumulation units in the Real Estate Account. You may change your
allocation for future premiums at any time. TIAA will allocate your
premiums according to the most recent valid instructions we have received
from you in a form acceptable to TIAA. Your Keogh plan may limit your right
to allocate premiums to the Real Estate Account.
TIAA may stop accepting premiums and/or transfers to the Real
Estate Account at any time.
27. PREMIUM TAXES. If state or local government premium taxes are incurred,
they will be deducted from your certificate accumulation.
28. UNCONDITIONAL PROTECTION AGAINST LAPSE OR FORFEITURE. Your certificate will
not lapse after the first premium has been paid. No additional premiums are
required.
PART D: TRADITIONAL ANNUITY ACCUMULATION
29. Your TRADITIONAL ANNUITY ACCUMULATION is equal to:
A) all premiums allocated to the Traditional Annuity under your
certificate ; plus
B) interest credited at the guaranteed interest rate set forth in
the rate schedule; plus
C) any additional amounts credited to the Traditional Annuity under
your certificate; plus
D) any internal transfers to the Traditional Annuity under your
certificate; less
E) any premium taxes incurred by TIAA for your Traditional Annuity
accumulation; less
F) the amount of any lump-sum benefits and internal transfers paid
from the Traditional Annuity; less G) any charges for expenses
and contingencies set forth in the rate schedule; less
H) any amount applied to provide income or death benefits; less
I) any surrender charge assessed.
30. ADDITIONAL AMOUNTS. TIAA may credit additional amounts to your Traditional
Annuity accumulation. TIAA does not guarantee that there will be additional
amounts. TIAA will determine at least annually if additional amounts will
be credited.
Any additional amounts credited to your Traditional Annuity
accumulation will buy benefits for you based on the rate schedule in effect
on the day the additional amounts are
- -------------------------------------------------------------------------------
Page 8
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
credited. Additional amounts may also be paid with any Traditional Annuity
benefits payable to you or your beneficiary.
Any additional amounts credited to your Traditional Annuity
accumulation will be credited under a schedule of additional amount rates
declared by TIAA. For a Traditional Annuity accumulation in force as of the
effective date of such a schedule, the additional amount rates will not be
modified for a period of twelve months following the schedule's effective
date. For any premiums, any additional amounts, and any internal transfers
applied to the Traditional Annuity during the twelve-month period described
in the preceding sentence, TIAA may declare additional amounts at rates
which remain in effect through the end of such twelve-month period.
Thereafter, any additional amount rates declared for such premiums,
additional amounts and internal transfers will remain in effect for periods
of twelve months or more.
PART E: REAL ESTATE ACCOUNT ACCUMULATION AND UNITS
31. ACCUMULATION UNIT. The value of one accumulation unit is calculated at the
end of each valuation day. The value of an accumulation unit is equal to
the previous day's value multiplied by the net investment factor for the
Real Estate Account.
32. Your REAL ESTATE ACCOUNT ACCUMULATION is equal to the number of
accumulation units you own multiplied by the value of one accumulation
unit. Real Estate Account accumulations are variable and are not
guaranteed. They may increase or decrease depending on investment results.
33. The NET INVESTMENT FACTOR for the Real Estate Account for a valuation
period is based on the amount of accrued real estate net operating income,
dividends, interest and other income during the current period, a deduction
of the separate account charge, both realized and unrealized capital gains
and losses incurred, and other accounting adjustments during the current
period. The precise formula for the net investment factor is A divided by
B, as follows:
A) The value of the Real Estate Account's net assets at
the end of the current valuation period, less any
premiums received during the current period.
B) The value of the Real Estate Account's net assets at
the end of the previous valuation period, plus the
net effect of transactions (e.g. internal transfers,
benefit payments) made at the start of the current
valuation period.
34. The SEPARATE ACCOUNT CHARGE covers mortality and expense risk, liquidity
risk, and administrative and investment advisory services. TIAA, at its
discretion, can increase or decrease the separate account charge. The
separate account charge is guaranteed not to exceed 2.50% per year of net
assets.
35. NUMBER OF ACCUMULATION UNITS. Each premium and each internal transfer
applied to the Real Estate Account on your behalf buys a number of
accumulation units equal to the amount of the premium or internal transfer
divided by the value of one accumulation unit as of the end
- -------------------------------------------------------------------------------
Page 9
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
of the business day in which the premium or internal transfer is credited.
The number of accumulation units under your certificate will be decreased
by any premium taxes incurred by TIAA for your Real Estate Account
accumulation and by the application of any accumulation units to any
benefits or internal transfers paid from the Real Estate Account
accumulation under your certificate. Such transactions will decrease the
number of accumulation units under your certificate by an amount equal to
the dollar value of the transaction divided by the value of one
accumulation unit as of the end of the valuation day on which the
transaction becomes effective.
PART F: YOUR INCOME BENEFIT
36. STARTING YOUR INCOME BENEFIT. Payment of your income benefit will begin as
of the annuity starting date you have chosen, if you are then living and:
A) you have chosen one of the income options set forth in section
37;
B) if you choose a one-life annuity, we have received due proof of
your age;
C) if you choose a two-life annuity, we have received due proof of
your age and the age of your second annuitant;
D) if you choose the minimum distribution annuity, we have received
due proof of your age and the age of the calculation beneficiary
you name, if any; and
E) we have received any required waiver of spouse's rights or proof
that you are not married as described in Part J.
If the requirements of this section have not been completed by the
annuity starting date you have chosen, the annuity starting date will be
deferred to a date after these requirements have been completed, or if
earlier, to your required beginning date. You may not begin a one-life
annuity after you attain age 90, nor may you begin a two-life annuity after
you or your second annuitant attain age 90. If your accumulation is less
than $5,000 on your annuity starting date, TIAA may choose instead to pay
your accumulation to you in a single sum.
At any time before you start to receive your income benefit, you may
change your annuity starting date to a date after the change, by written
notice to TIAA as explained in section 64. The new date you choose may not
be later than your required beginning date.
37. INCOME OPTIONS are the ways in which you may have your income benefit paid
to you. The minimum distribution option is available from your Traditional
Annuity and Real Estate Account accumulations. The other income options are
available from your Traditional Annuity accumulation only. You can transfer
some or all of your Real Estate Account accumulation to your Traditional
Annuity accumulation to receive benefits under an income option available
from the Traditional Annuity. Also, you may transfer some or all of your
Real Estate Account accumulation to your companion CREF certificate, as
described in section 46, to receive income under an income option available
under that certificate. The value of your accumulation will be the
consideration for a TIAA individual payout annuity contract providing for
the income option you choose.
You may choose the option you want any time before your annuity
starting date. You may change your choice any time before payments begin,
but once they have begun no change
- -------------------------------------------------------------------------------
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YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
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can be made. Any choice of option or change of such choice must be made by
written notice to TIAA as explained in section 64.
Your right to elect an option or change such election may be limited
in accordance with section 70. If you are married, your choice of an income
option is subject to the rights of your spouse, if any, to benefits as
explained in part J.
The following are the income options from which you may choose. All of
them provide an income for you, some provide that payments will continue
for the lifetime of a second annuitant and some provide that payments will
continue in any event during a guaranteed period as explained in section
38. The periodic amount paid to you or a surviving second annuitant depends
on which of these options you choose.
ONE-LIFE ANNUITY. A payment will be made to you each month for as long
as you live. You may include a guaranteed period of 10, 15 or 20
years. If you do not include a guaranteed period, all payments will
cease at your death. If you include a guaranteed period and you die
before the end of that period, monthly payments will continue until
the end of that period and then cease.
TWO-LIFE ANNUITY. A payment will be made to you each month for as long
as you live. After your death, a payment will be made each month to
the second annuitant you have named, for as long as he or she survives
you. You cannot change your choice of second annuitant after your
payments begin. You may include a guaranteed period of 10, 15 or 20
years. If you do not include a guaranteed period, all payments will
cease at the death of the last survivor of you and your second
annuitant. You may choose from among the following forms of two-life
annuity.
FULL BENEFIT TO SURVIVOR. At the death of either you or your
second annuitant, the full amount of the monthly payments that
would have been paid if you both had lived will continue to the
survivor. If you include a guaranteed period and you and your
second annuitant both die before the end of the period chosen,
the full amount of the monthly payments that would have been paid
if you both had lived will continue until the end of that period
and then cease.
TWO-THIRDS BENEFIT TO SURVIVOR. At the death of either you or
your second annuitant, two-thirds of the monthly payments that
would have been paid if you both had lived will continue to the
survivor. If you include a guaranteed period and you and your
second annuitant both die before the end of the period chosen,
two-thirds of the monthly payments that would have been paid if
you both had lived will continue until the end of that period and
then cease.
HALF BENEFIT TO SECOND ANNUITANT. The full monthly income will
continue as long as you live. After your death, if your second
annuitant survives you, one-half of the monthly payments that
would have been paid if you had lived will continue to your
second annuitant. If you include a guaranteed period and you and
your second annuitant both die before the end of the period
chosen, one-half of the monthly payments that would have been
paid if you had lived will continue until the end of that period
and then cease.
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FIXED-PERIOD ANNUITY. A payment of principal and interest will be
made to you each month for a fixed period you choose that is not
less than 5 nor more than 30 years. At the end of the period
chosen all the principal and interest credited will have been
paid out. If you die before the end of the period chosen, the
monthly payments will continue until the end of that period and
then cease.
MINIMUM DISTRIBUTION ANNUITY. This income option enables you to
limit your distribution to the minimum distribution requirements
of federal tax law. Payments will be made to you from your
accumulation until your accumulation is entirely paid out, or
until your prior death. This option may not provide income that
lasts for your entire lifetime.
If you die before your entire accumulation has been paid
out, a death benefit equal to your remaining accumulation will be
paid to the person or persons you name when electing this option.
This income option is only available on or after your
required beginning date. The value of the accumulation placed
under this option must be at least $10,000.
AUTOMATIC ELECTION PROVISION. If on your required beginning date,
you have not met the requirements for starting your income benefit
described in section 36, you will be deemed to have chosen a one-life
annuity if you are then single, or the "half benefit to second
annuitant" form of the two-life annuity if you are then married. If
allowed under federal tax law, a 10-year guaranteed period will be
included.
38. POST-MORTEM PAYMENTS DURING A GUARANTEED OR FIXED PERIOD. Any periodic
payments or other amounts remaining due after your death and the death of
your second annuitant, if any, during a guaranteed or fixed period will be
paid to the payee named to receive them. You name the payee at the time you
choose the income option, as described in section 64. You may later change
the named payee. If you choose a two-life annuity, your surviving second
annuitant may change the named persons after your death, unless you direct
otherwise.
A payee may choose to receive, in one sum the commuted value of any
remaining periodic payments that do not involve life contingencies, unless
you direct otherwise. If no payee was named to receive these payments, or
if no one so named is then living, we will pay the death benefit or the
commuted value of the remaining periodic payments in one sum to your
estate, or to the estate of the last survivor of you and your second
annuitant if you chose a two-life annuity.
If a payee receiving payments under a guaranteed or fixed period or
death benefit option dies while payments remain due, the commuted value of
any remaining payments or the remaining death benefit due to that person
will be paid to any other surviving payee that you (or your second
annuitant) had named to receive them. If no payee so named is then living,
the commuted value or remaining death benefit will be paid to the estate of
the last payee who was receiving these benefit payments.
39. The AMOUNT OF YOUR PERIODIC INCOME BENEFIT as of your annuity starting date
will be determined by:
A) the amount of your Traditional Annuity accumulation;
B) if you choose the minimum distribution annuity, the amount of
your Real Estate Account accumulation;
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C) the rate schedule or schedules under which any premiums,
additional amounts and internal transfers were applied to your
Traditional Annuity accumulation;
D) the income option you choose;
E) if you choose a one-life annuity, your age;
F) if you choose a two-life annuity, your age and your second
annuitant's age; and
G) if you choose the minimum distribution annuity, your age and the
age of the calculation beneficiary you name under the minimum
distribution annuity, if any.
If your income benefit would be less than $100 a month, TIAA will have
the right to change to quarterly, semi-annual or annual payments, whichever
will result in payments of $100 or more and the shortest interval between
payments.
PART G: DEATH BENEFIT
40. PAYMENT OF THE DEATH BENEFIT. If you die before your annuity starting date,
the death benefit will be payable to your beneficiary. We must receive the
following in a form acceptable to TIAA before payment can begin:
A) due proof of your death;
B) the choice of a method of payment as provided in section 42; and
C) due proof of the beneficiary's age if the method of payment
chosen is the one-life annuity or the minimum distribution
annuity.
Payment under the single-sum payment method will be made as of the
date we receive these items; payment under any other method of payment will
start no later than the first day of the month after we have received these
items.
41. NAMING YOUR BENEFICIARY. Beneficiaries are persons you name to receive the
death benefit if you die before your annuity starting date. At any time
before your annuity starting date, you may name, change, add or delete your
beneficiaries by written notice to TIAA, as explained in section 64. Your
right to name a beneficiary for the death benefit is subject to the rights
of your spouse, if any, as described in part J.
You can name two "classes" of beneficiaries, primary and contingent,
which set the order of payment. At your death, your "beneficiaries" are the
surviving primary beneficiary or beneficiaries you named. If no primary
beneficiary survives you, your "beneficiaries" are the surviving contingent
beneficiary or beneficiaries you named.
If a class contains more than one person, the death benefit will be
paid in equal shares to the then living persons in the class, unless you've
explicitly provided otherwise. For example, if you name your spouse as
primary beneficiary and your "children" as contingent beneficiaries, your
spouse would receive the death benefit if he or she survived you. But if
your spouse did not survive you, then your surviving children would receive
the death benefit in equal shares. The share of any named beneficiary in a
class who does not survive will be allocated in equal shares to the
beneficiaries in such class who do survive, even if you've provided for
these beneficiaries to receive unequal shares.
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The death benefit will be paid to your estate in one sum if you name
your estate as beneficiary, or if none of the beneficiaries you have named
is alive at the time of your death. If at your death you never named a
beneficiary, TIAA will pay the death benefit as follows:
A) if you leave no surviving spouse, the death benefit will be paid
to your estate in one sum;
B) if you leave a surviving spouse, one-half of the death benefit
will be paid to your spouse under one of the methods of payment.
The remainder of the death benefit will be paid to your estate in
one sum.
If at your death your beneficiary designation conflicts with any
rights of your spouse under law that were not previously waived, TIAA will
pay the death benefit in accordance with your spouse's rights, as described
in section 55.
42. METHODS OF PAYMENT are the ways in which your beneficiary may receive the
death benefit. The minimum distribution annuity and single-sum payment
methods are available from your Traditional Annuity and Real Estate Account
accumulations. The other methods are available from the Traditional Annuity
only. Your beneficiary can, however, transfer some or all of your Real
Estate Account accumulation to the Traditional Annuity in order to receive
that portion of the death benefit under a method of payment available from
the Traditional Annuity. Your beneficiary can also transfer some or all of
your accumulation to CREF in order to receive that portion of the death
benefit under a method of payment offered by CREF. Such transfer can be for
all of your accumulation, or for any part thereof not less than $1,000. For
all methods except single-sum, the death benefit will be the consideration
for a TIAA individual payout contract providing for the method of payment
chosen.
You may choose the method of payment and change your choice at any
time before payments begin. After your death, your beneficiary may change
the method chosen by you, if you so provide. If you do not choose a method
of payment, your beneficiary will make the choice when he or she becomes
entitled to payments. If the amount of the death benefit due to any one
beneficiary is less than $5,000, TIAA may change the method of payment for
the portion of the death benefit payable to that beneficiary to the
single-sum payment method. The right to elect a method or change such
election may be limited in accordance with section 70.
A beneficiary may not begin to receive the death benefit under the
one-life annuity method after he or she attains age 90. If you die before
your annuity starting date and have chosen the one-life annuity method for
a beneficiary who has attained age 90, he or she must choose another
method. Any choice of method or change of such choice must be made by
written notice to TIAA, as explained in section 64.
The death benefit must be applied under a chosen method of payment
within one year of the date of your death; otherwise payments will be made
to your beneficiary beginning no later than the first anniversary of your
date of death, under the "Fixed-period annuity" method for a period of 5
years with payments made annually. The following are the methods of payment
from which you may choose.
SINGLE-SUM PAYMENT. The death benefit will be paid to your beneficiary
in one sum.
ONE-LIFE ANNUITY. A payment will be made to your beneficiary each
month for life. A guaranteed period of 10, 15 or 20 years may be
included. If a guaranteed period isn't included, all payments will
cease at the death of your beneficiary. If a guaranteed
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period is included and your beneficiary dies before the end of that
period, monthly payments will continue until the end of that period
and then cease, as explained in section 44.
FIXED-PERIOD ANNUITY. A payment will be made to your beneficiary each
month for a fixed period of not less than 5 nor more than 30 years, as
chosen. At the end of the period chosen, the entire death benefit will
have been paid out. If your beneficiary dies before the end of the
period chosen, the monthly payments will continue until the end of
that period and then cease, as explained in section 44.
PRINCIPAL AND INTEREST PAYMENTS. A payment of interest on the death
benefit will be made to your beneficiary each month for a chosen
period of not less than 2 nor more than 30 years. At the end of the
period chosen, TIAA will pay the death benefit to your beneficiary. If
your beneficiary dies while any part of the death benefit is held by
TIAA, that amount will be payable as explained in section 44.
MINIMUM DISTRIBUTION ANNUITY. This method enables your beneficiary to
limit his or her distribution to the minimum distribution requirements
of federal tax law. Payments are made from your accumulation in each
year that a distribution is required, until your accumulation is
entirely paid out or until your beneficiary dies. This method may not
provide income for your beneficiary that lasts for his or her entire
lifetime. If your beneficiary dies before the entire accumulation has
been paid out, the remaining accumulation will be paid in one sum to
the payee named to receive it. The value of the death benefit placed
under this method must be at least $10,000.
43. The AMOUNT OF PERIODIC DEATH BENEFIT PAYMENTS will be determined as of the
date payments are to begin by:
A) the amount of your Traditional Annuity accumulation;
B) if the method chosen is the minimum distribution annuity, the
amount of your Real Estate Account accumulation;
C) the rate schedule or schedules under which any premiums,
additional amounts and internal transfers were applied to your
Traditional Annuity accumulation;
D) the method of payment chosen for the death benefit; and
E) if the method chosen is the one-life annuity or the minimum
distribution annuity, the age of your beneficiary.
If any method chosen, except principal and interest payments, would
result in payments of less than $100 a month, TIAA will have the right to
require a change in choice that will result in payments of not less than
$100 a month.
44. PAYMENTS AFTER THE DEATH OF A BENEFICIARY. Any periodic payments or other
amounts remaining due after the death of your beneficiary during a
guaranteed or fixed period will be paid to the payee named by you or your
beneficiary to receive them, by written notice to TIAA as explained in
section 64. The commuted value of these payments may be paid in one sum
unless we are directed otherwise.
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If no payee has been named to receive these payments, or if no one so
named is living at the death of your beneficiary, the commuted value will
be paid in one sum to your beneficiary's estate.
If a payee receiving these payments dies before the end of the
guaranteed or fixed period, the commuted value of any payments still due
that person will be paid to any other payee named to receive it. If no one
has been so named, the commuted value will be paid to the estate of the
last payee who was receiving these payments.
If your beneficiary dies while any part of the death benefit is held
by TIAA under the principal and interest payments method or the minimum
distribution annuity, that amount will be paid in one sum to the payee you
or your beneficiary have named to receive it. If no such person survives
your beneficiary, the death benefit will be paid in one sum to your
beneficiary's estate.
PART H: INTERNAL TRANSFERS
45. AVAILABILITY OF INTERNAL TRANSFERS. You may transfer between your
Traditional Annuity accumulation and your Real Estate Account accumulation.
In addition, you may transfer all or part of your Traditional Annuity
accumulation or your Real Estate Account accumulation to your companion
CREF certificate. If you have an accumulation in your companion CREF
certificate, you may (subject to its provisions) transfer from that
certificate to this certificate. TIAA reserves the right to limit internal
transfers to not more than one in a calendar quarter. Any internal transfer
to or from CREF is subject to the terms of your companion CREF certificate,
CREF's Rules of the Fund and your Keogh plan.
46. AMOUNT OF INTERNAL TRANSFER. You can transfer all of your Traditional
Annuity accumulation or your Real Estate Account accumulation, or for any
part thereof not less than $1,000. If you choose to transfer from your
Traditional Annuity accumulation, we will apply to the Real Estate Account
or to your companion CREF certificate, the amount to be transferred less
any surrender charge in accordance with the applicable rate schedule or
schedules. No surrender charge applies to any internal transfer from your
Real Estate Account accumulation. Your Keogh plan may limit your right to
transfer to the Real Estate Account or to a CREF account.
An internal transfer reduces the accumulation from which it is paid by
the amount transferred, including any surrender charge. If you transfer
from your Traditional Annuity accumulation and different rate schedules
apply to different parts of the Traditional Annuity accumulation, the
reduction will be allocated among the parts on a pro rata basis.
47. EFFECTIVE DATE OF INTERNAL TRANSFER. An internal transfer will be effective
as of the end of the business day in which we receive, in a form acceptable
to TIAA, your request for an internal transfer. You may defer the effective
date of the internal transfer until any valuation day following the date on
which we receive your request. TIAA will determine all values as of the end
of the effective date. You can't revoke a request for an internal transfer
after its effective date.
48. SYSTEMATIC TRANSFERS. You may elect to have transfers made on a systematic
basis. Systematic transfers may be made semi-monthly, monthly, quarterly,
semi-annually or annually. Semi-monthly transfers are made twice a month,
with the second payment scheduled 14 days after
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the first payment. You choose which day the transfer will be made, except
that if the date of a scheduled transfer is not a business day, the
transfer will be made on the preceding business day. Transfers will
continue until you tell us to stop or your Traditional Annuity accumulation
or Real Estate Account accumulation are insufficient to support the
transfer. Systematic transfers are subject to all the provisions described
above for transfers, except that a reduced minimum amount of $100 applies
to such transfers.
49. CREDITING INTERNAL TRANSFERS. Internal transfers to your Traditional
Annuity accumulation are received by the general account as of the
beginning of the day following the effective date of the internal transfer.
Internal transfers to your Real Estate Account accumulation purchase
accumulation units as of the end of the effective date of the internal
transfer. TIAA may stop accepting internal transfers to the Real Estate
Account at any time.
PART I: LUMP-SUM BENEFITS
50. AVAILABILITY OF THE LUMP-SUM BENEFIT. You may, subject to the terms of your
Keogh plan and the limits described below, withdraw as a lump-sum benefit
all of your Traditional Annuity accumulation or Real Estate Account
accumulation, or any part thereof not less than $1,000. TIAA reserves the
right to limit lump-sum benefits to not more than one in a calendar
quarter.
If you are married, your right to receive a lump-sum benefit is
subject to the rights of your spouse as described in part J.
Your Keogh plan may restrict distributions before age 59 1/2, as
described in section 70.
51. EFFECTIVE DATE OF A LUMP-SUM BENEFIT. Any choice of lump-sum benefit must
be made by written notice to TIAA on or before the day your income benefits
begin, as explained in section 64. A lump-sum benefit will be effective as
of the business day we receive, in a form acceptable to TIAA:
A) your request for a lump-sum benefit; and
B) a waiver of spouse's rights or proof that you are not married.
You may choose to defer the effective date of the lump-sum benefit
until any valuation day following the date on which we receive the above
requirements. TIAA will determine all values as of the end of the effective
date. You can't revoke a request for a lump-sum benefit after its effective
date.
52. PAYMENT OF LUMP-SUM BENEFIT. A lump-sum benefit may be paid:
A) to you as a cash withdrawal;
B) to another funding vehicle as a direct transfer under federal tax
law; or
C) to a TIAA IRA contract, or to a funding vehicle whether or not it
is offered by TIAA or CREF, as a tax-free rollover as described
in section 65.
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53. AMOUNT OF A LUMP-SUM BENEFIT. If you choose a lump-sum benefit from your
Traditional Annuity accumulation, we will pay the part of your Traditional
Annuity accumulation you choose, less any surrender charge in accordance
with the applicable rate schedule or schedules. If you choose a lump-sum
benefit from your Real Estate Account accumulation, we will pay the part of
your Real Estate Account accumulation you choose.
Payment of a lump-sum benefit reduces the accumulation from which it
is paid by the amount chosen. If you choose a lump-sum benefit from your
Traditional Annuity accumulation and different rate schedules apply to
different parts of your Traditional Annuity accumulation, the reduction
will be allocated among the parts on a pro-rata basis.
TIAA may defer the payment of a Traditional Annuity lump-sum benefit
for up to six months.
54. SYSTEMATIC WITHDRAWALS. You may elect to have lump-sum benefits made on a
systematic basis. Systematic withdrawals may be made semi-monthly, monthly,
quarterly, semi-annually or annually. Semi-monthly withdrawals are made
twice a month, with the second payment scheduled 14 days after the first
payment. You choose which day the lump-sum benefit will be paid, except
that if the date of a scheduled lump-sum benefit is not a business day, it
will be paid on the preceding business day. Withdrawals will continue until
you tell us to stop or the portion of your accumulation available for
withdrawal is insufficient to support the benefit. Systematic withdrawals
are subject to all the provisions described above for lump-sum benefits,
except that a reduced minimum amount of $100 applies.
PART J : SPOUSE'S RIGHTS TO BENEFITS
55. SPOUSE'S RIGHTS TO BENEFITS. If you are married, your rights to choose
certain benefits are restricted by the rights of your spouse to benefits as
follows:
SPOUSE'S SURVIVOR RETIREMENT BENEFIT. If you are married on your
annuity starting date, your income benefit must be paid under a
two-life annuity with your spouse as second annuitant.
SPOUSE'S SURVIVOR DEATH BENEFIT. If you die before your annuity
starting date and your spouse survives you, the payment of the death
benefit to your named beneficiary is subject to your spouse's right to
receive a death benefit of one-half of any part of your accumulation
attributable to contributions made under a plan subject to ERISA.
Your spouse may consent to a waiver of his or her rights to these
benefits, as explained in section 56.
56. WAIVER OF SPOUSE'S RIGHTS. Your spouse must consent to a waiver of his or
her rights to survivor benefits before you can choose:
A) an income option other than a two-life annuity with your spouse
as second annuitant; or
B) beneficiaries who are not your spouse for more than half of the
death benefit; or
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C) a lump-sum benefit.
In order to waive the rights to spousal survivor benefits, if you are
married, we must receive, in a form satisfactory to TIAA, your spouse's
written consent, or a satisfactory verification that your spouse cannot be
located. A waiver of rights with respect to an income option or a lump-sum
benefit must be made in accordance with the IRC and ERISA. A waiver of the
survivor death benefit may not be effective if it is made prior to the plan
year in which you reach age 35, or, if earlier, your separation from
service of your employer.
Verification of your marital status may be required, in a form
satisfactory to TIAA, for purposes of establishing your spouse's rights to
benefits or a waiver of these rights. You may revoke a waiver of your
spouse's rights to benefits at any time during your lifetime. Your spouse
may not revoke a consent after the consent has been given.
PART K: GENERAL PROVISIONS
57. INSULATION OF THE SEPARATE ACCOUNT. TIAA owns the assets in separate
account VA-2. To the extent permitted by law, the assets of the separate
account will not be charged with liabilities arising out of any other
business TIAA may conduct. All income, gains and losses of the separate
account, whether or not realized, will be credited to or charged against
only that account without regard to TIAA's other income, gains or losses.
58. DELETION OF THE REAL ESTATE ACCOUNT. TIAA may delete the Real Estate
Account. If you own accumulation units in the Real Estate Account and it is
deleted, you must transfer them to your Traditional Annuity accumulation or
to your companion CREF certificate. If you don't tell us where to transfer
your accumulation units, we'll transfer them to the CREF Money Market
Account under your companion CREF certificate.
59. REPORT OF ACCUMULATION. At least once each year, we will provide you with a
report for your certificate showing the value of your accumulation (death
benefit).
60. NO ASSIGNMENT OR TRANSFER. Neither you nor any other person may assign,
pledge, or transfer ownership of this certificate or any benefits under its
terms. Any such action will be void and of no effect. The contract is
incontestable.
61. PROTECTION AGAINST CLAIMS OF CREDITORS. The benefits and rights accruing to
you or any other person under this certificate are exempt from the claims
of creditors or legal process to the fullest extent permitted by law.
62. NON-FORFEITURE OF BENEFITS. Amounts payable under this certificate will not
be less than the minimum required as of the date of issue by any statute of
the state or other jurisdiction in which this certificate is delivered.
Your accumulation and any benefits purchased cannot be forfeited under this
certificate.
63. VESTING. Subject to your Keogh plan, the right to receive and exercise
every benefit, option, right and privilege conferred by this certificate
may not be immediately vested in you. Your
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right to receive and exercise such benefits, options, rights and
privileges will commence on your vesting date as determined in accordance
with your Keogh plan.
64. PROCEDURE FOR ELECTIONS AND CHANGES. You (or your beneficiaries after your
death) have to make any choice or changes available under your certificate
in a form acceptable to TIAA at our home office in New York, NY. If you (or
your beneficiaries after your death) send us a notice changing your
beneficiaries or other persons named to receive payments, it will take
effect as of the date it was signed even if you (or any other signer) then
die before the notice actually reaches TIAA. Any other notice will take
effect as of the date TIAA receives it. If TIAA takes any action in good
faith before receiving the notice, we won't be subject to liability even if
our acts were contrary to what you told us in the notice.
65. RIGHT TO A TAX-FREE ROLLOVER. If you or your surviving spouse (or your
spouse or former spouse as an alternate payee under a qualified domestic
relations order) receive a distribution from your certificate which
qualifies as an eligible rollover distribution under IRC section 402(c)(4),
any portion of it may be paid as a direct rollover to an eligible
retirement plan. An eligible retirement plan is:
A) an individual retirement account or annuity described in IRC
section 408;
B) if your contract is part of a qualified plan described in IRC
section 401(a) or 403(a), another plan qualified under IRC
section 401(a) or 403(a) that accepts the eligible rollover
distribution.
An eligible retirement plan for a surviving spouse is only an
individual retirement account or annuity described in IRC section 408.
66. PAYMENT TO AN ESTATE, TRUSTEE, ETC. TIAA reserves the right to pay in one
sum the commuted value of any benefits due an estate, corporation,
partnership, trustee or other entity that isn't a natural person. TIAA
won't be responsible for the acts or neglects of any executor, trustee,
guardian, or other third party receiving payments under your contract.
If you designate a trustee of a trust as beneficiary, TIAA is not
obliged to inquire into the terms of the underlying trust or any will.
If death benefits become payable to the designated trustee of a
testamentary trust, but:
A) no qualified trustee makes claim for the benefits within nine
months after your death; or
B) evidence satisfactory to TIAA is presented at any time within
such nine-month period that no trustee can qualify to receive the
benefits due,
payment will be made to the successor beneficiaries, if any are designated
and survive you; otherwise payment will be made to the executors or
administrators of your estate.
If benefits become payable to an inter-vivos trustee, but the trust is
not in effect or there is no qualified trustee, payment will be made to the
successor beneficiaries, if any are designated and survive you; otherwise
payment will be made to the executors or administrators of your estate.
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Payment to any trustee, successor beneficiary, executor, or
administrator, as provided for above, shall fully satisfy TIAA's payment
obligations under this contract to the extent of such payment.
67. SERVICE OF PROCESS UPON TIAA. We will accept service of process in any
action or suit against us on this certificate in any court of competent
jurisdiction in the United States or Puerto Rico provided such process is
properly made. We will also accept such process sent to us by registered
mail if the plaintiff is a resident of the jurisdiction in which the action
or suit is brought. This section does not waive any of our rights,
including the right to remove such action or suit to another court.
68. BENEFITS BASED ON INCORRECT DATA. If the amount of benefits is determined
by data as to a person's age or any other factor that is incorrect,
benefits will be recalculated on the basis of the correct data. Any amounts
underpaid by TIAA on the basis of the incorrect data will be paid at the
time the correction is made. Any amounts overpaid by TIAA on the basis of
the incorrect data will be charged against the payments due after the
correction is made. Any amounts so paid or charged will include compound
interest at the effective rate of 6% per year.
69. PROOF OF SURVIVAL. TIAA reserves the right to require satisfactory proof
that anyone named to receive benefits under the terms of your certificate
is alive on the date any benefit payment is due. If this proof is not
received after it has been requested in writing, TIAA will have the right
to make reduced payments or to withhold payments entirely until such proof
is received. If under a two-life annuity TIAA has overpaid benefits because
of a death of which we were not notified, subsequent payments will be
reduced or withheld until the amount of the overpayment, plus compound
interest at the effective rate of 6% per year, has been recovered.
70. COMPLIANCE WITH THE TERMS OF YOUR KEOGH PLAN, AND LAWS AND REGULATIONS.
TIAA will administer your certificate to comply with the restrictions of
all laws and regulations pertaining to the terms and conditions of your
certificate. You cannot elect any benefit or exercise any right under your
certificate if the election of that benefit or exercise of that right is
prohibited under an applicable state or federal law or regulation.
The choice of income option, annuity starting date, beneficiary or
second annuitant, method of payment of the death benefit, and the
availability of internal transfers and lump-sum benefits as set forth in
this certificate are subject to the applicable restrictions, distribution
requirements, and incidental benefit requirements of ERISA and the IRC, and
any rulings and regulations issued under ERISA and the IRC.
Distributions from your certificate are subject to the restrictions of
your Keogh plan.
71. CORRESPONDENCE AND REQUESTS FOR BENEFITS. No notice, application, form, or
request for benefits will be deemed to be received by us unless it is
received at our home office. All benefits are payable at our home office.
If you have any questions about the contract, your certificate, or our
service, or if you need help to resolve a problem, you can contact us at
the address or phone number below.
TIAA
730 Third Avenue
New York, NY 10017-3206
- -------------------------------------------------------------------------------
Page 21
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
Telephone: 800 842-2733
PART L: RATE SCHEDULE
72. CHANGE OF RATE SCHEDULE. We may, at any time and from time to time,
substitute a new rate schedule for the one in your current certificate. A
new rate schedule will apply only to benefits arising from any premiums,
additional amounts, and internal transfers applied to the Traditional
Annuity while such rate schedule is in effect. Any change in the rate
schedule will not affect the amount of benefits purchased prior to the
change by any premiums, additional amounts, and internal transfers applied
to the Traditional Annuity. Any change in the interest rate credited before
your annuity starting date or your prior death is subject to the minimum
rate specified in the applicable state nonforfeiture law, if any, or if
none, the applicable National Association of Insurance Commissioners model
nonforfeiture law. Any change in the charge for expenses or contingencies,
or in the surrender charge, must comply with any applicable state
nonforfeiture law. A change in the rate schedule will be made only after we
have given you and the contractholder three months' written notice of the
change. Any such change will also be made to all other Keogh Retirement
Annuity certificates written on this certificate form and delivered in the
jurisdiction shown on page 3. Any new rate schedule will specify:
A) the charges for expenses and contingencies;
B) the interest rates and the mortality bases used for determining
benefits arising from amounts applied to the Traditional Annuity;
and
C) any applicable surrender charges on lump-sum benefits and
internal transfers arising from amounts applied to the
Traditional Annuity.
73. RATE SCHEDULE. The benefits bought by any premiums, additional amounts and
internal transfers applied to the Traditional Annuity while this rate
schedule is in effect will be computed on this basis:
(1) no deduction for expenses or contingencies;
(2) interest at the effective annual rate of 3% from the end of the
day on which the premium, additional amount or internal transfer
is received to your annuity starting date or the date death
benefits begin, and at the effective annual rate of 2 1/2%
thereafter;
(3) a deduction for any premium taxes incurred by TIAA for your
certificate; and
(4) mortality according to the 1983 Table A (Merged Gender Mod C).
- -------------------------------------------------------------------------------
Page 22
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
- -------------------------------------------------------------------------------
These rates cease to apply to any Traditional Annuity accumulations
that you transfer to the Real Estate Account or to your companion CREF
certificate.
A SURRENDER CHARGE of 0% will be assessed against any lump-sum benefit
or internal transfer paid from the portion of your Traditional Annuity
accumulation arising from premiums, additional amounts and internal
transfers applied to the Traditional Annuity while this rate schedule is in
effect.
BETTERMENT OF RATES. When you or your beneficiary begin benefits under
a one-life or two-life annuity, we will compute any benefits provided by
the portion of your Traditional Annuity accumulation resulting from amounts
applied to the Traditional Annuity while this rate schedule is in effect on
the basis stated above, or, if it produces a larger guaranteed benefit, on
the basis then in use for any single premium immediate annuities offered by
TIAA.
- -------------------------------------------------------------------------------
Page 23
<PAGE>
YOUR TIAA KEOGH GROUP RETIREMENT ANNUITY CERTIFICATE
------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
GUARANTEED ANNUAL AMOUNT OF INCOME BENEFITS UNDER A
ONE-LIFE ANNUITY WITH 10-YEAR GUARANTEED PERIOD OPTION
PURCHASED BY A SINGLE PREMIUM OF $100 CREDITED TO THE TRADITIONAL ANNUITY
One-twelfth of the amount shown is payable each month.
- ---------------------------------------------------------------------------------------------------------------
Age Age Age
Attained Attained Attained
When Annuity Beginning at When Annuity Beginning at When Annuity Beginning at
Premium Premium Premium
is Paid* Age 60 Age 65 Age 70 is Paid* Age 60 Age 65 Age 70 is Paid* Age 60 Age 65 Age 70
- -------- ------ ------ ------ -------- ------ ------ ------ -------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 $14.76 $18.78 $24.29 37 $ 8.92 $11.36 $14.69 54 $ 5.40 $ 6.88 $ 8.89
21 14.33 18.24 23.58 38 8.67 11.03 14.27 55 5.24 6.67 8.63
22 13.91 17.71 22.89 39 8.41 10.71 13.85 56 5.09 6.48 8.38
23 13.50 17.19 22.22 40 8.17 10.40 13.45 57 4.94 6.29 8.13
24 13.11 16.69 21.58 41 7.93 10.09 13.05 58 4.79 6.11 7.90
25 12.72 16.21 20.95 42 7.70 9.80 12.67 59 4.66 5.93 7.67
26 12.35 15.73 20.34 43 7.47 9.52 12.31 60 4.52 5.76 7.44
27 12.00 15.27 19.75 44 7.26 9.24 11.95 61 5.59 7.23
28 11.65 14.83 19.17 45 7.04 8.97 11.60 62 5.43 7.01
29 11.31 14.40 18.61 46 6.84 8.71 11.26 63 5.27 6.81
30 10.98 13.97 18.07 47 6.64 8.46 10.93 64 5.12 6.62
31 10.66 13.57 17.55 48 6.45 8.21 10.62 65 4.97 6.42
32 10.35 13.18 17.03 49 6.26 7.97 10.31 66 6.23
33 10.05 12.79 16.54 50 6.08 7.74 10.01 67 6.05
34 9.75 12.42 16.06 51 5.90 7.51 9.71 68 5.87
35 9.47 12.06 15.59 52 5.73 7.29 9.43 69 5.71
36 9.19 11.70 15.13 53 5.56 7.08 9.15 70 5.54
- ---------------------------------------------------------------------------------------------------------------
The yearly payments shown above are those that result from a premium of $100 paid or credited to the
Traditional Annuity when you have reached an age shown in the "Age Attained" column, but have not passed that
birthday by as much as one month. All ages used in computing benefits are calculated in completed years and
months. Payments at ages other than those shown, and under other income options, are computed on the basis
stated in the rate schedule for benefits bought by premiums. For premiums other than $100, payments will be
proportionate.
* Premiums are considered to be paid, and will be credited to your certificate, as of the end of the business
day on which they are received.
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
GROUP FLEXIBLE PREMIUM
DEFERRED ANNUITY
FIXED AND VARIABLE ACCUMULATIONS
- -------------------------------------------------------------------------------
Page 24
<PAGE>
[TIAA LOGO]
730 Third Avenue
New York, New York 10017-3206
212 490-9000
April 24, 2000
Board of Trustees of
Teachers Insurance and Annuity Association
730 Third Avenue
New York, New York 10017-3206
Ladies and Gentlemen:
This opinion is furnished in connection with Post-Effective
Amendment No. 6 to the Registration Statement on Form S-1 (File No. 333-22809)
(the "Registration Statement") of the TIAA Real Estate Account (the "Account")
being filed with the Securities and Exchange Commission under the Securities Act
of 1933. Interests in the Account are offered through endorsements to certain
individual, group and tax-deferred annuity contracts and through income-paying
contracts (collectively, the "Contracts") issued by Teachers Insurance and
Annuity Association of America ("TIAA").
I have examined the Charter, Bylaws and other corporate records
of TIAA, including TIAA's Plan of Operations for Separate Account Business, and
other organizational records of the Account, and the relevant statutes and
regulations of the State of New York. On the basis of such examination, it is my
opinion that:
1. TIAA is a nonprofit life insurance company duly organized
and validly existing under the laws of the State of New
York.
2. The Account is a "separate account" of TIAA within the
meaning of Section 4240 of the New York Insurance Law, duly
established by a resolution of TIAA's Board of Trustees and
validly existing under the laws of the State of New York.
3. The Contracts have been duly authorized by TIAA and, when
issued as contemplated by the Registration Statement,
constitute legal, validly issued and binding obligations of
TIAA enforceable in accordance with their terms.
<PAGE>
April 24, 2000
Page -2-
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement, and to the reference to my name under the heading "Legal
Matters" in the Registration Statement.
Sincerely,
/s/ Charles H. Stamm
--------------------
Charles H. Stamm
Executive Vice President
and General Counsel
<PAGE>
[LOGO] TEACHERS INSURANCE AND ANNUITY ASSOCIATION JOAN H. FALLON
COLLEGE RETIREMENT EQUITIES FUND MANAGING DIRECTOR
730 Third Avenue Telephone: (212) 916-4412
New York, NY 10017 Fax: (212) 916-4527
UPS AIR
February 16, 2000
The Townsend Group
1500 West Third Street
Suite 410
Cleveland, Ohio 44113
Attention: MR. TERRANCE R. AHERN
Re: Teachers Insurance and Annuity
Association of America
Real Estate Separate Account;
ERISA INDEPENDENT FIDUCIARY
Dear Mr. Ahern:
This letter sets forth the terms and conditions under which Teachers
Insurance and Annuity Association of America (the "Company") offers to
appoint The Townsend Group ("Townsend") to serve as the Independent
Fiduciary, as defined below, under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") for its real estate pooled separate account
(the "Account"). The Account is designed primarily for investment by
participants in retirement plans qualified under Section 401(a) and Section
403(a) of the Internal Revenue Code of 1986, as amended, ("Code"), Code
Section 403(b) plans, and certain individual retirement annuities under
Section 408 of the Code.
1. BACKGROUND
On October 17, 1996 the Company was granted a prohibited transaction
exemption ("PTE") from the Department of Labor ("DOL"), PTE 96-76,
Exemption Application No. D-09915, 61 Fed. Reg. 54229 (1996). PTE 96-76
provides an exemption from certain potential prohibited transactions under
Section 406 of ERISA and Section 4975 of the Code with respect to certain
transactions or classes of transactions involving the Account. Among other
features, the Account offers a stand-by liquidity mechanism under which
units of interest in the Account ("Units") may be purchased or sold by the
Company. PTE 96-76 contemplates that various aspects of the Account's
operation will be subject to the oversight of an independent fiduciary
("Independent Fiduciary") which will be a business organization
<PAGE>
with substantial real estate investment experience and which will be
familiar with the responsibilities of a fiduciary with respect to benefit
plans under ERISA. The Independent
Fiduciary will act for the exclusive benefit of the plans and plan
participants who elect to participate in the Account.
Included in PTE 96-76, Section III(e), 61 Fed. Reg. 54230-54231, are
descriptions of the responsibilities of the Independent Fiduciary. The
valuation procedures and rules for the Account are described in Exhibit A
to this Agreement and in the proposed PTE, 61 Fed. Reg. 15128, pgs.
15134-15136 (1996).
2. COMPENSATION
Compensation for services rendered by Townsend pursuant to this
Agreement shall be paid from the Account in the amounts and in accordance
with the terms and conditions set forth in Schedule 1 attached hereto.
3. DUTIES AND RESPONSIBILITIES OF THE COMPANY
The Company is an investment manager, as defined in Section 3(38) of
ERISA, with respect to the Account, and shall be primarily responsible, as
a fiduciary under ERISA, for all aspects of the establishment and
administration of the Account. The Company alone shall be responsible for
making determinations with respect to the acquisition and disposition of
properties by the Account and for all other aspects of the investment of
Account assets, subject to the duties and responsibilities of Townsend
specifically set forth in PTE 96-76 and paragraph 4 hereof.
4. DUTIES AND RESPONSIBILITIES OF TOWNSEND
A. Townsend's duties and responsibilities under this Agreement shall be
those set forth in PTE 96-76 and as described below:
(1) Townsend will review and approve the valuation of the Account and
of the properties held in the Account as outlined in the proposed
PTE, 61 Fed. Reg. 15128, pgs. 15134-15136 and as more
specifically described in Valuation Procedures and Rules which
have been adopted for the Account by the Company and which shall
be subject to the approval of
2
<PAGE>
Townsend. (A copy of the current draft of the valuation
procedures and rules for the Account is attached as Exhibit A.)
(2) Townsend will approve the appointment of all independent
appraisers retained by the Company to perform periodic valuations
of Account properties. For this purpose, the Company will forward
to Townsend information provided to the Company with respect to
the background, education and experience of each such independent
appraiser.
(3) Townsend may require an appraisal in addition to those conducted
by an independent appraiser appointed as provided in clause (2)
above, when it believes that the characteristics of a particular
property have changed materially or with respect to any property
where it deems an additional appraisal to be necessary or
appropriate in order to assure a correct Account valuation.
Townsend will perform such reviews of Account properties as it
may determine to be necessary or desirable in establishing the
necessity of such additional appraisals. Townsend shall have the
authority to designate independent appraisers to be hired by the
Company to perform any such additional appraisals, but the
Company hereby reserves the right to disapprove any such
selection. Accordingly, Townsend shall notify the Company at
least fourteen (14) days prior to the anticipated hiring of any
appraiser not previously approved by the Company. Any such
appraiser will be deemed approved by the Company if the Company
fails to object within fourteen (14) days of receipt of the
aforesaid notice and the Company will, thereupon, hire such
appraiser. The Company may in its sole discretion withdraw its
approval of an appraiser at any time prior to hiring such
appraiser for future appraisals by giving a notice of withdrawal
of its approval.
(4) Townsend shall review purchases and sales of Units, as defined in
PTE 96-76, Section IV(p), 61 Fed. Reg. 54233, by Account
participants and the Company to assure that correct Account
values are applied. With respect to the foregoing, Townsend may
rely upon the truth, completeness and correctness of information
provided to it by the Company or by the independent auditor
designated by the Company with respect to the Account.
(5) If required under PTE 96-76, Townsend will determine with the
Company the appropriate "Trigger Point" as defined in PTE 96-76,
Section IV(o), 61 Fed. Reg. 54233, relating to the level of the
Company's ongoing ownership of Liquidity Units in the Account, as
defined in PTE 96-76, Section IV(g), 61 Fed. Reg. 54232, and the
manner in which any reduction of the Company's participation in
excess of such Trigger Point
3
<PAGE>
is to be effected as contemplated under the PTE. If Townsend
believes that asset sales are desirable in order to reduce the
Company's ownership of Units in the Account, Townsend will
participate in the planning of any such program of sales,
including the selection of the properties to be sold and the
guidelines to be followed in making such sales.
(6) In the event of the termination of the Account as described in
PTE 96-76, Section III(e)(10) and (11), 61 Fed. Reg. 54231,
Townsend will approve the sale of Account properties and
supervise Account operation during the "Wind Down" period (as
defined in PTE 96-76, Section IV(q), 61 Fed. Reg. 54233). Such
period will commence with the Company's notice to Account
participants of its termination of the Account and will end on
the date that no Units are held by any Participant (and, if
applicable, Participating Plans), as defined in PTE 96-76 (SEE
Section III(c), 61 Fed. Reg. 54229 and IV(h), 61 fed. Reg. 54232,
respectively).
(7) Townsend will review and approve the investment guidelines
established by the Company for the Account and will monitor the
conformity of all property acquisitions and sales with the
requirements of such guidelines.
(8) With respect to any other transaction or matter involving the
Account that is submitted to Townsend by the Company, Townsend
will review said transaction or matter in order to determine
whether it is fair to the Account and in the Account's best
interests.
B. In the event that the Company or the DOL or any other governmental
agency requires or requests Townsend to perform additional functions
reasonably related to the type of review described herein, or to
undertake duties with respect to the Account beyond those specifically
enumerated herein, these additional duties and functions shall be
deemed to be included among the duties of Townsend under this
Agreement, provided that:
(1) The Company requests Townsend to perform such activity in
writing; and
(2) Townsend and the Company determine the nature and amount of any
additional compensation that may be appropriate with respect to
such additional duties. If Townsend and the Company are not able
to agree upon the nature and amount of any additional
compensation, Townsend and the Company hereby agree to submit any
disputed issues to arbitration and to be bound by the results
thereof; provided, however, that Townsend shall nevertheless
perform the additional duties described above during the time
required for a final determination to be made with respect to the
nature and/or amount of any additional compensation that it may
receive.
4
<PAGE>
C. Townsend will meet with the Company on a quarterly basis to review the
activities of the Account and the actions that Townsend has taken
under this Agreement. Townsend will submit to the Company a summary
report from time to time as it may deem necessary or appropriate, but
no less frequently than annually. Such report shall be a written
report that summarizes and explains all actions and activities that
Townsend has undertaken since the submission of the last such report
or the commencement of its terms, except those actions and activities
that Townsend in its judgment deems to be not material. All or any
part of any such report may, after consultation with Townsend, be
provided by the Company to any Account participant or to the DOL or
any other governmental agency. Townsend shall maintain appropriate
records of its actions and activities under this Agreement and will
allow the Company to review such records during normal business hours
upon reasonable prior request by the Company, and the Company, after
consultation with Townsend, may provide the results of any such review
to the DOL or to any other governmental agency.
D. Townsend may make all reasonable inquiries, consult with whomever it
reasonably deems necessary, do all acts that are reasonably necessary
to the performance of its duties, and review such Company documents as
are reasonably appropriate for carrying out its responsibilities under
this Agreement. All work to be performed, pursuant to this paragraph
4, may be performed during normal business hours at the Company's Home
Office, 730 Third Avenue, New York, New York 10017 or such other place
as may be reasonably designated by Townsend, including Townsend's
offices.
5. REPRESENTATIONS
Townsend represents and agrees that:
A. Townsend has at least five years of experience with respect to
commercial real estate investments.
B. The gross income which is received by Townsend (or any partnership or
corporation of which Townsend is a 10 percent or more partner or
shareholder) from the Company and its affiliates (as defined in PTE
96-76, Section IV(b), 61 Fed. Reg. 54231-54232) for any fiscal year
ending during the term of this Agreement shall not exceed 5 percent of
its annual gross income from all sources for the preceding fiscal
year. Such income limitation will include services rendered to the
Account as the Independent Fiduciary under any prohibited transaction
exemption granted by the DOL. Townsend will provide, on or before
February 15, of each year, a written report to the Company of the
gross income
5
<PAGE>
it received from the Company in the prior fiscal year as a percentage
of the gross income received during the preceding fiscal year.
C. Townsend shall not (i) acquire any property from, sell any property to
or borrow any funds from, the Company or any of its affiliates during
the period for which it serves as an Independent Fiduciary under this
Agreement and for a period of six months thereafter, or (ii) negotiate
any such transaction described in (i) during the period that Townsend
serves as the Independent Fiduciary.
D. In the event that the DOL requires additional representations by
Townsend, it is agreed that Townsend will make any such reasonably
required representations that are true in fact.
6. INDEPENDENT STATUS
As the Independent Fiduciary, Townsend shall not be an agent of the
Company. In keeping with this status, Townsend shall be free to control its
method of fulfilling its responsibilities within the framework of its
obligations to the Participants and their beneficiaries (and, if
applicable, Participating Plans), as defined in PTE 96-76, Section III(c),
61 Fed. Reg. 54229 and IV(h), 61 Fed. Reg. 54232, respectively, and to the
Company.
7. FIDUCIARY STANDARDS/CONFIDENTIALITY
Notwithstanding any other provision of this Agreement, it is
understood that Townsend will act as a fiduciary, as defined in ERISA, with
respect to the Participants and their beneficiaries (and, if applicable,
Participating Plans) that invest in the Account, and that Townsend will
perform its duties under this Agreement for the exclusive benefit of such
Participants, their beneficiaries and Participating Plans and in conformity
with the legal requirements imposed upon it by ERISA.
It is understood that Townsend will not unnecessarily engage in any
activity in connection with this appointment that is adverse to the
interest of the Company. Townsend may provide similar independent fiduciary
services with respect to other benefit plans subject to ERISA; provided
that Townsend does not use or disclose in such relationships confidential
information obtained by it in the course of providing services under this
Agreement.
Upon termination of this Agreement, Townsend will disclose to the
Company all material in its possession that has been released to it by the
Company or produced pursuant to this Agreement. Such material may be
retained by Townsend if it deems such
6
<PAGE>
retention to be necessary to protect its interests or the interests of the
Participants and their beneficiaries (and, if applicable, Participating
Plans) that have invested in the Account. If Townsend retains any such
material, it shall promptly notify the Company in writing of such action.
The aforesaid notice shall include an itemized list of all retained
documents and other materials. Upon receipt of the aforesaid notice, or at
any time thereafter, the Company may at its option, require that Townsend
deliver all such retained material to the person who succeeds to its
position as Independent Fiduciary. However, Townsend may retain any
materials that it deems necessary to protect its interests, provided that
copies of said materials are furnished to either the Company or Townsend's
successor as Independent Fiduciary, upon request. Townsend will not at any
time during the term of this Agreement or thereafter disclose any of the
Company's trade secrets, confidential business methods, or any other
confidential information which it may have acquired during its service as
Independent fiduciary under this Agreement.
8. PERSONNEL
Townsend agrees that, without limiting its responsibilities under this
Agreement or under ERISA, primary responsibility for the performance of the
services contemplated under this Agreement shall be assigned to Mr.
Terrence R. Ahern and that it will use its best efforts to assure that Mr.
Terrence R. Ahern continues to act in such capacity during the term of this
Agreement. In the event that Mr. Terrence R. Ahern does not, for any
reason, continue to serve in such capacity, Townsend agrees that it will
assign primary responsibility for the duties contemplated under this
Agreement to a senior employee of similar experience and ability.
9. EFFECTIVE DATE/TERMINATION/NOTICE
A. This Agreement shall become effective on March 1, 2000, or if later,
the date of receipt by the Company of a copy of this Agreement that
has been executed by Townsend and by an authorized officer of the
Company.
B. Townsend's appointment shall commence on the date this Agreement
becomes effective for a three (3) year term, and shall be renewable by
the Company, from time to time, and without limitation on the number
of renewals, for additional three (3) year terms. The Company shall
delegate to a special subcommittee of the Company's Investment
Committee (the "Subcommittee") the sole power to renew any such
appointment and the Subcommittee shall not renew the appointment if
forty percent (40%) of the Subcommittee members disapprove of such
renewal. Upon expiration of Townsend's appointment without renewal
this Agreement shall terminate. Townsend may terminate this Agreement
at any time but must give at
7
<PAGE>
least 180 days prior written notice to the Company. The Company must
terminate this Agreement and Townsend's appointment prior to the
expiration of the term of its appointment if a majority of the Special
Subcommittee members determines that: (1) Townsend has breached any
representation set forth in paragraph 5; (2) that Townsend has failed
to carry out its responsibilities under this Agreement in an effective
manner, or is unable to do so; or (3) that a merger or restructuring
of Townsend with or into another entity may cause a conflict of
interest that shall impair Townsend's ability to carry out its
responsibilities under this Agreement in an effective manner. In the
event that Townsend's term shall terminate as described in this
paragraph 9B., Townsend shall be compensated only for services
performed by it prior to the date of such termination.
C. Unless otherwise expressly provided herein, any notice, demand or
request under this Agreement shall be deemed to have been properly
given and served by depositing the same in the United States mail,
addressed as provided herein, postpaid and registered or certified
with return receipt requested. Any such notice, demand or request
shall be effective upon being deposited in the United States mail.
However, the time period in which a response or action to any such
notice, demand or request must be given or taken shall commence to run
from the date of receipt on the return receipt of the notice, demand
or request by the addressee thereof. Rejection or other refusal to
accept or the inability to deliver because of changed address of which
no notice was given shall be deemed to be receipt of the notice,
demand or request. Notice to the Company shall be addressed to Ms.
Joan H. Fallon, Managing Director, Teachers Insurance and Annuity
Association of America, 730 Third Avenue, New York, New York
10017-3206, with a copy to Ms. Monica Dodd Calhoun, Vice President and
Chief Counsel, Teachers Insurance and Annuity Association of America,
730 Third Avenue, New York, New York 10017-3206, (or such other person
or persons as the Company may designate). Notice to Townsend shall be
addressed to Mr. Terrance R. Ahern, Principal, The Townsend Group,
1500 West Third Street, Suite 410, Cleveland, Ohio 44113.
10. INDEMNIFICATION AND INSURANCE
A. Subject to the limitations in clause C of this paragraph 10, Townsend
shall be indemnified and saved harmless by the Account from and
against any and all claims of liability arising in connection with the
exercise of its duties and responsibilities to the Account by reason
of any act or omission, including all expenses reasonably incurred in
the defense of such act or omission, unless (1) it shall be
established by final judgement of a court of competent jurisdiction
that such act or omission involved a violation of the duties imposed
by Part 4 of Title I of ERISA on the part of Townsend, or (2) in the
event of a settlement or other
8
<PAGE>
disposition of such claim involving the Account, it is determined by
written opinion of independent counsel acceptable to both parties,
that such act or omission involved a violation of the duties imposed
by Part 4 of Title I of ERISA on the part of Townsend.
B. Subject to the limitation in clause C of this paragraph 10, the
Account shall pay expenses (including reasonable attorneys' fees and
disbursements), judgments, fines and amounts paid in settlement
incurred by Townsend in connection with any of the proceedings
described above, in advance of the final disposition of such
proceedings, provided that (1) Townsend shall repay such advances to
the Account, plus reasonable interest, if it is established by a final
judgment of a court of competent jurisdiction, or by written opinion
of independent counsel under the circumstances described in section A
above, that Townsend violated its duties under Part 4 of Title I of
ERISA, and (2) Townsend shall, in the discretion and upon the request
of the Company, provide a bond or make other appropriate arrangements
for repayment of advances. Notwithstanding the foregoing, no such
advances shall be made in connection with any claim against Townsend
that is made by the Account or the Company, provided that upon the
final disposition of such claim, the expenses (including reasonable
attorneys' fees and disbursements), judgments, fines and amounts paid
in settlement incurred by Townsend shall be reimbursed by the Account
to the extent provided above.
C. The indemnification provided under clauses A and B of this paragraph
10 shall apply only to claims and expenses not actually covered by
insurance. Townsend agrees to maintain professional liability coverage
that includes coverage for its responsibilities under this Agreement,
with limits of at least $5 million for errors and omissions, $2
million for general business liability, and a $1 million fidelity
bond, throughout the term of this Agreement.
11. ENTIRE AGREEMENT
This letter contains the entire agreement between the parties.
However, where the text of this Agreement contains express reference to PTE
96-76, or specific paragraphs of of PTE 96-76 and the proposed PTE, 61 Fed.
Reg. 15128 (1996), and the representations made therein, it is the
intention of the parties that PTE 96-76 and the proposed exemption be
incorporated in this Agreement for the purpose of construing the meaning of
such express references. This Agreement may not be changed orally or by
conduct but only by agreement in writing signed by both parties.
12. NO WAIVER
Failure to insist upon strict compliance with any of the terms,
covenants, or
9
<PAGE>
conditions of this Agreement shall not be deemed a waiver of such term,
covenant, or condition, nor shall any waiver or relinquishment of any right
or power hereunder at any one or more times be deemed a waiver or
relinquishment of such right or power at any other time or times.
13. SEVERABILITY
The invalidity or unenforceability any provision of this Agreement
shall in no way affect the validity or enforceability of any other
provision.
14. CHOICE OF LAW
This Agreement and performance hereunder is subject to ERISA. However,
to the extent that this Agreement and performance hereunder is not governed
by ERISA or other applicable federal law, the laws of the State of New York
shall apply. The choice of law embodied in this paragraph 14 shall be
effective irrespective of the jurisdiction in which any suit, action or
proceeding may be instituted.
Please signify your acceptance by signing below and returning a copy
of this letter to the Company.
Sincerely,
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By:________________________
Joan H. Fallon
Accepted:
THE TOWNSEND GROUP
By:______________________ Date: _______________
Terrance R. Ahern
10
<PAGE>
EXHIBIT A
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
VALUATION PROCEDURES AND RULES
FOR REAL ESTATE ACCOUNT
This outline summarizes the basic elements of the valuation procedures
and rules for the Account.
BASIC PRINCIPLES
1. The valuation of equity real estate holdings is not an exact science; it
requires appraisals which are independent estimates of market value.
A. Sales are the best measure of the value of equity real estate
holdings, but since they don't occur frequently, appraisals are
generally believed to be the best estimate of value at a given
point in time.
B. Independent appraisals are expensive, and a balance is required
between the accuracy of the estimate of value and the cost to the
Account of additional appraisals.
2. The Account's valuation procedures and rules are under the direct
supervision of an Independent Fiduciary and operate within guidelines and
limits established by the Independent Fiduciary.
VALUATION PROCEDURES FOR THE ACCOUNT
1. INDEPENDENT FIDUCIARY. The valuation of Account properties is conducted
under the supervision of the Independent Fiduciary.
1
<PAGE>
A. The valuation procedures and rules will be approved by the
Independent Fiduciary. They cannot be changed without the consent
of the Independent Fiduciary.
B. The rules will limit the extent to which a property's value can
change without the prior approval of the Independent Fiduciary.
C. The Independent Fiduciary may require a new independent appraisal
of any property at any time.
2. INITIAL VALUATION. The initial value of each property will be the price
at which it is acquired (including all expenses relating to purchase,
such as acquisition fees, legal fees and expenses, and other closing
costs).
3. SCHEDULED VALUATIONS.
A. INDEPENDENT APPRAISALS. Each property will be valued by an
independent appraiser at least once per year.
(i) The appraisal cycle will be set up so that properties will
be independently appraised in as even a pattern as
practical over the course of a calendar year. This will be
done by assigning to each property, at the time it is
purchased, the month in which its independent appraisal
will occur each year.
(ii) The independent appraisers selected by TIAA must be
approved by the Independent Fiduciary.
(iii) The following would be among the factors generally
considered in the annual appraisal:
- description and condition of the property
- regional and local market conditions
- current and projected occupancy levels
- highest and best use of the property
- cost approach
- sales comparison approach
2
<PAGE>
- income approach including discounted cash flow
analysis
B. QUARTERLY UPDATES. TIAA's staff will update the independent
appraisals on a quarterly basis.
(i) Appraisal assumption (e.g. discount rates and rates
of inflation) will be reviewed and revised as
necessary.
(ii) Occupancy levels, cash flow, etc. will be reviewed
as well as regional and local market conditions.
C. ACCRUALS. The Accumulation and Liquidity Unit Values of the
Account may change by a daily accrual of projected income and
expenses during a given month. The Annuity Unit values of the
Account may change on the last calendar day of each month by the
accrual of projected income and expenses for that month.
4. SPECIAL ADJUSTMENTS. The value of a given property could be adjusted at
any time to reflect any immediate or significant changes in value.
5. LIMITS AND SUPERVISION
A. The Independent Fiduciary receives quarterly valuation reports
from TIAA which, in addition to their involvement, detail Account
activity. The format of these reports will be developed with the
Independent Fiduciary. The Fiduciary will, therefore, be familiar
with Account properties.
B. Daily accruals of income and expenses, as well as incremental
adjustments in property value (from quarterly updates), will be
reported to the Independent Fiduciary as they are included in the
Unit value calculation.
C. Material changes in value (as described in D. below) will be
approved by the Independent Fiduciary prior to inclusion in a Unit
Value calculation.
D. TIAA cannot, without the prior approval of the Independent
Fiduciary, change the values of one or more properties if such
changes would exceed the following limits:
(i) The adjustment would result in a 6 percent increase or
decrease in the value of a given property since the last
independent appraisal of that property;
(ii) The adjustments would result in a greater than 2 percent
change in the value of the Account since the prior monthly
valuation date; or
3
<PAGE>
(iii) The adjustments would result in a greater than 4 percent
change in the value of the Account within any calendar
quarter.
In addition, the Independent Fiduciary will approve any adjustments made
within the first three months after the receipt of the annual appraisal
performed by an independent qualified appraiser.
4
<PAGE>
Sutherland Asbill & Brennan LLP
Atlanta Austin New York Tallahasee Washington
1275 Pennsylvania Avenue, N.W. TEL: (202) 383-0100
Washington, D.C. 20004-2415 FAX: (202) 637-3593
STEVEN B. BOEHM
DIRECT LINE: (202) 383-0176
Internet: [email protected]
April 26, 2000
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
Re: Registration of Individual, Group and Tax-Deferred Variable
Annuity Contracts on Form S-1 for the TIAA Real Estate
Account (File No. 333-22809)
------------------------------------------------------------
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption
"Legal Matters" in the Prospectus filed as a part of the above-referenced
registration statement on Form S-1 for the TIAA Real Estate Account. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Sincerely,
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Steven B. Boehm
--------------------------
Steven B. Boehm
<PAGE>
Ex-23.(c)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated February 4, 2000 with respect to the
consolidated financial statements of the TIAA Real Estate Account and the
related financial statement schedule in the Post Effective Amendment No. 6 to
the Registration Statement (Form S-1 No. 333-22809) and the related
Prospectus of TIAA Real Estate Account for the offer and sale of interests in
the TIAA Real Estate Account, a variable option offered through certain TIAA
annuity contracts.
We also consent to the reference therein of our reports dated March 26, 1999,
July 21, 1999 and August 11, 1999 with respect to the (i) statement of
revenues and certain expenses of The Colorado for the year ended December 31,
1997, (ii) statement of revenues and certain expenses of 88 Kearny Street for
the year ended December 31, 1998, and (iii) statement of revenues and certain
expenses of Larkspur Courts Apartments for the year ended December 31, 1998,
respectively.
We also consent to the use of our report on Teachers Insurance and Annuity
Association of America ("TIAA") dated March 9, 2000 included in the Post
Effective Amendment No. 6 to the Registration Statement (Form S-1 No.
333-22809). Such report expresses our opinion that TIAA's statutory-basis
financial statements present fairly, in all material respects, the financial
position of TIAA at December 31, 1999, and the results of its operations and
its cash flows for the year then ended in conformity with statutory
accounting practices prescribed or permitted by New York State Insurance
Department and not in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
New York, New York
April 26, 2000
<PAGE>
Ex-23.(d)
[FRIEDMAN, ALPERIN & GREEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated June 17, 1999 with respect to the statement of revenues
and certain expenses of 780 Third Avenue for the year ended December 31, 1998
in the Post Effective Amendment No. 6 to the Registration Statement (Form S-1
No. 333-22809) and related prospectus of TIAA Real Estate Account for the
offer and sale of interests in the TIAA Real Estate Account, a variable
option offered through certain TIAA annuity contracts.
/s/ Friedman, Alperin & Green LLP
New York, New York
April 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000946155
<NAME> TIAA REAL ESTATE ACCOUNT
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<INVESTMENTS-AT-COST> 1,649,312,484
<INVESTMENTS-AT-VALUE> 1,686,782,355
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<ASSETS-OTHER> 32,057,761
<OTHER-ITEMS-ASSETS> 617,599
<TOTAL-ASSETS> 1,719,457,715
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<OTHER-ITEMS-LIABILITIES> 23,975,287
<TOTAL-LIABILITIES> 23,975,287
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<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
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<NUMBER-OF-SHARES-SOLD> 2,653,449
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