TEACHERS INSURANCE AND ANNUITY ASSOCIATION ABBY L. INGBER
COLLEGE RETIREMENT EQUITIES FUND SENIOR COUNSEL
(212) 916-5992
730 Third Avenue/New York, NY 10017-3206 (212) 916-5760 (fax)
212 490-9000 aingber@tiaa-cref.org
March 7, 2002
VIA EDGAR TRANSMISSION
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Form S-1 Registration Statement for Interests
in the TIAA REAL ESTATE ACCOUNT
----------------------------------------
Commissioners:
On behalf of Teachers Insurance and Annuity Association of America
("TIAA"), we are attaching for filing under the Securities Act of 1933, as
amended, a Form S-1 registration statement covering the offer and sale of
interests in the TIAA Real Estate Account (the "Account"), a variable option
offered through certain TIAA Annuity contracts. The purpose of this registration
statement is to register additional interests in the Account and, pursuant to
Rule 429 under the Securities Act, to carry forward the remaining dollar amount
of securities registered but unsold under the Account's registration statement
Nos. 33-92990, 333-13477, 333-22809, and 333-59778 for these same contracts. We
are also updating certain information in the registration statement on Form S-1
(File No. 333-59778) previously filed with the Securities and Exchange
Commission ("SEC") on April 27, 2001 and declared effective on May 1, 2001 (the
"2001 Registration Statement").
In connection with this filing, the Account has wired the amount of
$184,000 to the SEC's account, in payment of the filing fee required to be paid
pursuant to Section 6(b) of the Securities Act.
Please note that this registration statement, for the most part,
contains substantially the same disclosure as that contained in the 2001
Registration Statement. However, the filing has been updated to include, among
other things, (i) disclosure regarding the Account's new borrowing policy and
the risks associated with that policy, (ii) disclosure regarding insurance
coverage for terrorist acts, (iii) a small change in the Account's investment
management fee estimate, (iv) updated property charts and descriptions, (v) an
updated discussion of the Account's financial condition, and (vi) updated
financial information.
We intend for this registration statement to become effective on May 1,
2002. After the Staff has completed its initial review, we will file a
post-effective amendment containing pro
March 7, 2002
Page 2
forma financial statements for the Account, financial statements for the
insurance company, other financial and descriptive information about certain
acquired properties, and exhibits. We will also submit requests for acceleration
by TIAA and the Account's principal underwriter at that time.
If you have any questions or comments regarding the enclosed, please do
not hesitate to call the undersigned at (212) 916-5992.
Very truly yours,
/s/ Abby L. Ingber
Abby L. Ingber
cc: Steven B. Boehm, Esq.
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON MARCH 7, 2002
Registration No. 333-
=======================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TIAA REAL ESTATE ACCOUNT
------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK
------------------------
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(NOT APPLICABLE)
------------------------
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(NOT APPLICABLE)
------------------------
(I.R.S. EMPLOYER IDENTIFICATION NO.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
------------------------
(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Lisa Snow, Esquire
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
------------------------
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
Steven B. Boehm, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the registration statement.
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, 333-22809 AND 333-59778.
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------
Title of each class of Amount to be Proposed Proposed maximum Amount of
securities to be registered maximum aggregate offering registration
registered offering price fee
price
per unit
- ------------------------------------------------------------------------------------------
Accumulation units * * $2,000,000,000** $184,000**
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, $5,000,000,000, and
$500,000,000 of securities registered on Securities Act registration statements
Nos. 33-92990, 333-13477, 333-22809, and 333-59778 (for which registration fees
of $103,448.28, $303,031.31, $1,515,151.52, and $125,000 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, 2002
TIAA REAL ESTATE ACCOUNT
PROSPECTUS
A TAX-DEFERRED VARIABLE ANNUITY OPTION OFFERED BY
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
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__.
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 0.630%.
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) and institutionally-owned GSRAs
o Keoghs
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.
1
TABLE OF CONTENTS
The Account's Investment Objective
and Strategy
About the Account's
Investments--In General
General Investment and Operating
Policies
Risks
Establishing and Managing the
Account--the Role of TIAA
Description of Properties
Selected Financial Data
Management's Discussion and
Analysis of Account's Financial
Condition and Operating Results
Valuing the Account's Assets
Expense Deductions
The Contracts
How to Transfer and Withdraw Your
Money
Receiving Annuity Income
Death Benefits
Taxes
General Matters
Distributor
State Regulation
Legal Matters
Experts
Additional Information
Financial Statements
Index to Financial Statements
Appendix A--Management of TIAA
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, 2001, 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 12,000 institutions. As of December 31, 2001, TIAA's
assets were approximately $127 billion; the combined assets for TIAA and CREF
totalled approximately $266.7 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
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, 2001, the Account had
approximately 83 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.
3
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
4
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.
INVESTMENT VEHICLES INVOLVED IN REAL ESTATE ACTIVITIES: The Account can
hold interests in limited partnerships, funds, and other commingled investment
vehicles involved in owning, financing, managing or developing real estate.
NON-REAL ESTATE-RELATED INVESTMENTS
The Account can also invest in:
o U.S. government or government agency securities
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 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 Common or preferred stock, or other ownership interests, of U.S.
or foreign companies that aren't involved in real estate, to a
limited extent
5
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).
6
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: The Account may borrow money and assume or obtain a
mortgage on a property -- i.e., make leveraged real estate investments -- under
the following limited circumstances:
o The Account may borrow money when purchasing a property already
subject to existing mortgage loans
o The Account may take out a mortgage on a property with a joint
venture partner
o The Account may take out a construction loan on a property with a
joint venture partner, provided that the lender's recourse if
there is a default is limited to the assets of that joint venture
o 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
The Account's total borrowings may not exceed 20% of the Account's
total net asset value. (When determining the 20% limitation, we will include
only the Account's actual percentage interest in any borrowings and not that of
any joint venture partner.) The Account may only borrow up to 70% of the then
current value of a property, although construction loans may be for 100% of
costs incurred in developing the property. With the exception of construction
loans, any mortgage loans on a property will be non-recourse, meaning that if
the Account defaults on its loan, the lender will have recourse only to the
property encumbered, and not to any other assets of the Account. When possible,
the Account will seek to have loans mature at different times to limit the risks
of borrowing.
The Account will not obtain mortgage financing from TIAA or any of its
affiliates. However, on a limited basis, the Account may place a mortgage on an
Account property held by a subsidiary for tax planning or other purposes. This
type of mortgage will not be subject to the general limitations on borrowing
described above.
When the Account assumes or obtains a mortgage on a property, it will
bear the expense of mortgage payments. It will also be exposed to certain
additional risks, which are described under "Risks of Borrowing" on page __.
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.
7
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. The Account's insurance currently includes some
coverage for terrorist acts, but we can't assure you that it will be adequate to
cover all losses. We also can't assure you that we will be able to obtain
coverage for terrorist acts at an acceptable cost, if at all, when the current
policy expires this year.
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.
8
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.
RISKS OF BORROWING: Among the risks of borrowing money and investing in
a property subject to a mortgage are:
o The Account may not be able to make its loan payments and default
on its loan, and the lender then could foreclose on the
underlying property. The Account would lose the value of its
investment in the foreclosed property
o If the Account obtains a mortgage loan that involves a balloon
payment, there is a risk that the Account may not be able to make
the lump sum principal payment due under the loan at the end of
the loan term, or otherwise obtain adequate refinancing. The
Account then may be forced to sell the property or other
properties under unfavorable market conditions or default on its
mortgage
9
o If the Account takes out variable-rate loans, the Account's
returns may be volatile when interest rates are volatile
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.
UNINSURABLE LOSSES: Certain catastrophic losses (e.g., from
earthquakes, wars, terrorist acts, 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.
10
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.
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.
11
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
12
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 __.
13
You don't have the right to vote for TIAA Trustees directly. See
"Voting Rights" page __. For information about the Trustees and principal
executive officers of TIAA, see Appendix A on page __ of this prospectus.
TIAA'S ERISA FIDUCIARY STATUS. To the extent that assets of a plan
subject to ERISA are allocated to the Account, TIAA will be acting as an
"investment manager" and a fiduciary under ERISA with respect to those assets.
LIQUIDITY GUARANTEE
TIAA provides the Account with a liquidity guarantee -- TIAA ensures
that the Account has funds available to meet participant transfer or cash
withdrawal requests. If the Account can't fund participant requests from the
Account, TIAA's general account will fund them by purchasing Account
accumulation units (liquidity units). TIAA guarantees that you can redeem your
accumulation units at their then current daily net asset value. Of course, you
can make a cash withdrawal only if allowed by the terms of your plan. The
Account pays TIAA for the liquidity guarantee through a daily deduction from net
assets. See "Expense Deductions," page __.
An independent fiduciary (described below) monitors the Account to
ensure that TIAA does not own too much of the Account and may require TIAA to
redeem some of its liquidity units, particularly when the Account has uninvested
cash or liquid investments available. The independent fiduciary may also propose
properties for the Account to sell so that TIAA can redeem liquidity units. TIAA
does not currently own liquidity units.
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.
14
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, serves as the Account's
independent fiduciary. The independent fiduciary's responsibilities include:
o reviewing and approving the Account's investment guidelines and
monitoring whether the Account's investments comply with those
guidelines
o reviewing and approving valuation procedures
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
15
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 and will not be reappointed unless more than
60 percent of the subcommittee members approve. It can resign after at least 180
days' written notice.
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.
16
DESCRIPTION OF PROPERTIES
THE PROPERTIES--IN GENERAL
As of December 31, 2001, the Account had 65 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 35.6% 6.3% 3.8% 7.1% 52.8%
INDUSTRIAL 4.7% 2.3% 6.3% 9.6% 22.9%
RESIDENTIAL 6.4% 1.3% 8.9% 6.3% 22.9%
RETAIL 0.6% 0.5% 0.3% 0 1.4%
TOTAL 47.3% 10.4% 19.3% 23.0% 100.0%
In the table below you will find general information about each of the
Account's portfolio properties as of December 31, 2001.
ANNUAL AVG.
RENTABLE BASE RENT
YEAR YEAR AREA PERCENT PER LEASED MARKET
PROPERTY LOCATION BUILT PURCHASED (SQ. FT.) LEASED SQ. FT.(1) VALUE(2)
--------
- ----------------------------------------------------------------------------------------------------------------------------------
OFFICE PROPERTIES
780 Third Avenue New York, NY 1984 1999 487,501 98% $46.18 $177,500,000
1801 K Street Washington, DC 1971(3) 2000 564,359 99% $32.31 $150,339,845
Ten & Twenty Westport Rd Wilton, CT 2001 2001 538,840 100% $25.34 $140,105,661
Morris Corporate Center III Parsippany, NJ 1990 2000 525,154 92% $22.21 $106,214,595
88 Kearney Street San Francisco, CA 1986 1999 228,470 89% $36.80 $82,116,702
Sawgrass Portfolio Sunrise, FL 1997- 1997, 344,009 100% $15.12 $50,800,000
2000 1999-2000
Parkview Plaza(4) Oakbrook, IL 1990 1997 266,020 100% $19.11 $50,500,000
1015 15th Street Washington, DC 1978(3) 2001 189,681 100% $30.91 $48,736,575
Maitland Promenade One Maitland, FL 1999 2000 227,814 95% $21.18 $39,000,000
Columbia Centre III Rosemont, IL 1989 1997 238,696 89% $20.29 $37,500,000
One Monument Place Fairfax, VA 1990 1999 219,837 100% $22.26 $35,400,000
Biltmore Commerce Center Phoenix, AZ 1985 1999 262,875 38% $9.30 $32,295,058
10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 98% $22.70 $30,400,000
Fairgate at Ballston(4) Arlington, VA 1988 1997 143,457 99% $26.63 $30,300,000
Tysons Executive Plaza II(5) McLean, VA 1988 2000 252,552 100% $24.25 $28,538,029(5)
(held in joint venture)
Columbus Office Portfolio - - 259,626 100% $12.76 $28,400,000
Metro South Building Dublin, OH 1997 1999 90,726 - $11.64 -
Vision Service Plan Building Eaton, OH 1997 1999 50,000 - $11.88 -
One Metro Place Dublin, OH 1998 2001 118,900 - $13.99 -
Needham Corporate Center Needham, MA 1987 2001 138,684 98% $27.68 $28,294,526
Longview Executive Park(4) Hunt Valley, MD 1988 1997 258,999 100% $11.84 $28,200,800
9 Hutton Centre Santa Ana, CA 1990 2001 148,265 91% $19.68 $20,448,764
BISYS Fund Services Building Eaton, OH 1995 1999 155,964 100% $12.32 $20,400,000
Five Centerpointe(4) Lake Oswego, OR 1988 1997 113,971 98% $22.65 $18,001,499
17
Batterymarch Park II Quincy, MA 1986 2001 104,718 96% $25.51 $17,990,854
371 Hoes Lane Piscataway, NJ 1986 1997 139,670 83% $12.35 $14,700,000
Southbank Building Phoenix, AZ 1995 1996 122,535 75% $8.75 $13,565,218
Northmark Business Center(4) Blue Ash, OH 1985 1997 108,561 95% $12.53 $12,200,000
------- -----------
SUBTOTAL--OFFICE PROPERTIES 6,249,711 $1,241,948,126
- ----------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL PROPERTIES
Ontario Portfolio 2,698,717 100% $3.40 $108,000,000
Timberland Building Ontario, CA 1998 1998 414,435 -
5200 Airport Drive Ontario, CA 1997 1998 404,500 -
1200 S. Etiwanda Ave. Ontario, CA 1998 1998 223,170 -
Park Mira Loma West Mira Loma, CA 1998 1998 557,500 -
Wineville Center Buildings Mira Loma, CA 1999 2000 1,099,112
Dallas Industrial Portfolio Dallas and Coppell, TX 1997- 2000; 2,609,031 94% $2.72 $97,245,850
(formerly Parkwest Center) 2000 2001
IDI Kentucky Portfolio 1,437,022 100% $2.80 $53,600,000
(formerly, Parkwest Int'l)
Building C Hebron, KY 1998 1998 520,000 -
Building D Hebron, KY 1998 1998 184,800 -
Building E Hebron, KY 2000 2000 207,222 -
Building J Hebron, KY 2000 2000 525,000 -
Chicago Industrial Portfolio Chicago and Joliet, IL 1997- 1998; 866,064 100% $4.18 $42,591,186
(consolidation of Rockrun, 2000 2000
Glen Pointe and Woodcreek
Business Parks)
Atlanta Industrial Portfolio Lawrenceville, GA 1996-99 2000 1,145,693 84% $2.79 $40,459,044
Northpointe Commerce Center Fullerton, CA 1990-94 2000 612,023 100% $5.90 $37,456,149
Cabot Industrial Portfolio Rancho Cucamonga, CA 2001(6) 2000; 2001 641,475 100% $2.42 $34,363,752(6)
(under development and held in
joint venture)
South River Road Industrial Cranbury, NJ 1999 2001 626,071 100%(7) $2.30 $32,688,565
Konica Photo Imaging Mahwah, NJ 1999 1999 168,000 100% $9.43 $17,700,000
Headquarters
Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $5.21 $14,500,000
Landmark at Salt Lake City Salt Lake City, UT 2000 2000 328,508 100% $3.98 $13,600,000
Building #4
Arapahoe Park East Boulder, CO 1979-82 1996 129,425 100% $10.18 $13,100,000
UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $3.54 $11,100,000
FedEx Distribution Facility Crofton, MD 1998 1998 111,191 100% $6.39 $7,600,000
Westinghouse Facility Coral Springs, FL 1997 1997 75,630 100% $7.29 $5,300,000
Interstate Crossing Eagan, MN 1995 1996 131,380 100% $4.01 $6,504,740
Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $2.96 $4,700,000
River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $3.49 $4,131,571
------- ----------
SUBTOTAL--INDUSTRIAL 12,320,196 $544,640,857
PROPERTIES
- ---------------------------------------------------------------------------------------------------------------------------------
RETAIL PROPERTIES
Rolling Meadows Rolling Meadows, IL 1957(3) 1997 130,909 99% $9.07 $12,390,000
Lynnwood Collection Raleigh, NC 1988 1996 86,362 96% $7.53 $7,900,000
Millbrook Collection Raleigh, NC 1988 1996 102,221 84% $6.04 $7,200,000
Plantation Grove Ocoee, FL 1995 1995 73,655 100% $10.01 $7,700,000
------ ----------
SUBTOTAL--RETAIL PROPERTIES 393,147 $35,190,000
-----------
SUBTOTAL--COMMERCIAL 18,968,054 $1,821,778,983
PROPERTIES
- ---------------------------------------------------------------------------------------------------------------------------------
RESIDENTIAL
PROPERTIES(8)
Ashford Meadows Apartments Herndon, VA 1998 2000 NA 91% NA $64,195,500
The Colorado New York, NY 1987 1999 NA 93% NA $60,500,000
Larkspur Courts Apartments Larkspur, CA 1991 1999 NA 96% NA $53,200,000
18
South Florida Apartment Boca Raton and 1986 2001 NA 97% NA $46,700,000
Portfolio Plantation, FL
Doral Pointe Apartments Miami, FL 1990 2001 NA 96% NA $45,341,796
Lodge at Willow Creek Douglas County, CO 1997 1997 NA 88% NA $32,000,000
Golfview Apartments Lake Mary, FL 1998 1998 NA 87% NA $27,050,000
The Legends at Chase Oaks Plano, TX 1997 1998 NA 96% NA $26,000,000
Lincoln Woods Lafayette Hill, PA 1991 1997 NA 92% NA $24,800,000
Kenwood Mews Apartments Burbank, CA 1991 2001 NA 97% NA $22,686,216
Monte Vista Littleton, CO 1995 1996 NA 98% NA $21,800,000
Westcreek Apartments Westlake Village, CA 1988 1997 NA 97% NA $17,900,000
Carolina Apartments Margate, FL 1993 2001 NA 94% NA $17,600,000
Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 96% NA $16,800,000
Royal St. George W. Palm Beach, FL 1995 1996 NA 98% NA $16,400,000
Quiet Waters Apartments Deerfield Beach, FL 1995 2001 NA 95% NA $16,100,000
Bent Tree Apartments Columbus, OH 1987 1998 NA 85% NA $14,500,000
The Greens at Metrowest Orlando, FL 1990 1995 NA 91% NA $14,100,000
-----------
SUBTOTAL--RESIDENTIAL
PROPERTIES NA $537,673,512
---------- ------------
TOTAL--ALL PROPERTIES 18,968,055 $2,359,452,495
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Based on total contractual rent on leases existing at December 31, 2001. For
those properties purchased in 2001, 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).
(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 consists of one completed building and one under development. The existing
building is at market value and the property under development is currently
valued at cost. It is anticipated that the building under development will be
ready for occupancy in 2002.
(7) One tenant representing 17% of the space filed for bankruptcy protection and
has vacated its space.
(8) For the average unit size and annual average rent per unit for each
residential property, see "Residential Properties" below.
COMMERCIAL (NON-RESIDENTIAL) PROPERTIES
IN GENERAL. At December 31, 2001, 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, 2001, the Account's office property portfolio consisted
of 25 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 92 percent leased with 549 leases.
At December 31, 2001, the Account's industrial property portfolio
consisted of 18 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 99 percent leased with 107 leases.
19
At December 31, 2001, the Account's retail property portfolio consisted
of four neighborhood shopping centers, each of which is anchored by a
supermarket tenant. These retail properties together are approximately 95
percent leased with 57 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
OCCUPIED AREA OF ACCOUNT'S
MAJOR TENANT SQUARE FEET NON-RESIDENTIAL PROPERTIES PROPERTY TYPE
- ---------------------------------------------------------------------------------------------------------------------
WalMart 1,099,112 5.8% Industrial
The GAP 1,045,000 5.5% Industrial
Standard Motor Products 671,172 3.5% Industrial
Meiko-America 557,500 2.9% Industrial
UPS 422,400 2.2% Industrial
Timberland 414,435 2.2% Industrial
New Breed Transfer Company 404,500 2.1% Industrial
Cooper Tire 401,226 2.1% Industrial
Petco 258,000 1.4% Industrial
Mack Truck 248,014 1.3% Industrial
American Building Supply 240,249 1.3% Industrial
Van Kampen 223,170 1.2% Office
PHH 199,563 0.9% Office
Northern Telecom 149,426 0.8% 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 AREA PERCENT OF TOTAL RENTABLE AREA
NUMBER OF SUBJECT TO OF ACCOUNT'S NON-RESIDENTIAL
LEASES EXPIRING LEASES PROPERTIES REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING (SQ. FT.) EXPIRING LEASES
- ---------------------------------------------------------------------------------------------------------------------
OFFICE PROPERTIES
2002 80 666,061 3.5%
2003 83 735,077 3.9%
2004 83 678,352 3.6%
2005 68 665,077 3.5%
2006 78 1,061,375 5.6%
2007 and thereafter 157 2,041,275 10.6%
- ---------------------------------------------------------------------------------------------------------------------
TOTAL 549 5,815,522 30.7%
- ---------------------------------------------------------------------------------------------------------------------
20
PERCENT OF TOTAL RENTABLE AREA
RENTABLE AREA OF ACCOUNT'S
NUMBER OF SUBJECT TO NON-RESIDENTIAL PROPERTIES
LEASES EXPIRING LEASES REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING (SQ. FT.) EXPIRING LEASES
- ---------------------------------------------------------------------------------------------------------------------
INDUSTRIAL PROPERTIES
2002 5 170,958 .9%
2003 12 1,315,518 6.9%
2004 17 1,420,276 7.5%
2005 27 2,723,866 14.4%
2006 15 668,629 3.5%
2007 and thereafter 31 5,570,698 29.4%
- ---------------------------------------------------------------------------------------------------------------------
TOTAL 107 11,869,945 62.6%
- ---------------------------------------------------------------------------------------------------------------------
RENTABLE AREA PERCENT OF TOTAL RENTABLE AREA
NUMBER OF SUBJECT TO OF ACCOUNT'S NON-RESIDENTIAL
LEASES EXPIRING LEASES PROPERTIES REPRESENTED BY
YEAR OF LEASE EXPIRATION EXPIRING (SQ. FT.) EXPIRING LEASES
- ---------------------------------------------------------------------------------------------------------------------
RETAIL PROPERTIES
2002 7 12,621 0.1%
2003 10 18,425 0.1%
2004 9 14,848 0.1%
2005 14 43,332 0.2%
2006 9 28,637 0.2%
2007 and thereafter 8 228,344 1.2%
- ---------------------------------------------------------------------------------------------------------------------
TOTAL 57 346,207 1.8%
- ---------------------------------------------------------------------------------------------------------------------
RESIDENTIAL PROPERTIES
The Account's residential property portfolio currently consists of 18
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, 2001.
21
AVERAGE AVG. RENT
NUMBER UNIT SIZE PER UNIT/ PERCENT
PROPERTY LOCATION OF UNITS (SQUARE FEET) PER MONTH LEASED
- -------------------------------------------------------------------------------------------------------------------------------
Ashford Meadows Apartments Herndon, VA 440 1,050 $1,315 91%
The Colorado New York, NY 256 632 $2,434 93%
Larkspur Courts Apartments Larkspur, CA 248 1,001 $2,247 96%
South Florida Apartment Boca Raton and 500 888 $980 97%
Portfolio Plantation, FL
Lodge at Willow Creek Douglas County, CO 316 1,001 $1,055 88%
Golfview Apartments Lake Mary, FLA 276 1,139 $1,116 87%
The Legends at Chase Oaks Plano, TX 346 972 $1,037 96%
Lincoln Woods Lafayette Hill, PA 216 773 $1,206 92%
Monte Vista Littleton, CO 219 888 $1,049 98%
Indian Creek Apartments Farmington Hills, MI 196 1,139 $999 96%
Westcreek Apartments Westlake Village, CA 126 948 $1,490 97%
Royal St. George West Palm Beach, FL 224 870 $884 98%
Bent Tree Apartments Columbus, OH 256 928 $745 85%
The Greens at Metrowest Orlando, FL 200 920 $857 91%
Carolina Apartments Margate, FL 208 1,026 $961 94%
Quiet Waters Apartments Deerfield Beach, FL 200 1,048 $1,019 96%
Doral Pointe Miami, FL 440 1,130 $1,101 97%
Kenwood Mews Burbank, CA 141 942 $1,283 97%
RECENT PROPERTY PURCHASES AND SALES
On January 31, 2002, the Account sold one office building the Southbank
Building located in Phoenix, Arizona for approximately $13 million. The Account
had purchased the building in February, 1996 at a cost of approximately $10.1
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
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" BELOW. REAL ESTATE INVESTMENTS MADE BY THE ACCOUNT AFTER THE DATE OF
THIS PROSPECTUS WILL BE DESCRIBED IN SUPPLEMENTS TO THE PROSPECTUS, AS
APPROPRIATE.
22
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
(COMMENCE-
MENT OF
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2000 1999 1998 1997 1996 1995
---- ---- ---- ---- ---- ---- ----
Investment income:
Real estate income, net:
Rental income ............... $256,755,315 $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 ........ 52,456,479 40,056,716 27,334,060 17,339,706 9,024,240 2,116,334 29,173
Real estate taxes ......... 29,670,456 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 ..... 82,126,935 62,908,606 43,226,796 26,443,343 13,496,551 3,370,497 43,832
------------ ------------ ------------ ----------- ------------ ------------ ------------
Real estate income, net 174,628,380 132,629,387 89,090,082 54,565,860 30,845,791 7,580,686 121,930
Income from real estate
joint venture .................. 2,251,593 756,133 -- -- -- -- --
Dividends and interest .......... 33,687,343 31,334,291 24,932,733 23,943,728 16,486,279 6,027,486 2,828,900
------------ ------------ ------------ ----------- ------------ ------------ ------------
Total investment income .. 210,567,316 164,719,811 114,022,815 78,509,588 47,332,070 13,608,172 2,950,830
Expenses ........................ 17,191,929 13,424,566 9,278,410 6,274,594 3,526,545 1,155,796 310,433
------------ ------------ ------------ ----------- ------------ ------------ ------------
Investment income, net ... 193,375,387 151,295,245 104,744,405 72,234,994 43,805,525 12,452,376 2,640,397
Net realized and unrealized
gain on investments ............ (23,344,613) 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
before minority interest ....... 170,030,774 205,442,694 114,579,148 80,099,653 61,952,578 15,782,915 2,676,000
Minority interest in net
increase in net assets resulting
from operations ................. (811,789) -- 1,364,619 (3,487,991 (1,881,178) -- --
Net increase in net assets
resulting from participant
transactions ................... 657,326,121 486,196,949 383,171,774 333,936,510 356,052,262 233,653,793 117,582,345
------------ ------------ ------------ ----------- ------------ ------------ ------------
Net increase in net assets ...... $826,545,106 $691,639,643 $499,115,541 $410,548,172 $416,123,662 $249,436,708 $120,258,345
============ ============ ============ ============ ============ ============ ============
23
DECEMBER 31,
2001 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ----
Total assets........ $3,270,384,450 $2,423,100,402 $1,719,457,715 $1,229,603,431 $815,760,825 $426,372,007
Total liabilities
and minority
interest............ 56,717,273 35,978,331 23,975,287 33,236,544 29,942,110 56,676,954
---------- ---------- ---------- ---------- ---------- ----------
Total net assets.... $3,213,667,177 $2,387,122,071 $1,695,482,428 $1,196,366,887 $785,818,715 $369,695,053
============== ============== ============== ============== ============ ============
Accumulation units
outstanding......... 18,456,445 14,604,673 11,487,360 8,833,911 6,313,015 3,295,786
========== ========== ========== ========= ========= =========
Accumulation unit
value............... $168.16 $158.21 $142.97 $132.17 $122.30 $111.11
======= ======= ======= ======= ======= =======
QUARTERLY SELECTED FINANCIAL INFORMATION
The following is selected financial information for the Account for each full
quarter within the past two calendar years:
2001 2000
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 $45,264,635 $47,931,306 $50,435,135 $49,744,311 $31,774,860 $36,145,064 $40,552,504 $42,822,817
Net realized
gain (loss)
on
investments 978,396 514,453 759,534 (3,522,087) (147,448) 58,263 (241,717) 8,606,836
Net
unrealized
gain
on
investments (4,436,522) 11,550,552 (8,059,992) (21,128,947) 5,603,540 14,044,336 15,013,318 11,210,321
----------- ---------- ----------- ----------- --------- ---------- ---------- ----------
Minority
interest in
net increase
in net assets
resulting
from
operations - (448,023) (213,578) (150,188) - - - -
- --------- --------- --------- - - - -
Net increase
in net assets
resulting
from
operations $41,806,509 $59,548,288 $42,921,099 $24,943,089 $37,230,952 $50,247,663 $55,324,105 $62,639,974
=========== =========== =========== =========== =========== =========== =========== ===========
Total return 1.67% 2.21% 1.46% 0.82% 2.15% 2.67% 2.67% 2.77%
===== ===== ===== ===== ===== ===== ===== =====
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ACCOUNT'S FINANCIAL
CONDITION AND OPERATING RESULTS
The Account continued its positive growth in 2001, with approximately
$3.2 billion in net assets as of year-end 2001. As of December 31, 2001, the
Account owned a total of 65 real estate properties, including 25 office
properties (one held in joint venture), 18 industrial properties (including one
development project joint venture), 18 apartment complexes and four neighborhood
shopping centers. At December 31, 2001, these properties represented 73.1% of
the Account's total investment portfolio.
The Account closed 21 real estate transactions in 2001. It purchased 16
properties (seven office properties, including one development project, three
industrial properties, five apartment properties, and one fund investment), and
sold five properties (one office, one retail, one apartment, and two industrial
properties). The Account continues to pursue suitable properties, and is
currently in various stages of negotiations with a number of prospective
sellers.
As of December 31, 2001, the Account also held investments in
commercial paper, representing 17.0% of the portfolio, real estate investment
trusts (REITs), representing 4.2% of the portfolio, and other real estate
related investments, including commercial mortgage backed securities (CMBS), a
mortgage and one fund investment, representing 5.7% of the portfolio.
The tragic events of September 11th did not directly affect the
Account's real estate holdings in New York City, which are holdings located in
the midtown and upper east side areas of Manhattan. While these events had a
sobering effect on the overall economy, it is not currently possible to quantify
any long-term impact on the real estate market.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2001 COMPARED TO
YEAR ENDED DECEMBER 31, 2000
The Account's total net return was 6.29% for the year ended December
31, 2001 and 10.66% for 2000. The 2001 performance of each of the Account's
asset types, i.e., real estate, REITs and commercial paper, declined as compared
to 2000, with the decline in the value of the Account's real estate having the
largest impact. The Account's net investment income, after deducting all
expenses, was $193,375,387 for the year ended December 31, 2001 and $151,295,245
for 2000, a 28% increase. This increase was the result of a 35% increase in net
assets and an increase in the Account's real estate holdings from December 31,
2000 to December 31, 2001. The Account had net realized and unrealized losses on
investments of $23,344,613 for the year ended December 31, 2001, compared with
the net realized and unrealized gains on its investments of $54,147,449 for
2000. This difference was primarily
25
due to the decrease of $26,611,066 in the aggregate market value of the
Account's real estate holdings during 2001, as compared to 2000, during which
the Account's holdings experienced a $22,257,781 market value increase. The
Account's net realized losses in 2001 were primarily due to the sale of certain
properties identified as sales candidates because they no longer met the
Account's investment objectives or were located in markets which were
experiencing declining economic conditions. The unrealized losses in 2001 can be
attributed to the decline in market value of some of the Account's real estate
properties. The Account's marketable securities had modest realized and
unrealized gains in 2001 totaling $5,231,736, as compared to the substantial net
gains of $22,145,715 in 2000.
The Account's real estate holdings generated approximately 83% of the
Account's total investment income (before deducting Account level expenses)
during 2001 compared with 81% during 2000. The remaining portion of the
Account's total investment income was generated by investments in marketable
securities.
Gross real estate rental income was $256,755,315 for the year ended
December 31, 2001 and $195,537,993 for the same period in 2000. This increase
was primarily due to the increase in the number of properties owned by the
Account, from 60 properties at the end of 2000 to 65 properties at the end of
2001. Interest income on the Account's short-term investments for 2001 and 2000
totaled $24,490,376 and $24,294,579, respectively. Dividend income on the
Account's REIT investments totaled $9,196,967 and $7,039,712, respectively, for
the same periods.
Total property level expenses for the year ended December 31, 2001 were
$82,126,935 of which $52,456,479 was attributable to operating expenses and
$29,670,456 was attributable to real estate taxes. Total property level expenses
for the year ended December 31, 2000 were $62,908,606, of which $40,056,716
represented operating expenses and $22,851,890 was attributable to real estate
taxes. The increase in property level expenses during 2001 reflected the
increased number of properties in the Account.
The Account incurred expenses for the years ended December 31, 2001 and
2000 of $5,896,729 and $6,924,202, respectively, for investment advisory
services, $8,470,496 and $4,392,882, respectively, for administrative and
distribution services, and $2,824,704 and $2,107,482, respectively, for
mortality and expense risk charges and liquidity guarantee charges. Such
expenses generally increased as a result of the larger net asset base in the
Account. The expenses for investment advisory services in 2001, however,
decreased because they included an expense adjustment credit in the first
quarter of 2001 to reflect a change in the way certain investment expenses are
allocated to the Account.
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%
26
increase. This increase was the result of a 41% increase in net assets and a 45%
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 ended 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.
LIQUIDITY AND CAPITAL RESOURCES
During 2001, the Account received $254,149,962 in premiums and
$486,614,583 in net participant transfers from the TIAA Traditional account and
the CREF accounts, while in 2000 the Account received $161,668,073 in premiums
and $379,610,411 in net participant transfers from other TIAA and CREF accounts.
The unprecedented volume of net participants' transfers into the Account in 2001
can be attributed to the substantial decline in the equity markets. Real estate
properties costing $550,300,000 and $625,800,000 were purchased
27
during 2001 and 2000, respectively. In 2001, the Account also received
$95,100,000 in proceeds from the sale of properties. By year end 2001, the
Account's liquid assets (i.e., its cash, REITs, short- and intermediate-term
investments, and government securities) had a value of $853,769,802, while at
the end of 2000 those assets were valued at $464,544,434.
We plan to use much of the Account's liquid assets as of December 31,
2001, exclusive of the REITs, 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).
In the unlikely event that 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 $21.9 million in 2001 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 2002, it is estimated that the Account will expend approximately
$29.8 million in capital expenses. These expenditures will be for 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 releasing of space to new
tenants in the commercial properties.
EFFECTS OF INFLATION - 2002
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
28
fee and certain other expenses attributable to operating the Account. See
"Expense Deductions," page __.
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.
29
VALUING PARTICIPATING MORTGAGES: Individual mortgages will initially be
valued at their face amount. Thereafter, quarterly, we'll estimate the values of
the participating mortgages by making various assumptions about occupancy rates,
rental rates, expense levels, and other things. We'll use these assumptions to
project the cash flow and anticipated sale proceeds from each investment over
the term of the loan, or sometimes over a shorter period. To calculate sale
proceeds, we'll assume that the real property underlying each investment will be
sold at the end of the period used in the valuation at a price based on market
assumptions for the time of the projected sale. We'll then discount the
estimated cash flows and sale proceeds to their present value (using rates
appropriate to then-current market conditions).
NET OPERATING INCOME: The Account usually receives operating income
from its investments intermittently, not daily. In fairness to participants, we
estimate the Account's net operating income rather than applying it when we
actually receive it, and assume that the Account has earned (accrued) a
proportionate amount of that estimated amount daily. You bear the risk that,
until we adjust the estimates when we receive actual income reports, 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:
* more than 6 percent of the value of any of the Account's
properties since the last independent annual appraisal
* more than 2 percent in the value of the Account since the
prior month or
* more than 4 percent in the value of the Account within any
quarter.
RIGHT TO CHANGE VALUATION METHODS: If we decide that a different
valuation method
30
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. In evaluating fair value for the
Account's interest in commingled investment vehicles, the Account will generally
look to the value periodically assigned to interests by the issuer. When
possible, the Account will seek to have input in formulating the issuer's
valuation methodology.
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
31
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 NET
ASSETS
TYPE OF EXPENSE DEDUCTION ANNUALLY SERVICES PERFORMED
- --------------------------------------------------------------------------------------------------------------------
Investment Management | 0.245% | For TIAA's investment advice, 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 Expense Risk | 0.070% | For TIAA's bearing certain mortality and expense risks
- --------------------------------------------------------------------------------------------------------------------
Liquidity Guarantee | 0.030% | For TIAA's liquidity guarantee
- --------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL EXPENSE DEDUCTION | 0.630% | 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 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.
32
THE CONTRACTS
TIAA offers the Real Estate Account as a variable option for the
annuity contracts described below. Some employer plans may not offer the Real
Estate Account as an option for RA, GRA, GSRA, or Keogh contracts. The Account
is not available in California.
RA (RETIREMENT ANNUITY) AND GRA (GROUP RETIREMENT ANNUITY)
RA and GRA contracts are used mainly for employee retirement plans. RA
contracts are issued directly to you. GRA contracts, which are group contracts,
are issued through an agreement between your employer and TIAA.
Depending on the terms of your plan, RA and GRA premiums can be paid by
your employer, you, or both. If you're paying some of or the entire periodic
premium, your contributions can be in either pre-tax dollars by salary reduction
or after-tax dollars by payroll deduction. You can also transfer funds from
another investment choice under your employer's plan to your contract. For RAs
only, you can make contributions directly to TIAA. Ask your employer for more
information about these contracts.
SRA (SUPPLEMENTAL RETIREMENT ANNUITY) AND GSRA (GROUP
SUPPLEMENTAL RETIREMENT ANNUITY)
These are for voluntary tax-deferred annuity (TDA) plans 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
$3,000 or by rolling over funds from another IRA or retirement plan, if you meet
our eligibility requirements. If you are age 50 or older, you may contribute up
to $3,500. The combined limit for your contributions to a Classic IRA and a Roth
IRA for a single year is $3,000, or $3,500 if you are age 50 or older, 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 $3,000 or
with a rollover from another IRA or a Classic IRA issued by TIAA if you meet our
eligibility requirements. If you are age 50 or older you may contribute up to
$3,500. The combined limit for your contributions to a Classic IRA and a Roth
IRA for a single year is $3,000, or $3,500 if you are age 50 or older, excluding
rollovers. We can't issue you a joint contract.
Classic and Roth IRAs may together be referred to as "IRAs" in this
prospectus.
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GA (GROUP ANNUITY) AND INSTITUTIONALLY-OWNED GSRA
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 the premiums directly to TIAA) and your employer
or the plan's trustee may control the allocation of contributions and transfers
to and from these contracts. If a GA or GSRA 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
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.
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TIAA doesn't restrict the amount or frequency of premiums to your RA,
GRA, and IRA contracts, although we may in the future. Your employer's
retirement plan may limit your premium amounts, while the Internal Revenue Code
limits the total annual premiums you may invest in plans qualified for favorable
tax treatment. If you pay premiums directly to an RA or IRA, the premiums and
any earnings are not subject to your employer's plan.
In most cases (subject to any restriction we may impose, as described
in this prospectus), TIAA will accept premiums to a contract at any time during
your accumulation period. Once your first premium has been paid, your TIAA
contract can't lapse or be forfeited for nonpayment of premiums. TIAA can stop
accepting premiums to 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).
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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
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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 __.
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, to one of
the CREF accounts or to mutual funds offered under the terms of your plan.
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, in your CREF accounts or in the mutual funds offered under
the terms of your plan to the Real Estate Account, if your employer's plan
offers the Account. Transfers from TIAA's traditional annuity to the Real Estate
Account under RA and GRA contracts take place in roughly equal installments over
a ten-year period through a TIAA transfer payout annuity. There are no similar
restrictions on transfers from TIAA's traditional annuity under SRA, GSRA, IRA,
or Keogh contracts.
Because excessive transfer activity can hurt Account performance and
other participants, we may further limit how often you transfer or otherwise
modify the transfer privilege.
TRANSFERS TO OTHER COMPANIES
Generally you may transfer funds from the Real Estate Account to a
company other than TIAA or CREF, subject to certain tax restrictions. This right
may be limited by your employer's plan. If your employer participates in our
special transfer services program, we can make automatic monthly transfers from
your RA or GRA contract to another company, and the $1,000 minimum will not
apply to these transfers.
TRANSFERS FROM OTHER COMPANIES/PLANS
Subject to your employer's plan, you can usually transfer or rollover
money from another 403(b) or 401(a)/403(a) and governmental 457(b) retirement
plan to your TIAA contract. You may also rollover before-tax amounts in a
Classic IRA to 403(b) plans, 401(a)/403(a) plans or eligible governmental 457(b)
plans, provided such employer plans agree to accept the rollover. Similarly, you
may be able to rollover funds from 401(a), 403(a), 403(b) and governmental
457(b) plans to a TIAA Classic IRA. Funds in a private 457(b) plan can be
transferred to another private 457(b) plan only. Accumulations in private 457(b)
plans may not be rolled over to a qualified plan (e.g., a 401(a) plan), a 403(b)
plan, a governmental 457(b) plan or an IRA.
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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
leave your job or are faced with an unforeseeable emergency (as defined by law).
There are generally 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.
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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, the Real Estate Account, and mutual
funds available under the terms of your plan, 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 CREF 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.
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Your initial income payments are based on the value of your
accumulation on the last valuation day before the annuity starting date. Your
payments change after the initial payment based on the Account's investment
experience and the income change method you choose.
There are two income change methods for annuity payments: annual and
monthly. Under the annual income change method, payments from the Account change
each May 1, based on the net investment results during the prior year (April 1
through March 31). Under the monthly income change method, payments from the
Account change every month, based on the net investment results during the
previous month. For the formulas used to calculate the amount of annuity
payments, see page 40. The total value of your annuity payments may be more or
less than your total premiums.
ANNUITY STARTING DATE
Generally, you pick an annuity starting date when you first apply for a
TIAA contract but you can change this date at any time prior to the day before
that annuity starting date. Ordinarily, annuity payments begin on your annuity
starting date, provided we have received all documentation necessary for the
income option you've picked. If something's missing, we'll defer your annuity
starting date until we receive it. Your first annuity check may be delayed while
we process your choice of income options and calculate the amount of your
initial payment. Any premiums received within 70 days after payments begin may
be used to provide additional annuity income. Premiums received after 70 days
will remain in your accumulating annuity contract until you give us further
instructions. Ordinarily, your first annuity payment 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.
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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 __.
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.
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TRANSFERS DURING THE ANNUITY PERIOD
After you begin receiving annuity income, you can transfer all or part
of the future annuity income payable once each calendar quarter (i) from the
Real Estate Account into a "comparable annuity" payable from a CREF account or
TIAA's traditional annuity, or (ii) from a CREF account into a comparable
annuity payable from the Real Estate Account. Comparable annuities are those
which are payable under the same income option, and have the same first and
second annuitant, and remaining guaranteed period.
We'll process your transfer on the business day we receive your
request. You can also choose to have a transfer take effect at the close of any
future business day, or the last calendar day of the current or any future
month, even if it's not a business day. Transfers under the annual income
payment method will affect your annuity payments beginning on the May 1
following the March 31 which is on or after the effective date of the transfer.
Transfers under the monthly income payment method and all transfers into TIAA's
traditional annuity will affect your annuity payments beginning with the first
payment due after the monthly payment valuation day that is on or after the
transfer date. You can switch between the annual and monthly income change
methods, and the switch will go into effect on the following March 31.
ANNUITY PAYMENTS
The amount of annuity payments we pay you or your beneficiary
(annuitant) will depend upon the number and value of the annuity units payable.
The number of annuity units is first determined on the day before the annuity
starting date. The amount of the annuity payments will change according to the
income change method chosen.
Under the annual income change method, the value of an annuity unit for
payments is redetermined on March 31 of each year--the payment valuation day.
Annuity payments change beginning May 1. The change reflects the net investment
experience of the Real Estate Account. The net investment experience for the
twelve months following each March 31 revaluation will be reflected in the
following year's value.
Under the monthly income change method, the value of an annuity unit
for payments is determined on the payment valuation day, which is the 20th day
of the month preceding the payment due date or, if the 20th is not a business
day, the preceding business day. The monthly changes in the value of an annuity
unit reflect the net investment experience of the Real Estate Account.
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
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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.
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DEATH BENEFITS
AVAILABILITY; CHOOSING BENEFICIARIES
TIAA may pay death benefits if you or your annuity partner die during
the accumulation or annuity period. When you purchase your annuity contract, you
name one or more beneficiaries to receive the death benefit if you die. You can
change your beneficiaries anytime before you die, and, unless you instruct
otherwise, your annuity partner can do the same after your death.
YOUR SPOUSE'S RIGHTS
Your choice of beneficiary for death benefits may, in some cases, be
subject to the consent of your spouse. Similarly, if you are married at the time
of your death, federal law may require a portion of the death benefit be paid to
your spouse even if you have named someone else as beneficiary. If you die
without having named any beneficiary, any portion of your death benefit not
payable to your spouse will go to your estate.
AMOUNT OF DEATH BENEFIT
If you die during the accumulation period, the death benefit is the
amount of your accumulation. If you and your annuity partner die during the
annuity period while payments are still due under a fixed-period annuity or for
the remainder of a guaranteed period, the death benefit is the value of the
remaining guaranteed payments.
METHODS OF PAYMENT OF DEATH BENEFITS
Generally, you can choose for your beneficiary the method we'll use to
pay the death benefit, but few participants do this. If you choose a payment
method, you can also block your beneficiaries from changing it. Most people
leave the choice to their beneficiaries. We can block any choice if its initial
payment is less than $25. Beginning 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;
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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.
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.
45
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 $11,000 per year ($12,000 per year if you
are age 50 or older). Certain long-term employees may be able to defer up to
$14,000 per year in a 403(b) plan ($15,000 per year if you are age 50 or older).
Contributions to Classic and Roth IRAs, other than rollover contributions,
cannot generally exceed $3,000 per year ($3,500 per year for taxpayers age 50 or
older).
The maximum contribution limit to a 457(b) non-qualified deferred
compensation plan for employees of state and local governments for 2001 is
$11,000 ($12,000 if you are age 50 or older in governmental 457(b) plans).
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.
EARLY DISTRIBUTIONS
If you want to withdraw funds or begin receiving income from any
401(a), 403(a), or 403(b) retirement plan or an IRA before you reach age 59 1/2,
you may have to pay a 10 percent early distribution tax on the taxable amount.
Distributions from a Roth IRA generally are not taxed, except that, once
aggregate distributions exceed contributions to the Roth IRA, income tax and a
10% penalty tax may apply to distributions made (1) before age 59 1/2 (subject
to certain exceptions) or (2) during the five taxable years starting with the
year in which the first contribution is made to any Roth IRA. A 10 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. Early distributions from 457(b) plans are not subject to a 10%
penalty tax unless, in the case of a governmental 457(b) plan, the distribution
includes amounts rolled over to the plan from an IRA, 401(a)/403(a), or 403(b)
plan. 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 70 1/2, 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
46
reach age 70 1/2. Under the terms of certain retirement plans, the plan
administrator may direct us to make the minimum distributions required by law
even if you do not elect to receive them. In addition, if you don't begin
distributions on time, you may be subject to a 50 percent excise tax on the
amount you should have received but did not. Roth IRAs are generally not subject
to these rules and do not require that any distributions be made prior to your
death.
WITHHOLDING ON DISTRIBUTIONS
If we send an "eligible rollover" distribution directly to you, federal
law requires us to withhold 20 percent from the taxable portion. If we roll over
such a distribution directly to an IRA or employer plan, 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. These rules also apply to distributions from governmental 457(b)
plans. In general, all amounts received under a private 457(b) 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.
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
47
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.
48
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.
49
DISTRIBUTOR
The annuity contracts are offered continuously by TIAA-CREF Individual
& Institutional Services, Inc. (Services), which is registered with the SEC as a
broker-dealer and is a member of the National Association of Securities Dealers,
Inc. (NASD). Teachers Personal Investors Services, Inc. (TPIS), which is also
registered with the SEC and is a member of the NASD, may participate in the
distribution of the contracts on a limited basis. Services and TPIS are direct
or indirect subsidiaries of TIAA. As already noted, distribution costs are
covered by a deduction from the assets of the Account; no commissions are paid
for distributing the contracts. Anyone distributing the contracts must be a
registered representative of Services or TPIS, whose main offices are both at
730 Third Avenue, New York, NY 10017-3206.
STATE REGULATION
TIAA, the Real Estate Account, and the contracts are subject to
regulation by the New York Insurance Department (NYID) as well as by the
insurance regulatory authorities of certain other states and jurisdictions.
TIAA and the Real Estate Account must file with the NYID both quarterly
and annual statements. The Account's books and assets are subject to review and
examination by the NYID at all times, and a full examination into the affairs of
the Account is made at least every five years. In addition, a full examination
of the Real Estate Account operations is usually conducted periodically by some
other states.
LEGAL MATTERS
All matters involving state law and relating to the contracts,
including TIAA's right to issue the contracts, have been passed upon by Charles
H. Stamm, Executive Vice President and General Counsel of TIAA. Sutherland
Asbill & Brennan LLP, Washington, D.C., have passed upon legal matters relating
to the federal securities laws.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 2001 and 2000, and for each of
the three years in the period ended December 31, 2001 as set forth in their
reports. Friedman, Alpren & Green LLP, independent auditors, have audited our
(i) statement of revenues and certain expenses of [properties subject to 3-14
audit to be filed by amendment] for the year ended December 31, 2000, and (ii)
statement of revenues and certain expenses of [properties subject to 3-14 audit
to be filed by amendment] for the year ended December 31, 2000. We've included
these
50
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.
51
INDEX TO FINANCIAL STATEMENTS
PAGE
----
TIAA REAL ESTATE ACCOUNT
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Management Responsibility
Report of Audit Committee
Report of Independent Auditors
Consolidated Statements of Assets and Liabilities
Consolidated Statements of Operations
Consolidated Statements of Changes in Net Assets
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Consolidated Statement of Investments
PROFORMA CONDENSED FINANCIAL STATEMENTS: [TO BE FILED BY AMENDMENT]
Proforma Condensed Statement of Assets and Liabilities
Proforma Condensed Statement of Operations
Notes to Proforma Condensed Financial Statements
[3-14 FINANCIAL STATEMENTS FOR SIGNIFICANT PROPERTIES] [TO BE FILED BY
AMENDMENT]:
Report of Independent Auditors
Statement of Revenues and Certain Expenses
Notes to Statement of Revenues and Certain Expenses]
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
[TO BE FILED BY AMENDMENT]
Condensed Unaudited Statutory-Basis Financial Statements
Supplemental Information to Condensed Unaudited Statutory-Basis
Financial Statements
52
- --------------------------------------------------------------------------------
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. To maintain auditor independence and avoid
even the appearance of conflict of interest, it continues to be the Account's
policy that any non-audit services be obtained from a firm other than the
external financial audit firm. For the periods covered by these financial
statements, the Account did not engage Ernst & Young LLP for any management
advisory or consulting services. The independent auditors' report, which follows
the notes to financial statements, expresses an independent opinion on the
fairness of presentation of these financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting entirely of
trustees who are not officers of TIAA, meets regularly with management,
representatives of Ernst & Young LLP and internal audit personnel to review
matters relating to financial reporting, internal controls and auditing.
Chairman, President and
Chief Executive Officer
Executive Vice President and
Principal Accounting Officer
53
- --------------------------------------------------------------------------------
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 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 external controls, and
the overall quality of financial reporting. As required by its charter, the
Committee will evaluate rotation of the external financial audit firm whenever
circumstances warrant, but in no event later than between their fifth and tenth
years of service.
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 20, 2002
54
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
DECEMBER 31, DECEMBER 31,
2001 2000
----- ----
ASSETS
Investments, at value:
Real estate properties
(cost: $2,276,414,478 and $1,818,143,290)................................... $2,330,914,466 $1,899,254,344
Mortgages
(cost: $7,265,887 and $-)................................................... 7,265,887 -
Other real estate related investments
(cost: $30,925,755 and $24,674,574)........................................ 34,430,886 26,035,867
Marketable securities:
Real estate related
(cost: $301,967,699 and $134,898,725)...................................... 305,250,475 135,854,484
Other
(cost: $548,265,288 and $328,060,804)...................................... 548,243,870 327,974,084
Cash........................................................................... 275,457 715,866
Other.......................................................................... 44,003,409 33,265,757
-------------- --------------
TOTAL ASSETS 3,270,384,450 2,423,100,402
-------------- --------------
LIABILITIES
Accrued real estate property level expenses and taxes.......................... 39,595,315 24,396,036
Security deposits held......................................................... 8,767,676 6,817,972
Other.......................................................................... 618,289 1,736,106
-------------- --------------
TOTAL LIABILITIES 48,981,280 32,950,114
-------------- --------------
MINORITY INTEREST IN SUBSIDIARIES 7,735,993 3,028,217
-------------- --------------
NET ASSETS
Accumulation Fund.............................................................. 3,103,639,556 2,310,540,978
Annuity Fund................................................................... 110,027,621 76,581,093
-------------- --------------
TOTAL NET ASSETS $3,213,667,177 $2,387,122,071
============== ==============
NUMBER OF ACCUMULATION UNITS OUTSTANDING--Notes 5 and 6......................... 18,456,445 14,604,673
========== ==========
NET ASSET VALUE, PER ACCUMULATION UNIT--Note 5................................. $168.16 $158.21
======= =======
See notes to consolidated financial statements.
55
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
------------- --------------- ---------------
INVESTMENT INCOME
Real estate income, net:
Rental income............................................................... $256,755,315 $195,537,993 $132,316,878
------------ ------------ ------------
Real estate property level expenses and taxes:
Operating expenses........................................................ 52,456,479 40,056,716 27,334,060
Real estate taxes......................................................... 29,670,456 22,851,890 15,892,736
------------ ------------ ------------
Total real estate property level expenses and taxes 82,126,935 62,908,606 43,226,796
------------ ------------ ------------
Real estate income, net 174,628,380 132,629,387 89,090,082
Income from real estate joint venture......................................... 2,251,593 756,133 -
Interest...................................................................... 24,490,376 24,294,579 17,117,917
Dividends..................................................................... 9,196,967 7,039,712 7,814,816
------------ ------------ ------------
TOTAL INCOME 210,567,316 164,719,811 114,022,815
------------ ------------ ------------
Expenses -- Note 2:
Investment advisory charges................................................. 5,896,729 6,924,202 4,246,911
Administrative and distribution charges..................................... 8,470,496 4,392,882 3,442,282
Mortality and expense risk charges.......................................... 1,987,604 1,414,888 1,027,707
Liquidity guarantee charges................................................. 837,100 692,594 561,510
------------ ------------ ------------
TOTAL EXPENSES 17,191,929 13,424,566 9,278,410
------------ ------------ ------------
INVESTMENT INCOME, NET 193,375,387 151,295,245 104,744,405
------------ ------------ ------------
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Real estate properties...................................................... (4,109,121) 8,382,660 8,788,795
Marketable securities....................................................... 2,839,417 (106,726) (3,022,098)
------------ ------------ ------------
Net realized gain (loss) on investments (1,269,704) 8,275,934 5,766,697
------------ ------------ ------------
Net change in unrealized appreciation (depreciation) on:
Real estate properties...................................................... (26,611,066) 22,257,781 14,443,916
Real estate joint venture................................................... 2,143,838 1,361,293 -
Marketable securities....................................................... 2,392,319 22,252,441 (10,375,870)
------------ ------------ ------------
Net change in unrealized appreciation (depreciation) on investments (22,074,909) 45,871,515 4,068,046
------------ ------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (23,344,613) 54,147,449 9,834,743
------------ ------------ ------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS BEFORE MINORITY INTEREST 170,030,774 205,442,694 114,579,148
Minority interest in net increase in net assets
resulting from operations.................................................. (811,789) - 1,364,619
------------ ------------ ------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $169,218,985 $205,442,694 $115,943,767
============ ============ ============
See notes to consolidated financial statements.
56
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
YEARS ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
--------------- --------------- ---------------
FROM OPERATIONS
Investment income, net......................................................... $193,375,387 $151,295,245 $104,744,405
Net realized gain (loss) on investments........................................ (1,269,704) 8,275,934 5,766,697
Net change in unrealized appreciation (depreciation) on investments............ (22,074,909) 45,871,515 4,068,046
Minority interest in net increase in net assets
resulting from operations.................................................... (811,789) - 1,364,619
-------------- -------------- --------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS 169,218,985 205,442,694 115,943,767
-------------- -------------- --------------
FROM PARTICIPANT TRANSACTIONS
Premiums....................................................................... 254,149,962 161,668,073 126,200,561
Net transfers from (to) TIAA................................................... (6,241,427) 36,271,547 24,155,178
Net transfers from CREF Accounts............................................... 492,856,010 343,338,864 269,199,426
Annuity and other periodic payments............................................ (13,710,081) (9,924,802) (6,330,436)
Withdrawals and death benefits................................................. (69,728,343) (45,156,733) (30,052,955)
-------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING
FROM PARTICIPANT TRANSACTIONS 657,326,121 486,196,949 383,171,774
-------------- -------------- --------------
NET INCREASE IN NET ASSETS 826,545,106 691,639,643 499,115,541
NET ASSETS
Beginning of year.............................................................. 2,387,122,071 1,695,482,428 1,196,366,887
-------------- -------------- --------------
End of year.................................................................... $3,213,667,177 $2,387,122,071 $1,695,482,428
============== ============== ==============
See notes to consolidated financial statements.
57
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
-------------------------------------------
2001 2000 1999
----------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations........................... $169,218,985 $205,442,694 $115,943,767
Adjustments to reconcile net increase in net assets resulting
from operations to net cash used in operating activities:
Increase in investments...................................................... (836,986,805) (702,336,424) (475,537,558)
Increase in other assets..................................................... (10,737,652) (1,207,996) (14,271,470)
Increase in accrued real estate property level expenses and taxes............ 15,199,279 5,970,708 6,992,799
Increase in security deposits held........................................... 1,949,704 1,268,013 3,659,536
Increase (decrease) in other liabilities..................................... (1,117,817) 1,736,106 -
Increase (decrease) in minority interest..................................... 4,707,776 3,028,217 (19,913,592)
------------ ------------ ------------
NET CASH USED IN
OPERATING ACTIVITIES (657,766,530) (486,098,682) (383,126,518)
------------ ------------ ------------
CASH FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums....................................................................... 254,149,962 161,668,073 126,200,561
Net transfers from (to) TIAA .................................................. (6,241,427) 36,271,547 24,155,178
Net transfers from CREF Accounts............................................... 492,856,010 43,338,864 269,199,426
Annuity and other periodic payments............................................ (13,710,081) (9,924,802) (6,330,436)
Withdrawals and death benefits................................................. (69,728,343) (45,156,733) (30,052,955)
------------ ------------ ------------
NET CASH PROVIDED BY
PARTICIPANT TRANSACTIONS 657,326,121 486,196,949 383,171,774
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH (440,409) 98,267 45,256
CASH
Beginning of year.............................................................. 715,866 617,599 572,343
------------ ------------ ------------
End of year.................................................................... $ 275,457 $ 715,866 $ 617,599
============ ============ ============
See notes to consolidated financial statements.
58
TIAA REAL ESTATE ACCOUNT
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
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 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. The financial statements were prepared in accordance with accounting
principles generally accepted in the United States which may require the use of
estimates made by management. Actual results may vary from those estimates. The
following is a summary of the significant accounting policies consistently
followed by the Account.
BASIS OF PRESENTATION: The accompanying consolidated financial statements
include the Account and its 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, The Townsend Group, 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 ventures are 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 MORTGAGES: Mortgages are initially valued at their face amount.
Fixed rate mortgages are, thereafter, valued quarterly by discounting payments
of principal and interest to their present value using a rate at which
commercial lenders would make similar mortgage loans. Floating variable rate
mortgages are generally valued at their face amount, although the value may be
adjusted as market conditions dictate.
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
59
are stated at market value. Portfolio securities, including limited partnership
interests, for which market quotations are not readily available are valued at
fair value as determined in good faith under the direction of the Investment
Committee of the Board of Trustees and in accordance with the responsibilities
of the Board as a whole.
ACCOUNTING FOR INVESTMENTS: Real estate transactions are accounted for as of the
date on which the purchase or sale transactions for the real estate properties
close (settlement date). Rent from real estate properties consists of all
amounts earned under tenant operating leases, including base rent, recoveries of
real estate taxes and other expenses and charges for miscellaneous services
provided to tenants. Rental income is recognized in accordance with the billing
terms of the lease agreements. The Account bears the direct expenses of the real
estate properties owned. These expenses include, but are not limited to, fees to
local property management companies, property taxes, utilities, maintenance,
repairs, insurance and other operating and administrative costs. An estimate of
the net operating income earned from each real estate property is accrued by the
Account on a daily basis and such estimates are adjusted as soon as actual
operating results are determined. Realized gains and losses on real estate
transactions are accounted for under the specific identification method.
Securities transactions are accounted for as of the date the securities are
purchased or sold (trade date). Interest income is recorded as earned and
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 2--MANAGEMENT AGREEMENTS
Investment advisory services for the Account are provided by TIAA employees,
under the direction of TIAA's Board of Trustees and its Investment Committee,
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. TIAA also provides all portfolio
accounting and related services for the Account.
Distribution and administrative services for the Account are provided by
TIAA-CREF Individual & Institutional Services, Inc. ("Services") pursuant to a
Distribution and Administrative Services Agreement with the Account. Services, a
wholly-owned subsidiary of TIAA, is a registered broker-dealer and member of the
National Association of Securities Dealers, Inc.
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.
The services provided by TIAA and Services are provided at cost. TIAA and
Services receive payments from the Account on a daily basis according to
formulas established each year with the objective of keeping the payments as
close as possible to the Account's actual expenses. Any differences between
actual expenses and the amounts paid are adjusted quarterly.
60
NOTE 3--REAL ESTATE PROPERTIES
Had the Account's real estate properties which were purchased during the year
ended December 31, 2001 been acquired at the beginning of the period (January 1,
2001), rental income and real estate property level expenses and taxes for the
year ended December 31, 2001 would have increased by approximately $36,395,000
and $12,691,000, respectively. In addition, interest income for the year ended
December 31, 2001 would have decreased by approximately $18,520,000.
Accordingly, the total proforma effect on the Account's net investment income
for the year ended December 31, 2001 would have been an increase of
approximately $5,184,000, if the real estate properties acquired during the year
ended December 31, 2001 had been acquired at the beginning of the year.
NOTE 4--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,
------------
2002 $192,814,000
2003 180,210,000
2004 159,868,000
2005 137,375,000
2006 104,650,000
Thereafter 313,328,000
-------------
Total $1,088,245,000
==============
Certain leases provide for additional rental amounts based upon the recovery of
actual operating expenses in excess of specified base amounts.
61
NOTE 5--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,
----------------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
Per Accumulation Unit data:
Rental income........................................ $ 14.862 $ 14.530 $ 12.168 $ 10.425 $ 7.288
Real estate property
level expenses and taxes........................... 4.754 4.674 3.975 3.403 2.218
-------- -------- -------- -------- -------
Real estate income, net 10.108 9.856 8.193 7.022 5.070
Income from real estate joint venture................ 0.130 0.056 - - -
Dividends and interest............................... 1.950 2.329 2.292 3.082 2.709
-------- -------- -------- -------- -------
Total income 12.188 12.241 10.485 10.104 7.779
Expense charges (1).................................. 0.995 0.998 0.853 0.808 0.580
-------- -------- -------- -------- -------
Investment income, net 11.193 11.243 9.632 9.296 7.199
Net realized and unrealized
gain (loss) on investments......................... (1.239) 3.995 1.164 .579 3.987
-------- -------- -------- -------- -------
Net increase in
Accumulation Unit Value............................ 9.954 15.238 10.796 9.875 11.186
Accumulation Unit Value:
Beginning of year.................................. 158.206 142.968 132.172 122.297 111.111
-------- -------- -------- -------- -------
End of year........................................ $168.160 $158.206 $142.968 $132.172 $122.297
======== ======== ======== ======== ========
Total return.......................................... 6.29% 10.66% 8.17% 8.07% 10.07%
Ratios to Average Net Assets:
Expenses (1)....................................... 0.61% 0.67% 0.63% 0.64% 0.58%
Investment income, net............................. 6.81% 7.50% 7.13% 7.34% 7.25%
Portfolio turnover rate:
Real estate properties............................. 4.61% 3.87% 4.46% 0% 0%
Securities......................................... 40.62% 32.86% 27.68% 24.54% 7.67%
Thousands of Accumulation Units
outstanding at end of year......................... 18,456 14,605 11,487 8,834 6,313
(1) 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, 2001 would be
$5.749 ($5.672, $4.828, $4.211 and $2.798 for the years ended December 31,
2000, 1999, 1998 and 1997, respectively), and the Ratio of Expenses to
Average Net Assets for the year ended December 31, 2001 would be 3.50%
(3.79%, 3.58%, 3.32% and 2.82% for the years ended December 31, 2000, 1999,
1998 and 1997, respectively).
62
NOTE 6--ACCUMULATION UNITS
Changes in the number of Accumulation Units outstanding were as follows:
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------
2001 2000 1999
----------- ---------- -----------
Accumulation Units:
Credited for premiums............................ 1,542,511 1,074,708 918,728
Credited for transfers, net disbursements and
amounts applied to the Annuity Fund............ 2,309,261 2,042,605 1,734,721
Outstanding:
Beginning of year.............................. 14,604,673 11,487,360 8,833,911
---------- ---------- ----------
End of year.................................... 18,456,445 14,604,673 11,487,360
========== ========== ==========
- --------------------------------------------------------------------------------
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, 2001, of
the TIAA Real Estate Account ("Account") of Teachers Insurance and Annuity
Association of America ("TIAA") as of December 31, 2001 and 2000, 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, 2001. Our
audits also included the financial statement schedule listed in the Index at
item 14(a). These financial statements and schedule are the responsibility of
TIAA's management. Our responsibility is to express an opinion on these
financial statements and schedule 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, 2001, 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, 2001 and 2000, and the consolidated results of its operations and
the changes in its net assets and its cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
New York, New York
February 1, 2002
- --------------------------------------------------------------------------------
63
TIAA REAL ESTATE ACCOUNT
CONSOLIDATED STATEMENT OF INVESTMENTS
DECEMBER 31, 2001
REAL ESTATE PROPERTIES--72.25%
LOCATION / DESCRIPTION VALUE
- ---------------------- -------
ARIZONA:
Biltmore Commerce Center - Office building......................................................... $ 32,295,058
Southbank Building - Office building............................................................... 13,565,218
CALIFORNIA:
9 Hutton Centre - Office building ................................................................. 20,448,764
88 Kearny Street - Office building ................................................................ 82,116,702
Cabot Industrial Portfolio - Industrial building .................................................. 34,363,752
Eastgate Distribution Center - Industrial building................................................. 14,500,000
Kenwood Mews - Apartments ......................................................................... 22,686,216
Larkspur Courts - Apartments....................................................................... 53,200,000
Northpoint Commerce Center - Industrial building................................................... 37,456,149
Ontario Industrial Properties - Industrial building................................................ 108,000,000
Westcreek - Apartments ............................................................................ 17,900,000
COLORADO:
Arapahoe Park East - Industrial building........................................................... 13,100,000
The Lodge at Willow Creek - Apartments............................................................. 32,000,000
Monte Vista - Apartments ......................................................................... 21,800,000
CONNECTICUT:
Ten & Twenty Westport Road - Office building....................................................... 140,105,661
FLORIDA:
Carolina Apartments - Apartments................................................................... 17,600,000
Doral Pointe- Apartments........................................................................... 45,341,796
Golfview - Apartments ............................................................................. 27,050,000
The Greens at Metrowest - Apartments............................................................... 14,100,000
Maitland Promenade One - Office building........................................................... 39,000,000
Plantation Grove - Shopping center................................................................. 7,700,000
Quiet Waters - Apartments ......................................................................... 16,100,000
Royal St. George - Apartments...................................................................... 16,400,000
Sawgrass Portfolio - Office building............................................................... 50,800,000
South Florida Apartment Portfolio - Apartments..................................................... 46,700,000
Westinghouse Facility - Industrial building....................................................... 5,300,000
GEORGIA:
Atlanta Industrial Portfolio - Industrial building................................................. 40,459,044
ILLINOIS:
Chicago Industrial Portfolio - Industrial building................................................. 42,591,186
Columbia Center III - Office building.............................................................. 37,500,000
Parkview Plaza - Office building................................................................... 50,500,000
Rolling Meadows - Shopping center.................................................................. 12,390,000
KENTUCKY:
IDI Kentucky Portfolio - Industrial building....................................................... 53,600,000
MARYLAND:
FedEx Distribution Facility - Industrial building.................................................. 7,600,000
Longview Executive Park - Office building.......................................................... 28,200,800
MASSACHUSETTS
Batterymarch Park II - Office building............................................................... 17,990,854
Needham Corporate Center - Office building......................................................... 28,294,526
MICHIGAN:
Indian Creek - Apartments.......................................................................... 16,800,000
64
LOCATION / DESCRIPTION VALUE
- ---------------------- -------
MINNESOTA:
Interstate Crossing - Industrial building.......................................................... $ 6,504,740
River Road Distribution Center - Industrial building............................................... 4,131,571
NEVADA:
UPS Distribution Facility - Industrial building.................................................... 11,100,000
NEW JERSEY:
10 Waterview Boulevard - Office building........................................................... 30,400,000
371 Hoes Lane - Office building.................................................................... 14,700,000
Konica Photo Imaging Headquarters - Industrial building............................................ 17,700,000
Morris Corporate Center III - Office building...................................................... 106,214,595
South River Road Industrial - Industrial building.................................................. 32,688,565
NEW YORK:
780 Third Avenue - Office building................................................................. 177,500,000
The Colorado - Apartments.......................................................................... 60,500,000
NORTH CAROLINA:
The Lynnwood Collection - Shopping center.......................................................... 7,900,000
The Millbrook Collection - Shopping center......................................................... 7,200,000
OHIO:
Bent Tree - Apartments ........................................................................... 14,500,000
Bisys Fund Services Building - Office building..................................................... 20,400,000
Columbus Portfolio - Office building............................................................... 28,400,000
Northmark Business Center III - Office building.................................................... 12,200,000
OREGON:
Five Centerpointe - Office building................................................................ 18,001,499
PENNSYLVANIA:
Lincoln Woods - Apartments ........................................................................ 24,800,000
TEXAS:
Butterfield Industrial Park - Industrial building.................................................. 4,700,000 (1)
Dallas Industrial Portfolio - Industrial building.................................................. 97,245,850
The Legends at Chase Oaks - Apartments............................................................. 26,000,000
UTAH:
Landmark at Salt Lake City - Industrial building................................................... 13,600,000
VIRGINIA:
Ashford Meadows - Apartments 64,195,500
Fairgate at Ballston - Office building............................................................. 30,300,000
Monument Place - Office building................................................................... 35,400,000
WASHINGTON DC:
1015 15th Street - Office building................................................................. 48,736,575
1801 K Street N W - Office building................................................................ 150,339,845
-------------
TOTAL REAL ESTATE PROPERTIES (Cost $2,276,414,478)............................................... 2,330,914,466
-------------
(1) Leasehold interest only.
MORTGAGES--0.23%
The Georgetown Company - a 90% participation in a construction loan with a total commitment of
$13 million, bearing interest payable monthly at LIBOR plus 200 basis points, currently 3.90%, due
April 1, 2003 with an option to extend to April 1, 2004................................................ 7,265,887
-------------
TOTAL MORTGAGES (Cost $7,265,887)................................................................ 7,265,887
-------------
65
OTHER REAL ESTATE RELATED INVESTMENTS--1.07%
VALUE
-------
REAL ESTATE JOINT VENTURE--0.89%
Teachers REA IV, LLC, which owns
Tyson's Executive Plaza II (50% Account Interest).................................................. $ 28,538,029
-------------
TOTAL REAL ESTATE JOINT VENTURE (Cost $25,032,898)............................................... 28,538,029
-------------
LIMITED PARTNERSHIP-- 0.18%
MONY/Transwestern Mezzanine Realty Partners L.P. ...................................................... 5,892,857
-------------
TOTAL LIMITED PARTNERSHIP (Cost $5,892,857).......................................................... 5,892,857
-------------
TOTAL OTHER REAL ESTATE RELATED INVESTMENTS (Cost $30,925,755)....................................... 34,430,886
-------------
MARKETABLE SECURITIES--26.45%
REAL ESTATE RELATED--9.46%
REAL ESTATE INVESTMENT TRUSTS--4.20%
SHARES ISSUER
- ------ ------
50,600 Alexandria Real Estate Equities, Inc. ........................................... 2,079,660
205,000 AMB Property Corporation ........................................................ 5,330,000
170,000 Apartment Investment & Management Co ............................................ 7,774,100
260,325 Archstone-Smith Trust ........................................................... 6,846,548
100,400 Avalonbay Communities, Inc. ..................................................... 4,749,924
296,800 Boston Properties, Inc........................................................... 11,278,400
230,400 Brandywine Realty Trust.......................................................... 4,854,528
130,000 Carramerica Realty Series B Pfd.................................................. 3,186,300
84,400 Centerpoint Properties Corp...................................................... 4,203,120
83,300 Chateau Communities, Inc......................................................... 2,490,670
266,900 Cousins Properties, Inc.......................................................... 6,501,684
271,300 Duke Realty Corp................................................................. 6,600,729
499,033 Equity Office Properties Trust................................................... 15,010,913
213,400 Equity Residential Properties Trust Co........................................... 6,126,714
114,700 Hilton Hotels Corp............................................................... 1,252,524
40,000 Hospitality Properties Trust .................................................... 1,180,000
222,800 Host Marriott Corp (New)......................................................... 2,005,200
125,250 Kimco Realty Corp................................................................ 4,094,422
51,650 Macerich Company................................................................. 1,373,890
82,100 Manufactured Home Communities, Inc............................................... 2,562,341
240,500 Mission West Properties Inc...................................................... 3,059,160
331,600 Prologis Trust................................................................... 7,132,716
130,600 Public Storage, Inc.............................................................. 4,362,040
232,400 Reckson Associates Realty Corp................................................... 5,428,864
260,900 Simon Property Group, Inc........................................................ 7,652,197
8,600 SL Green Realty Corp............................................................. 264,106
153,000 Starwood Hotels & Resorts Worldwide.............................................. 4,567,050
95,000 Sun Communities, Inc............................................................. 3,538,750
-------------
TOTAL REAL ESTATE INVESTMENT TRUSTS (Cost $130,502,519).......................................... 135,506,550
-------------
66
COLLATERALIZED MORTGAGE BACKED SECURITIES--5.26%
PRINCIPAL ISSUER, COUPON MATURITY DATE VALUE
- --------- -------------------------------------- -----
$ 11,000,000 Ball 2001-116A B
4.654% 09/17/05............................................................... $ 10,936,706
20,000,000 COMM 2.54
2.54% 11/15/13................................................................ 19,996,660
20,000,000 CSFB 2001-TFLA
2.473% 11/13/13............................................................... 19,996,620
10,000,000 GGPMP 3.38
3.380% 02/15/14............................................................... 9,981,970
20,000,000 GGPMP 2.78
2.780% 02/15/14............................................................... 19,961,680
10,000,000 GSMS 2001-Rock A2FL
2.640% 05/03/11............................................................... 9,641,070
10,000,000 JPMCC 2001-FL1A B
3.890% 06/13/13............................................................... 9,955,960
10,000,000 MSDW Capital
2.670% 02/03/11............................................................... 9,826,920
10,000,000 MSDWC 2001 - XLF A1
2.580% 10/07/13............................................................... 9,999,990
8,000,000 MSDWC 2001 - FRMA C
4.130% 07/12/16............................................................... 7,756,312
7,500,000 MSDWC 2001 - SGMA B
4.000% 07/11/11............................................................... 7,434,885
10,000,000 Opryland Hotel Trust
2.78% 04/01/04................................................................ 9,953,540
7,484,348 Strategic Hotel Cap
3.920% 04/17/06............................................................... 7,240,276
7,484,348 Strategic Hotel Cap
4.680% 04/17/06............................................................... 7,197,226
5,000,000 Trize 2001 - TZHA A3FL
4.010% 03/15/13............................................................... 4,898,260
5,000,000 USC Oakbrook Trust
2.520% 11/01/05............................................................... 4,965,850
---------------
TOTAL COLLATERALIZED MORTGAGE BACKED SECURITIES (Cost $171,465,180)................................ 169,743,925
---------------
TOTAL REAL ESTATE RELATED (Cost $301,967,699)....................................................... 305,250,475
---------------
OTHER--16.99%
COMMERCIAL PAPER--16.99%
PRINCIPAL ISSUER, COUPON AND MATURITY DATE VALUE
- --------- -------------------------------------- -----
15,950,000 Abbot Laboratories
1.780% 01/03/02............................................................... 15,947,607
25,000,000 Abbot Laboratories
1.740% 01/10/02............................................................... 24,987,360
25,000,000 American Honda Finance Corp
1.770% 01/17/02............................................................... 24,978,632
25,000,000 Beta Finance Inc
2.05% 01/25/02................................................................ 24,968,578
18,065,000 BMW US Capital Corp
1.83% 01/03/02................................................................ 18,062,290
5,400,000 Ciesco LP
1.85% 01/04/02................................................................ 5,398,920
67
PRINCIPAL ISSUER, CURRENT RATE AND MATURITY DATE VALUE
- --------- -------------------------------------- -----
$ 9,300,000 Ciesco LP
1.82% 02/07/02................................................................ $ 9,282,231
8,150,000 Coca-Cola Enterprises Inc
1.80% 01/03/02................................................................ 8,148,778
4,750,000 Coca-Cola Enterprises Inc
2.02% 02/15/02................................................................ 4,739,075
15,000,000 Corporate Asset Funding Corp, Inc
2.07% 01/04/02................................................................ 14,997,000
23,000,000 Delaware Funding Corp
1.88% 01/22/02................................................................ 22,974,560
26,700,000 Edison Asset Securitization LLC
1.82% 01/11/02................................................................ 26,685,152
20,000,000 Equilon Enterprises LLC
1.76% 01/14/02................................................................ 19,985,844
12,400,000 Federal Home Loan Mortgage Corp
1.81% 01/02/02................................................................ 12,398,781
25,000,000 Gannett Inc
1.83% 01/24/02................................................................ 24,969,832
25,000,000 Goldman Sachs Group LP
1.75% 01/14/02................................................................ 24,982,305
25,000,000 Govco Incorporated
1.80% 02/25/02................................................................ 24,930,000
24,700,000 International Business Machine Corp
1.88% 01/07/02................................................................ 24,691,355
25,000,000 Kitty Hawk Funding Corp
1.77% 01/15/02................................................................ 24,981,145
25,000,000 Park Avenue Receivables Corp
1.83% 01/11/02................................................................ 24,986,098
21,700,000 Parker Hannifin Corp
2.00% 01/02/02................................................................ 21,697,830
11,500,000 Pfizer Inc
1.75% 01/31/02................................................................ 11,482,076
26,475,000 Pitney Bowes Inc
1.90% 01/11/02................................................................ 26,460,277
7,500,000 Preferred Receivables Funding Corp
1.78% 01/09/02................................................................ 7,496,588
25,000,000 Receivables Capital Corp
1.90% 01/23/02................................................................ 24,971,090
25,000,000 Salomon Smith Barney Holdings Inc
1.90% 01/02/02................................................................ 24,997,500
8,400,000 SBC Communications Inc
2.00% 01/10/02................................................................ 8,395,753
25,000,000 United Parcel Service of America Inc
1.78% 02/01/02................................................................ 24,959,778
14,700,000 Verizon Global Funding
1.85% 01/17/02................................................................ 14,687,435
--------------
TOTAL COMMERCIAL PAPER (Amortized cost $548,265,288)................................................ 548,243,870
--------------
TOTAL OTHER (Cost $548,265,288)...................................................................... 548,243,870
--------------
TOTAL MARKETABLE SECURITIES (Cost $850,232,987)..................................................... 853,494,345
--------------
TOTAL INVESTMENTS--100.00% (Cost $3,164,839,107)..................................................... $3,226,105,584
==============
See notes to consolidated financial statements.
68
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, 69
President Emeritus, Pomona College. Formerly, Trustees' Professor, Pomona
College and American Secretary, Rhodes Scholarship Trust.
MARCUS ALEXIS, 70.
Board of Trustees Professor of Economics and Professor of Management and
Strategy, J.L. Kellogg Graduate School of Management, Northwestern University,
and Visiting Professor of Economics, Stanford University.
WILLARD T. CARLETON, 67.
Donald R. Diamond Professor of Finance Emeritus, College of Business and Public
Administration, University of Arizona.
ROBERT C. CLARK, 58.
Dean and Royall Professor of Law, Harvard Law School, Harvard University.
ESTELLE A. FISHBEIN, 67.
Vice President and General Counsel, The Johns Hopkins University.
FREDERICK R. FORD, 66.
Executive Vice President and Treasurer Emeritus, Purdue University. Formerly,
Executive Vice President and Treasurer, Purdue University.
RUTH SIMMS HAMILTON, 64.
Professor, Department of Sociology, and Director, African Diaspora Research
Project, Michigan State University.
ROCHELLE B. LAZARUS, 54.
Chairman and Chief Executive Officer, Ogilvy & Mather Worldwide. Formerly,
President and Chief Operating Officer, Ogilvy & Mather Worldwide.
ROBERT M. O'NEIL, 67.
Professor of Law, University of Virginia and Director, The Thomas Jefferson
Center for the Protection of Free Expression.
A-1
LEONARD S. SIMON, 65.
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, 52.
Chairman and Chief Executive Officer, Midwest Stamping Co.
PAUL R. TREGURTHA, 66.
Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran
Transportation Company, Inc.; Formerly, Chairman, Meridian Aggregates, L.P.;
Vice Chairman, The Interlake Steamship Company and Lakes Shipping Company.
WILLIAM H. WALTRIP, 64.
Chairman, Technology Solutions Company. Formerly, Chairman and Chief Executive
Officer, Bausch & Lomb Inc.
ROSALIE J. WOLF, 60.
Managing Director, Laurel Management, LLC. Formerly, Treasurer and Chief
Investment Officer, The Rockefeller Foundation.
OFFICER-TRUSTEES
JOHN H. BIGGS, 65.
Chairman, President and Chief Executive Officer, TIAA and CREF.
MARTIN L. LEIBOWITZ, 65.
Vice Chairman and Chief Investment Officer, TIAA and CREF.
OTHER OFFICERS
RICHARD J. ADAMSKI, 59.
Vice President and Treasurer, TIAA and CREF.
RICHARD L. GIBBS, 55.
Executive Vice President, Finance and Planning, TIAA and CREF.
E. LAVERNE JONES, 53.
Vice President and Corporate Secretary, TIAA and CREF.
A-2
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.
B-1
VALUATION DAY: Any day the NYSE is open for trading, as well as the
last calendar day of each month. Valuation days end as of the close of all U.S.
national exchanges where securities or other investments of the Account are
principally traded. Valuation days that aren't business days will end at 4 p.m.
eastern time.
VALUATION PERIOD: The time from the end of one valuation day to the end
of the next.
B-2
PART II
INFORMATION NOT REQUIRED IN A PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
-------------------------------------------
SEC Registration Fees $ 184,000
Costs of printing and engraving $ 500,000*
Legal fees $ 10,000*
Accounting fees $ 10,000*
----------
TOTAL $ 704,000*
- -----------------
* - 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) and Keogh Contract(1)
(B) Forms of Income-Paying Contracts(2)
(5) Opinion and Consent of Charles H. Stamm, Esquire(5)
(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(2)
(23) (A) Opinion and Consent of Charles H. Stamm, Esquire
(filed as Exhibit 5)
(B) Consent of Sutherland Asbill & Brennan LLP(5)
(C) Consent of Ernst & Young LLP(5)
(D) Consent of Friedman, Alpren & Greene LLP(5)
- ----------
(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) - Previously filed and incorporated herein by reference to the Account's
previous Registration Statement on Form S-1 filed April 27, 2001 (File No.
333-59778).
(5) - To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule III -- Real Estate Owned (To Be Filed By Amendment)
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.
[TO BE FILED BY AMENDMENT]
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 7th day of March, 2002.
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 3/07/02
- ------------------------------------ Executive Officer (Principal Executive
John H. Biggs Officer) and Trustee
/s/ MARTIN L. LEIBOWITZ Vice Chairman, Chief Investment Officer 3/07/02
- ------------------------------------ and Trustee
Martin L. Leibowitz
/s/ RICHARD L. GIBBS Executive Vice President (Principal 3/07/02
- ------------------------------------ Financial and Accounting Officer)
Richard L. Gibbs
SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE
- -------------------- ---- -------------------- ----
/S/ DAVID ALEXANDER 3/07/02
- ------------------------------------ ------------------------------------
David Alexander Rochelle B. Lazarus
/S/ MARCUS ALEXIS 3/07/02 /S/ ROBERT M. O'NEIL 3/07/02
- ------------------------------------ ------------------------------------
Marcus Alexis Robert M. O'Neil
/S/ WILLARD T. CARLETON 3/07/02 /S/ LEONARD S. SIMON 3/07/02
- ------------------------------------ ------------------------------------
Willard T. Carleton Leonard S. Simon
/S/ ROBERT C. CLARK 3/07/02
- ------------------------------------ ------------------------------------
Robert C. Clark Ronald L. Thompson
/S/ ESTELLE A. FISHBEIN 3/07/02 /S/ PAUL R. TREGURTHA 3/07/02
- ------------------------------------ ------------------------------------
Estelle A. Fishbein Paul R. Tregurtha
/S/ FREDERICK R. FORD 3/07/02 /S/ WILLIAM H. WALTRIP 3/07/02
- ------------------------------------ ------------------------------------
Fredeerick R. Ford William H. Waltrip
/S/ RUTH SIMMS HAMILTON 3/07/02 /S/ ROSALIE J. WOLF 3/07/02
- ------------------------------------ ------------------------------------
Ruth Simms Hamilton Rosalie J. Wolf