AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON APRIL 27, 2001
Registration No. _____________
==========================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TIAA REAL ESTATE ACCOUNT
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
New York
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(Not applicable)
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(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(Not applicable)
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(I.R.S. EMPLOYER IDENTIFICATION NO.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Lisa Snow, Esquire
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
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(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
Steven B. Boehm, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the registration statement.
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, 333-13477, AND 333-22809.
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title of each Proposed
class of maximum Proposed maximum Amount of
securities to Amount to be offering price aggregate registration
be registered registered per unit offering price fee
- --------------------------------------------------------------------------------
Accumulation units * * $500,000,000** $125,000**
in the TIAA REAL
ESTATE ACCOUNT
- --------------------------------------------------------------------------------
* The securities are not issued in predetermined amounts or units, and the
maximum aggregate offering price is estimated solely for purposes of determining
the registration fee pursuant to Rule 457(o) under the Securities Act.
** The difference between the $300,000,000, $1,000,000,000, and $5,000,000,000
of securities registered on Securities Act registration statements Nos.
33-92990, 333-13477, and 333-22809 (for which registration fees of $103,448.28,
$303,031.31, and $1,515,151.52, respectively, were paid therewith) and the
dollar amount of securities sold thereunder is being carried forward on this
registration statement pursuant to Rule 429 under the Securities Act.
May 1, 2001
TIAA REAL ESTATE ACCOUNT
PROSPECTUS
A TAX-DEFERRED VARIABLE ANNUITY OPTION OFFERED BY
TEACHERS INSURANCE AND ANNUITY ASSOCIATION
OF AMERICA
[LOGO OF TIAA]
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 5.
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
0.640%.
The Real Estate Account is designed as an option for retirement and
tax-deferred savings plans for employees of nonprofit institutions. TIAA offers
the Real Estate Account under the following annuity contracts:
o RA and GRAs (Retirement and Group Retirement Annuities)
o SRAs (Supplemental Retirement Annuities)
o GSRAs (Group Supplemental Retirement Annuities)
o Classic and Roth IRAs (Individual Retirement Annuities)
o GAs (Group Annuities)
o Keoghs (subject to regulatory approval in Pennsylvania and Oregon)
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.
Prospectus TIAA Real Estate Account 1
TABLE OF CONTENTS
3 The Account's Investment Objective and Strategy
3 About the Account's Investments--In General
4 General Investment and Operating Policies
5 Risks
6 Establishing and Managing the Account--The Role of TIAA
8 Description of Properties
12 Selected Financial Data
13 Management's Discussion and Analysis of Account's Financial
Condition and Operating Results
14 Valuing the Account's Assets
15 Expense Deductions
16 The Contracts
17 How to Transfer and Withdraw Your Money
18 Receiving Annuity Income
20 Death Benefits
21 Taxes
22 General Matters
22 Distributor
22 State Regulation
22 Legal Matters
23 Experts
23 Additional Information
23 Financial Statements
23 Index to Financial Statements
40 Appendix A--Management of TIAA
40 Appendix B--Special Terms
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, 2000, TIAA's general account had a mortgage and real property
portfolio of approximately $27 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 2.3
million people at over 10,000 institutions. As of December 31, 2000, TIAA's
assets were approximately $118.6 billion; the combined assets for TIAA and CREF
totalled approximately $279.9 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.
2 TIAA Real Estate Account Prospectus
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, 2000, the Account had
86.3 percent of its portfolio invested in real estate and real estate-related
investments (including REITs).
ABOUT THE ACCOUNT'S
INVESTMENTS--IN GENERAL
DIRECT INVESTMENTS IN REAL ESTATE
DIRECT PURCHASE: The Account will generally buy direct ownership interests in
existing or newly constructed income-producing properties, including office,
industrial, retail, and multi-family residential properties. The Account will
invest mainly in established properties with existing rent and expense schedules
or in newly-constructed properties with predictable cash flows or in which a
seller agrees to provide certain minimum income levels. On occasion the Account
might invest in real estate development projects.
PURCHASE-LEASEBACK TRANSACTIONS: The Account can enter into
purchase-leaseback transactions (leasebacks) in which it typically will buy land
and income-producing improvements on the land (such as buildings), and
simultaneously lease the land and improvements to a third party (the lessee).
Leasebacks are generally for very long terms. Usually, the lessee is responsible
for operating the property and paying all operating costs, including taxes and
mortgage debt. The Account can also give the lessee an option to buy the land
and improvements.
In some leasebacks, the Account may purchase only the land under an
income-producing building and lease the land to the building owner. In those
cases, the Account will often seek to share (or "participate") in any increase
in property value from building improvements or in the lessee's revenues from
the building above a base amount. The Account can invest in leasebacks that are
subordinated to other interests in the land, buildings, and improvements (e.g.,
first mortgages); in that case, the leaseback interest will be subject to
greater risks.
INVESTMENTS IN MORTGAGES
GENERAL: The Account can originate or acquire interests in mortgage loans,
generally on the same types of properties it might otherwise buy. These mortgage
loans may pay fixed or variable interest rates or have "participating" features
(as described below). Normally the Account's mortgage loans will be secured by
properties that have income-producing potential. They usually will not be
insured or guaranteed by the U.S. government, its agencies or anyone else. They
usually will be non-recourse, which means they won't be the borrower's personal
obligations. Most will be first mortgage loans on existing income-producing
property, with first-priority liens on the property. These loans may be
amortized, or may provide for interest-only payments, with a balloon payment at
maturity.
PARTICIPATING MORTGAGE LOANS: The Account may make mortgage loans which
permit the Account to share (have a "participation") in the income from or
appreciation of the underlying property. These participations let the Account
receive additional interest, usually calculated as a percentage of the revenues
the borrower receives from operating, selling or refinancing the property. The
Account may also have an option to buy an interest in the property securing the
participating loan.
MANAGING MORTGAGE LOAN INVESTMENTS: TIAA can manage the Account's mortgage
loans in a variety of ways, including:
o renegotiating and restructuring the terms of a mortgage loan
o extending the maturity of any mortgage loan made by the Account
o consenting to a sale of the property subject to a mortgage loan
o financing the purchase of a property by making a new mortgage loan in
connection with the sale
o selling them, or portions of them, before maturity
OTHER REAL ESTATE-RELATED INVESTMENTS
REAL ESTATE INVESTMENT TRUSTS: The Account may invest in real estate
investment trusts (REITs), publicly-owned entities that lease, manage, acquire,
hold mortgages on, and develop real estate. Normally the Account will buy the
common or preferred stock of a REIT, although at times it may purchase REIT debt
securities. REITs seek to optimize share value and increase cash flows by
acquiring and developing new projects, upgrading existing properties or
renegotiating existing arrangements to increase rental rates and occupancy
levels. REITs must distribute 90% 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.
Prospectus TIAA Real Estate Account 3
NON-REAL ESTATE-RELATED INVESTMENTS
The Account can also invest in:
o U.S. government or government agency securities
o Corporate debt or asset-backed securities of U.S. or foreign entities, or
debt securities of foreign governments or multi-national organizations, but
only if they're investment-grade and rated in the top four categories by a
nationally recognized rating organization (or, if not rated, deemed by TIAA
to be of equal quality)
o Money market instruments and other cash equivalents. These will usually be
high-quality short-term debt instruments, including U.S. government or
government agency securities, commercial paper, certificates of deposit,
bankers' acceptances, repurchase agreements, interest-bearing time deposits,
and corporate debt securities.
o Common or preferred stock of U.S. or foreign companies that aren't involved
in real estate, to a limited extent
FOREIGN REAL ESTATE AND OTHER FOREIGN INVESTMENTS
The Account may invest in foreign real estate or real estate-related
investments. It might also invest in securities or other instruments of foreign
government or private issuers. While the percentage will vary, we expect that
foreign investments will be no more than 25 percent of the Account's portfolio.
Depending on investment opportunities, the Account's foreign investments could
at times be concentrated in one or two foreign countries. We will consider the
special risks involved in foreign investing before investing in foreign real
estate and won't invest unless our standards are met.
GENERAL INVESTMENT AND
OPERATING POLICIES
STANDARDS FOR REAL ESTATE INVESTMENTS
GENERAL CRITERIA FOR BUYING REAL ESTATE OR MAKING MORTGAGE LOANS: Before the
Account purchases real estate or makes a mortgage loan, TIAA will consider such
factors as:
o the location, condition, and use of the underlying property
o its operating history, and its future income-producing capacity
o the quality, operating experience, and creditworthiness of the borrower
TIAA will analyze the fair market value of the underlying real estate, taking
into account the property's operating cash flow (based on the historical and
projected levels of rental and occupancy rates, and expenses), as well as the
general economic conditions in the area where the property is located.
DIVERSIFICATION: We haven't placed percentage limitations on the type and
location of properties that the Account can buy. However, the Account seeks to
diversify its investments by type of property and geographic location. How much
the Account diversifies will depend upon whether suitable investments are
available and how much the Account has available to invest.
SPECIAL CRITERIA FOR MAKING MORTGAGE LOANS: Ordinarily, the Account will only
make a mortgage loan if the loan, when added to any existing debt, will not
exceed 85 percent of the appraised value of the mortgaged property when the loan
is made, unless the Account is compensated for taking additional risk.
SELLING REAL ESTATE INVESTMENTS: The Account doesn't intend to buy and sell
its real estate investments simply to make short-term profits. But the Account
may sell investments if market conditions are favorable or to raise cash. The
Account will reinvest any sale proceeds that it doesn't need to pay operating
expenses or to meet redemption requests (e.g., cash withdrawals or transfers).
OTHER REAL ESTATE-RELATED POLICIES
APPRAISALS: The Account will rely on TIAA's own analysis to appraise a
property when it first buys it. After that, normally the Account's properties
and participating mortgage loans will be appraised or valued once a year by an
independent state-certified appraiser who is a member of a professional
appraisal organization. While the Account usually won't receive an independent
appraisal before it buys real estate, it will get an independent appraisal when
it makes mortgage loans.
BORROWING: Usually, the Account won't borrow money to purchase real estate.
However, to meet short-term cash needs, the Account may obtain a line of credit
whose terms require that the Account secure a loan with one or more of its
properties. On a limited basis, the Account may place a mortgage on an Account
property held by a subsidiary 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.
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.
4 TIAA Real Estate Account Prospectus
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 potential
risk of investing in the Account is moderate. You can lose money by investing in
the Account. The Account's assets and income (particularly its real estate
assets and rental income) can be affected by many factors, and you should
consider the specific risks presented below before investing in the Account.
RISKS OF REAL ESTATE INVESTING
GENERAL RISKS OF OWNING REAL PROPERTY: The Account will be subject to the
risks inherent in owning real property, including:
o The Account's property values or rental and occupancy rates could go down due
to general economic conditions, a weak market for real estate generally,
changing supply and demand for certain types of properties, and natural
disasters or man-made events.
o A property may be unable to attract and retain tenants, which means that
rental income would decline.
o The Account could lose revenue if tenants don't pay rent, or if the Account
is forced to terminate a lease for nonpayment. Any disputes with tenants
could also involve costly litigation.
o A property's profitability could go down if operating costs, such as property
taxes, utilities, maintenance and insurance costs, go up in relation to gross
rental income, or the property needs unanticipated repairs and renovations.
GENERAL RISKS OF SELLING REAL ESTATE INVESTMENTS: Among the risks of selling
real estate investments are:
o The sale price of an Account property might differ from its estimated or
appraised value, leading to losses or reduced profits to the Account.
o Because of the nature of real estate, the Account might not be able to sell a
property at a particular time for its full value, particularly in a poor
market. This might make it difficult to raise cash quickly and also could
lead to Account losses.
o The Account may need to provide financing if no cash buyers are available.
REGULATORY RISKS: Government regulation, including zoning laws, property
taxes, fiscal, environmental or other government policies, could operate or
change in a way that hurts the Account and its properties. For example,
regulations could raise the cost of owning and maintaining properties or make it
harder to sell, rent, finance, or refinance properties due to the increased
costs associated with regulatory compliance.
ENVIRONMENTAL RISKS: The Account may be liable for damage to the environment
caused by hazardous substances used or found on its properties. Under various
environmental regulations, the Account may also be liable, as a current or
previous property owner or mortgagee, for the cost of removing or cleaning-up
hazardous substances found on a property, even if it didn't know of and wasn't
responsible for the hazardous substances. If any hazardous substances are
present or the Account doesn't properly clean up any hazardous substances, or if
the Account fails to comply with regulations requiring it to actively monitor
the business activities on its premises, the Account may have difficulty selling
or renting a property or be liable for monetary penalties. The cost of any
required clean-up and the Account's potential liability for environmental damage
to a single real estate investment could exceed the value of the Account's
investment in a property, the property's value, or in an extreme case, a
significant portion of the Account's assets.
CASUALTY LOSSES: Certain catastrophic losses (e.g., from earthquakes, wars,
nuclear accidents, floods, or environmental or industrial hazards or accidents)
are uninsurable or so expensive to insure against that it doesn't make sense to
buy insurance for them. If a disaster that we haven't insured against occurs,
the Account could lose both its original investment and any future profits from
the property affected. In addition, some leases may permit a tenant to terminate
its obligations in certain situations, regardless of whether those events are
fully covered by insurance. In that case, the Account would not receive rental
income from the property while that tenant's space is vacant.
RISKS OF DEVELOPING REAL ESTATE OR BUYING RECENTLY-CONSTRUCTED PROPERTIES: If
the Account chooses to develop a property or buys a recently-constructed
property, it may face the following risks:
o If developing real estate, there may be delays or unexpected increases in the
cost of property development and construction due to strikes, bad weather,
material shortages, increases in material and labor costs, or other events.
o Because external factors may have changed from when the project was
originally conceived (e.g., slower growth in local economy, higher interest
rates, or overbuilding in the area), the property, if purchased when
unleased, may not operate at the income and expense levels first projected or
may not be developed in the way originally planned.
o The seller or other party may not be able to carry out any agreement to
provide certain minimum levels of income, or that agreement could expire,
which could reduce operating income and lower returns.
RISKS OF JOINT OWNERSHIP: Investing in joint venture partnerships or other
forms of joint property ownership may involve special risks.
o The co-venturer may have interests or goals inconsistent with those of the
Account.
o If a co-venturer doesn't follow the Account's instructions or adhere to the
Account's policies, the jointly-owned properties, and consequently the
Account, might be exposed to greater liabilities than expected.
o A co-venturer can make it harder for the Account to transfer its property
interest, particularly if the co-venturer has the right to decide whether and
when to sell the property.
o The co-venturer may become insolvent or bankrupt.
RISKS WITH PURCHASE-LEASEBACK TRANSACTIONS: The major risk of
purchase-leaseback transactions is that the third party lessee will not be able
to make required payments to the Account. If the leaseback interest is
subordinate to other interests in the real property, such as a first mortgage or
other lien, the risk to the Account increases because the lessee may have to pay
the senior lienholder to prevent foreclosure before it pays the Account. If the
lessee defaults or the leaseback is terminated prematurely, the Account might
not recover its investment unless the property is sold or leased on favorable
terms.
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.
Prospectus TIAA Real Estate Account 5
RISKS OF MORTGAGE LOAN INVESTMENTS
GENERAL RISKS OF MORTGAGE LOANS. The Account will be subject to the risks
inherent in making mortgage loans, including:
o The borrower may default, requiring that the Account foreclose on the
underlying property to protect the value of its mortgage loan. Since its
mortgage loans are usually non-recourse, the Account must rely solely on the
value of a property for its security. The larger the mortgage loan compared
to the value of the property securing it, the greater the loan's risk. Upon
default, the Account may not be able to sell the property for its estimated
or appraised value. Also, certain liens on the property, such as mechanic's
or tax liens, may have priority over the Account's security interest.
o The borrower may not be able to make a lump sum principal payment due under a
mortgage loan at the end of the loan term, unless it can refinance the
mortgage loan with another lender.
o If interest rates are volatile during the loan period, the Account's
variable-rate mortgage loans could have lower yields.
PREPAYMENT RISKS. The Account's mortgage loan investments will usually be
subject to the risk that the borrower repays the loan early. Prepayments can
change the Account's return because we may be unable to reinvest the proceeds at
as high an interest rate as the original mortgage loan rate.
INTEREST LIMITATIONS. The interest rate we charge on mortgage loans may
inadvertently violate state usury laws that limit rates, if, for example, state
law changes during the loan term. If this happens, we could incur penalties or
may not be able to enforce payment of the loan.
RISKS OF PARTICIPATIONS. Participating mortgages are subject to the following
additional risks:
o The participation element might generate insufficient returns to make up for
the higher interest rate the loan would have obtained without the
participation feature.
o In very limited circumstances, a court could possibly characterize the
Account's participation interest as a partnership or joint venture with the
borrower and the Account could lose the priority of its security interest, or
be liable for the borrower's debts.
RISKS OF REIT INVESTMENTS
REITs are subject to many of the same general risks associated with direct
real property ownership. In particular, equity REITs may be affected by changes
in the value of the underlying property owned by the trust, while mortgage REITs
may be affected by the quality of any credit extended. In addition to these
risks, because REIT investments are securities, they may be exposed to market
risk--price volatility due to changing conditions in the financial markets and,
in particular, changes in overall interest rates.
RISKS OF LIQUID INVESTMENTS
The Account's investments in securities and other liquid investments may be
subject to:
o FINANCIAL RISK--for debt securities, the possibility that the issuer won't be
able to pay principal and interest when due, and for common or preferred
stock, the possibility that the issuer's current earnings will fall or that
its overall financial soundness will decline, reducing the security's value.
o MARKET RISK--price volatility due to changing conditions in the financial
markets and, particularly for debt securities, changes in overall interest
rates.
o INTEREST RATE VOLATILITY, which may affect current income from an investment.
RISKS OF FOREIGN INVESTMENTS
Foreign investments present the following special risks:
o Foreign real estate markets may have different liquidity and volatility
attributes than U.S. markets.
o The value of foreign investments or rental income can go up or down from
changes in currency rates, currency exchange control regulations, possible
expropriation or confiscatory taxation, political, social, and economic
developments, and foreign regulations.
o The Account may (but is not required to) seek to hedge its exposure to
changes in currency rates, which could involve extra costs. Hedging might not
be successful.
o It may be more difficult to obtain and collect a judgment on foreign
investments than on domestic ones.
NO OPPORTUNITY FOR PRIOR REVIEW OF PURCHASE
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 or charged against the assets of
the Account without regard to TIAA's other income, gains, or losses. Under New
York insurance law, we can't charge the Account with liabilities incurred by any
other TIAA business activities or any other TIAA separate account.
MANAGING THE ACCOUNT
TIAA employees, under the direction and control of TIAA's Board of Trustees
and its Investment Committee, manage the investment of the Account's assets,
following investment management procedures TIAA adopted for the Account. TIAA's
investment management responsibilities include:
o identifying, recommending and purchasing appropriate real estate-related and
other investments o providing all portfolio accounting, custodial, and
related services for the Account
o arranging for others to provide certain advisory or other management services
to the Account's joint ventures or other investments
TIAA provides all services to the Account at cost. For more about the charge
for investment management services, see "Expense Deductions" page 15.
You don't have the right to vote for TIAA Trustees directly. See "Voting
Rights" page 22. For information about the Trustees and principal executive
officers of TIAA, see Appendix A on page 40 of this prospectus.
6 TIAA Real Estate Account 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 15.
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 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, has been engaged to serve as
the Account's independent fiduciary, replacing Institutional Property
Consultants, Inc. The independent fiduciary's responsibilities include:
o reviewing and approving the Account's investment guidelines and monitoring
whether the Account's investments comply with those guidelines
o reviewing and approving valuation procedures
o approving adjustments to any property valuations that change the value of the
property or the Account as a whole above or below certain prescribed levels,
or that are made within three months of the annual independent appraisal
o reviewing and approving how we value accumulation and annuity units
o approving the appointment of all independent appraisers
o reviewing the purchase and sale of units by TIAA to ensure that we use the
correct unit values
o requiring appraisals besides those normally conducted, if the independent
fiduciary believes that any of the properties have changed materially, or
that an additional appraisal is necessary to assure the Account has correctly
valued a property
The independent fiduciary also must monitor TIAA's ownership in the Account
and supervise any winding down of the Account's operations. Its responsibilities
include:
o calculating the percentage of total accumulation units that TIAA's ownership
shouldn't exceed (the trigger point) and creating a method for changing the
trigger point
o approving any adjustment of TIAA's interest in the Account and requiring an
adjustment if TIAA's investment reaches the trigger point
o participating in any program to reduce TIAA's ownership in the Account or to
facilitate winding down the Account, including selecting properties for sale,
providing sales guidelines, and approving those sales that, in the
independent fiduciary's opinion, are desirable
A special subcommittee of the Investment Committee of TIAA's Board of
Trustees appointed The Townsend Group as the independent fiduciary starting
March 1, 2000, for a three-year term. This subcommittee may renew the
independent fiduciary appointment, remove the independent fiduciary, or appoint
its successor. The independent fiduciary can be removed for cause by the vote of
a majority of subcommittee members or it can resign after at least 180 days'
written notice. The independent fiduciary will not be reappointed unless more
than 60 percent of the subcommittee members approve.
TIAA pays the independent fiduciary directly. The investment management
charge paid to TIAA includes TIAA's costs for retaining the independent
fiduciary. The independent fiduciary will receive less than 5 percent of its
annual income (including payment for its services to the Account) from TIAA.
When you decide as a participant or plan fiduciary to invest in the Account,
after TIAA has provided you with full and fair disclosure including the
disclosure in this prospectus, you are also acknowledging that you approve and
accept The Townsend Group or any successor to serve as the Account's independent
fiduciary.
Prospectus TIAA Real Estate Account 7
DESCRIPTION OF PROPERTIES
THE PROPERTIES--IN GENERAL
As of December 31, 2000, the Account had 60 properties in its real estate
portfolio. The following charts break down the Account's real estate assets by
region and property type.
EAST MIDWEST SOUTH WEST TOTAL
- -------------------------------------------------------------------------------
OFFICE 30.6% 7.4% 4.7% 8.5% 51.2%
INDUSTRIAL 5.7% 3.4% 4.1% 10.9% 24.1%
RESIDENTIAL 7.7% 1.7% 4.4% 8.5% 22.3%
RETAIL 1.4% 0.6% 0.4% 0 2.4%
TOTAL 45.4% 13.1% 13.6% 27.9% 100.0%
In the table below you will find general information about each of the Account's
portfolio properties as of December 31, 2000.
ANNUAL AVG.
BASE RENT
YEAR YEAR RENTABLE AREA PERCENT PER LEASED
PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) MARKET VALUE(2)
- -----------------------------------------------------------------------------------------------------------------------------------
OFFICE PROPERTIES
780 Third Avenue New York, NY 1984 1999 487,501 98% $39.93 $173,600,000
1801 K Street Washington, DC 1971(3) 2000 564,359 96% $35.93 $140,989,800
Morris Corporate Center III Parsippany, NJ 1990 2000 525,154 98% $12.42 $103,800,000
88 Kearney Street San Francisco, CA 1986 1999 228,470 100% $35.87 $ 84,172,241
Sawgrass Portfolio Sunrise, FL 1997-2000 1997,
1999-2000 344,009 100% $14.85 $ 54,300,000
Parkview Plaza(4) Oakbrook, IL 1990 1997 266,020 99% $19.35 $ 52,500,000
Columbia Centre III Rosemont, IL 1989 1997 238,696 87% $24.73 $ 42,500,000
Biltmore Commerce Center Phoenix, AZ 1985 1999 262,875 81% $17.39 $ 38,603,637
Maitland Promenade One Maitland, FL 1999 2000 227,814 96% $23.29 $ 36,520,163
One Monument Place Fairfax, VA 1990 1999 219,837 99% $21.59 $ 36,500,000
Columbus Office Portfolio $ 34,200,000
Metro South Building Dublin, OH 1997 1999 90,726 91% $12.85 --
BISYS Fund Services Building Eaton, OH 1995 1999 155,964 100% $11.69 --
Vision Service Plan Building Eaton, OH 1997 1999 50,000 100% $11.88 --
10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 100% $21.36 $ 31,400,000
Fairgate at Ballston(4) Arlington, VA 1988 1997 143,457 94% $27.91 $ 30,800,000
Longview Executive Park(4) Hunt Valley, MD 1988 1997 258,999 100% $11.73 $ 28,020,861
Tysons Executive Plaza II(5)
(held in joint venture) McLean, VA 1988 2000 252,552 100% $22.62 $ 26,035,867(5)
Five Centerpointe(4) Lake Oswego, OR 1988 1997 113,971 98% $13.66 $ 18,331,911
371 Hoes Lane Piscataway, NJ 1986 1997 139,670 100% $13.36 $ 16,677,327
Southbank Building Phoenix, AZ 1995 1996 122,535 100% $ 9.40 $ 13,200,000
Northmark Business Center(4) Blue Ash, OH 1985 1997 108,561 95% $12.92 $ 13,100,000
USF&G Building(4) Salt Lake City, UT 1988 1997 67,322 93% $14.84 $ 8,677,033
--------- ------------
SUBTOTAL--OFFICE PROPERTIES 5,078,045 $983,928,840
- -----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL PROPERTIES
Park West Int'l Industrial Pk $ 3.24 $ 53,931,995
Building C Hebron, KY 1998 1998 520,000 100% --
Building D Hebron, KY 1998 1998 184,800 100% --
Building E Hebron, KY 2000 2000 207,222 100% --
Building J Hebron, KY 2000 2000 525,000 100% --
Ontario Portfolio $ 3.40 $107,688,169
Timberland Building Ontario, CA 1998 1998 414,435 100% --
5200 Airport Drive Ontario, CA 1997 1998 404,500 100% --
1200 S. Etiwanda Ave. Ontario, CA 1998 1998 223,170 100% --
Park Mira Loma West Mira Loma, CA 1998 1998 557,500 100% --
Wineville Center Buildings Mira Loma, CA 1999 2000 1,099,112 100%
Atlanta Industrial Portfolio Lawrenceville, GA 1996-99 2000 1,145,691 90% $ 2.38 $ 40,021,362
8 TIAA Real Estate Account Prospectus
INDUSTRIAL PROPERTIES (CONTINUED)
ANNUAL AVG.
BASE RENT
YEAR YEAR RENTABLE AREA PERCENT PER LEASED
PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) MARKET VALUE(2)
- ----------------------------------------------------------------------------------------------------------------------------------
Northpointe Commerce Center Fullerton, CA 1990-94 2000 612,023 100% $ 5.90 $ 38,800,000
Saks Distribution Facility Aberdeen, MD 1997 1997 470,708 100% $ 5.32 $ 30,950,000
Parkwest Center I and II Coppell, TX 1997 2000 735,150 98% $ 3.64 $ 28,300,500
Rockrun Business Park $ 19,497,150
Building I Joliet, IL 1998 1998 258,000 100% $ 2.98 --
Mack Truck Building Joliet, IL 2000 2000 248,014 100% $ 3.33 --
Konica Photo Imaging
Headquarters Mahwah, NJ 1999 1999 168,000 100% $ 9.92 $ 17,300,000
Glen Pointe Business Park $ 6.48 $ 16,100,000
Building V Chicago, IL 1997 1998 117,600 100% --
Building VII Chicago, IL 1997 1998 92,543 100% --
ABS and CDC Buildings
(under development and
held in joint venture) Rancho Cucamonga, CA 2001(6) 2000 641,475 100% $ 3.45 $ 15,243,900(6)
Landmark at Salt Lake City
Building #4 Salt Lake City, UT 2000 2000 328,508 100% $ 3.98 $ 14,434,653
Interstate Acres Urbandale, IA 1981-88 1997 440,000 81% $ 3.40 $ 13,200,000
Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $ 5.59 $ 13,700,000
Arapahoe Park East Boulder, CO 1979-82 1996 129,425 100% $ 6.25 $ 12,478,003
UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $ 3.54 $ 11,000,000
FedEx Distribution Facility Crofton, MD 1998 1998 111,191 100% $ 6.39 $ 7,600,000
Woodcreek Business Park Chicago, IL 1995 1998 149,907 100% $ 2.11 $ 7,000,000
Westinghouse Facility Coral Springs, FL 1997 1997 75,630 100% $ 7.29 $ 6,200,000
Interstate Crossing Eagan, MN 1995 1996 131,380 86% $ 5.64 $ 6,150,000
Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $ 2.89 $ 4,957,200
River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $ 3.99 $ 4,300,000
---------- --------------
SUBTOTAL--INDUSTRIAL PROPERTIES 10,730,950 $ 468,852,932
- ----------------------------------------------------------------------------------------------------------------------------------
RETAIL PROPERTIES
Rolling Meadows Rolling Meadows, IL 1957(3) 1997 130,910 80% $11.59 $ 11,986,500
River Oaks Woodbridge, VA 1995 1996 90,885 97% $14.57 $ 11,100,000
Lynnwood Collection Raleigh, NC 1988 1996 86,362 90% $ 8.37 $ 7,900,000
Millbrook Collection Raleigh, NC 1988 1996 102,221 94% $ 7.81 $ 7,000,000
Plantation Grove Ocoee, FL 1995 1995 73,655 97% $10.04 $ 7,450,000
---------- --------------
SUBTOTAL--RETAIL PROPERTIES 484,033 $ 45,436,500
---------- --------------
SUBTOTAL--COMMERCIAL PROPERTIES 16,293,028 $1,498,218,272
- -----------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL PROPERTIES(7)
Ashford Meadows Apartments Herndon, VA 1998 2000 NA 97% NA $ 64,174,878
The Colorado New York, NY 1987 1999 NA 99% NA $ 60,400,000
Larkspur Courts Apartments Larkspur, CA 1991 1999 NA 99% NA $ 58,600,000
Bay Court at Harbour Pointe Mulkiteo, WA 1991 1998 NA 100% NA $ 35,000,000
Lodge at Willow Creek Douglas County, CO 1997 1997 NA 99% NA $ 30,800,000
Golfview Apartments Lake Mary, FL 1998 1998 NA 100% NA $ 27,400,000
The Legends at Chase Oaks Plano, TX 1997 1998 NA 100% NA $ 26,289,264
Lincoln Woods Lafayette Hill, PA 1991 1997 NA 100% NA $ 23,507,797
Monte Vista Littleton, CO 1995 1996 NA 99% NA $ 21,000,000
Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 100% NA $ 17,250,000
Westcreek Westlake Village, CA 1988 1997 NA 100% NA $ 17,200,000
Royal St. George W. Palm Beach, FL 1995 1996 NA 99% NA $ 16,650,000
Bent Tree Apartments Columbus, OH 1987 1998 NA 99% NA $ 14,700,000
The Greens at Metrowest Orlando, FL 1990 1995 NA 100% NA $ 14,100,000
----------- --------------
SUBTOTAL--RESIDENTIAL PROPERTIES NA $ 427,071,939
----------- --------------
TOTAL--ALL PROPERTIES 16,293,028 $1,925,290,211
- --------------------------------------------------------------------------------
(1) BASED ON TOTAL CONTRACTUAL RENT ON LEASES EXISTING AT DECEMBER 31, 2000. FOR
THOSE PROPERTIES PURCHASED IN 2000, 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) UNDERGONE EXTENSIVE RENOVATIONS.
(4) PURCHASED THROUGH LIGHT STREET PARTNERS, L.P. (NOW 100% OWNED BY THE
ACCOUNT). THE USF&G Building was sold in January 2001.
(5) Property held in 50%/50% joint venture with Tennessee Consolidated
Retirement System. Market value shown reflects the value of the Account's
interest in the property.
(6) The property is held in a 80%/20% joint venture with Cabot Industrial Trust,
and is under development. The property is currently valued at cost. It is
anticipated that the buildings, which are 100% pre-leased, will be ready for
occupancy in 2001.
(7) For the average unit size and annual average rent per unit for each
residential property, see "Residential Properties" below.
Prospectus TIAA Real Estate Account 9
COMMERCIAL (NON-RESIDENTIAL) PROPERTIES
IN GENERAL. At December 31, 2000, the Account held 46 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, 2000, the Account's office property portfolio consisted of 20
office properties located in metropolitan areas throughout the United States
(including one property held in a 50%/50% joint venture). The office properties
together are approximately 93 percent leased with 474 leases.
At December 31, 2000, the Account's industrial property portfolio consisted
of 21 properties (including one which is held in an 80%/20% joint venture and is
currently under development) used primarily for warehousing, distribution, or
light manufacturing activities. The Account's industrial properties together are
97 percent leased with 96 leases.
At December 31, 2000, the Account's retail property portfolio consisted of
five neighborhood shopping centers, each of which is anchored by a supermarket
tenant. These retail properties together are approximately 92 percent leased
with 75 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.
- --------------------------------------------------------------------------------
PERCENTAGE OF
TOTAL RENTABLE
AREA OF ACCOUNT'S
OCCUPIED NON-RESIDENTIAL PROPERTY
MAJOR TENANT SQUARE FEET PROPERTIES TYPE
- --------------------------------------------------------------------------------
WalMart 1,099,112 6.7% Industrial
The GAP 1,045,000 6.4% Industrial
Meiko-America 557,500 3.4% Industrial
Saks & Company 470,707 2.9% Industrial
UPS 422,400 2.6% Industrial
Timberland 414,435 2.5% Industrial
New Breed Transfer Company 404,500 2.5% Industrial
Cooper Tire 401,226 2.5% Industrial
Petco 258,000 1.6% Industrial
Standard Corporation 256,172 1.6% Industrial
Van Kampen 233,170 1.32% Office
PHH 199,563 1.22% Office
Northern Telecom 149,426 .92% Office
- --------------------------------------------------------------------------------
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.
- -------------------------------------------------------------------------------
RENTABLE PERCENT OF
AREA TOTAL RENTABLE
SUBJECT TO AREA OF ACCOUNT'S
YEAR OF NUMBER OF EXPIRING NON-RESIDENTIAL
LEASE LEASES LEASES PROPERTIES REPRESENTED
EXPIRATION EXPIRING (SQ. FT.) BY EXPIRING LEASES
- -------------------------------------------------------------------------------
OFFICE PROPERTIES
2001 80 703,885 13.4%
2002 66 602,036 11.5%
2003 72 778,443 14.8%
2004 55 373,811 7.1%
2005 60 723,284 13.8%
2006 and
thereafter 141 1,876,428 35.8%
- -------------------------------------------------------------------------------
TOTAL 474 5,057,887 96.4%
- -------------------------------------------------------------------------------
INDUSTRIAL PROPERTIES
2001 7 156,960 1.5%
2002 4 193,438 1.8%
2003 16 1,465,634 13.9%
2004 15 762,404 7.2%
2005 18 2,110,674 20.0%
2006 and
thereafter 36 5,538,345 52.4%
- -------------------------------------------------------------------------------
TOTAL 96 10,227,455 96.8%
- -------------------------------------------------------------------------------
RETAIL PROPERTIES
2001 29 63,482 13.1%
2002 6 18,351 3.8%
2003 11 17,767 3.7%
2004 6 7,798 1.6%
2005 13 39,870 8.2%
2006 and
thereafter 10 291,160 60.2%
- -------------------------------------------------------------------------------
TOTAL 75 438,428 90.6%
- -------------------------------------------------------------------------------
10 TIAA Real Estate Account Prospectus
RESIDENTIAL PROPERTIES
The Account's residential property portfolio currently consists of 14 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, 2000.
NUMBER AVERAGE UNIT SIZE AVG. RENT PER PERCENT
PROPERTY LOCATION OF UNITS (SQUARE FEET) UNIT/PER MONTH LEASED
- ------------------------------------------------------------------------------------------------------------------------------------
Ashford Meadows Apartments Herndon, VA 440 1050 $1,279 97%
The Colorado New York, NY 256 632 $2,266 99%
Larkspur Courts Apartments Larkspur, CA 248 1001 $2,265 99%
Bay Court at Harbour Pointe Mulkiteo, WA 420 970 $ 855 100%
Lodge at Willow Creek Douglas County, CO 316 1001 $1,002 99%
Golfview Apartments Lake Mary, FLA 276 1139 $1,036 100%
The Legends at Chase Oaks Plano, TX 346 972 $1,035 100%
Lincoln Woods Lafayette Hill, PA 216 773 $1,144 100%
Monte Vista Littleton, CO 219 888 $1,062 99%
Indian Creek Apartments Farmington Hills, MI 196 1139 $ 986 100%
Westcreek Apartments Westlake Village, CA 126 948 $1,387 100%
Royal St. George West Palm Beach, FL 224 870 $ 851 99%
Bent Tree Apartments Columbus, OH 256 928 $ 718 99%
The Greens at Metrowest Orlando, FL 200 920 $ 841 100%
RECENT PROPERTY PURCHASES AND SALES
On March 9, 2001, the Account purchased a portfolio of four industrial
properties in Dallas, Texas for a purchase price of approximately $68.7 million.
The properties consist of four new Class A buildings, built between 1999-2000,
totaling 1,873,880 square feet. Three of the properties, known as Waters Ridge
I, II & II, are located in Waters Ridge Industrial Park in Lewisville, Texas in
the Northwest Dallas industrial submarket. The fourth building, the Coaster
Building, is located in Arlington, Texas in the Southwest Dallas Industrial
submarket. The properties are currently 95% leased.
On January 12, 2001, the Account sold one office building (the USF&G
Building) located in Salt Lake City, Utah for approximately $8.7 million.
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
OMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONSO BELOW. REAL ESTATE INVESTMENTS MADE BY THE ACCOUNT AFTER THE DATE OF
THIS PROSPECTUS WILL BE DESCRIBED IN SUPPLEMENTS TO THE PROSPECTUS, AS
APPROPRIATE.
Prospectus TIAA Real Estate Account 11
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.
JULY 3, 1995
(COMMENCEMENT
OF OPERATIONS) TO
YEAR ENDED DECEMBER 31, DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Real estate income, net:
Rental income $195,537,993 $132,316,878 $ 81,009,203 $ 44,342,342 $ 10,951,183 $165,762
------------ ------------ ------------ ------------ ------------ -----------
Real estate property
level expenses and
taxes:
Operating expenses 40,056,716 27,334,060 17,339,706 9,024,240 2,116,334 29,173
Real estate taxes 22,851,890 15,892,736 9,103,637 4,472,311 1,254,163 14,659
------------ ------------ ------------ ------------ ------------ ------------
Total real estate
property level
expenses and taxes 62,908,606 43,226,796 26,443,343 13,496,551 3,370,497 43,832
------------ ------------ ------------ ------------ ------------ ------------
Real estate income, net 132,629,387 89,090,082 54,565,860 30,845,791 7,580,686 121,930
Income from real estate
joint venture 756,133 -- -- -- -- --
Dividends and interest 31,334,291 24,932,733 23,943,728 16,486,279 6,027,486 2,828,900
------------ ------------ ------------ ------------ ------------ ------------
Total investment income 164,719,811 114,022,815 78,509,588 47,332,070 13,608,172 2,950,830
Expenses 13,424,566 9,278,410 6,274,594 3,526,545 1,155,796 310,433
------------ ------------ ------------ ------------ ------------ ------------
Investment income, net 151,295,245 104,744,405 72,234,994 43,805,525 12,452,376 2,640,397
Net realized and unrealized
gain on investments 54,147,449 9,834,743 7,864,659 18,147,053 3,330,539 35,603
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from operations 205,442,694 114,579,148 80,099,653 61,952,578 15,782,915 2,676,000
Minority interest in net
increase in net assets
resulting from operations
before minority interest -- 1,364,619 (3,487,991) (1,881,178) -- --
Net increase in net assets
resulting from participant
transactions 486,196,949 383,171,774 333,936,510 356,052,262 233,653,793 117,582,345
------------ ------------ ------------ ------------ ------------ ------------
Net increase in net assets $691,639,643 $499,115,541 $410,548,172 $416,123,662 $249,436,708 $120,258,345
============ ============ ============ ============ ============ ============
DECEMBER 31,
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $2,423,100,402 $1,719,457,715 $1,229,603,431 $815,760,825 $426,372,007 $143,177,421
Total liabilities and
minority interest 35,978,331 23,975,287 33,236,544 29,942,110 56,676,954 22,919,076
-------------- --------------- -------------- ------------ ------------ ------------
Total net assets $2,387,122,071 $1,695,482,428 $1,196,366,887 $785,818,715 $369,695,053 $120,258,345
============== =============== ============== ============ ============ ============
Accumulation units
outstanding 14,604,673 11,487,360 8,833,911 6,313,015 3,295,786 1,172,498
============== =============== ============== ============ ============ ============
Accumulation unit value $158.21 $142.97 $132.17 $122.30 $111.11 $102.57
======= ======= ======= ======= ======= =======
QUARTERLY SELECTED FINANCIAL INFORMATION
The following is selected financial information for the Account for each full
quarter within the past two calendar years:
2000 1999
------ -----
FOR THE THREE MONTHS ENDED FOR THE THREE MONTHS ENDED
-------------------------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------------------------
Investment income, net $31,774,860 $36,145,064 $40,552,504 $42,822,817 $22,192,803 $23,375,431 $28,043,849 $31,132,322
Net realized gain
(loss) on investments (147,448) 58,263 (241,717) 8,606,836 5,606,417 213,035 (827,090) 774,335
Net unrealized gain
(loss) on investments 5,603,540 14,044,336 15,013,318 11,210,321 (7,669,787) 9,537,980 (6,030,366) 8,230,219
Minority interest in
net increase in net
assets resulting
from operations -- -- -- -- (403,153) 1,767,772 -- --
---------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net increase in net
assets resulting
from operations $37,230,952 $50,247,663 $55,324,105 $62,639,974 $19,726,280 $34,894,218 $21,186,393 $40,136,876
=========== =========== =========== =========== =========== =========== =========== ===========
Total return 2.15% 2.67% 2.67% 2.77% 1.57% 2.51% 1.38% 2.47%
=========== =========== =========== =========== =========== =========== =========== ===========
12 TIAA Real Estate Account Prospectus
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF ACCOUNT'S FINANCIAL CONDITION AND
OPERATING RESULTS
The Real Estate Account continued its positive growth in 2000, with
approximately $2.4 billion in net assets as of year-end 2000. As of December 31,
2000, the Account owned a total of 60 real estate properties, including 20
office properties (one held in joint venture), 21 industrial properties
(including one development project joint venture), 14 apartment complexes and
five neighborhood shopping centers. At December 31, 2000, these properties
represented 80.6% of the Account's total investment portfolio, an increase of 3%
over year-end 1999.
In 2000, the Account purchased 15 properties (five office properties,
including one held in a 50%/50% joint venture, nine industrial properties and
one apartment property), sold two properties (one office property and one
apartment property), and entered into an 80%/20% partnership to develop an
industrial property. 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, 2000, the Account also held investments in commercial
paper, representing 13.3% of the portfolio, real estate investment trusts
(REITs), representing 5.7% of the portfolio, and corporate bonds, representing
0.4% of the portfolio.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000 COMPARED TO
YEAR ENDED DECEMBER 31, 1999
The Account's total net return was 10.66% for the year ended December 31,
2000 and 8.17% for 1999. The Account's net investment income, after deducting
all expenses, was $151,295,245 for the year ended December 31, 2000 and
$104,744,405 for 1999, a 44% increase. This increase was the result of a 41%
increase in net assets and a 46.4% increase in the market value of the Account's
real estate holdings from December 31, 1999 to December 31, 2000. The Account
had net realized and unrealized gains on investments of $54,147,449 for the year
exnded December 31, 2000 compared with $9,834,743 for 1999. This difference was
due in part to the increase in realized and unrealized gains on the Account's
real estate properties from $23,232,711 in 1999 to $32,001,734 for 2000, and,
significantly, to the Account's gain of $22,145,715 on its marketable securities
in 2000, compared with its loss of $13,397,968 on its marketable securities in
1999.
The Account's real estate holdings generated approximately 81% of the
Account's total investment income (before deducting Account level expenses)
during 2000 compared with 78% during 1999. The remaining portion of the
Account's total investment income was generated by investments in marketable
securities.
Gross real estate rental income was $195,537,993 for the year ended December
31, 2000 and $132,316,878 for the same period in 1999. This increase was
primarily due to the increase in the number of properties owned by the
Account--from 54 properties at the end of 1999 to 60 properties at the end of
2000. (The total number of properties in 2000 reflects the consolidation of
certain groups of properties into single portfolios.) Interest and dividend
income on the Account's marketable securities investments increased from
$24,932,733 for 1999 to $31,334,291 in 2000.
Total property level expenses for the year ended December 31, 2000 were
$62,908,606 of which $40,056,716 was attributable to operating expenses and
$22,851,890 was attributable to real estate taxes. 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. The increase in property level expenses during 2000 reflected the
increased number of properties in the Account.
The Account incurred expenses for the years ended December 31, 2000 and 1999
of $6,924,202 and $4,246,911, respectively, for investment advisory services,
$4,392,882 and $3,442,282, respectively, for administrative and distribution
services, and $2,107,482 and $1,589,217, respectively, for mortality and expense
risk charges and liquidity guarantee charges. These expenses increased
significantly as a result of the increased costs of managing a growing account,
including the costs of acquiring and managing additional properties, and the
increased staffing costs associated with administering a larger account.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO
YEAR ENDED DECEMBER 31, 1998
The Account's total net return was 8.17% for the year ended December 31, 1999
and 8.07% for 1998. The Account's net investment income, after deducting all
expenses, was $104,744,405 for the year ended December 31, 1999 and $72,234,994
for 1998, a 45% increase. This increase was the result of a 42% increase in net
assets and an increase in the Account's real estate holdings from December 31,
1998 to December 31, 1999. The Account had net realized and unrealized gains on
investments of $9,834,743 and $7,864,659 for the year ended December 31, 1999
and December 31, 1998, respectively. The gains on the Account's real estate
properties of $23,232,711 and $33,221,281 for 1999 and 1998, respectively, were
offset by net realized and unrealized losses on the Account's marketable
securities of $13,397,968 and $25,356,622 for 1999 and 1998 respectively.
The Account's real estate holdings generated approximately 78% of the
Account's total investment income (before deducting Account level expenses)
during 1999 compared with 70% during 1998. The remaining portion of the
Account's total investment income was generated by investments in marketable
securities.
Gross real estate rental income was $132,316,878 for the year ended December
31, 1999 and $81,009,203 for the same period in 1998. This increase was
primarily due to the increase in the number 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.
Prospectus TIAA Real Estate Account 13
Such expenses increased as a result of the larger net asset base of the
Account for 1999 over 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Account earned $151,295,245 in 2000 and $104,744,405 in net investment
income in 1999. During 2000, the Account received $161,668,073 in premiums and
$379,610,411 in net participant transfers from other TIAA and CREF accounts,
while in 1999 the Account received $126,200,561 in premiums and $293,354,604 in
net participant transfers from other TIAA and CREF accounts. Real estate
properties costing $625,800,000 and $511,878,000 were purchased during 2000 and
1999, respectively. In 2000, the Account also received $60,400,000 in proceeds
from the sale of properties (including proceeds from the sale of a 50% interest
in a recently-purchased property). By year end 2000, the Account's liquid assets
(i.e., its cash, REITs, short- and intermediate-term investments, and government
securities) had a value of $464,544,434, while at the end of 1999 those assets
were valued at $374,896,400. We anticipate that much of the Account's liquid
assets as of December 31, 2000, 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 $7.6 million in 2000 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. In 2001, it is
estimated that the Account will expend approximately $27.5 million in capital
expenses. The Account will be undertaking several major capital expenditures,
including the renovation of the parking structures of three office buildings
(1801 K Street, N.W. in Washington, D.C., Tysons Executive Plaza II in McLean,
VA, and Morris Corporate Center in Parsippany, NJ), maintenance programs for the
facades of 780 Third Avenue and The Colorado in New York, New York, and the
renovation of the lobby of The Colorado. (These major expenditures had been
contemplated at the time of each property purchase, and either the Account
received a credit to the purchase price, or the cost was factored in to
determine the original purchase price.) These major expenditures will be in
addition to the costs routinely incurred by the Account for painting,
re-carpeting and minor replacements to re-lease apartments as they become vacant
and the costs associated with the renewal of existing tenants or re-leasing of
space to new tenants in the commercial properties.
EFFECTS OF INFLATION--2001
Although inflation has been modest in recent years, inflation is projected to
increase in 2001. To the extent that inflation may increase property operating
expenses in the future, we anticipate that increases will generally be billed to
tenants either through contractual lease provisions in office, industrial, and
retail properties or through rent increases in apartment complexes. However,
depending on how long any vacant space in a property remains unleased, the
Account may not be able to recover the full amount of such increases in
operating expenses.
VALUING THE ACCOUNT'S ASSETS
We value the Account's assets as of the close of each valuation day by taking
the sum of:
o the value of the Account's cash, cash equivalents, and short-term and other
debt instruments
o the value of the Account's other securities investments and other assets o
the value of the individual real properties and other real estate-related
investments owned by the Account
o an estimate of the net operating income accrued by the Account from its
properties and other real estate-related investments
and then reducing it by the Account's liabilities, including the daily
investment management fee and certain other expenses attributable to operating
the Account. See "Expense Deductions," page 15.
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.
Development properties initially will be valued at the Account's cost, and
the value will be adjusted as additional development costs are incurred. Once a
property receives a certificate of occupancy, or within one year from the
purchase date, whichever is earlier, the property will be appraised by an
independent appraiser, approved by the independent fiduciary. We may also have
the properties independently appraised earlier if circumstances warrant.
Because of the nature of real estate assets, the Account's net asset value
won't necessarily reflect the true or realizable value of its real estate 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. Floating variable rate mortgages will generally be
valued at their face amount, although we may adjust these values as market
conditions dictate.
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.
14 TIAA Real Estate Account Prospectus
We'll use these assumptions to project the cash flow and anticipated sale
proceeds from each investment over the term of the loan, or sometimes over a
shorter period. To calculate sale proceeds, we'll assume that the real property
underlying each investment will be sold at the end of the period used in the
valuation at a price based on market assumptions for the time of the projected
sale. We'll then discount the estimated cash flows and sale proceeds to their
present value (using rates appropriate to then-current market conditions).
NET OPERATING INCOME: The Account usually receives operating income from its
investments intermittently, not daily. In fairness to participants, we estimate
the Account's net operating income rather than applying it when we actually
receive it, and assume that the Account has earned (accrued) a proportionate
amount of that estimated amount daily. You bear the risk that, until we adjust
the estimates when we receive actual income reports, the Account could be under-
or over-valued.
Every year, we prepare a month-by-month estimate of the revenues and expenses
(estimated net operating income) for each of the Account's properties. Each day,
we add the appropriate fraction of the estimated net operating income for the
month to the Account's net asset value.
Every month, the Account receives a report of the actual operating results
for the prior month for each property (actual net operating income). We then
recognize the actual net operating income on the accounting records of the
Account and adjust the outstanding daily accrued receivable accordingly. As the
Account actually receives cash from a property, we'll adjust the daily accrued
receivable and other accounts appropriately.
ADJUSTMENTS: We can adjust the value of an investment if we believe events or
market conditions (such as a borrower's or tenant's default) have affected how
much the Account could get if it sold the investment. We may not always be aware
of each event that might require a valuation adjustment, and because our
evaluation is based on subjective factors, we may not in all cases make
adjustments where changing conditions could affect the value of an investment.
The independent fiduciary will need to approve adjustments to any valuation
of one or more properties that
o is made within three months of the annual independent appraisal or
o results in an increase or decrease of:
o more than 6 percent of the value of any of the Account's properties
since the last independent annual appraisal
o more than 2 percent in the value of the Account since the prior month
or
o more than 4 percent in the value of the Account within any quarter.
RIGHT TO CHANGE VALUATION METHODS: If we decide that a different valuation
method would reflect the value of a real estate-related investment more
accurately, we may use that method if the independent fiduciary consents.
Changes in TIAA's valuation methods could change the Account's net asset value
and change the values at which participants purchase or redeem Account
interests.
VALUING OTHER INVESTMENTS
DEBT SECURITIES AND MONEY MARKET INSTRUMENTS: We value fixed income
securities (including money market instruments) for which market quotations are
readily available at the most recent bid price or the equivalent quoted yield
for those securities (or those of comparable maturity, quality, and type). We
obtain values for money market instruments with maturities of one year or less
either from one or more of the major market makers for those securities or from
one or more financial information services. We use an independent pricing
service to value securities with maturities longer than one year except when we
believe prices do not accurately reflect the fair value of these securities.
EQUITY SECURITIES: We value equity securities (including REITs) listed or
traded on the New York Stock Exchange or the American Stock Exchange at their
last sale price on the valuation day. If no sale is reported that day, we use
the mean of the closing bid and asked prices. Equity securities listed or traded
on any other exchange are valued in a comparable manner on the principal
exchange where traded.
We value equity securities traded on the NASDAQ Stock Market's National
Market at their last sale price on the valuation day. If no sale is reported
that day, we use the mean of the closing bid and asked prices. Other U.S.
over-the-counter equity securities are valued at the mean of the closing bid and
asked prices.
FOREIGN SECURITIES: To value investments traded on a foreign exchange or in
foreign markets, we use their closing values under the generally accepted
valuation method in the country where traded, as of the valuation date. We
convert this to U.S. dollars at the exchange rate in effect on the valuation
day.
INVESTMENTS LACKING CURRENT MARKET QUOTATIONS: We value securities or other
assets for which current market quotations are not readily available at fair
value as determined in good faith under the direction of the Investment
Committee of TIAA's Board of Trustees and in accordance with the
responsibilities of TIAA's Board as a whole.
EXPENSE DEDUCTIONS
Deductions are made each valuation day from the net assets of the Account for
various services required to manage investments, administer the Account and the
contracts, and to cover certain risks borne by TIAA. Services are performed at
cost by TIAA and TIAA-CREF Individual & Institutional Services, Inc.
("Services"), a subsidiary of TIAA. Because services are provided at cost, we
expect that expense deductions will be relatively low. TIAA guarantees that in
the aggregate, the expense charges will never be more than 2.50% of average net
assets per year.
The current annual expense deductions are:
PERCENT OF
TYPE OF EXPENSE NET ASSETS SERVICES
DEDUCTION ANNUALLY PERFORMED
- -------------------------------------------------------------------------------
Investment 0.255% For TIAA's investment advice,
Management portfolio accounting, custodial services, and
similar services, including independent
fiduciary and appraisal fees
Administration 0.245% For Services' administrative
services, such as allocating premiums
and paying annuity income
Distribution 0.040% For Services' expenses related
to distributing the annuity contracts
Mortality and 0.070% For TIAA's bearing certain mortality
Expense Risk and expense risks
Liquidity Guarantee 0.030% For TIAA's liquidity guarantee
- -------------------------------------------------------------------------------
TOTAL ANNUAL
EXPENSE DEDUCTION 0.640% FOR TOTAL SERVICES TO THE ACCOUNT
- -------------------------------------------------------------------------------
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
Prospectus TIAA Real Estate Account 15
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.
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. Y ou 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 and 401(k) plans.
SRA contracts are issued directly to you. GSRA contracts, which are group
contracts, are issued through an agreement between your employer and TIAA. Your
employer pays premiums in pre-tax dollars through salary reduction. Although you
can't pay premiums directly, you can transfer amounts from other TDA plans.
CLASSIC IRA
Classic IRAs are individual contracts issued directly to you. You and your
spouse can each open a Classic IRA with an annual contribution of up to $2,000
or by rolling over funds from another IRA or retirement plan, if you meet our
eligibility requirements. The combined limit for your contributions to a Classic
IRA and a Roth IRA for a single year is $2,000, excluding rollovers. We can't
issue you a joint contract.
ROTH IRA
Roth IRAs are also individual contracts issued directly to you. You or your
spouse can each open a Roth IRA with an annual contribution up to $2,000 or with
a rollover from another IRA or a Classic IRA issued by TIAA if you meet our
eligibility requirements. The combined limit for your contributions to a Classic
IRA and a Roth IRA for a single year is $2,000, excluding rollovers. We can't
issue you a joint contract.
Classic and Roth IRAs may together be referred to as "IRAs" in this
prospectus.
GA (GROUP ANNUITY)
These 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 in Pennsylvania and Oregon, TIAA also offers
contracts for Keogh plans. If you are a self-employed individual who owns an
unincorporated business, you can use our Keogh contracts for a Keogh plan, and
cover common law employees, subject to our eligibility requirements.
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, at least half the partners must be
eligible individuals and the partnership itself must be primarily engaged in
education or research. Eligibility may be restricted by certain income limits on
opening Roth IRA contracts.
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 invest the money in 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 total more than 100 percent, we'll
invest your premiums in the CREF Money Market Account. If your allocation
instructions total less than 100 percent , we'll credit the percentage that is
not allocated to a specific account to the CREF Money Market Account. The
balance with be invested as you instructed. After we receive a complete and
correct application, we'll follow your allocation instructions for future
premiums. However, any amounts that we credited to the CREF Money Market Account
before we received correct instructions will be transferred to the Real Estate
Account only on request, and will be credited as of the business day we receive
that request.
TIAA doesn't restrict the amount or frequency of premiums to your RA, GRA,
and IRA contracts, although we may in the future. Your employer's retirement
plan may limit your premium amounts, while 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.
TIAA Real Estate Account Prospectus 16
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.
CHOOSING AMONG THE TIAA AND CREF ACCOUNTS
You can allocate all or part of your premiums to the Real Estate Account,
unless your employer's plan precludes that choice. You can also allocate
premiums to TIAA's traditional annuity or any of the CREF variable investment
accounts, if the account is available under your employer's plan.
You can change your allocation choices for future premiums by
o writing to our home office
o using the TIAA-CREF Web Center's account access feature at
www.tiaa-cref.org or
o calling our Automated Telephone Service (24 hours a day) at
800-842-2252
THE RIGHT TO CANCEL YOUR CONTRACT
You can cancel your contract up to 30 days after you first receive it, unless
we have begun making annuity payments from it. If you already had a TIAA
contract prior to investing in the Real Estate Account, you have no 30-day right
to cancel the contract. To cancel, mail or deliver the contract with a signed
Notice of Cancellation (available by contacting TIAA) to our home office. We'll
cancel the contract, then send the entire current accumulation to whomever sent
the premiums. You bear the investment risk during this period (although some
states require us to send back your entire premium without accounting for
investment results).
DETERMINING THE VALUE OF YOUR INTEREST IN THE ACCOUNT--
ACCUMULATION UNITS
When you pay premiums or make transfers to the Real Estate Account, you buy
accumulation units. When you take a cash withdrawal, transfer from the Account,
or apply funds to begin annuity income, the number of your accumulation units
decrease. We calculate how many accumulation units to credit by dividing the
amount you applied to the Account by its accumulation unit value at the end of
the business day when we received your premium or transfer. To determine how
many accumulation units to subtract for cash withdrawals and transfers, we use
the accumulation unit value for the end of the business day when we receive your
transaction request and all required information and documents (unless you ask
for a later date).
The accumulation unit value reflects the Account's investment experience
(i.e., the real estate net operating income accrued, as well as dividends,
interest and other income accrued), realized and unrealized capital gains and
losses, as well as Account expense charges.
CALCULATING ACCUMULATION UNIT VALUES: We calculate the Account's accumulation
unit value at the end of each valuation day. To do that, we multiply the
previous day's value by the net investment factor for the Account. The net
investment factor is calculated as A divided by B, where A and B are defined as:
A. The value of the Account's net assets at the end of the current
valuation period, less premiums received during the current valuation
period.
B. The value of the Account's net assets at the end of the previous
valuation period, plus the net effect of transactions made at the start
of the current valuation period.
HOW TO TRANSFER AND WITHDRAW YOUR MONEY
Generally TIAA allows you to move your money to or from the Real Estate
Account in the following ways:
o from the Real Estate Account to a CREF investment account or TIAA's
traditional annuity
o to the Real Estate Account from a CREF investment account or TIAA's
traditional annuity (transfers from TIAA's traditional annuity under RA and
GRA contracts are subject to restrictions, as described below)
o from the Real Estate Account to other companies
o to the Real Estate Account from other companies/plans
o by withdrawing cash
o by setting up a program of automatic withdrawals or transfers
These transactions generally must be for at least $1,000 at a time (or your
entire Account accumulation, if less). These options may be limited by the terms
of your employer's plan or by current tax law. Transfers and cash withdrawals
are currently free. TIAA can place restrictions on transfers or charge fees for
transfers and withdrawals in the future.
Transfers and cash withdrawals are effective at the end of the business day
we receive your request and all required documentation. You can also choose to
have transfers and withdrawals take effect at the close of any future business
day or the last calendar day of the current or any future month, even if it's
not a business day. If you request a transfer at any time other than during a
business day, it will be effective at the close of the next business day.
To request a transfer or to withdraw cash:
o write to TIAA's home office at 730 Third Avenue, New York,
NY 10017-3206
o call us at 800 842-2252 or
o for internal transfers, using the TIAA-CREF Web Center's account access
feature 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 21.
TRANSFERS TO AND FROM 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
Prospectus TIAA Real Estate Account 17
right may be limited by your employer's plan. If your employer participates in
our special transfer services program, we can make automatic monthly transfers
from your RA or GRA contract to another company, and the $1,000 minimum will not
apply to these transfers.
TRANSFERS FROM OTHER COMPANIES/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. 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).
Special rules and restrictions apply to Classic and Roth IRAs.
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.
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.
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.
RECEIVING ANNUITY INCOME
THE ANNUITY PERIOD IN GENERAL
You can receive an income stream from all or part of your Real Estate Account
accumulation. Unless you opt for a lifetime annuity, generally you must be at
least age 59 1/2 to begin receiving annuity income payments from your annuity
contract free of a 10 percent early distribution penalty tax. Your employer's
plan may also restrict when you can begin income payments. Under the minimum
distribution rules, you generally must begin receiving some payments from your
contract shortly after you reach the later of age 70 1/2 or you retire. Also,
you can't begin a one-life annuity after you reach age 90, nor may you begin a
two-life annuity after either you or your annuity partner reach age 90.
Your income payments may be paid out from the Real Estate Account through a
variety of income options. You can pick a different income option for different
portions of your accumulation, but once you've started payments you usually
can't change your income option or annuity partner for that payment stream.
Usually income payments are monthly. You can choose quarterly, semi-annual,
and annual payments as well. (TIAA has the right to not make payments at any
interval that would cause the initial payment to be less than $100.) We'll send
your payments by mail to your home address or, on your request, by mail or
electronic funds transfer to your bank.
Your initial income payments are based on the value of your accumulation on
the last valuation day before the annuity starting date. Your payments change
after the initial payment based on the Account's investment experience and the
income change method you choose.
There are two income change methods for annuity payments: annual and monthly.
Under the annual income change method, payments from the Account change each May
1, based on the net investment results during the prior year (April 1 through
March 31). Under the monthly income change 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 20. The total value of your annuity payments may be more or less than your
total premiums.
18 TIAA Real Estate Account Prospectus
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 can be made 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:
o 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.
o ANNUITY FOR A FIXED PERIOD: Pays income for any period you choose from 5 to
30 years.
o 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.
o 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. It is possible that income under the MDO annuity will cease
during your lifetime. Prior 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 21.
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 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
Prospectus TIAA Real Estate Account 19
of an annuity unit reflect the net investment experience of the Real Estate
Account.
The formulas for calculating the number and value of annuity units payable
are described below.
CALCULATING THE NUMBER OF ANNUITY UNITS PAYABLE: When a participant or a
beneficiary converts the value of all or a portion of his or her accumulation
into an income-paying contract, the number of annuity units payable from the
Real Estate Account under an income change method is determined by dividing the
value of the Account accumulation to be applied to provide the annuity payments
by the product of the annuity unit value for that income change method and an
annuity factor. The annuity factor as of the annuity starting date is the value
of an annuity in the amount of $1.00 per month beginning on the first day such
annuity units are payable, and continuing for as long as such annuity units are
payable.
The annuity factor will reflect interest assumed at the effective annual rate
of 4 percent, and the mortality assumptions for the person(s) on whose life
(lives) the annuity payments will be based. Mortality assumptions will be based
on the then-current settlement mortality schedules for this Account. Annuitants
bear no mortality risk under their contracts--actual mortality experience will
not reduce annuity payments after they have started. TIAA may change the
mortality assumptions used to determine the number of annuity units payable for
any future accumulations converted to provide annuity payments.
The number of annuity units payable under an income change method under your
contract will be reduced by the number of annuity units you transfer out of that
income change method under your contract. The number of annuity units payable
will be increased by any internal transfers you make to that income change
method under your contract.
VALUE OF ANNUITY UNITS: The Real Estate Account's annuity unit value is
calculated separately for each income change method for each business day and
for the last calendar day of each month. The annuity unit value for each income
change method is determined by updating the annuity unit value from the previous
valuation day to reflect the net investment performance of the Account for the
current valuation period relative to the 4 percent assumed investment return. In
general, your payments will increase if the performance of the Account is
greater than 4 percent and decrease if the value is less than 4 percent. The
value is further adjusted to take into account any changes expected to occur in
the future at revaluation either once a year or once a month, assuming the
Account will earn the 4 percent assumed investment return in the future.
The initial value of the annuity unit for a new annuitant is the value
determined as of the day before annuity payments start. For participants under
the annual income change method, the value of the annuity unit for payments
remains level until the following May 1. For those who have already begun
receiving annuity income as of March 31, the value of the annuity unit for
payments due on and after the next succeeding May 1 is equal to the annuity unit
value determined as of such March 31.
For participants under the monthly income change method, the value of the
annuity unit for payments changes on the payment valuation day of each month for
the payment due on the first of the following month.
TIAA reserves the right, subject to approval by the Board of Trustees, to
modify the manner in which the number and/or value of annuity units is
calculated in the future.
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 in late 2001 or 2002, 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. 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:
o SINGLE-SUM PAYMENT, in which the entire death benefit is paid to your
beneficiary at once;
o 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;
o ANNUITY FOR A FIXED PERIOD OF 2 TO 30 YEARS;
o 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
o MINIMUM DISTRIBUTION OPTION, 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.
20 TIAA Real Estate Account Prospectus
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. Generally, if
taken as a lump sum, death benefits would be taxed like complete withdrawals. If
taken as annuity benefits, death benefits would be taxed like annuity payments.
For more information on death benefits, see the discussion under "Taxes" below,
or for further detail, 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.
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.
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.
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 2001 is the
lesser of $8,500 or 331/3% of "includable compensation" (as defined by law).
Special catch up rules may permit a higher contribution in one or more of the
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 or to
an IRC Section 125 cafeteria 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 591/2, 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 591/2 (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 percent 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 must begin by April 1 of the year after the year you
reach age 701/2, or if later, by retirement. For Classic IRAs, and with respect
to 5 percent or more owners of the business covered by a Keogh plan, payments
must begin by April 1 of the year after you reach age 701/2. Under the terms of
certain retirement plans, the plan administrator may direct us to make the
minimum distributions required by law even if you do not elect to receive them.
In addition, if you don't begin distributions on time, you may be subject to a
50 percent excise tax on the amount you should have received but did not. Roth
IRAs are generally not subject to these rules and do not require that any
distributions be made prior to your death.
WITHHOLDING ON DISTRIBUTIONS
If we send an "eligible rollover" distribution directly to you, federal law
requires us to withhold 20 percent from the taxable portion. If we roll over
such a distribution directly to an IRA or to an employer plan that is similar to
the plan making the distribution, we do not withhold any federal income tax. The
20 percent withholding also does not apply to certain "non-eligible"
distributions such as payments from IRAs, hardships withdrawals, lifetime
annuity payments, substantially equal periodic payments over your life
expectancy or over 10 or more years, 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. However, if you tell us not to withhold but we
don't have your taxpayer identification number on file, we still are required to
deduct taxes. In general, all amounts received under a section 457 plan are
taxable and are subject to federal income tax withholding as wages. Nonresident
aliens who pay U.S. taxes are subject to different withholding rules.
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.
Prospectus TIAA Real Estate Account 21
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 or at some other location that we have specifically
designated for that purpose. 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 the TIAA-CREF Web
Center's account access feature 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 Internet 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 the Internet, go to the account access feature of the
TIAA-CREF Web Center at http://www.tiaa-cref.org.
We can suspend or terminate your ability to transact by telephone, over the
Internet, or by fax at any time, for any reason.
VOTING RIGHTS
You don't have the right to vote on the management and operation of the
Account directly; however, you may send ballots to advise the TIAA Board of
Overseers about voting for nominees for the TIAA Board of Trustees.
ELECTRONIC PROSPECTUS
If you received this prospectus electronically and would like a paper copy,
please call 800 842-2733, extension 5509, and we will send it to you. Under
certain circumstances where we are legally required to deliver a prospectus to
you, we cannot send you a prospectus electronically unless you've consented.
HOUSEHOLDING
To lower costs and eliminate duplicate documents sent to your home, we may
begin mailing only one copy of the Account's prospectus, prospectus supplements
or any other required documents to your household, even if more than one
participant lives there. If you would prefer to continue receiving your own copy
of any of these documents, you may call us toll-free at 800 842-2733, extension
5509, or write us.
MISCELLANEOUS POLICIES
IF YOU'RE MARRIED: If you're married, you may be required by law or your
employer's plan to get advance written consent from your spouse before we make
certain transactions for you. If you're married at your annuity starting date,
you may also be required by law or your employer's plan to choose an income
option that provides survivor annuity income to your spouse, unless he or she
waives that right in writing. There are limited exceptions to the waiver
requirement.
TEXAS OPTIONAL RETIREMENT PROGRAM RESTRICTIONS: If you're in the Texas
Optional Retirement Program, you or your beneficiary can redeem some or all of
your accumulation only if you retire, die, or leave your job in the state's
public institutions of higher education.
ASSIGNING YOUR CONTRACT: Generally, neither you nor your beneficiaries can
assign your ownership of a TIAA retirement contract to anyone else.
OVERPAYMENT OF PREMIUMS: If your employer mistakenly sends more premiums on
your behalf than you're entitled to under your employer's retirement plan or the
Internal Revenue Code, we'll refund them to your employer as long as we're
requested to do so (in writing) before you start receiving annuity income. Any
time there's a question about premium refunds, TIAA will rely on information
from your employer. If you've withdrawn or transferred the amounts involved from
your accumulation, we won't refund them.
ERRORS OR OMISSIONS: We reserve the right to correct any errors or omissions
on any form, report, or statement that we send you.
PAYMENT TO AN ESTATE, GUARDIAN, TRUSTEE, ETC.: We reserve the right to pay in
one sum the commuted value of any benefits due an estate, corporation,
partnership, trustee, or other entity not a natural person. Neither TIAA nor the
Account will be responsible for the conduct of any executor, trustee, guardian,
or other third party to whom payment is made.
BENEFITS BASED ON INCORRECT INFORMATION: If the amounts of benefits provided
under a contract were based on information that is incorrect, benefits will be
recalculated on the basis of the correct data. If the Account has overpaid or
underpaid, appropriate adjustments will be made.
PROOF OF SURVIVAL: We reserve the right to require satisfactory proof that
anyone named to receive benefits under a contract is living on the date payment
is due. If we have not received this proof after we request it in writing, the
Account will have the right to make reduced payments or to withhold payments
entirely until such proof is received.
DISTRIBUTOR
The annuity contracts are offered continuously by TIAA-CREF Individual &
Institutional Services, Inc. (Services), which is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. (NASD). Teachers Personal Investors Services, Inc. (TPIS), which is also
registered with the SEC and is a member of the NASD, may participate in the
distribution of the contracts on a limited basis. Services and TPIS are direct
or indirect subsidiaries of TIAA. As already noted, distribution costs are
covered by a deduction from the assets of the Account; no commissions are paid
for distributing the contracts. Anyone distributing the contracts must be a
registered representative of Services or TPIS, whose main offices are both at
730 Third Avenue, New York, NY 10017-3206.
STATE REGULATION
TIAA, the Real Estate Account, and the contracts are subject to regulation by
the New York Insurance Department (NYID) as well as by the insurance regulatory
authorities of certain other states and jurisdictions.
TIAA and the Real Estate Account must file with the NYID both quarterly and
annual statements. The Account's books and assets are subject to review and
examination by the NYID at all times, and a full examination into the affairs of
the Account is made at least every five years. In addition, a full examination
of the Real Estate Account operations is usually conducted periodically by some
other states.
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
22 TIAA Real Estate Account Prospectus
Asbill & Brennan LLP, Washington, D.C., have passed upon legal matters
relating to the federal securities laws.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our (i) consolidated
financial statements and schedule at December 31, 2000 and 1999, and for each of
the three years in the period ended December 31, 2000, and (ii) statement of
revenues and certain expenses of Ashford Meadows Apartments for the year ended
December 31, 1999, as set forth in their reports. Friedman, Alpren & Green LLP,
independent auditors, have audited our (i) statement of revenues and certain
expenses of 1801 K Street, N.W. for the year ended December 31, 1999, and (ii)
statement of revenues and certain expenses of Morris Corporate Center III for
the year ended December 31, 1999. We've included these financial statements and
schedule in the prospectus and elsewhere in the registration statement in
reliance on Ernst & Young LLP's and Friedman, Alpren & Green LLP's respective
reports, given on the authority of such firms as experts in accounting and
auditing.
ADDITIONAL INFORMATION
INFORMATION AVAILABLE AT THE SEC
The Account has filed with the SEC a registration statement under the
Securities Act of 1933 which contains this prospectus and additional information
related to the offering described in this prospectus. The Account also files
annual, quarterly, and current reports, along with other information, with the
SEC, as required by the Securities Exchange Act of 1934. You may read and copy
the full registration statement, and any reports and information filed with the
SEC for the Account, at the SEC's public reference room at 450 Fifth Street,
N.W., Room 1024, Washington, DC 20549. This information can also be obtained
through the SEC's website on the Internet (http://www.sec.gov).
OTHER REPORTS TO PARTICIPANTS
TIAA will mail to each participant in the Real Estate Account periodic
reports providing information relating to their accumulations in the Account,
including premiums paid, number and value of accumulations, and withdrawals or
transfers during the period, as well as such other information as may be
required by applicable law or regulations.
Further information may be obtained from TIAA at 730 Third Avenue, New York,
NY 10017-3206.
FINANCIAL STATEMENTS
The consolidated financial statements of the TIAA Real Estate Account,
financial statements of certain properties purchased by the Account and
condensed unaudited financial statements of TIAA follow. The full audited
financial statements of TIAA, which are incorporated into this prospectus by
reference, are available upon request by calling 800 842-2733 extension 5509.
The financial statements of TIAA should be distinguished from the
consolidated financial statements of the Real Estate Account and should be
considered only as bearing on the ability of TIAA to meet its obligations under
the contracts. They should not be considered as bearing upon the assets held in
the Real Estate Account.
INDEX TO FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT Page
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Management Responsibility 24
Report of the Audit Committee 24
Report of Independent Auditors 25
Consolidated Statements of Assets and Liabilities 25
Consolidated Statements of Operations 26
Consolidated Statements of Changes in Net Assets 27
Consolidated Statements of Cash Flows 27
Notes to Consolidated Financial Statements 28
Consolidated Statement of Investments 31
PROFORMA CONDENSED FINANCIAL STATEMENTS:
Proforma Condensed Statement of Assets and Liabilities 33
Proforma Condensed Statement of Operations 33
Notes to Proforma Condensed Financial Statements 34
ASHFORD MEADOWS APARTMENTS:
Report of Independent Auditors 35
Statement of Revenues and Certain Expenses 35
Notes to Statement of Revenues and Certain Expenses 35
1801 K STREET, N.W.:
Report of Independent Auditors 36
Statement of Revenues and Certain Expenses 36
Notes to Statement of Revenues and Certain Expenses 36
MORRIS CORPORATE CENTER III:
Report of Independent Auditors 37
Statement of Revenues and Certain Expenses 37
Notes to Statement of Revenues and Certain Expenses 37
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
Condensed Unaudited Statutory-Basis Financial Statements 38
Supplemental Information to Condensed Unaudited
Statutory-Basis Financial Statements 38
Prospectus TIAA Real Estate Account 23
[LOGO OF TIAA]
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. For the periods covered by these financial
statements, all services provided by Ernst & Young LLP were limited exclusively
to auditing. It is the Account's policy that any non-audit services be obtained
from a firm other then the external financial audit firm. The independent
auditors' report, which appears on the second 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. Mills
Executive Vice President
and Principal Accounting Officer
REPORT OF THE AUDIT COMMITTEE
To the Participants of the TIAA Real Estate Account:
The TIAA Audit Committee oversees the financial reporting process of the TIAA
Real Estate Account ("Account") on behalf of TIAA's Board of Trustees. The Audit
Committee is a standing committee of the Board and operates in accordance with a
formal written charter (copies are available upon request) which describes the
Audit Committee's responsibilities. All members of the Audit Committee
("Committee") are independent, as defined under the listing standards of the New
York Stock Exchange.
Management has the primary responsibility for the Account's financial
statements, development and maintenance of a strong system of internal controls,
and compliance with applicable laws and regulations. In fulfilling its oversight
responsibilities, the Committee reviewed and approved the audit plan of the
internal auditing group. The Committee also meets regularly with the internal
and independent auditors, both with and without management present, to discuss
the results of their examinations, their evaluation of internal controls, and
the overall quality of financial reporting.
The Committee reviewed and discussed the accompanying audited financial
statements with management, including a discussion of the quality and
appropriateness of the accounting principles and financial reporting practices
followed, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements. The Committee has also discussed the
audited financial statements with Ernst & Young LLP, the independent auditing
firm responsible for expressing an opinion on the conformity of these audited
financial statements with generally accepted accounting principles.
The discussion with Ernst & Young LLP focused on their judgments concerning
the quality and appropriateness of the accounting principles and financial
reporting practices followed by the Account, the clarity of the financial
statements and related disclosures, and other significant matters, such as any
significant changes in accounting policies, management judgments and estimates,
and the nature of any uncertainties or unusual transactions. In addition, the
Committee discussed with Ernst & Young LLP the auditors' independence from
management and the Account, and has received a written disclosure regarding such
independence, as required by the Independence Standards Board.
Based on the review and discussions referred to above, the Committee has
approved the release of the accompanying audited financial statements for
publication and filing with appropriate regulatory authorities.
Willard T. Carleton, Audit Committee Chair
Frederick R. Ford, Audit Committee Member
Leonard S. Simon, Audit Committee Member
Rosalie J. Wolf, Audit Committee Member
February 12, 2001
24 TIAA Real Estate Account Prospectus
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, 2000, of
the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity
Association of America ("TIAA") as of December 31, 2000 and 1999, 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, 2000. 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. Our
procedures included confirmation of securities owned as of December 31, 2000, 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Account at
December 31, 2000 and 1999, and the consolidated 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, 2000, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst & Young LLP
New York, New York
February 5, 2001
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, 2000 DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value:
Real estate properties
(cost: $1,818,143,290
and $1,253,650,281) $ 1,899,254,344 $ 1,312,503,554
Real estate joint venture
(cost: $24,674,574 and $--) 26,035,867 --
Marketable securities
(cost: $462,959,529
and $395,662,203) 463,828,568 374,278,801
Cash 715,866 617,599
Other 33,265,757 32,057,761
---------------- ----------------
TOTAL ASSETS 2,423,100,402 1,719,457,715
================ ================
LIABILITIES
Accrued real estate property
level expenses and taxes 24,396,036 18,425,328
Security deposits held 6,817,972 5,549,959
Other 1,736,106 --
---------------- ----------------
TOTAL LIABILITIES 32,950,114 23,975,287
---------------- ----------------
MINORITY INTEREST 3,028,217 --
---------------- ----------------
NET ASSETS
Accumulation Fund 2,310,540,978 1,642,327,173
Annuity Fund 76,581,093 53,155,255
---------------- ----------------
TOTAL NET ASSETS $2,387,122,071 $1,695,482,428
================ ================
NUMBER OF ACCUMULATION
UNITS OUTSTANDING--
Notes 6 and 7 14,604,673 11,487,360
========== ==========
NET ASSET VALUE,
PER ACCUMULATION UNIT--Note 6 $158.21 $142.97
======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Prospectus TIAA Real Estate Account 25
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME Real estate income, net:
Rental income $195,537,993 $132,316,878 $ 81,009,203
------------ ----------- -----------
Real estate property level expenses and taxes:
Operating expenses 40,056,716 27,334,060 17,339,706
Real estate taxes 22,851,890 15,892,736 9,103,637
------------ ----------- -----------
Total real estate property level expenses and taxes 62,908,606 43,226,796 26,443,343
------------ ----------- -----------
Real estate income, net 132,629,387 89,090,082 54,565,860
Income from real estate joint venture 756,133 -- --
Interest 24,294,579 17,117,917 15,588,829
Dividends 7,039,712 7,814,816 8,354,899
------------ ----------- -----------
TOTAL INCOME 164,719,811 114,022,815 78,509,588
------------ ----------- -----------
Expenses--Note 3:
Investment advisory charges 6,924,202 4,246,911 2,999,113
Administrative and distribution charges 4,392,882 3,442,282 2,498,376
Mortality and expense risk charges 1,414,888 1,027,707 675,450
Liquidity guarantee charges 692,594 561,510 101,655
------------ ----------- -----------
TOTAL EXPENSES 13,424,566 9,278,410 6,274,594
------------ ----------- -----------
INVESTMENT INCOME, NET 151,295,245 104,744,405 72,234,994
------------ ----------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Real estate properties 8,382,660 8,788,795 --
Marketable securities (106,726) (3,022,098) (5,258,000)
------------ ----------- -----------
Net realized gain (loss) on investments 8,275,934 5,766,697 (5,258,000)
------------ ----------- -----------
Net change in unrealized appreciation (depreciation) on:
Real estate properties 22,257,781 14,443,916 33,221,281
Real estate joint venture 1,361,293 -- --
Marketable securities 22,252,441 (10,375,870) (20,098,622)
------------ ----------- -----------
Net change in unrealized appreciation on investments 45,871,515 4,068,046 13,122,659
------------ ----------- -----------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 54,147,449 9,834,743 7,864,659
------------ ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 205,442,694 114,579,148 80,099,653
Minority interest in net increase in net assets resulting
from operations -- 1,364,619 (3,487,991)
------------ ----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $205,442,694 $115,943,767 $ 76,611,662
============ ============ ============
- ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
26 TIAA Real Estate Account Prospectus
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------------
FROM OPERATIONS
Investment income, net $ 151,295,245 $ 104,744,405 $ 72,234,994
Net realized gain (loss) on investments 8,275,934 5,766,697 (5,258,000)
Net change in unrealized appreciation on investments 45,871,515 4,068,046 13,122,659
Minority interest in net increase in net assets resulting
from operations -- 1,364,619 (3,487,991)
-------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 205,442,694 115,943,767 76,611,662
-------------- -------------- --------------
FROM PARTICIPANT TRANSACTIONS
Premiums 161,668,073 126,200,561 91,248,578
TIAA seed money withdrawn--Note 1 -- -- (76,666,109)
Net participant transfers from TIAA 36,271,547 24,155,178 26,568,616
Net participant transfers from CREF Accounts 343,338,864 269,199,426 310,999,448
Annuity and other periodic payments (9,924,802) (6,330,436) (3,209,761)
Withdrawals and death benefits (45,156,733) (30,052,955) (15,004,262)
-------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 486,196,949 383,171,774 333,936,510
-------------- -------------- --------------
NET INCREASE IN NET ASSETS 691,639,643 499,115,541 410,548,172
NET ASSETS
Beginning of year 1,695,482,428 1,196,366,887 785,818,715
-------------- -------------- ------------
End of year $2,387,122,071 $1,695,482,428 $1,196,366,887
============== ============== ==============
- ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
- ----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations $ 205,442,694 $ 115,943,767 $ 76,611,662
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Increase in investments (702,336,424) (475,537,558) (409,958,664)
Increase in other assets (1,207,996) (14,271,470) (3,719,197)
Increase (decrease) in other liabilities 1,736,106 -- (10,463)
Increase in accrued real estate property level expenses and taxes 5,970,708 6,992,799 1,088,936
Increase in security deposits held 1,268,013 3,659,536 584,465
Increase (decrease) in minority interest 3,028,217 (19,913,592) 1,631,496
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (486,098,682) (383,126,518) (333,771,765)
------------ ------------ ------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums 161,668,073 126,200,561 91,248,578
TIAA seed money withdrawn--Note 1 -- -- (76,666,109)
Net participant transfers from TIAA 36,271,547 24,155,178 26,568,616
Net participant transfers from CREF Accounts 343,338,864 269,199,426 310,999,448
Annuity and other periodic payments (9,924,802) (6,330,436) (3,209,761)
Withdrawals and death benefits (45,156,733) (30,052,955) (15,004,262)
------------ ------------ ------------
NET CASH PROVIDED BY PARTICIPANT TRANSACTIONS 486,196,949 383,171,774 333,936,510
------------ ------------ ------------
NET INCREASE IN CASH 98,267 45,256 164,745
CASH
Beginning of year 617,599 572,343 407,598
------------ ------------ ------------
End of year $ 715,866 $ 617,599 $ 572,343
------------ ------------ ------------
------------ ------------ ------------
- ----------------------------------------------------------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Prospectus TIAA Real Estate Account 27
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. The Account holds various properties
in wholly-owned and majority owned subsidiaries which are consolidated for
financial statement purposes.
The Account commenced operations on July 3, 1995 with a $100,000,000 seed
money investment by TIAA. TIAA purchased 1,000,000 Accumulation Units in the
Account and such Units shared in the prorata investment experience of the
Account and were subject to the same valuation procedures and expense deductions
as all other Accumulation Units of the Account. The initial registration
statement of the Account filed by TIAA with the Securities and Exchange
Commission ("Commission") under the Securities Act of 1933 became effective on
October 2, 1995. The Account began to offer Accumulation Units and Annuity Units
to participants other than TIAA on October 2, and November 1, 1995,
respectively. In August 1996, the Account's net assets first reached $200
million and, as required under a five year repayment schedule approved by the
New York State Insurance Department ("NYID"), TIAA began to redeem its seed
money Accumulation Units in monthly installments of 16,667 Units beginning in
September 1996. Since the Account's assets were growing rapidly, TIAA in October
1997, with NYID approval, modified the seed money redemption schedule by
increasing the monthly redemption of Units to a level equal to the value of 25%
of the Account's net asset growth for the prior month, with no fewer than 16,667
Units and no more than 100,000 Units to be redeemed each month. These
withdrawals were made at prevailing daily net asset values and are reflected in
the accompanying consolidated financial statements. By the end of 1998, all of
TIAA's Accumulation Units had been withdrawn.
The investment objective of the Account is a favorable long-term rate of
return primarily through rental income and capital appreciation from real estate
investments owned by the Account. The Account also invests in publicly-traded
securities and other instruments to maintain adequate liquidity for operating
expenses, capital expenditures and to make benefit payments.
TIAA employees, under the direction of TIAA's Board of Trustees and its
Investment Committee, manage the investment of the Account's assets pursuant to
investment management procedures adopted by TIAA for the Account. TIAA's
investment management decisions for the Account are also subject to review by
the Account's independent fiduciary, The Townsend Group. 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 and majority owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
VALUATION OF REAL ESTATE PROPERTIES: Investments in real estate properties
are stated at fair value, as determined in accordance with procedures approved
by the Investment Committee of the Board of Trustees and in accordance with the
responsibilities of the Board as a whole; accordingly, the Account does not
record depreciation. Fair value for real estate properties is defined as the
most probable price for which a property will sell in a competitive market under
all conditions requisite to a fair sale. Determination of fair value involves
subjective judgement because the actual market value of real estate can be
determined only by negotiation between the parties in a sales transaction. Real
estate properties owned by the Account are initially valued at their respective
purchase prices (including acquisition costs). Subsequently, independent
appraisers value each real estate property at least once a year. The independent
fiduciary must approve all independent appraisers used by the Account. The
independent fiduciary can also require additional appraisals if it believes that
a property's value has changed materially or otherwise to assure that the
Account is valued correctly. TIAA's appraisal staff performs a valuation review
of each real estate property on a quarterly basis and updates the property value
if it believes that the value of the property has changed since the previous
valuation review or appraisal. The independent fiduciary reviews and approves
any such valuation adjustments which exceed certain prescribed limits. TIAA
continues to use the revised value to calculate the Account's net asset value
until the next valuation review or appraisal.
VALUATION OF REAL ESTATE JOINT VENTURES: Real estate joint venture is stated
at the Account's equity in the net assets of the underlying entity, which values
its real estate holdings at fair value.
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.
28 TIAA Real Estate Account Prospectus
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and, for
short-term money market instruments, includes accrual of discount and
amortization of premium. Dividend income is recorded on the ex-dividend date.
Realized gains and losses on securities transactions are accounted for on the
average cost basis.
FEDERAL INCOME TAXES: Based on provisions of the Internal Revenue Code, the
Account is taxed as a segregated asset account of TIAA. The Account should incur
no material federal income tax attributable to the net investment experience of
the Account.
NOTE 3--MANAGEMENT AGREEMENTS
Under established management agreements, various services necessary for the
operation of the Account are provided, at cost, by TIAA and Services. TIAA
provides investment management services for the Account while distribution and
administrative services are provided by Services in accordance with a
Distribution and Administrative Services Agreement between the Account and
Services. Prior to April 30, 1999, an affiliate of a former minority partner
provided certain management services for the properties owned by this majority
owned subsidiary. The charges for such services for the year ended December 31,
1999 amounted to $345,928 ($855,810 in 1998) for investment advisory expenses
and $104,673 ($102,953 in 1998) 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, 2000 been acquired at the beginning of the period (January 1,
2000), rental income and real estate property level expenses and taxes for the
year ended December 31, 2000 would have increased by approximately $35,984,000
and $10,712,000 respectively. In addition, interest income for the year ended
December 31, 2000 would have decreased by approximately $23,870,000.
Accordingly, the total proforma effect on the Account's net investment income
for the year ended December 31, 2000 would have been an increase of
approximately $1,402,000, if the real estate properties acquired during the year
ended December 31, 2000 had been acquired at the beginning of the year.
NOTE 5--LEASES
The Account's real estate properties are leased to tenants under operating
lease agreements which expire on various dates through 2021. Aggregate minimum
annual rentals for the properties owned, excluding short-term residential
leases, are as follows:
YEARS ENDING DECEMBER 31,
- ------------------------------------------------------------------------------
2001 $155,631,000
2002 145,380,000
2003 133,089,000
2004 114,678,000
2005 98,391,000
Thereafter 270,247,000
------------
TOTAL $917,416,000
- ------------------------------------------------------------------------------
Certain leases provide for additional rental amounts based upon the recovery
of actual operating expenses in excess of specified base amounts.
Prospectus TIAA Real Estate Account 29
NOTE 6--CONDENSED CONSOLIDATED FINANCIAL INFORMATION
Selected condensed consolidated financial information for an Accumulation
Unit of the Account is presented below.
FOR THE YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
PER ACCUMULATION UNIT DATA:
Rental income $ 14.530 $ 12.168 $ 10.425 $ 7.288 $ 6.012
Real estate property
level expenses and taxes 4.674 3.975 3.403 2.218 1.850
-------- -------- -------- -------- -------
Real estate income, net 9.856 8.193 7.022 5.070 4.162
Income from real estate joint venture 0.056 -- -- -- --
Dividends and interest 2.329 2.292 3.082 2.709 3.309
-------- -------- -------- -------- --------
Total income 12.241 10.485 10.104 7.779 7.471
Expense charges (a) 0.998 0.853 0.808 0.580 0.635
-------- -------- -------- -------- --------
Investment income, net 11.243 9.632 9.296 7.199 6.836
Net realized and unrealized
gain on investments 3.995 1.164 .579 3.987 1.709
-------- -------- -------- -------- --------
Net increase in Accumulation
Unit Value 15.238 10.796 9.875 11.186 8.545
Accumulation Unit Value:
Beginning of year 142.968 132.172 122.297 111.111 102.566
-------- -------- -------- -------- --------
End of year $158.206 $142.968 $132.172 $122.297 $111.111
======== ======== ======== ======== ========
Total return 10.66% 8.17% 8.07% 10.07% 8.33%
Ratios to Average Net Assets:
Expenses (a) 0.67% 0.63% 0.64% 0.58% 0.61%
Investment income, net 7.50% 7.13% 7.34% 7.25% 6.57%
Portfolio turnover rate:
Real estate properties 3.87% 4.46% 0% 0% 0%
Securities 32.86% 27.68% 24.54% 7.67% 15.04%
Thousands of Accumulation Units
outstanding at end of year 14,605 11,487 8,834 6,313 3,296
- -----------------------------------------------------------------------------------------------------------------------------------
(a) EXPENSE CHARGES PER ACCUMULATION UNIT AND THE RATIO OF EXPENSES TO AVERAGE
NET ASSETS INCLUDE THE PORTION OF EXPENSES RELATED TO THE MINORITY INTERESTS
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, 2000 WOULD BE $5.672
($4.828, $4.211, $2.798 AND $2.485 FOR THE YEARS ENDED DECEMBER 31, 1999,
1998, 1997 AND 1996 RESPECTIVELY), AND THE RATIO OF EXPENSES TO AVERAGE NET
ASSETS FOR THE YEAR ENDED DECEMBER 31, 2000 WOULD BE 3.79% (3.58%, 3.32%,
2.82% AND 2.39% FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, 1997 AND 1996
RESPECTIVELY).
NOTE 7--ACCUMULATION UNITS
Changes in the number of Accumulation Units outstanding were as follows:
FOR THE YEARS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------
2000 1999 1998
- -------------------------------------------------------------------------------
ACCUMULATION UNITS:
Credited for premiums 1,074,708 918,728 511,462
Credited for transfers, net
disbursements and amounts
applied to the Annuity Fund 2,042,605 1,734,721 2,009,434
Outstanding:
Beginning of year 11,487,360 8,833,911 6,313,015
------------ ---------- ----------
End of year 14,604,673 11,487,360 8,833,911
- -------------------------------------------------------------------------------
NOTE 8--COMMITMENTS
During the normal course of business, the Account enters into discussions and
agreements to purchase or sell real estate properties. As of December 31, 2000,
the Account had one outstanding commitment to purchase a real estate property
for approximately $86.1 million and one outstanding commitment to sell a real
estate property for approximately $8.7 million. The sale transaction was closed
in January 2001.
GE>
30 TIAA Real Estate Account Prospectus
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
DECEMBER 31, 2000
REAL ESTATE PROPERTIES -- 79.50%
LOCATION/DESCRIPTION VALUE
- ---------------------------------------------------------------------------
ARIZONA:
Biltmore Commerce Center--Office building $ 38,603,637
Southbank Building--Office building 13,200,000
CALIFORNIA:
ABS & CDC Building--Industrial building 15,243,900
88 Kearny Street--Office building 84,172,241
Eastgate Distribution Center--Industrial building 13,700,000
Larkspur Courts--Apartments 58,600,000
Northpoint Commerce Center--Industrial building 38,800,000
Ontario Industrial Properties--Industrial building 107,688,169
Westcreek--Apartments 17,200,000
COLORADO:
Arapahoe Park East--Industrial building 12,478,003
The Lodge at Willow Creek--Apartments 30,800,000
Monte Vista--Apartments 21,000,000
FLORIDA:
Golfview--Apartments 27,400,000
The Greens at Metrowest--Apartments 14,100,000
Maitland Promenade One--Office building 36,520,163
Plantation Grove--Shopping center 7,450,000
Royal St. George--Apartments 16,650,000
Sawgrass Portfolio--Office building 54,300,000
Westinghouse Facility--Industrial building 6,200,000
GEORGIA:
Atlanta Industrial Portfolio--Industrial building 40,021,362
ILLINOIS:
Columbia Center III--Office building 42,500,000
Glenpointe Business Park--Industrial building 16,100,000
Parkview Plaza--Office building 52,500,000
Rockrun Business Park--Industrial building 19,497,150
Rolling Meadows--Shopping center 11,986,500
Woodcreek Business Park--Industrial building 7,000,000
IOWA:
Interstate Acres--Industrial building 13,200,000
KENTUCKY:
IDI Kentucky Portfolio--Industrial building 53,931,995
MARYLAND:
FedEx Distribution Facility--Industrial building 7,600,000
Longview Executive Park--Office building 28,020,861
Saks Distribution Center--Industrial building 30,950,000
MICHIGAN:
Indian Creek--Apartments 17,250,000
MINNESOTA:
Interstate Crossing--Industrial building 6,150,000
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 16,677,327
10 Waterview Boulevard--Office building 31,400,000
Konica Photo Imaging Headquarters--Industrial building 17,300,000
Morris Corporate Center III--Office building 103,800,000
NEW YORK:
780 Third Avenue--Office building 173,600,000
The Colorado--Apartments 60,400,000
NORTH CAROLINA:
Lynnwood Collection--Shopping center 7,900,000
Millbrook Collection--Shopping center 7,000,000
OHIO:
Bent Tree--Apartments 14,700,000
Columbus Portfolio--Office building 34,200,000
Northmark Business Center--Office building 13,100,000
OREGON:
Five Centerpointe--Office building 18,331,911
PENNSYLVANIa:
Lincoln Woods--Apartments 23,507,797
TEXAS:
Butterfield Industrial Park--Industrial building 4,957,200(1)
The Legends at Chase Oaks--Apartments 26,289,264
Park West Center I and II--Industrial building 28,300,500
UTAH:
Landmark at Salt Lake City--Industrial building 14,434,653
USF&G Building--Office building 8,677,033
VIRGINIA:
Ashford Meadows--Apartments 64,174,878
Fairgate at Ballston--Office building 30,800,000
Monument Place--Office building 36,500,000
River Oaks--Shopping center 11,100,000
WASHINGTON:
The Bay Court at Harbour Pointe--Apartments 35,000,000
WASHINGTON DC:
1801 K Street N W--Office building 140,989,800
-------------
TOTAL REAL ESTATE PROPERTIES
(Cost $1,818,143,290) 1,899,254,344
- ---------------------------------------------------------------------------
(1)LEASEHOLD INTEREST ONLY.
REAL ESTATE JOINT VENTURE--1.08%
- ----------------------------------------------------------------------------
Teachers REA IV, LLC, which owns
Tyson's Executive Plaza II (50% Account Interest) 26,035,867
-------------
TOTAL REAL ESTATE JOINT VENTURE
(Cost $24,674,574) 26,035,867
- ----------------------------------------------------------------------------
MARKETABLE SECURITIES--19.42%
REAL ESTATE INVESTMENT TRUSTS--5.69%
SHARES ISSUER VALUE
- ----------------------------------------------------------------------------
75,000 Alexandria Real Estate Equities, Inc. 2,789,063
140,000 AMB Property Corporation 3,613,750
89,900 AMB Property Corporation Series A 2,135,125
75,000 Apartment Investment & Management Co 3,745,312
120,000 Archstone Communities Trust 3,090,000
196,800 Boston Properties, Inc. 8,560,800
205,400 Brandywine Realty Trust 4,249,212
200,000 Carramerica Realty Series B 4,112,500
93,000 Centerpoint Properties Corp. 4,394,250
108,100 Corporate Office Properties Trust, Inc. 1,074,244
176,900 Cousins Properties, Inc. 4,942,144
90,000 Developers Diversified Realty Corp. 1,833,750
271,300 Duke-Weeks Realty Corp 6,680,763
340,913 Equity Office Properties Trust 11,122,287
166,700 Equity Residential Properties Trust 9,220,594
25,000 Federal Realty Investment Trust Pfd. 493,750
98,300 Gables Residential Trust, Pfd Series A 2,101,163
225,000 Home Properties of New York, Inc. 6,285,938
74,900 Hospitality Properties Trust 1,694,612
26,000 Istar Financial, Pfd Series C 477,750
80,000 Kimco Realty Corp. 3,535,000
196,050 Macerich Company 3,761,709
65,000 Mack-Cali Realty Co 1,856,562
82,100 Manufactured Home Communities, Inc. 2,380,900
111,200 Mission West Properties Inc. 1,542,900
240,000 Prologis Trust 5,340,000
Prospectus TIAA Real Estate Account 31
SHARES ISSUER VALUE
- ------------------------------------------------------------------------------
19,900 Prologis Trust Pfd Series A $ 462,675
237,700 Public Storage, Inc. 5,779,081
93,600 Rouse Company 2,386,800
280,900 Simon Property Group, Inc. 6,741,600
170,000 Spieker Properties, Inc. 8,521,250
140,000 Starwood Hotels & Resorts Worldwide 4,935,000
35,500 Storage USA, Inc. 1,127,125
95,000 Sun Communities, Inc. 3,182,500
100,400 Taubman Centers, Inc. 1,098,125
35,000 Taubman Centers, Inc Pfd Series A 586,250
--------------
TOTAL REAL ESTATE INVESTMENT TRUSTS
(Cost $134,898,725) 135,854,484
- ------------------------------------------------------------------------------
CORPORATE BONDS--0.42%
PRINCIPAL ISSUER, COUPON AND MATURITY DATE
- ------------------------------------------------------------------------------
$ 5,000,000 Avco Financial Services, Inc
5.75% 01/23/01 4,998,600
5,000,000 Ford Motor Credit Co
5.75% 01/25/01 4,997,750
--------------
TOTAL CORPORATE BONDS
(Cost $10,034,650) 9,996,350
- ------------------------------------------------------------------------------
COMMERCIAL PAPER--13.31%
- ------------------------------------------------------------------------------
10,000,000 Asset Securitization Cooperative Corp.
6.58% 01/03/01 9,994,517
8,550,000 Bank of America
6.63% 01/05/01 8,550,068
6,105,000 Bellsouth Capital Funding Corp
6.39% 02/15/01 6,055,397
10,000,000 Beta Finance Inc.
6.57% 01/11/01 9,979,817
10,000,000 Ciesco LP.
6.55% 01/12/01 9,978,139
19,600,000 Colgate-Palmolive Co
6.30% 02/28/01 19,397,630
11,250,000 Corporate Asset Funding Corp, Inc.
6.53% 01/17/01 11,215,428
9,260,000 Delaware Funding Corp.
6.57% 01/16/01 9,233,239
10,000,000 Delaware Funding Corp.
6.60% 01/22/01 9,960,267
22,625,000 Govco Incorporated
6.53% 01/25/01 22,522,741
4,060,000 Govco Incorporated
6.52% 03/09/01 4,011,736
10,125,000 International Lease Finance Corp
6.50% 01/23/01 10,082,883
5,530,000 Morgan Stanley Dean Witter
6.65% 01/04/01 5,525,978
18,000,000 National Rural Utilities Coop Finance
6.51% 01/22/01 17,928,390
10,000,000 Park Avenue Receivables Corp
6.67% 01/03/01 9,994,566
4,135,000 Park Avenue Receivables Corp
6.67% 01/11/01 4,126,677
1,543,000 Park Avenue Receivables Corp
6.58% 01/18/01 1,537,983
1,291,000 Park Avenue Receivables Corp
6.57% 01/30/01 1,284,104
20,000,000 Preferred Receivable Funding Corp
6.62% 01/23/01 19,916,940
15,000,000 Receivables Capital Corp
6.62% 01/26/01 14,929,567
20,000,000 Salomon Smith Barney Holdings Inc
6.55% 01/02/01 19,992,656
20,933,000 SBC Communications Inc.
6.42% 02/05/01 20,798,609
21,725,000 Toronto Dominion Holdings U.S.
6.60% 01/09/01 21,689,153
34,554,000 Verizon Global Funding
6.60% 01/10/01 34,490,651
14,860,000 Verizon Network Funding Corp
6.54% 01/30/01 14,780,598
--------------
TOTAL COMMERCIAL PAPER
(Amortized cost $318,026,154) 317,977,734
--------------
TOTAL MARKETABLE SECURITIES
(Cost $462,959,529) 463,828,568
--------------
TOTAL INVESTMENTS--100.00%
(Cost $2,305,777,393) $2,389,118,779
===============
- ------------------------------------------------------------------------------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
32 TIAA Real Estate Account Prospectus
TIAA REAL ESTATE ACCOUNT
PROFORMA CONDENSED STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
DECEMBER 31, 2000
HISTORICAL PROFORMA ADJUSTMENTS PROFORMA
- ------------------------------------------------------------------------------------------------------------------
ASSETS
Investments, at value:
Real estate properties $1,899,254,344 $68,712,697 (a) $1,967,967,041
Real estate joint venture 26,035,867 26,035,867
Marketable securities 463,828,568 (68,712,697)(a) 395,115,871
Cash 715,866 -- 715,866
Other 33,265,757 -- 33,265,757
--------------- ------------- ----------------
TOTAL ASSETS 2,423,100,402 -- 2,423,100,402
--------------- ------------- ----------------
LIABILITIES
Accrued real estate property level
expenses and taxes 24,396,036 -- 24,396,036
Security deposits held 6,817,972 -- 6,817,972
Other 1,736,106 -- 1,736,106
--------------- ------------- ----------------
TOTAL LIABILITIES 32,950,114 -- 32,950,114
--------------- ------------- ----------------
MINORITY INTEREST 3,028,217 -- 3,028,217
--------------- ------------- ----------------
NET ASSETS
Accumulation Fund 2,310,540,978 -- 2,310,540,978
Annuity Fund 76,581,093 -- 76,581,093
--------------- ------------- ----------------
TOTAL NET ASSETS $2,387,122,071 -- $2,387,122,071
=============== ============= ================
SEE NOTES TO PROFORMA CONDENSED FINANCIAL STATEMENTS
TIAA REAL ESTATE ACCOUNT
PROFORMA CONDENSED STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 2000
HISTORICAL PROFORMA ADJUSTMENTS PROFORMA
- -------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Real estate income, net:
Rental income $195,537,993 $40,701,296 (b) $236,239,289
--------------- ------------- ---------------
Real estate property level expenses and taxes:
Operating expenses 40,056,716 7,490,051 (b) 47,546,767
Real estate taxes 22,851,890 4,680,684 (b) 27,532,574
--------------- ------------- ---------------
Total real estate property level expenses and taxes 62,908,606 12,170,735 75,079,341
--------------- ------------- ---------------
Real estate income, net 132,629,387 28,530,561 161,159,948
Income from real estate joint venture 756,133 -- 756,133
Interest and dividends 31,334,291 (29,488,000)(c) 1,846,291
--------------- ------------- ---------------
TOTAL INCOME 164,719,811 (957,439) 163,762,372
EXPENSES 13,424,566 2,050,000 (d) 15,474,566
--------------- ------------- ---------------
INVESTMENT INCOME--NET 151,295,245 (3,007,439) 148,287,806
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 54,147,449 -- 54,147,449
--------------- ------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $205,442,694 $(3,007,439) $202,435,255
=============== ============= ===============
SEE NOTES TO PROFORMA CONDENSED FINANCIAL STATEMENTS.
Prospectus TIAA Real Estate Account 33
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,
2000 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, 2001 through the date
of this prospectus were purchased as of December 31, 2000. The proforma
condensed statement of operations has been prepared assuming all real estate
properties purchased during the period January 1, 2000 through the date of this
prospectus were purchased as of January 1, 2000.
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 properties purchased during the period January 1, 2001
through the date of this prospectus, assuming such properties were purchased
as of December 31, 2000.
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, 2000 through
the date of this prospectus, assuming such properties were owned for the
period January 1, 2000 through December 31, 2000.
(c)To record the decrease in interest and dividend income from having less cash
invested in marketable securities, assuming the real estate properties
purchased during the period January 1, 2000 through the date of this
prospectus had been purchased as of January 1, 2000.
(d)To record additional investment advisory charges which would have been
incurred during 2000, assuming the real estate properties purchased during
the period January 1, 2000 through the date of this prospectus had been
purchased as of January 1, 2000.
34 TIAA Real Estate Account Prospectus
REPORT OF INDEPENDENT AUDITORS
The Board of Trustees of TIAA
We have audited the statement of revenues and certain expenses of Ashford
Meadows Apartments as described in Note 2 for the year ended December 31, 1999.
This financial statement is the responsibility of management of Ashford Meadows
Apartments. Our responsibility is to express an opinion on the financial
statement based on our audit.
We conducted our audit 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 statement
is 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 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 revenues and expenses
of Ashford Meadows Apartments.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the revenues and certain expenses of Ashford Meadows
Apartments, as described in Note 2, for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
---------------------
New York, New York
September 25, 2000
ASHFORD MEADOWS APARTMENTS
STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
REVENUES:
Rental income $5,726,398
Other income 456,368
------------
TOTAL REVENUES 6,182,766
============
CERTAIN EXPENSES:
Property operating and maintenance 1,068,995
Real estate taxes 502,945
Management fees 186,120
------------
1,758,060
------------
Revenues in excess of certain expenses $4,424,706
============
SEE ACCOMPANYING NOTES.
ASHFORD MEADOWS APARTMENTS
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
YEAR ENDED DECEMBER 31, 1999
1. BUSINESS
The accompanying statement of revenues and certain expenses relates to the
operations of Ashford Meadows Apartments (the "Property") located in Herndon,
Virginia.
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 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 accounting principles generally accepted in the
United States 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 the Bozzuto Management
Company. Fees paid for such services are generally based on 3% of gross income
as defined by the Management and Operating Agreement.
Prospectus TIAA Real Estate Account 35
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 1801 K Street, Washington, D.C., described in Note 1
(the "Property"), for the year ended December 31, 1999. This financial statement
is the responsibility of the property owner'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 Rule 3-14 of Securities and Exchange Commission
Regulation S-X 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, 1999, in conformity with generally accepted accounting
principles.
/s/ FREEDMAN ALPERN & GREEN LLP
-------------------------------
March 24, 2000
1801 K STREET, N.W.
STATEMENT OF REVENUES AND CERTAN EXPENSES
YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
REVENUES:
Base rents $14,286
Escalation charges 421
Parking income 399
Storage and tenant services 116
Miscellaneous 41
----------
15,263
----------
CERTAIN EXPENSES:
Operating 3,795
Real estate taxes 1,484
Bad debts 54
Other 98
----------
5,431
----------
EXCESS OF REVENUES OVER CERTAIN EXPENSES $ 9,832
==========
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
1801 K STREET, N.W.
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. ORGANIZATION AND BASIS OF PRESENTATION
The Property is an office building located at 1801 K Street in Washington,
D.C., and is owned by 1801 K Street Holdings (a general partnership). It has an
aggregate net rentable area of approximately 562,000 square feet of office and
retail space and 141,000 square feet of garage space (approximately 95% of the
total space is leased at March 1, 2000). 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 Securities and Exchange Commission Regulation S-X. 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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
DEFERRED RECOVERABLE COSTS. Deferred recoverable costs are amortized over 3
to 10 years; the amortization is included in operating expenses.
3. OPERATING LEASES
Office, retail and garage space in the Property is rented to tenants under
various operating leases. Approximate minimum future rentals required under
these leases at December 31, 1999 are as follows:
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
2000 $ 15,148,000
2001 14,239,000
2002 14,379,000
2003 14,655,000
2004 13,501,000
Thereafter 30,487,000
------------
$102,409,000
============
- --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THIS FINANCIAL STATEMENT.
36 TIAA Real Estate Account Prospectus
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 Morris Corporate Center III, Parsippany, New Jersey,
described in Note 1 (the "Property"), for the year ended December 31, 1999. This
financial statement is the responsibility of the property owner'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 Rule 3-14 of Securities and Exchange Commission
Regulation S-X 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, 1999, in conformity with generally accepted accounting
principles.
/s/ FREEDMAN ALPERN & GREEN LLP
-------------------------------
June 22, 2000
MORRIS CORPORATE CENTER III
STATEMENT OF REVENUES AND CERTAIN EXPENSES
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 2000 DECEMBER 31,
(UNAUDITED) 1999
- --------------------------------------------------------------------------------
REVENUES
Rental income $2,862,110 $11,157,233
Escalation charges 496,066 2,729,177
Lease cancellation fees 1,178,127 1,400,000
Miscellaneous 245 1,055
----------- -----------
4,536,548 15,287,465
----------- -----------
CERTAIN EXPENSES
Operating and maintenance 971,940 3,692,356
Real estate taxes 452,838 1,802,689
General and administrative 40,849 217,383
----------- -----------
1,465,627 5,712,428
----------- -----------
EXCESS OF REVENUES OVER
CERTAIN EXPENSES $3,070,921 $9,575,037
=========== ===========
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of this financial statement.
MORRIS CORPORATE CENTER III
NOTES TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1. ORGANIZATION AND BASIS OF PRESENTATION
The Property, an office building complex located in Parsippany, New Jersey
and known as Morris Corporate Center III, is owned by Morris Corporate Center
III, L.L.C., a New Jersey limited liability company, with the Prudential
Insurance Company of America as managing member and SJP - MCC III, LLC as
another member. It has an aggregate net rentable area of approximately 515,000
square feet of office space, approximately 98% of which is leased at March 31,
2000.
The accompanying financial statement is presented in conformity with Rule
3-14 of Securities and Exchange Commission Regulation S-X. 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 statement of revenues and certain expenses for three months ended March
31, 2000 is unaudited. However, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for the fair
presentation of the 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 POLICIES
USE OF ESTIMATES 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.
REVENUE RECOGNITION Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Escalation charges
based on operating expenses, including real estate taxes, are estimated and
accrued.
DEFERRED RECOVERABLE COSTS Deferred recoverable costs are amortized over 3 to
10 years; amortization is included in operating expenses.
3. OPERATING LEASES
The Property is rented to tenants under various operating leases. Approximate
minimum future rentals required under these leases at December 31, 1999 are as
follows:
YEAR ENDING DECEMBER 31,
- --------------------------------------------------------------------------------
2000 $11,553,000
2001 11,646,000
2002 10,354,000
2003 8,550,000
2004 7,531,000
Thereafter 6,515,000
------------
$56,149,000
------------
- --------------------------------------------------------------------------------
These amounts do not include tenant reimbursement for real estate taxes and
operating and maintenance expenses.
Prospectus TIAA Real Estate Account 37
TIAA 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
(IN THOUSANDS)
DECEMBER 31,
- --------------------------------------------------------------------------------
2000 1999
---- ----
ASSETS
Bonds $ 80,809,152 $ 75,394,268
Mortgages 21,952,809 21,412,239
Real estate 5,296,235 5,192,229
Stocks 1,738,069 1,247,242
Other long-term investments 3,329,278 2,116,490
Cash and short-term investments 244,169 410,053
Investment income due and accrued 1,286,268 1,233,604
Separate account assets 3,408,570 2,751,054
OTHER ASSETS 502,933 740,252
------------ ------------
TOTAL ASSETS $118,567,483 $110,497,431
============ ============
LIABILITIES, CAPITAL AND
CONTINGENCY RESERVES
Policy and contract reserves $ 99,859,231 $ 93,869,708
Dividends declared for the following year 2,197,454 2,039,605
Asset Valuation Reserve 2,870,533 2,637,779
Interest Maintenance Reserve 1,118,965 1,110,349
Separate account liabilities 3,408,570 2,751,054
Other liabilities 1,015,325 1,063,508
------------ ------------
TOTAL LIABILITIES 110,470,078 103,472,003
------------ ------------
Capital and paid-in surplus 3,050 3,050
------------ ------------
Contingency reserves:
For group life insurance -- 12,218
For investment losses, annuity and
insurance mortality, and other risks 8,094,355 7,010,160
------------ ------------
Total Contingency Reserves 8,094,355 7,022,378
------------ ------------
Total Capital and Contingency Reserves 8,097,405 7,025,428
------------ ------------
TOTAL LIABILITIES, CAPITAL
AND CONTINGENCY RESERVES $118,567,483 $110,497,431
============ ============
- --------------------------------------------------------------------------------
TIAA CONDENSED UNAUDITED STATEMENTS OF OPERATIONS AND
CHANGES IN CAPITAL AND CONTINGENCY RESERVES
(IN THOUSANDS)
FOR THE YEARS ENDED
DECEMBER 31,
- --------------------------------------------------------------------------------
2000 1999
---- ----
INCOME
Insurance and annuity premiums and deposits $ 3,228,948 $ 3,087,045
Transfers from CREF, net 572,211 752,512
Annuity dividend additions 2,728,561 2,553,655
Net investment income 8,556,537 7,923,564
Supplementary contract consideration 365,858 325,704
------------ ------------
TOTAL INCOME $15,452,115 $14,642,480
============ ============
DISTRIBUTION OF INCOME
Policy and contract benefits $ 2,976,305 $ 2,653,962
Dividends 4,315,895 4,026,907
Increase in policy and contract reserves 5,991,167 6,100,240
Operating expenses 356,975 335,039
Transfers to separate accounts, net 527,255 490,880
Federal income tax expense (benefit) 24,048 (25,213)
Other, net (18,442) (11,437)
Increase in contingency reserves 1,278,912 1,072,102
------------ ------------
TOTAL DISTRIBUTION OF INCOME $15,452,115 $14,642,480
============ ============
CHANGES IN CAPITAL AND CONTINGENCY RESERVES:
From operations $ 1,278,912 $ 1,072,102
Net realized capital gain on investments 104,949 282,079
Net unrealized capital gains (losses)
on investments 123,349 (112,613)
Transfer to the Interest Maintenance Reserve (161,865) (330,107)
Transfers to the Asset Valuation Reserve (232,754) (183,656)
Increase in non-admitted assets,
other than investments (40,614) (25,586)
Stockholder dividend -- (550)
Contribution to paid-in surplus -- 550
------------ ------------
NET CHANGE IN CAPITAL AND
CONTINGENCY RESERVES 1,071,977 702,219
CAPITAL AND CONTINGENCY RESERVES
AT BEGINNING OF YEAR 7,025,428 6,323,209
------------ ------------
CAPITAL AND CONTINGENCY RESERVES
AT END OF YEAR $ 8,097,405 $ 7,025,428
============ ============
38 TIAA Real Estate Account Prospectus
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
Mutual Funds and TIAA-CREF Life Funds 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.
ADDITIONAL INFORMATION:
2000 1999
- --------------------------------------------------------------------------------
As a percentage of total bond investments:
Below investment grade bonds 6.9% 6.1%
As a percentage of total mortgage investments:
Total mortgage investments in California 19.0% 18.0%
Total mortgage investments in office buildings 40.9% 39.4%
Total mortgage investments in shopping centers 27.6% 29.3%
As a percentage of total real estate investments:
Two states with highest
real estate investment California 14% California 14%
Florida 11% Florida 11%
TOTAL REAL ESTATE INVESTMENTS
IN OFFICE BUILDINGS 67.1% 65.2%
- --------------------------------------------------------------------------------
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 any of its counterparties. In order to minimize
the risk associated with potential counterparty default, TIAA monitors the
credit quality of its counterparties. At December 31, 2000 and 1999, TIAA had
outstanding foreign currency swap contracts with a total notional value of
approximately $1,020,545,000 and $891,159,000, respectively; foreign currency
forward contracts with a total notional value of approximately $203,113,000 and
$230,259,000, respectively; interest rate swap contracts with a total notional
value of approximately $406,036,000 and $388,411,000, respectively; swap options
outstanding with a total notional value of $219,100,000 and $54,000,000,
respectively; and interest rate cap contracts with a total notional value of
approximately $145,650,000 and $137,550,000, respectively.
Prospectus TIAA Real Estate Account 39
APPENDIX A--MANAGEMENT OF TIAA
The Real Estate Account has no officers or directors. The Trustees and
principal executive officers of TIAA, and their principal occupations during the
last five years, are as follows:
TRUSTEES
DAVID ALEXANDER, 68. President Emeritus, Pomona College. Formerly, Trustees'
Professor, Pomona College and American Secretary, Rhodes Scholarship Trust.
MARCUS ALEXIS, 69. Board of Trustees Professor of Economics and Professor of
Management and Strategy, J.L. Kellogg Graduate School of Management,
Northwestern University.
WILLARD T. CARLETON, 66. Donald R. Diamond Professor of Finance, College of
Business and Public Administration, University of Arizona.
ROBERT C. CLARK, 57. Dean and Royall Professor of Law, Harvard Law School,
Harvard University.
ESTELLE A. FISHBEIN, 66. Vice President and General Counsel, The Johns
Hopkins University.
FREDERICK R. FORD, 65. Executive Vice President and Treasurer Emeritus,
Purdue University. Formerly, Executive Vice President and Treasurer, Purdue
University.
RUTH SIMMS HAMILTON, 63. Professor, Department of Sociology, and Director,
African Diaspora Research Project, Michigan State University.
ROCHELLE B. LAZARUS, 53. Chairman and Chief Executive Officer, Ogilvy &
Mather Worldwide. Formerly, President and Chief Operating Officer, Ogilvy &
Mather Worldwide.
ROBERT M. O'NEIL, 66. Professor of Law, University of Virginia and Director,
The Thomas Jefferson Center for the Protection of Free Expression.
LEONARD S. SIMON, 64. 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, 51. Chairman and Chief Executive Officer, Midwest
Stamping Co.
PAUL R. TREGURTHA, 65. 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, 63. Chairman, Technology Solutions Company. Formerly,
Chairman and Chief Executive Officer, Bausch & Lomb Inc.
ROSALIE J. WOLF, 59. Managing Director, Laurel Management, L.L.C. Formerly,
Treasurer and Chief Investment Officer, The Rockefeller Foundation.
OFFICER-TRUSTEES
- ----------------
JOHN H. BIGGS, 64. Chairman, President and Chief Executive Officer, TIAA and
CREF.
MARTIN L. LEIBOWITZ, 64. Vice Chairman and Chief Investment Officer, TIAA and
CREF.
OTHER OFFICERS
- --------------
RICHARD J. ADAMSKI, 58. Vice President and Treasurer, TIAA and CREF.
RICHARD L. GIBBS, 54. Executive Vice President, Finance and Planning, TIAA
and CREF.
E. LAVERNE JONES, 52. Vice President and Corporate Secretary, TIAA and CREF.
APPENDIX B--SPECIAL TERMS
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 nonprofit institution, including any governmental
institution, organized in the United States.
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.
40 TIAA Real Estate Account Prospectus
PART II
INFORMATION NOT REQUIRED IN A PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
-------------------------------------------
SEC Registration Fees $ 125,000
Costs of printing and engraving $ 500,000*
Legal fees $ 10,000*
Accounting fees $ 10,000*
----------
TOTAL $ 645,000*
- -----------------
* - 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. (1) (as amended) and the Amendment thereto (4)
(3) (A) Charter of TIAA (as amended)(4)
(B) Bylaws of TIAA (as amended)(3)
(4) (A) Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account
Contract Endorsements(2) 2 and Keogh Contract(1)
(B) Forms of Income-Paying Contracts(2)
(5) Opinion and Consent of Charles H. Stamm, Esquire(4)
(10) (A) Independent Fiduciary Agreement by and among TIAA, the
Registrant, and The Townsend Group(1)
(B) Custodial Services Agreement by and between TIAA and
Morgan Guaranty Trust Company of New York with
respect to the Real Estate Account(1)
(23) (A) Opinion and Consent of Charles H. Stamm, Esquire
(filed as Exhibit 5)
(B) Consent of Sutherland Asbill & Brennan LLP(4)
(C) Consent of Ernst & Young LLP(4)
(D) Consent of Friedman, Alpren & Green LLP (4)
- ----------------------
(1) - Previously filed and incorporated herein by reference to Post-Effective
Amendment No. 6 to the Account's previous Registration Statement on Form S-1
filed April 26, 2000 (File No. 333-22809).
(2) - 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).
(3) - 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).
(4) - 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:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial BONA
FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide the full financial statements of TIAA promptly upon
written or oral request.
Following are the full audited financial statements of TIAA.
[TIAA 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, 2000. 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 accounting 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 additional 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
2
[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. For the periods covered
by these financial statements, all services provided by Ernst & Young LLP were
limited exclusively to auditing. It is TIAA's policy that any non-audit services
be obtained from a firm other than the external financial audit firm. The
independent auditors' report, which appears on page five, 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
3
[TIAA LOGO]
REPORT OF THE AUDIT COMMITTEE
To the Policyholders of
Teachers Insurance and Annuity
Association of America:
The Audit Committee oversees the financial reporting process of Teachers
Insurance and Annuity Association of America ("TIAA") on behalf of the Company's
Board of Trustees. The Audit Committee is a standing committee of the Board and
operates in accordance with a formal written charter (copies are available upon
request) which describes the Audit Committee's responsibilities. All members of
the Audit Committee ("Committee") are independent, as defined under the listing
standards of the New York Stock Exchange.
Management has the primary responsibility for TIAA's financial statements,
development and maintenance of a strong system of internal controls, and
compliance with applicable laws and regulations. In fulfilling its oversight
responsibilities, the Committee reviewed and approved the audit plans of the
internal auditing group and the independent auditing firm in connection with
their respective audits. The Committee also meets regularly with the internal
and independent auditors, both with and without management present, to discuss
the results of their examinations, their evaluation of internal controls, and
the overall quality of financial reporting.
The Committee reviewed and discussed the accompanying audited financial
statements with management, including a discussion of the quality and
appropriateness of the accounting principles and financial reporting practices
followed, the reasonableness of significant judgments, and the clarity of
disclosures in the financial statements. The Committee has also discussed the
audited financial statements with Ernst & Young LLP, the independent auditing
firm responsible for expressing an opinion on the conformity of these audited
financial statements with statutory accounting principles.
The discussion with Ernst & Young LLP focused on their judgments concerning the
quality and appropriateness of the accounting principles and financial reporting
practices followed by TIAA, the clarity of the financial statements and related
disclosures, and other significant matters, such as any significant changes in
accounting policies, management judgments and estimates, and the nature of any
uncertainties or unusual transactions. In addition, the Committee discussed with
Ernst & Young LLP the auditors' independence from management and TIAA, and has
received a written disclosure regarding such independence, as required by the
Independence Standards Board.
Based on the review and discussions referred to above, the Committee has
approved the release of the accompanying audited financial statements for
publication and filing with appropriate regulatory authorities.
Willard T. Carleton, Audit Committee Chair
Frederick R. Ford, Audit Committee Member
Leonard S. Simon, Audit Committee Member
Rosalie J. Wolf, Audit Committee Member
4
[ERNST & YOUNG LOGO]
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 ("TIAA") as of December 31, 2000 and 1999, 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, 2000. 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
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 effect 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, 2000 or 1999 or the results of
its operations or its cash flows for each of the three years in the period ended
December 31, 2000.
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of TIAA at December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 in conformity with
accounting practices prescribed or permitted by the New York State Insurance
Department.
/s/ Ernst & Young LLP
February 15, 2001
5
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
DECEMBER 31,
---------------------------
2000 1999
------------ ------------
ASSETS
Bonds ........................................... $ 80,809,152 $ 75,394,268
Mortgages ....................................... 21,952,809 21,412,239
Real estate ..................................... 5,296,235 5,192,229
Stocks .......................................... 1,738,069 1,247,242
Other long-term investments ..................... 3,329,278 2,116,490
Cash and short-term investments ................. 244,169 410,053
Investment income due and accrued ............... 1,286,268 1,233,604
Separate account assets ......................... 3,408,570 2,751,054
Other assets .................................... 502,933 740,252
------------ ------------
TOTAL ASSETS $118,567,483 $110,497,431
============ ============
LIABILITIES, CAPITAL AND CONTINGENCY RESERVES
Policy and contract reserves .................... $ 99,859,231 $ 93,869,708
Dividends declared for the following year ....... 2,197,454 2,039,605
Asset Valuation Reserve ......................... 2,870,533 2,637,779
Interest Maintenance Reserve .................... 1,118,965 1,110,349
Separate account liabilities .................... 3,408,570 2,751,054
Other liabilities ............................... 1,015,325 1,063,508
------------ ------------
TOTAL LIABILITIES 110,470,078 103,472,003
------------ ------------
Capital (2,500 shares of $1,000 par
value common stock issued and outstanding)
and paid-in surplus ........................... 3,050 3,050
------------ ------------
Contingency reserves:
For group life insurance ...................... -- 12,218
For investment losses, annuity and
insurance mortality, and other risks ........ 8,094,355 7,010,160
------------ ------------
TOTAL CONTINGENCY RESERVES 8,094,355 7,022,378
------------ ------------
TOTAL CAPITAL AND CONTINGENCY RESERVES 8,097,405 7,025,428
------------ ------------
TOTAL LIABILITIES, CAPITAL
AND CONTINGENCY RESERVES $118,567,483 $110,497,431
============ ============
See notes to statutory-basis financial statements.
6
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
2000 1999 1998
------------ ------------ ------------
INCOME
Insurance and annuity premiums
and deposits .................... $ 3,228,948 $ 3,087,045 $ 2,957,870
Transfers from CREF, net .......... 572,211 752,512 1,274,152
Annuity dividend additions ........ 2,728,561 2,553,655 2,427,685
Net investment income ............. 8,556,537 7,923,564 7,446,656
Supplementary contract
considerations .................. 365,858 325,704 297,074
------------ ------------ ------------
TOTAL INCOME $ 15,452,115 $ 14,642,480 $ 14,403,437
============ ============ ============
DISTRIBUTION OF INCOME
Policy and contract benefits ...... $ 2,976,305 $ 2,653,962 $ 2,413,220
Dividends ......................... 4,315,895 4,026,907 3,844,313
Increase in policy and
contract reserves ............... 5,991,167 6,100,240 6,636,704
Operating expenses ................ 356,975 335,039 327,085
Transfers to separate
accounts, net ................... 527,255 490,880 487,976
Federal income tax
expense (benefit) ............... 24,048 (25,213) (11,854)
Other, net ........................ (18,442) (11,437) (4,639)
Increase in contingency reserves .. 1,278,912 1,072,102 710,632
------------ ------------ ------------
TOTAL DISTRIBUTION OF INCOME $ 15,452,115 $ 14,642,480 $ 14,403,437
============ ============ ============
See notes to statutory-basis financial statements.
7
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF CHANGES IN CAPITAL AND CONTINGENCY RESERVES
(AMOUNTS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
2000 1999 1998
----------- ----------- -----------
CHANGES IN CAPITAL AND CONTINGENCY RESERVES
From operations ......................................... $ 1,278,912 $ 1,072,102 $ 710,632
Net realized capital gains on investments ............... 104,949 282,079 394,727
Net unrealized capital gains (losses) on investments .... 123,349 (112,613) (171,049)
Transfers to the Interest Maintenance Reserve ........... (161,865) (330,107) (264,997)
Transfers to the Asset Valuation Reserve ................ (232,754) (183,656) (115,481)
Increase in non-admitted assets,
other than investments .............................. (40,614) (25,586) (17,829)
Change in valuation basis of policy reserves ............ -- -- 8,671
Stockholder dividend .................................... -- (550) --
Contribution to paid-in surplus ......................... -- 550 --
Other, net .............................................. -- -- 1,960
----------- ----------- -----------
NET CHANGE IN CAPITAL AND CONTINGENCY RESERVES 1,071,977 702,219 546,634
CAPITAL AND CONTINGENCY RESERVES
AT BEGINNING OF YEAR 7,025,428 6,323,209 5,776,575
----------- ----------- -----------
CAPITAL AND CONTINGENCY RESERVES
AT END OF YEAR $ 8,097,405 $ 7,025,428 $ 6,323,209
=========== =========== ===========
See notes to statutory-basis financial statements.
8
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY-BASIS STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
------------ ------------ ------------
CASH PROVIDED By operating activities:
Insurance and annuity premiums,
deposits and other considerations .................. $ 3,586,141 $ 3,408,713 $ 3,254,238
Transfers from CREF, net .............................. 572,211 752,512 1,274,152
Annuity dividend additions ............................ 2,728,562 2,553,651 2,427,685
Investment income, net ................................ 8,378,040 7,692,392 7,338,368
------------ ------------ ------------
TOTAL RECEIPTS 15,264,954 14,407,268 14,294,443
------------ ------------ ------------
Policy and contract benefits ............................ 2,993,038 2,655,772 2,410,824
Dividends ............................................... 4,158,047 3,910,764 3,699,582
Operating expenses ...................................... 353,859 325,039 311,460
Federal income tax expense (benefit) .................... 2,168 (43,713) 506
Transfers to separate accounts, net ..................... 526,334 492,504 486,945
Separate account seed money redemptions ................. -- -- (76,666)
Other, net .............................................. (139,862) 183,783 494
------------ ------------ ------------
TOTAL DISBURSEMENTS 7,893,584 7,524,149 6,833,145
------------ ------------ ------------
CASH PROVIDED BY OPERATING ACTIVITIES 7,371,370 6,883,119 7,461,298
------------ ------------ ------------
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 ............. 10,427,498 10,428,890 9,781,071
Sales and repayments of mortgage principal ............ 2,894,511 3,716,069 2,129,896
Sales of real estate .................................. 708,838 1,500,916 834,298
Other, net ............................................ 739,325 448,429 279,097
------------ ------------ ------------
CASH PROVIDED BY INVESTING ACTIVITIES 14,770,172 16,094,304 13,024,362
------------ ------------ ------------
TOTAL CASH PROVIDED 22,141,542 22,977,423 20,485,660
------------ ------------ ------------
DISBURSEMENTS FOR NEW INVESTMENTS
Investments acquired:
Bonds and stocks ...................................... 16,082,049 16,695,529 15,298,648
Mortgages ............................................. 3,508,065 4,894,308 3,704,940
Real estate ........................................... 978,864 590,720 351,109
Other, net ............................................ 1,738,448 898,779 797,849
------------ ------------ ------------
TOTAL DISBURSEMENTS FOR NEW INVESTMENTS 22,307,426 23,079,336 20,152,546
------------ ------------ ------------
INCREASE (DECREASE) IN CASH
AND SHORT-TERM INVESTMENTS (165,884) (101,913) 333,114
CASH AND SHORT-TERM INVESTMENTS
AT BEGINNING OF YEAR 410,053 511,966 178,852
------------ ------------ ------------
CASH AND SHORT-TERM INVESTMENTS
AT END OF YEAR $ 244,169 $ 410,053 $ 511,966
============ ============ ============
See notes to statutory-basis financial statements.
9
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS
DECEMBER 31, 2000
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. Its purpose is to aid and strengthen nonprofit educational
and research organizations, governmental entities and other nonprofit
institutions by providing retirement and insurance benefits for THEIR EMPLOYEES
AND THEIR FAMILIES, 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 and Note 14 - Codification.)
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 TIAA-CREF Life funds 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.
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.
10
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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. In order to minimize this risk, TIAA monitors the credit
quality of its counterparties.
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 less 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 written by TIAA
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.
11
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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 over
the life of the cap. 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.
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 $465,614,000
and $450,804,000 at December 31, 2000 and 1999, 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 $262,186,000 at December 31, 2000 and
$221,573,000 at December 31, 1999. 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 approved by the Department and are computed in
accordance with standard actuarial formulae. 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.
12
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
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.
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 files 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. The income tax expense (benefit) of $24,048,000, $(25,213,000) and
$(11,854,000) for 2000, 1999 and 1998 respectively, reflected in the
accompanying statements of operations are the amounts that are payable or
receivable under such tax sharing agreement. TIAA reported a net tax loss for
1998 and 1999 and expects to report a net tax loss for 2000, due 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 the NAIC Accounting
Practices and Procedures Manual (the "Manual") and other 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:
o 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;
o 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;
13
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - (CONCLUDED)
o 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;
o The "non-admitted" asset designation is not utilized;
o Policy acquisition costs are deferred and amortized over the lives of the
policies issued rather than being charged to operations as incurred;
o Policy and contract reserves are based on estimates of expected mortality and
interest rather than being based on statutory mortality and interest
requirements;
o 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;
o Long-term bond investments considered to be "available for sale" are carried
at fair value rather than at amortized cost;
o 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.
o For purposes of calculating the postretirement benefit obligation, active
participants not currently eligibile would also be included.
Management believes that the effects of these differences would increase TIAA's
total capital if GAAP were implemented.
RECLASSIFICATIONS: Certain amounts in the 1999 and 1998 financial statements
have been reclassified to conform with the 2000 presentation.
NOTE 3 - INVESTMENTS
SECURITIES INVESTMENTS: At December 31, 2000 and 1999, 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:
GROSS GROSS
CARRYING UNREALIZED UNREALIZED ESTIMATED
VALUE GAINS LOSSES MARKET VALUE
--------------- -------------- --------------- ---------------
DECEMBER 31, 2000
- -----------------
U.S. Treasury securities and
obligations of U.S. government
agencies and corporations ........ $ 25,921,194 $ 9,949,135 $ -- $ 35,870,329
Debt securities issued by foreign
governments ...................... 2,077,615,275 175,945,808 (24,480,272) 2,229,080,811
Corporate securities ............... 39,185,016,604 875,106,469 (1,253,132,070) 38,806,991,003
Mortgage-backed securities ......... 22,048,637,743 957,430,764 (166,716,404) 22,839,352,103
Asset-backed securities ............ 17,471,960,984 360,740,896 (488,944,947) 17,343,756,933
--------------- -------------- --------------- ---------------
Total ................ $80,809,151,800 $2,379,173,072 $(1,933,273,693) $81,255,051,179
=============== ============== =============== ===============
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
=============== ============== =============== ===============
14
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - INVESTMENTS - (CONTINUED)
At December 31, 2000 and 1999, approximately 93.1% and 93.9%, respectively, of
the long-term bond portfolio was comprised of investment grade securities. At
December 31, 2000, outstanding forward commitments for future long-term bond and
equity investments approximated $2,128,446,000. Of this, $1,055,439,000 is
scheduled for disbursement in 2001, $536,727,000 in 2002, $274,223,000 in 2003
and $262,057,000 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 $2,594,000 and $2,574,000 at December
31, 2000 and 1999, 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, 2000, by contractual maturity, are shown below:
CARRYING ESTIMATED
VALUE MARKET VALUE
--------------- ---------------
Due in one year or less .................. $ 782,701,599 $ 787,102,442
Due after one year through five years .... 10,074,511,531 10,125,742,010
Due after five years through ten years ... 12,389,418,833 12,415,710,424
Due after ten years ...................... 18,041,921,110 17,743,387,267
--------------- ---------------
Subtotal ................... 41,288,553,073 41,071,942,143
Mortgage-backed securities ............... 22,048,637,743 22,839,352,103
Asset-backed securities .................. 17,471,960,984 17,343,756,933
--------------- ---------------
Total ...................... $80,809,151,800 $81,255,051,179
=============== ===============
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, 2000 and 1999, the carrying values of long-term bond investments
were diversified by industry classification as follows:
2000 1999
------ ------
Mortgage-backed securities ............................... 27.3% 27.7%
Asset-backed securities .................................. 12.1 12.0
Manufacturing ............................................ 11.7 11.9
Commercial mortgage-backed securities .................... 9.5 8.7
Finance and financial services ........................... 9.4 9.0
Public utilities ......................................... 7.6 8.4
Communications ........................................... 4.1 3.8
Oil and gas .............................................. 3.4 3.6
Retail and wholesale trade ............................... 3.2 3.5
Government ............................................... 2.9 3.0
Real estate investment trusts ............................ 2.1 2.3
Other .................................................... 6.7 6.1
------ ------
Total ........................................... 100.0% 100.0%
====== ======
The approximate carrying values and market values of debt securities loaned, and
the cash collateral received in connection therewith, were as follows:
CARRYING MARKET CASH
VALUE VALUE COLLATERAL
-------------- -------------- --------------
December 31, 2000 ..... $2,189,502,000 $2,283,079,000 $2,333,054,000
December 31, 1999 ..... $2,321,999,000 $2,303,125,000 $2,380,927,000
At December 31, 2000 and 1999, TIAA had interest rate swap contracts outstanding
with a total notional value of $409,036,000 and $388,411,000, respectively.
15
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - INVESTMENTS - (CONTINUED)
At December 31, 2000 and 1999, TIAA had foreign currency swap contracts
outstanding with a total notional value of approximately $1,020,545,000 and
$891,159,000, respectively. The unrealized gains (losses) on foreign currency
swap contracts outstanding were approximately $57,247,000, $25,575,000 and
$(6,511,000), at December 31, 2000, 1999, and 1998, respectively.
At December 31, 2000 and 1999, TIAA had foreign currency forward contracts
outstanding with a total notional value of approximately $203,113,000 and
230,259,000, respectively, and the unamortized value of the premiums was
approximately $4,827,000 and $16,952,000, respectively. The unrealized gains on
the forward contracts outstanding were approximately $5,745,000, $20,395,000,
and $1,143,000, at December 31, 2000, 1999, and 1998, respectively.
At December 31, 2000, and 1999, TIAA had swap options outstanding with a total
notional value of $219,100,000 and $54,000,000, respectively and the unamortized
value of the premiums was approximately $823,000 and $511,000, at December 31,
2000 and 1999, respectively. 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, 2000 and 1999, TIAA had interest rate cap contracts outstanding
with a total notional value of $145,650,000 and $137,550,000, respectively, and
the unamortized value of the premiums was approximately $959,000 and $658,000,
respectively.
MORTGAGE LOAN INVESTMENTS: TIAA makes mortgage loans that are principally
collateralized by commercial 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. This system is utilized to identify and quantify any
permanent impairments in value. The range of coupon rates for mortgage loans
issued during 2000 was from 7.00% to 9.00%. At December 31, 2000 and 1999,
TIAA's mortgage portfolio included loans totaling approximately $63,914,000 and
$312,251,000, respectively, which were collateralized by real estate with prior
liens not held by TIAA.
At December 31, 2000 and 1999, the carrying values of mortgage loan investments
were diversified by property type and geographic region as follows:
2000 1999
------ ------
PROPERTY TYPE
Office building ....................................... 40.9% 39.4%
Shopping centers ...................................... 27.6 29.3
Industrial buildings .................................. 9.5 7.7
Mixed-use projects .................................... 9.1 10.4
Apartments ............................................ 6.8 7.3
Hotel ................................................. 4.0 3.4
Other ................................................. 2.1 2.5
------ ------
Total ........................................ 100.0% 100.0%
====== ======
GEOGRAPHIC REGION
Pacific ............................................... 24.1% 23.6%
South Atlantic ........................................ 22.1 20.5
North Central ......................................... 19.9 21.2
Middle Atlantic ....................................... 10.2 9.3
South Central ......................................... 8.3 8.7
Mountain .............................................. 7.7 7.2
New England ........................................... 7.4 9.3
Other ................................................. 0.3 0.2
------ ------
Total ........................................ 100.0% 100.0%
====== ======
16
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - INVESTMENTS - (CONTINUED)
At December 31, 2000 and 1999, approximately 19% and 18%, respectively, of the
mortgage portfolio was invested in California and is included in the Pacific
region shown above.
At December 31, 2000, the contractual maturity schedule of mortgage loans is
shown below:
CARRYING VALUE
---------------
Due in one year or less .................................... $ 463,393,808
Due after one year through five years ...................... 5,379,644,552
Due after five years through ten years ..................... 13,329,641,284
Due after ten years ........................................ 2,780,128,967
---------------
Total ............................................. $21,952,808,611
===============
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, 2000, outstanding forward commitments for future mortgage loan
investments approximated $1,148,985,000. Of this, $770,443,000 is scheduled for
disbursement in 2001 and $378,542,000 in later years. The funding of mortgage
loan commitments is contingent upon the underlying properties meeting specified
requirements, including construction, leasing and occupancy.
At December 31, 2000, 1999 and 1998, the aggregate carrying values of mortgages
with restructured or modified terms, as defined by GAAP, were approximately
$37,300,000, $43,489,000, and $44,153,000, respectively. For the years ended
December 31, 2000, 1999 and 1998, the investment income earned on such mortgages
was approximately $(4,628,000), $809,000, and $7,381,000, respectively, which
would have been approximately $3,887,000, $4,950,000, and $5,030,000,
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.
REAL ESTATE INVESTMENTS:
TIAA makes investments in commercial real estate directly, through wholly-owned
subsidiaries and through real estate limited partnerships. TIAA employs a system
to monitor the effects of current and expected market conditions and other
factors on the realizability of real estate investments. This system is utilized
to identify and quantify any permanent impairments in value. At December 31,
2000 and 1999, the carrying values of real estate investments were diversified
by property type and geographic region as follows:
2000 1999
------ ------
PROPERTY TYPE
Office buildings ......................................... 67.1% 65.2%
Shopping centers ......................................... 9.4 10.4
Mixed-use projects ....................................... 5.3 6.2
Industrial buildings ..................................... 4.0 3.3
Income-producing land underlying improved real estate .... 3.4 3.0
Land held for future development ......................... 3.3 3.9
Apartments ............................................... 0.1 0.4
Other .................................................... 7.4 7.6
----- -----
Total ...................................... 100.0% 100.0%
===== =====
GEOGRAPHIC REGION
South Atlantic ........................................... 27.7% 26.8%
North Central ............................................ 26.5 25.4
Pacific .................................................. 14.5 16.5
South Central ............................................ 8.2 9.0
Middle Atlantic .......................................... 5.4 8.8
Mountain ................................................. 3.2 3.6
New England .............................................. 1.0 1.1
Other .................................................... 13.5 8.8
----- -----
Total ...................................... 100.0% 100.0%
===== =====
17
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3 - INVESTMENTS - (CONCLUDED)
At December 31, 2000 and 1999, approximately 14% of the real estate portfolio
was invested in Florida and approximately 11% was invested in California.
Florida is included in the South Atlantic region and California is included in
the Pacific region.
At December 31, 2000, outstanding forward commitments for future real estate
investments approximated $198,928,000. Under these commitments, it is estimated
that $179,231,000 will be disbursed in 2001 and $19,697,000 in later years. 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 was approximately $164,844,000,
$179,605,000, and $176,237,000 for the years ended December 31, 2000, 1999 and
1998, respectively; the amount of accumulated depreciation at December 31, 2000
and 1999 was approximately $918,317,000 and $799,927,000, respectively.
ASSET VALUATION RESERVE: The AVR balances at December 31, 2000 and 1999 were
comprised of the following asset-specific reserves:
2000 1999
-------------- --------------
Bonds and preferred stocks ............... $ 824,796,467 $ 701,676,744
Mortgages ................................ 966,080,296 1,106,387,507
Real estate .............................. 455,182,391 502,041,173
Common stocks ............................ 226,038,438 238,268,926
Other invested assets .................... 398,435,894 89,404,877
-------------- --------------
Total ...................... $2,870,533,486 $2,637,779,227
============== ==============
SECURITIZATIONS: When TIAA sells bonds and mortgage loans in a secutitization
transaction, it may retain interest-only strips, one or more subordinated
tranches, or servicing rights, all of which are retained interests in the
securitized receivables. Gain or loss on a sale, net of transaction costs, is,
in part, determined by allocating the previous carrying amount of the financial
assets involved in the transfer between the assets sold and the retained
interests, based on their relative fair values at the date of the transfer.
Quoted market prices are used, if available. However, quotes are generally not
available for retained interests, so TIAA generally estimates fair value based
on the present value of future expected cash flows using management's best
estimates of future credit losses, forward yield curves, and discount rates that
are commensurate with the risks involved.
During 2000, TIAA sold bonds in two securitization transactions in which TIAA
retained subordinated interests. TIAA recognized a pretax loss of approximately
$757,000 on the securitization of approximately $1.4 billion (principal amount)
of bonds. The proceeds from the two securitizations and the fair value of the
retained interests totaled approximately $1,284,000,000 and $162,103,000,
respectively. The fair values of the residual interests in the securitization
transactions were calculated by discounting the estimated future cash flows. The
discount rates used ranged from 11% to 20%. An adverse 10% and 20% change in the
discount rate would negatively impact the fair value of the retained interests
by approximately $5,562,000 and $10,556,000, respectively, at December 31, 2000.
TIAA also retained the rights to future cash flows that may arise after
investors in the securitizations have received their contracted returns.
Investors in the securitizations have no recourse to TIAA's other assets if the
bonds that were securitized fail to pay when due. In one of these transactions,
TIAA retained servicing responsibilities and will receive servicing fees of
approximately .1%, per annum, on the outstanding principal balance of the
collateral pools.
During 1999, TIAA sold commercial mortgages with a principal balance of
$893,460,000 in a securitization transaction in which TIAA retained subordinated
interests with a fair value of approximately $428,486,000. The key assumptions
used in measuring the fair value of the retained interests included an
anticipated credit loss of approximately .3% and a discount rate of 7%. An
adverse 10% and 20% change in the credit loss assumption would have a negative
impact of approximately $831,000 and $2,018,000, respectively, on the fair value
of the retained interests at December 31, 2000. An adverse 10% and 20% change in
the discount factor would negatively impact the fair value of the retained
interest by approximately $9,231,000 and $18,483,000, respectively, at December
31, 2000.
18
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
Note 3 - Investments - (continued)
The following table presents quantitative information about delinquencies, net
credit losses, and components of securitized financial assets and other assets
managed together with them:
TOTAL PRINCIPAL PRINCIPAL AMOUNT OF LOANS NET CREDIT LOSS
AMOUNT OF LOANS 60 DAYS OR MORE PAST DUE DURING THE YEAR
---------------------------------------------------------------------------------
AT DECEMBER 31
(AMOUNTS IN THOUSANDS)
---------------------------------------------------------------------------------
TYPE OF LOAN 2000 1999 2000 1999 2000 1999
---------------------------------------------------------------------------------
Bonds $ 84,049,926 $77,030,941 $ -- $ -- $ -- $ --
Mortgages 22,556,129 21,911,860 28,384 59,712 63,681 46,738
------------ ----------- ------- ------- ------- -------
TOTAL LOANS MANAGED OR SECURITIZED 106,606,055 98,942,801 $28,384 $59,712 $63,681 $46,738
======= ======= ======= =======
Less:
Loans securitized 1,848,780 486,499
Loans held for sale or securitization -- --
------------ -----------
LOANS HELD IN PORTFOLIO $104,757,275 $98,456,302
============ ===========
NOTE 4 - INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES
NET INVESTMENT INCOME: For the years ended December 31, 2000, 1999 and 1998, the
components of net investment income were as follows:
2000 1999 1998
--------------- -------------- --------------
GROSS INVESTMENT INCOME:
Bonds .......................................... $ 6,158,290,900 $5,775,161,816 $5,441,796,398
Mortgages ...................................... 1,664,704,684 1,699,019,031 1,569,281,835
Real estate (net of property expenses, taxes
and depreciation) ........................... 523,965,325 282,344,126 275,402,304
Stocks ......................................... 101,520,278 92,223,815 82,871,728
Other long-term investments .................... 138,413,626 58,021,764 46,399,969
Cash and short-term investments ................ 32,816,610 22,452,106 59,637,401
Other .......................................... (650,251) 8,703,697 4,430,354
--------------- -------------- --------------
Total ............................... 8,619,061,172 7,937,926,355 7,479,819,989
Less investment expenses .......................... 215,773,092 170,761,251 142,791,775
--------------- -------------- --------------
Net investment income before amortization
of net IMR gains ............................... 8,403,288,080 7,767,165,104 7,337,028,214
Plus amortization of net IMR gains ................ 153,248,647 156,399,394 109,627,953
--------------- -------------- --------------
Net investment income ............................. $ 8,556,536,727 $7,923,564,498 $7,446,656,167
=============== ============== ==============
Participation income received on securities, mortgages and real estate included
in the above table was approximately $12,566,000, $14,112,000, and $12,512,000
in 2000, 1999 and 1998, respectively.
19
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 4 - INVESTMENT INCOME AND CAPITAL GAINS AND LOSSES - (CONTINUED)
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 7.91%, 7.82% and 7.95% in 2000, 1999 and 1998,
respectively.
Future rental income expected to be received during the next five years under
existing real estate leases in effect as of December 31, 2000 is approximately
$579,288,000 in 2001, $525,815,000 in 2002, $433,984,000 in 2003, $361,944,000
in 2004 and $274,686,000 in 2005.
REALIZED CAPITAL GAINS AND LOSSES: For the years ended December 31, 2000, 1999
and 1998, the net realized capital gains (losses) on sales, redemptions and
writedowns of investments were as follows:
2000 1999 1998
------------ ------------ ------------
Bonds ............................. $ 67,168,839 $ 65,207,048 $398,363,008
Mortgages ......................... (18,620,911) (22,897,373) (50,492,383)
Real estate ....................... (14,419,646) 136,719,085 76,983,899
Stocks ............................ 29,163,435 46,209,893 15,778,492
Other long-term investments ....... 40,797,748 49,549,108 (49,832,409)
Cash and short-term investments ... 859,571 1,471,501 3,926,077
------------ ------------ ------------
Total realized gains before
capital gains tax ............... 104,949,036 276,259,262 394,726,684
Capital gains tax benefit ......... -- 5,819,369 --
------------ ------------ ------------
Total ............... $104,949,036 $282,078,631 $394,726,684
============ ============ ============
Writedowns of investments resulting from permanent impairments and mortgage
foreclosures, reflected in the preceding table as realized capital losses, were
as follows:
2000 1999 1998
------------ ------------ ------------
Permanent impairments:
Bonds .......................... $ -- $ 21,137,423 $ 9,345,164
Mortgages ...................... 63,467,331 31,752,909 23,344,175
Real estate .................... 50,000,000 -- 4,468,490
------------ ------------ ------------
Total ............... $113,467,331 $ 52,890,332 $ 37,157,829
============ ============ ============
Mortgage foreclosures ............. $ 213,640 $ 14,984,688 $ 63,907,494
============ ============ ============
Proceeds from sales and redemptions of long-term bond investments during 2000,
1999 and 1998 were approximately $10,199,202,000, $10,137,343,000 and
$9,445,709,000, respectively. Gross gains of approximately $187,122,000,
$177,537,000 and $422,231,000 and gross losses of approximately $119,953,000,
$91,193,000 and $14,523,000 were realized on these sales and redemptions during
2000, 1999 and 1998, respectively.
UNREALIZED CAPITAL GAINS AND LOSSES: For the years ended December 31, 2000, 1999
and 1998, the net changes in unrealized capital gains (losses) on investments,
resulting in a net increase (decrease) in the valuation of investments, were as
follows:
2000 1999 1998
------------- ------------- -------------
Bonds .......................... $ (54,132,512) $ (69,713,061) $ (48,352,549)
Mortgages ...................... (70,888,318) 6,617,678 (6,500,000)
Real estate .................... (2,770,531) (33,864,537) (8,435,351)
Stocks ......................... 75,816,698 (118,886,764) (31,866,148)
Other long-term investments .... 175,323,484 103,233,602 19,347,901
Other .......................... -- -- (95,242,707)
------------- ------------- -------------
Total ............ $ 123,348,821 $(112,613,082) $(171,048,854)
============= ============= =============
20
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, 2000 and 1999 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.
NOTIONAL CARRYING ESTIMATED
VALUE VALUE FAIR VALUE
-------------- ----------- -----------
DECEMBER 31, 2000
- -----------------
Assets
Bonds ...................................... $80,809,151,800 $81,255,051,179
Mortgages .................................. 21,952,808,611 22,593,584,589
Common stocks .............................. 767,862,699 767,862,699
Preferred stocks ........................... 970,206,730 940,926,347
Cash and short-term investments ............ 244,168,519 244,168,519
Policy loans ............................... 474,681,094 474,681,094
Seed money investments ..................... 394,002,467 394,002,467
Liabilities
Teachers Personal Annuity-Fixed Account .... 1,456,634,670 1,456,634,670
Other financial instruments
Foreign currency swap contracts ............ $1,020,545,319 101,339,491 105,396,376
Foreign currency forward contracts ......... 203,112,720 10,572,446 9,250,132
Interest rate swap contracts ............... 409,035,615 -- 12,748,992
Swap options ............................... 219,100,000 (822,873) (4,457,353)
Interest rate cap contracts ................ 145,650,000 959,423 771,354
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
21
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONTINUED)
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, 2000 and 1999 are
as follows:
2000 1999
---------------------------------- ----------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
--------------- --------------- --------------- ---------------
Publicly traded bonds ..... $50,734,031,251 $51,315,463,545 $46,676,624,017 $45,416,831,387
Privately placed bonds .... 30,075,120,549 29,939,587,634 28,717,644,247 27,522,817,919
--------------- --------------- --------------- ---------------
Total ....... $80,809,151,800 $81,255,051,179 $75,394,268,264 $72,939,649,306
=============== =============== =============== ===============
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 AND COMMERCIAL PAPER: The carrying
values of the 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 foreign 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 foreign 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.
22
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS - (CONCLUDED)
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.
NOTE 6 - MANAGEMENT AGREEMENTS
Services necessary for the operation of College Retirement Equities Fund
("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
formulae 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 $561,396,000, $493,399,000 and $474,611,000 in 2000, 1999 and
1998, respectively, are not included in the statements of operations and had no
effect on TIAA's operations. 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 employee 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 $25,484,000, $23,865,000 and $22,640,000 in 2000, 1999 and
1998, respectively. This includes supplemental contributions made to
company-owned annuity contracts under a non-qualified deferred compensation
plan.
23
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7 - PENSION PLAN AND POSTRETIREMENT BENEFITS (CONCLUDED)
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 $42,373,000, and $36,606,000 at
December 31, 2000 and 1999, respectively. The postretirement benefit obligation
for non-vested employees was approximately $25,399,000 and $28,580,000 as of
January 1, 2000 and 1999, respectively. The unrecognized transition obligation
was $9,380,000 and $10,161,000 at December 31, 2000 and 1999, respectively. The
cost of such benefits reflected in the accompanying statements of operations was
approximately $2,914,000, $3,180,000 and $3,008,000 for 2000, 1999 and 1998,
respectively. The discount rate used in determining the postretirement benefit
obligations was 7.5% per year and the medical care cost trend rate was 6% per
year in 2000, decreasing by .25% in each future year, to an ultimate rate of
5.25% per year in 2003. As the plan is not pre-funded, the value of plan assets
is zero. The accrued postretirement benefit liability was $32,325,000 and
$27,312,000 as of December 31, 2000 and 1999, 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 an award that is invested annually in company-owned
annuity contracts. Payout of accumulations is normally made in 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 $6,296,468,000 and $5,683,950,000 at December 31, 2000 and
1999, respectively. TIAA's investment in Enterprises is included in the other
long-term investments caption on the accompanying balance sheets and totaled
approximately $255,858,000 and $305,326,000 at December 31, 2000 and 1999,
respectively. At December 31, 2000 and 1999, the carrying values of TIAA's
investments in real estate subsidiaries and other affiliates were approximately
$3,947,783,000 and $3,902,522,000, respectively.
Total assets, liabilities and gross rental income, on a GAAP basis, of real
estate subsidiaries at December 31, 2000, 1999 and 1998 and for the years then
ended, were approximately as follows:
2000 1999 1998
-------------- -------------- --------------
Assets ...................... $4,818,342,000 $4,841,501,000 $5,723,222,000
Liabilities ................. 735,368,000 772,068,000 724,361,000
Gross rental income ......... 693,694,000 826,366,000 783,261,000
Earnings of approximately $419,318,095, $186,329,000 and $161,885,000 in 2000,
1999 and 1998, 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, 2000 and 1999, the carrying values of TIAA real estate
subsidiaries that are partners in joint ventures were approximately $726,438,000
and $610,277,000, respectively. Joint venture total assets, liabilities and
gross rental income at December 31, 2000, 1999 and 1998 and for the years then
ended, were approximately as follows:
2000 1999 1998
-------------- -------------- --------------
Assets ...................... $3,124,928,000 $1,410,531,000 $1,709,297,000
Liabilities ................. 1,746,133,000 730,980,000 556,823,000
Gross rental income ......... 257,381,000 185,306,000 274,106,000
24
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 8 - UNCONSOLIDATED SUBSIDIARIES AND OTHER AFFILIATES (CONCLUDED)
The subsidiaries' equity share in these total assets, liabilities and gross
rental income were approximately as follows:
2000 1999 1998
-------------- -------------- --------------
Assets ...................... $1,351,026,000 $1,392,388,000 $1,701,668,000
Liabilities ................. 643,601,000 720,127,000 554,451,000
Gross rental income ......... 110,790,000 183,907,000 270,208,000
Net income earned by the subsidiaries from joint venture investments was
approximately $19,668,000, $40,507,000 and $16,123,000 in 2000, 1999 and 1998,
respectively. Some of the real estate subsidiaries and joint ventures have loans
from TIAA. At December 31, 2000 and 1999, the unpaid principal of such loans was
approximately $592,367,000 and $577,277,000 respectively.
NOTE 9 - ANNUITY RESERVES
At December 31, 2000 and 1999, TIAA's general account annuity reserves are
summarized as follows:
2000 1999
------------------------------- -----------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------------- ----------- ------------------ ----------
Subject to discretionary withdrawal:
At book value without adjustment.......... $ 11,594,104,000 11.7% $10,298,969,000 11.1%
At market value........................... -- -- -- --
Not subject to discretionary withdrawal...... 87,199,698,000 88.3 82,594,306,000 88.9
---------------- ----- --------------- ------
Total annuity reserves....................... 98,793,802,000 100.0% 92,893,275,000 100.0%
===== =====
Reconciliation to total policy and contract reserves
shown on the balance sheet:
Reserves on other life policies and
contracts............................ 427,109,000 399,675,000
Reserves on accident and health
policies............................. 638,320,000 576,758,000
---------------- ---------------
Total policy and contract reserves........... $ 99,859,231,000 $93,869,708,000
================ ===============
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.
25
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
NOTE 10 - SEPARATE ACCOUNTS - (CONTINUED)
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 $251,837,000,
$256,703,000 and $226,984,000 in 2000, 1999 and 1998, respectively. Total
separate account net transfers from other accounts were approximately
$383,019,000, $297,622,000 and $300,737,000 in 2000, 1999 and 1998,
respectively. Annuities offered through VA-1 include a nominal guaranteed
minimum death benefit. For 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
six original funds of 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. 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"). On March 1, 2000, TIAA made an additional
$175,000,000 seed money investment to launch five additional funds. 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 investment. TIAA's remaining
seed money investment in the Funds, plus reinvested dividends and undistributed
earnings, totaled approximately $196,055,000 and $85,174,000 at December 31,
2000 and 1999, 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
seven 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. 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 investment. TIAA's remaining seed money investment in the Institutional
Funds, plus reinvested dividends and undistributed earnings, totaled
approximately $26,671,000 and $144,017,000 at December 31, 2000 and 1999,
respectively, and such amounts are reflected in the "Other long-term
investments" caption in the accompanying balance sheets.
On December 1, 1998, TIAA made a $25,000,000 seed money investment to launch the
Stock Index Fund of the TIAA-CREF Life Funds, a Delaware business trust that was
organized on August 13, 1998 and is registered with the Commission under the
Investment Company Act of 1940 as an open-end management company. On March 1,
2000, TIAA made an additional $175,000,000 seed money investment to launch four
additional funds (collectively the "Life Funds"). The Life Funds' shares are
publicly offered, without a sales load, through their distributor, TPIS.
Advisors provides investment
26
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY-BASIS FINANCIAL STATEMENTS - (CONTINUED)
management services for the Life Funds and is also responsible for providing, or
obtaining at its own expense, the services reasonably necessary for the ordinary
operations of the Life Funds. During 2000, TIAA began to redeem its seed money
investment. The value of TIAA's remaining seed money investment in the Life
Funds, plus reinvested dividends and undistributed earnings, totaled
approximately $173,890,000 and $31,637,000 at December 31, 2000 and 1999,
respectively, and such amounts are 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 had an outstanding obligation of $-0- and $248,319,000
at December 31, 2000 and 1999, respectively. Interest expense totaled
approximately $50,462,000 and $24,585,000 during 2000 and 1999, respectively.
TIAA maintains a short-term revolving credit liquidity facility of approximately
$1 billion to support the commercial paper program, but this liquidity facility
has not been utilized.
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 - CODIFICATION
The NAIC revised its Accounting Practices and Procedures Manual (the "Manual")
in a process referred to as Codification. The Manual will be effective January
1, 2001. The Department has adopted the provisions of the Manual with certain
exceptions where there is a conflict with New York Insurance Law. The Manual has
changed, to some extent, prescribed statutory accounting practices and will
result in changes to the accounting practices that TIAA uses to prepare its
statutory-based financial statements. The cumulative effect of changes in
accounting principles adopted to conform to the Manual will be reported as an
adjustment to TIAA's contingency reserves as of January 1, 2001. Management
believes that the cumulative net impact of these changes will result in an
increase of approximately 6% in TIAA's statutory-based capital and contingency
reserves.
27
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 27th day of April, 2001.
TIAA REAL ESTATE ACCOUNT
By: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ LISA SNOW
----------------------------------
Lisa Snow
Vice President and
Chief Counsel, Corporate Law
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons, trustees and
officers of Teachers Insurance and Annuity Association of America, in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ JOHN H. BIGGS Chairman of the Board, President and Chief 4/27/01
- -------------------------- Executive Officer (Principal Executive
John H. Biggs Officer) and Trustee
/s/ MARTIN L. LEIBOWITZ Vice Chairman, Chief Investment Officer 4/27/01
- -------------------------- and Trustee
Martin L. Leibowitz
/s/ RICHARD L. GIBBS Executive Vice President (Principal 4/27/01
- -------------------------- Financial and Accounting Officer)
Richard L. Gibbs
Signature of Trustee Date Signature of Trustee Date
- -------------------- ---- -------------------- ----
/s/ DAVID ALEXANDER 4/27/01
- -------------------------- --------------------------
David Alexander Rochelle B. Lazarus
/s/ MARCUS ALEXIS 4/27/01 /s/ ROBERT M. O'NEIL 4/27/01
- -------------------------- -------------------------
Marcus Alexis Robert M. O'Neil
/s/ WILLARD T. CARLETON 4/27/01 /s/ LEONARD S. SIMON 4/27/01
- -------------------------- -------------------------
Willard T. Carleton Leonard S. Simon
/s/ ROBERT C. CLARK 4/27/01
- --------------------------
Robert C. Clark Ronald L. Thompson
/s/ ESTELLE A. FISHBEIN 4/27/01 /s/ PAUL R. TREGURTHA 4/27/01
- -------------------------- -------------------------
Estelle A. Fishbein Paul R. Tregurtha
/s/ FREDERICK R. FORD 4/27/01 /s/ WILLIAM H. WALTRIP 4/27/01
- -------------------------- -------------------------
Fredeerick R. Ford William H. Waltrip
/s/ RUTH SIMMS HAMILTON 4/27/01 /s/ ROSALIE J. WOLF 4/27/01
- -------------------------- -------------------------
Ruth Simms Hamilton Rosalie J. Wolf
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 consolidated financial statements of the TIAA Real Estate
Account ("Account") of Teachers Insurance and Annuity Association of America
("TIAA") as of December 31, 2000 and 1999, and for each of the three years in
the period ended December 31, 2000, and have issued our report thereon dated
February 5, 2001 included elsewhere in this Registration Statement. Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of TIAA's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, 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 5, 2001
S-1
TIAA REAL ESTATE ACCOUNT
Schedule III Real Estate Owned
December 31, 2000
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) 2000 Completed Acquired
- ------------------------------ ------- ------------- ---------------- -------------- ------------- ----------
River Road Distribution Center $ -0- $4,174,182 $125,818 $ 4,300,000 1995 11/22/95
Industrial Building
Fridley, Minnesota
The Greens At Metrowest -0- 12,522,047 1,577,953 14,100,000 1990 12/15/95
Apartments
Orlando, Florida
Butterfield Industrial Park -0- 4,450,535 506,665 4,957,200 1981 12/22/95
Industrial Building
El Paso, Texas (1)
Plantation Grove Shopping Center -0- 7,350,129 99,871 7,450,000 1995 12/28/95
Shopping Center
Ocoee, Florida
Southbank Business Park -0- 10,069,898 3,130,102 13,200,000 1995 02/27/96
Office Building
Phoenix, Arizona
Millbrook Collection -0- 6,774,711 225,289 7,000,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
Lynnwood Collection -0- 6,708,120 1,191,880 7,900,000 1988 03/29/96
Shopping Center
Raleigh, North Carolina
S-2
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) 2000 Completed Acquired
- ------------------------------ ------- ------------- ---------------- -------------- ------------- ----------
Monte Vista Apartments $-0- $17,663,849 $3,336,151 $21,000,000 1995 06/21/96
Apartments
Littleton, Colorado
River Oaks Shopping Center -0- 13,037,488 (1,937,488) 11,100,000 1995 07/12/96
Shopping Center
Woodbridge, Virginia
Arapahoe Park East -0- 9,924,089 2,553,914 12,478,003 1982 10/31/96
Industrial Building
Boulder, Colorado
Royal St. George Apartments -0- 16,072,612 577,388 16,650,000 1995 12/20/96
Apartments
West Palm Beach, Florida
Interstate Crossing -0- 6,454,888 (304,888) 6,150,000 1995 12/31/96
Industrial Building
Eagan, Minnesota
West Creek Apartments -0- 13,488,279 3,711,721 17,200,000 1988 01/02/97
Apartments
Westlake Village, California
Interstate Acres -0- 13,610,294 (410,294) 13,200,000 1988 01/24/97
Industrial Building
Urbandale, Iowa
Westinghouse Facility -0- 6,089,473 110,527 6,200,000 1997 02/05/97
Industrial Building
Coral Springs, Florida
S-3
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) 2000 Completed Acquired
- ------------------------------ ------- ------------- ---------------- -------------- ------------- ----------
Rolling Meadows $-0- $12,930,463 ($943,963) $11,986,500 1957 05/28/97
Shopping Center
Rolling Meadows, Illinois
Saks Distribution Center -0- 26,908,401 4,041,599 30,950,000 1997 05/15/97
Aberdeen, Maryland
Eastgate Distribution Center -0- 11,941,992 1,758,008 13,700,000 1996 05/29/97
San Diego, California
Five Centerpointe -0- 15,656,341 2,675,570 18,331,911 1988 04/21/97
Office Building
Lake Oswego, Oregon
Longview Executive Park -0- 23,628,567 4,392,293 28,020,860 1988 04/21/97
Office Building
Longview, Maryland
Northmark Business Center III -0- 8,812,644 4,287,356 13,100,000 1985 04/21/97
Office Building
Blue Ash, Ohio
USF&G Building -0- 6,399,677 2,277,356 8,677,033 1988 04/21/97
Office Building
Salt Lake City, Utah
Fairgate at Ballston -0- 26,977,436 3,822,564 30,800,000 1988 04/21/97
Office Building
Arlington, Virginia
S-4
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) 2000 Completed Acquired
- ------------------------------------ ------- ------------ ---------------- ----------- ------------ --------
Parkview Plaza $-0- $49,412,494 $ 3,087,506 $52,500,000 1990 04/29/97
Office Building
Oakbrook Terrace, Illinois
Lincoln Woods Apartments -0- 21,464,483 2,043,315 23,507,798 1991 10/20/97
Apartments
Lafayette Hill, Pennsylvania
371 Hoes Lane -0- 15,499,306 1,178,021 16,677,327 1986 12/15/97
Office Building
Piscataway, New Jersey
Columbia Centre III -0- 38,580,069 3,919,931 42,500,000 1989 12/23/97
Office Building
Rosemont, Illinois
The Lodge at Willow Creek -0- 27,562,882 3,237,118 30,800,000 1997 12/24/97
Apartments
Douglas County, Colorado
The Legends at Chase Oaks -0- 29,701,668 (3,412,404) 26,289,264 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 (222,421) 7,000,000 1995 6/30/98
Industrial Building
Boilingbrook, Illinois
S-5
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) 2000 Completed Acquired
- ------------------------------------ ------- ------------ ---------------- ----------- ------------ --------
Rock Run Business Park $ -0- $19,472,571 $ 24,579 $19,497,150 1998 06/30/98
Industrial Building
Joliet, Illinois
Golfview Apartments -0- 28,066,591 (666,591) 27,400,000 1998 07/31/98
Apartments
Lake Mary, Florida
Indian Creek Apartments -0- 17,002,932 247,068 17,250,000 1988 10/08/98
Apartments
Farmington Hills, Michigan
Bent Tree Apartments -0- 14,420,590 279,410 14,700,000 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
Ontario Industrial Properties -0- 105,382,403 2,305,766 107,688,169 1997 12/17/98
Industrial Building
Ontario, California
IDI Kentucky Portfolio -0- 53,083,000 848,996 53,931,996 1998 12/17/98
Industrial Building
Hebron, Kentucky
Fedex Distribution Center -0- 7,828,025 (228,025) 7,600,000 1998 12/18/98
Industrial Building
Crofton, Maryland
S-6
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) 2000 Completed Acquired
- ------------------------------------ ------- ------------ ---------------- ----------- ------------ --------
The Bay Court at Harbor Pointe $ -0- $35,164,371 ($ 164,371) $35,000,000 1991 12/18/98
Apartments
Mukilteo, Washington
Biltmore Commerce Center -0- 37,323,058 1,280,579 38,603,637 1985 02/23/99
Office Building
Phoenix, Arizona
The Colorado -0- 52,687,840 7,712,160 60,400,000 1987 04/14/99
Apartments
New York, New York
Sawgrass Portfolio -0- 52,963,168 1,336,832 54,300,000 1998 05/11/99
Office Building
Sunrise, Florida
780 Third Avenue -0- 161,511,019 12,088,981 173,600,000 1984 07/08/99
Office Building
New York, New York
Monument Place -0- 34,597,698 1,902,302 36,500,000 1990 07/15/99
Office Building
Fairfax, Virginia
88 Kearney Street -0- 65,995,171 18,177,070 84,172,241 1986 07/22/99
Office Building
San Francisco, California
10 Waterview Boulevard -0- 31,063,636 336,364 31,400,000 1984 07/27/99
Office Building
Parsippany, New Jersey
S-7
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) 2000 Completed Acquired
- ------------------------------------ ------- ------------ ---------------- ----------- ------------ --------
Larkspur Courts $ -0- $53,038,988 $ 5,561,012 $58,600,000 1991 08/17/99
Apartments
Larkspur, California
Columbus Portfolio -0- 33,701,672 498,328 34,200,000 1997 11/30/99
Office Building
Columbus , Ohio
Konica Photo Imaging Headquarters -0- 17,049,875 250,125 17,300,000 1999 12/21/99
Industrial Building
Mahwah, New Jersey
Atlanta Industrial Portfolio -0- 39,852,562 168,800 40,021,362 1999 04/04/00
Industrial Building
Atlanta , Georgia
1801 K Street -0- 140,719,040 270,760 140,989,800 1971 05/15/00
Office Building
Washington, DC
Northpoint Commerce Center -0- 38,818,013 (18,013) 38,800,000 1994 06/15/00
Industrial Building
Fullerton, California
Morris Corporate Center III -0- 103,119,739 680,261 103,800,000 1990 07/12/00
Office Building
Parsippany, New Jersey
Ashford Meadows Apartments -0- 64,174,878 -0- 64,174,878 1998 09/28/00
Apartments
Herndon, Virginia
S-8
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) 2000 Completed Acquired
- ------------------------------------ ------- ------------ ---------------- ----------- ------------ --------
Landmark at Salt Lake City $ -0- $14,434,653 $0 $14,434,653 2000 11/03/00
Industrial Building
Salt Lake City, Utah
ABS & CDC Building -0- 15,243,900 0 15,243,900 2000 11/17/00
Industrial Building
Rancho Cucamonga, California
Maitland Promenade One -0- 36,520,162 0 36,520,162 1999 12/14/00
Office Building
Maitland, Florida
Park West Center I and II -0- 28,300,500 0 28,300,500 1997 12/19/00
Industrial Building ----- -------------- ------------ --------------
Coppell, Texas
$ -0- $1,798,894,394 $100,359,950 $1,899,254,344
===== ============== ============ ==============
(1) Leasehold interest only
Reconciliation of investment property owned:
Balance at beginning of period $ 1,312,503,554
Acquisitions 586,113,228
Dispositions
(Initial cost 25,560,558, costs capitalized 4,439,442) (30,000,000)
Capital improvements and carrying costs
(including unrealized gains and losses) 30,637,562
---------------
Balance at end of period $ 1,899,254,344
===============
S-9
EXHIBIT INDEX
(1) Amendment to Distribution and Administrative Services
Agreement by and between TIAA and TIAA-CREF Individual &
Institutional Services, Inc.
(3) (A) Charter of TIAA (as amended)
(5) Opinion and Consent of Charles H. Stamm, Esquire
(23) (B) Consent of Sutherland Asbill & Brennan LLP
(C) Consent of Ernst & Young LLP
(D) Consent of Friedman, Alpren & Green LLP