AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 15, 2004
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TIAA REAL ESTATE ACCOUNT
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK
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(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
(NOT APPLICABLE)
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(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
(NOT APPLICABLE)
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(I.R.S. EMPLOYER IDENTIFICATION NO.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
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(ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Lisa Snow, Esquire
Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
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(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPY TO:
Steven B. Boehm, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of the registration statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING: [ ] _______
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING: [ ] _______
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX: [ ] _______
PURSUANT TO RULE 429 UNDER THE SECURITIES ACT, THE PROSPECTUS CONTAINED HEREIN
ALSO RELATES TO AND CONSTITUTES A POST-EFFECTIVE AMENDMENT TO SECURITIES ACT
REGISTRATION STATEMENTS 33-92990, 333-13477, 333-22809, 333-59778 AND 333-83964.
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Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered offering price per offering price registration fee
registered unit
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Accumulation units in * * $1,275,000,000** $161,542.50**
TIAA REAL ESTATE ACCOUNT
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* 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,
$500,000,000, and $2,000,000,000 of securities registered on Securities Act
registration statements Nos. 33-92990, 333-13477, 333-22809, 333-59778,
333-83964 (for which registration fees of $103,448.28, $303,031.31,
$1,515,151.52, $125,000, and $161,542.50, 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, 2004
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 0.690%.
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), Retirement
Select contracts and Retirement Select Plus contracts
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
o ATRAs (After-Tax Retirement Annuities)
THE SECURITIES AND EXCHANGE COMMISSION (SEC) HAS NOT APPROVED OR DISAPPROVED
THESE SECURITIES OR PASSED UPON THE ADEQUACY OF THE INFORMATION IN THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
AN INVESTMENT IN THE REAL ESTATE ACCOUNT IS NOT A BANK DEPOSIT AND IS NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
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TABLE OF CONTENTS
About the Real Estate Account and TIAA
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 Financial Condition and
Results of Operations
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
PLEASE SEE APPENDIX A FOR DEFINITIONS OF CERTAIN SPECIAL
TERMS USED IN THIS PROSPECTUS.
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, 2003, TIAA's general account had a mortgage and real property
portfolio of approximately $29 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 2.5
million people at over 15,000 institutions. As of December 31, 2003, TIAA's
assets were approximately $142.4 billion; the combined assets for TIAA and CREF
totaled approximately $289.4 billion.
THE REAL ESTATE ACCOUNT OFFERED BY THIS PROSPECTUS IS ONLY BEING OFFERED IN
THOSE JURISDICTIONS WHERE IT IS LEGAL TO DO SO. NO PERSON MAY MAKE ANY
REPRESENTATION TO YOU OR GIVE YOU ANY INFORMATION ABOUT THE OFFERING THAT IS NOT
IN THE PROSPECTUS. IF ANYONE PROVIDES YOU WITH INFORMATION ABOUT THE OFFERING
THAT IS NOT IN THE PROSPECTUS, YOU SHOULDN'T RELY ON IT.
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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 mortgage-backed securities.
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, 2003, the Account had
approximately 91.38 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.
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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 (i.e., principal is paid over the course of the loan), 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
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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 maximize 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 at least 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
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.
MORTGAGE-BACKED SECURITIES: The Account can invest in mortgage-backed
securities and other mortgage-related or asset-backed instruments, including
commercial mortgage-backed securities (CMBSs), residential mortgage-backed
securities, mortgage-backed securities issued or guaranteed by agencies or
instrumentalities of the U.S. Government, non-agency mortgage instruments, and
collateralized mortgage obligations that are fully collateralized by a portfolio
of mortgages or mortgage-related securities. Mortgage-backed securities are
instruments that directly or indirectly represent a participation in, or are
secured by and payable from, one or more mortgage loans secured by real estate.
In most cases, mortgage-backed securities distribute principal and interest
payments on the mortgages to investors. Interest rates on these instruments can
be fixed or variable. Some classes of mortgage-backed securities may be entitled
to receive mortgage prepayments before other classes do. Therefore, the
prepayment risk for a particular instrument may be different than for other
mortgage-related securities.
INVESTMENT VEHICLES INVOLVED IN REAL ESTATE ACTIVITIES: The Account can
hold interests in limited partnerships, funds, and other commingled investment
vehicles involved in real estate-related activities, including 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
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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
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).
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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. In addition, TIAA's appraisal staff will perform a
valuation of each real estate property on a quarterly basis. 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 it buys a property that is
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 if there is a
default under the loan, the lender's recourse 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 loans
under the line of credit with one or more of its properties
The Account's total borrowings may not exceed 20% of the Account's
total net asset value. (In calculating the 20% limit, 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. Except for 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 or
the joint venture owning the property, 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 TIAA 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 __.
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JOINT INVESTMENTS: The Account can hold property jointly through
general or limited partnerships, joint ventures, leaseholds,
tenancies-in-common, or other legal arrangements. However, the Account will not
hold real property jointly with TIAA or its affiliates.
DISCRETION TO EVICT OR FORECLOSE: TIAA may, in its discretion, evict
defaulting tenants or foreclose on defaulting borrowers to maintain the value of
an investment, when it decides that it's in the Account's best interests.
PROPERTY MANAGEMENT AND LEASING SERVICES: The Account usually will hire
a local management company to perform the day-to-day management services for the
Account's properties, including supervising any on-site personnel, negotiating
maintenance and service contracts, and providing advice on major repairs and
capital improvements. The local manager will also recommend changes in rent
schedules and create marketing and advertising programs to attain and maintain
good occupancy rates by responsible tenants. The Account may also hire leasing
companies to perform or coordinate leasing and marketing services to fill any
vacancies. The fees paid to the local management company, along with any leasing
commissions and expenses, will reduce the Account's cash flow from a property.
INSURANCE: We will try to arrange for, or require proof of,
comprehensive insurance, including liability, fire, and extended coverage, for
the Account's real property and properties securing mortgage loans or subject to
purchase-leaseback transactions. The Account's insurance policies on its
properties 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.
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.
You will be notified in advance if we decide to change a significant policy or
wind down the Account.
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RISKS
THE VALUE OF YOUR INVESTMENT IN THE ACCOUNT WILL GO UP AND DOWN BASED
ON THE VALUE OF THE ACCOUNT'S ASSETS AND THE INCOME THE ASSETS GENERATE. The
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, which
could result in a default on its loan. The lender then could
foreclose on the underlying property and 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
9
refinancing. The Account then may be forced to sell the
property or other properties under unfavorable market
conditions or default on its mortgage.
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
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certain minimum levels of income, or that agreement could
expire, which could reduce operating income and lower returns.
RISKS OF JOINT OWNERSHIP: Investing in joint venture partnerships or
other forms of joint property ownership may involve special risks.
o The co-venturer may have interests or goals inconsistent with
those of the Account.
o If a co-venturer doesn't follow the Account's instructions or
adhere to the Account's policies, the jointly-owned
properties, and consequently the Account, might be exposed to
greater liabilities than expected.
o A co-venturer can make it harder for the Account to transfer
its property interest, particularly if the co-venturer has the
right to decide whether and when to sell the property.
o The co-venturer may become insolvent or bankrupt.
RISKS WITH PURCHASE-LEASEBACK TRANSACTIONS: The major risk of
purchase-leaseback transactions is that the third party lessee will not be able
to make required payments to the Account. If the leaseback interest is
subordinate to other interests in the real property, such as a first mortgage or
other lien, the risk to the Account increases because the lessee may have to pay
the senior lienholder to prevent foreclosure before it pays the Account. If the
lessee defaults or the leaseback is terminated prematurely, the Account might
not recover its investment unless the property is sold or leased on favorable
terms.
APPRAISAL RISKS: Real estate appraisals are only estimates of property
values based on a professional's opinion and may not be accurate predictors of
the amount the Account would actually receive if it sold a property. If an
appraisal is too high, the Account's value could go down upon reappraisal or if
the property is sold for a lower price than the appraisal. If appraisals are too
low, those who redeem prior to an adjustment to the valuation or a property sale
will have received less than the true value of the Account's assets.
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 A deterioration in the financial condition of tenants, or the
bankruptcy or
11
insolvency of a major tenant, may adversely affect the income
of a property, which could increase the likelihood that the
borrower will default under its obligations.
o The borrower may not be able to make a lump sum principal
payment due under a mortgage loan at the end of the loan term,
unless it can refinance the mortgage loan with another lender.
o If interest rates are volatile during the loan period, the
Account's variable-rate mortgage loans could have lower
yields.
PREPAYMENT RISKS: The Account's mortgage loan investments will usually
be subject to the risk that the borrower repays the loan early. Prepayments can
change the Account's return because we may be unable to reinvest the proceeds at
as high an interest rate as the original mortgage loan rate.
INTEREST LIMITATIONS: The interest rate we charge on mortgage loans may
inadvertently violate state usury laws that limit rates, if, for example, state
law changes during the loan term. If this happens, we could incur penalties or
may not be able to enforce payment of the loan.
RISKS OF PARTICIPATIONS: Participating mortgages are subject to the
following additional risks:
o The participation element might generate insufficient returns
to make up for the higher interest rate the loan would have
obtained without the participation feature.
o In very limited circumstances, a court could possibly
characterize the Account's participation interest as a
partnership or joint venture with the borrower and the Account
could lose the priority of its security interest, or be liable
for the borrower's debts.
RISKS OF REIT INVESTMENTS
REITs are subject to many of the same general risks associated with
direct real property ownership. In particular, equity REITs may be affected by
changes in the value of the underlying property owned by the trust, while
mortgage REITs may be affected by the quality of any credit extended. In
addition to these risks, because REIT investments are securities, they may be
exposed to market risk--price volatility due to changing conditions in the
financial markets and, in particular, changes in overall interest rates.
RISKS OF MORTGAGE-BACKED SECURITIES
Mortgage-backed securities are subject to many of the same general
risks inherent in real estate investing, making mortgage loans and investing in
debt securities. In particular, these types of investments may be subject to
prepayment risk - i.e., the risk that borrowers will repay the loans early. If
the underlying mortgage assets experience greater than anticipated payments of
principal, the Account could fail to recoup some or all of its initial
investment in these securities, since the original price paid by the Account is
based in part on assumptions regarding the receipt of interest payments. The
rate of prepayments depends on a variety of geographic,
12
social and other functions, including prevailing market interest rates and
general economic factors.
The market value of these securities is also highly sensitive to
changes in interest rates. Note that the potential for appreciation, which could
otherwise be expected to result from a decline in interest rates, may be limited
by any increased prepayments.
These securities may be harder to sell than other securities.
RISKS OF LIQUID INVESTMENTS
The Account's investments in securities and other liquid investments
may be subject to:
o FINANCIAL RISK--for debt securities, the possibility that the
issuer won't be able to pay principal and interest when due,
and for common or preferred stock, the possibility that the
issuer's current earnings will fall or that its overall
financial soundness will decline, reducing the security's
value.
o MARKET RISK--price volatility due to changing conditions in
the financial markets and, particularly for debt securities,
changes in overall interest rates.
o INTEREST RATE VOLATILITY, which may affect current income from
an investment.
RISKS OF FOREIGN INVESTMENTS
Foreign investments present the following special risks:
o Foreign real estate markets may have different liquidity and
volatility attributes than U.S. markets.
o The value of foreign investments or rental income can go up or
down from changes in currency rates, currency exchange control
regulations, possible expropriation or confiscatory taxation,
political, social, and economic developments, and foreign
regulations.
o The Account may (but is not required to) seek to hedge its
exposure to changes in currency rates, which could involve
extra costs. Hedging might not be successful.
o It may be more difficult to obtain and collect a judgment on
foreign investments than on domestic ones.
NO OPPORTUNITY FOR PRIOR REVIEW OF PURCHASE
You won't have the opportunity to evaluate the economic merit of a
property purchase before the Account completes the purchase, so you will need to
rely solely on TIAA's judgment and ability to select investments consistent with
the Account's investment objective and policies.
13
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" on page __.
You don't have the right to vote for TIAA Trustees directly. See
"Voting Rights" page __. For information about the Trustees and principal
executive officers of TIAA, see Appendix A on page __ of this prospectus.
TIAA'S ERISA FIDUCIARY STATUS. To the extent that assets of a plan
subject to the Employee Retirement Income Security Act of 1974, as amended
(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
14
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.
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, to the
extent permitted by law, liabilities under the Securities Act of 1933. The
Account may make such indemnification out of its assets.
15
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
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
16
A special subcommittee of the Investment Committee of TIAA's Board of
Trustees appointed The Townsend Group as the independent fiduciary, for a new
three-year term, starting March 1, 2003. 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.
DESCRIPTION OF PROPERTIES
THE PROPERTIES--IN GENERAL
As of December 31, 2003, the Account owned a total of 87 real estate
properties, representing 84.26% of the Account's total investment portfolio.
This real estate portfolio includes 35 office properties (six of which are held
in joint ventures), 21 industrial properties (including one joint venture), 22
apartment complexes, 8 retail properties (including three joint ventures, each
owning a regional mall, in which the Account owns a 50% partnership interest),
and a 75% joint venture partnership interest in a portfolio of storage
facilities.
In the table below you will find general information about each of the
Account's portfolio properties as of December 31, 2003.
RENTABLE ANNUAL AVG.
AREA BASE RENT
YEAR YEAR (SQ. FT.) PERCENT PER LEASED MARKET
PROPERTY LOCATION BUILT PURCHASED (1) LEASED SQ. FT. (2) VALUE(3)
- ----------------------------------------------------------------------------------------------------------------------------------
OFFICE PROPERTIES
Mellon Financial Center at Boston, MA 1970(6) 2002 782,241 90% $36.57 $248,000,000
One Boston Place (4)
161 North Clark Street (5) Chicago, IL 1992 2003 1,010,520 97% $15.14 $209,051,330
780 Third Avenue New York, NY 1984 1999 487,501 90% $42.75 $180,000,000
701 Brickell Miami, FL 1986(6) 2002 677,667 95% $17.01 $177,009,565
Ten & Twenty Westport Road Wilton, CT 1974(6); 2001 2001 538,840 100% $25.15 $144,000,000
17
Treat Towers (5) Walnut Creek, CA 1999 2003 367,313 100% $32.00 $112,941,315
Prominence in Buckhead (5) Atlanta, GA 1999 2003 424,309 90% $28.62 $92,494,922
Morris Corporate Center III Parsippany, NJ 1990 2000 525,154 83% $20.91 $90,000,000
Corporate Boulevard Rockville, MD 1984-1989 2002 339,786 91% $21.48 $69,500,000
Oak Brook Regency Towers Oakbrook, IL 1977(6) 2002 402,318 89% $14.06 $67,300,000
88 Kearny Street San Francisco, CA 1986 1999 228,470 82% $37.62 $62,541,205
1015 15th Street Washington, DC 1978(6) 2001 184,825 99% $30.44 $54,300,000
Parkview Plaza(7) Oakbrook, IL 1990 1997 266,020 95% $19.19 $50,400,000
The Farragut Building Washington, DC 1962(6) 2002 146,792 66% $25.82 $45,700,000
Sawgrass Office Portfolio Sunrise, FL 1997-2000 1997, 344,009 95% $12.43 $45,400,000
1999-2000
The Pointe on Tampa Bay Tampa, FL 1982(6) 2002 249,215 88% $20.94 $42,100,000
3 Hutton Centre Santa Ana, CA 1985(6) 2003 197,817 91% $22.10 $39,991,353
Capitol Place Sacramento, CA 1988(6) 2003 151,803 93% $28.97 $38,805,345
Maitland Promenade One Maitland, FL 1999 2000 227,814 95% $18.88 $35,192,924
BISYS Fund Services Building(8) Eaton, OH 1995;2002 1999; 2002 155,964 100% $14.33 $35,500,000
4200 West Cypress Street Tampa, FL 1989 2003 220,579 96% $20.14 $32,824,935
Monument Place Fairfax, VA 1990 1999 221,538 82% $17.47 $33,334,338
Columbia Centre III Rosemont, IL 1989 1997 238,696 68% $15.46 $30,000,000
Biltmore Commerce Center Phoenix, AZ 1985 1999 259,792 85% $18.00 $28,639,089
Fairgate at Ballston(7) Arlington, VA 1988 1997 137,117 96% $14.32 $28,400,000
10 Waterview Boulevard Parsippany, NJ 1984 1999 209,553 64% $12.49 $27,000,000
Tysons Executive Plaza II(9) McLean, VA 1988 2000 252,552 97% $22.79 $25,577,096
Longview Executive Park(7) Hunt Valley, MD 1988 1997 258,999 87% $3.31 $22,200,000
Columbus Portfolio 259,626 $9.12 $22,000,000
Metro South Building Dublin, OH 1997 1999 90,726 67% -
Vision Service Plan Building Eaton, OH 1997 1999 50,000 100% -
One Metro Place Dublin, OH 1998 2001 118,900 97%
9 Hutton Centre Santa Ana, CA 1990 2001 148,265 93% $9.43 $20,343,676
Five Centerpointe(7) Lake Oswego, OR 1988 1997 113,910 93% $19.05 $13,850,797
Needham Corporate Center Needham, MA 1987 2001 138,684 95% $22.36 $12,544,934
Batterymarch Park II Quincy, MA 1986 2001 104,718 88% $18.88 $10,000,000
371 Hoes Lane Piscataway, NJ 1986 1997 139,670 66% $6.65 $ 8,500,000
Northmark Business Center(7) Blue Ash, OH 1985 1997 108,561 29% $10.09 $ 5,200,000
--------------
SUBTOTAL--OFFICE PROPERTIES $2,160,642,824
==============
18
INDUSTRIAL PROPERTIES
Dallas Industrial Portfolio Dallas and Coppell, TX 1997- 2000- 3,763,886 94% $3.15 $138,000,000
(formerly Parkwest Center) 2001 2002
Ontario Industrial Portfolio 2,698,717 100% $3.54 $117,500,000
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
Chicago Industrial Portfolio Chicago and Joliet, IL 1997- 1998; 1,325,134 93% $3.60 $ 59,292,310
(consolidation of Rockrun, 2000 2000
Glen Pointe and Woodcreek
Business Parks)
Rainier Corporate Park Fife, WA 1991-1997 2003 1,104,646 94% $3.56 $ 53,994,267
Memphis CALEast Memphis, TN 1996-1997 2003 1,600,232 83% $2.72 $ 43,036,559
Industrial Portfolio
Northpointe Commerce Center Fullerton, CA 1990-1994 2000 612,023 100% $4.44 $ 41,800,000
Chicago CALEast Chicago, IL 1974-1999 2003 834,549 99% $4.36 $ 40,232,195
Industrial Portfolio
New Jersey CALEast Cranbury, NJ 1982-1989 2003 807,773 100% $4.39 $ 39,843,924
Industrial Portfolio 2002
Summit Distribution Center Memphis, TN 2003 708,532 100% $2.52 $ 21,961,420
Cabot Industrial Portfolio(10) Rancho Cucamonga, CA 2000-2002 2000; 2001; 1,214,475 100% $3.44 $ 52,223,082
2002
IDI Kentucky Portfolio
(formerly, Parkwest Int'l) 1,437,022 100% $3.44 $ 52,000,000
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 -
Atlanta Industrial Portfolio Lawrenceville, GA 1996-99 2000 1,145,693 87% $2.22 $ 37,300,000
South River Road Industrial Cranbury, NJ 1999 2001 626,071 82% $2.69 $ 31,000,000
Konica Photo Imaging Mahwah, NJ 1999 1999 168,000 100% $10.30 $ 18,500,000
Headquarters
Eastgate Distribution Center San Diego, CA 1996 1997 200,000 100% $6.58 $ 16,600,000
Landmark at Salt Lake City Salt Lake City, UT 2000 2000 328,508 100% $3.98 $ 12,500,000
Building #4
UPS Distribution Facility Fernley, NV 1998 1998 256,000 100% $4.07 $ 11,500,000
FEDEX Distribution Facility Crofton, MD 1998 1998 111,191 100% $7.18 $ 7,600,000
Interstate Crossing Eagan, MN 1995 1996 131,380 95% $4.29 $ 6,345,000
Butterfield Industrial Park El Paso, TX 1980-81 1995 183,510 100% $2.41 $ 4,506,687
River Road Distribution Center Fridley, MN 1995 1995 100,456 100% $4.23 $ 4,150,000
------------
SUBTOTAL--INDUSTRIAL PROPERTIES= $809,885,444
============
19
RETAIL PROPERTIES
The Florida Mall (11) Orlando, FL 1986(6) 2002 921,370(12) 98% $36.49 $ 99,279,653(13)
Westwood Marketplace Los Angeles, CA 1950(14) 2002 202,201 100% $26.97 $ 74,000,000
West Town Mall(11) Knoxville, TN 1972(6) 2002 684,777(12) 98% $18.84 $ 76,375,643(13)
Miami International Mall(11) Miami, FL 1982(6) 2002 290,299(12) 98% $29.20 $ 39,789,620(13)
Rolling Meadows Rolling Meadows, IL 1957(6) 1997 130,909 100% $10.62 $ 13,550,000
Plantation Grove Ocoee, FL 1995 1995 73,655 100% $10.83 $ 9,100,000
The Lynnwood Collection Raleigh, NC 1988 1996 86,362 98% $9.04 $ 8,100,000
The Millbrook Collection Raleigh, NC 1988 1996 102,221 72% $6.23 $ 7,000,000
--------------
SUBTOTAL--RETAIL PROPERTIES $ 327,194,916
--------------
SUBTOTAL--COMMERCIAL PROPERTIES $3,297,723,184
==============
RESIDENTIAL PROPERTIES(15)
The Legacy at Westwood Los Angeles, CA 2001 2002 NA 92% NA $ 84,400,000
Apartments
Longwood Towers Brookline, MA 1926(6) 2002 NA 95% NA $ 76,400,000
Ashford Meadows Apartments Herndon, VA 1998 2000 NA 96% NA $ 62,000,000
Larkspur Courts Larkspur, CA 1991 1999 NA 94% NA $ 55,000,000
The Colorado New York, NY 1987 1999 NA 98% NA $ 54,008,059
Regents Court Apartments San Diego, CA 2001 2002 NA 93% NA $ 49,600,000
South Florida Apartment Boca Raton and 1986 2001 NA 96% NA $ 46,700,000
Portfolio Plantation, FL
Doral Pointe Apartments Miami, FL 1990 2001 NA 95% NA $ 42,600,000
Alexan Buckhead Atlanta, GA 2002 2002 NA 64% NA $ 41,000,000
The Lodge at Willow Creek Denver, CO 1997 1997 NA 93% NA $ 31,698,947
Golfview Apartments Lake Mary, FL 1998 1998 NA 91% NA $ 27,750,000
Lincoln Woods Apartments Lafayette Hill, PA 1991 1997 NA 92% NA $ 26,704,000
The Legends at Chase Oaks Plano, TX 1997 1998 NA 96% NA $ 26,000,000
Kenwood Mews Apartments Burbank, CA 1991 2001 NA 96% NA $ 22,700,000
Westcreek Apartments Westlake Village, CA 1988 1997 NA 97% NA $ 22,000,000
Monte Vista Littleton, CO 1995 1996 NA 97% NA $ 20,600,000
Quiet Waters at Coquina Lakes Deerfield Beach, FL 1995 2001 NA 97% NA $ 18,800,000
The Fairways of Carolina Margate, FL 1993 2001 NA 97% NA $ 18,000,000
Indian Creek Apartments Farmington Hills, MI 1988 1998 NA 95% NA $ 17,700,000
Royal St. George W. Palm Beach, FL 1995 1996 NA 98% NA $ 17,700,000
The Greens at Metrowest Orlando, FL 1990 1995 NA 96% NA $ 14,000,000
Apartments
Bent Tree Apartments Columbus, OH 1987 1998 NA 93% NA $ 13,000,000
--------------
SUBTOTAL--RESIDENTIAL PROPERTIES NA $ 788,361,006
==============
20
OTHER COMMERCIAL PROPERTIES
Storage Portfolio I, LLC(16) Various, U.S. 1972-1990 2003 2,230,743 78% $12.57 $ 175,676,890
--------------
TOTAL--ALL PROPERTIES $4,261,761,080
==============
(1) The square footage is an approximate measure and is subject to periodic
remeasurement.
(2) Based on total contractual rent on leases existing at December 31, 2003.
For those properties purchased in fourth quarter of 2003, the number was
derived by annualizing the rents charged by the Account since acquiring the
property.
(3) Market value reflects the value determined in accordance with the
procedures described in the Account's prospectus and as stated in the
Consolidated Statement of Investments.
(4) The Account purchased a 50.25% interest in a private REIT, which owns this
property. A 49.70% interest is owned by Societe Immobiler Trans-Quebec, and
.05% is owned by 100 individuals.
(5) Property held in a 75%/25% joint venture with Equity Office Properties.
(6) Undergone extensive renovations since original construction.
(7) Purchased through Light Street Partners, L.P. (now 100% owned by the
Account).
(8) Property held in 96%/4% joint venture with Georgetown BISYS Phase II LLC.
Phase II was purchased in 2002.
(9) 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.
(10) The property is held in an 80%/20% joint venture with Cabot Industrial
Trust.
(11) Each property is held in an approximately 50%/50% joint venture with the
Simon Property Group.
(12) Reflects the square footage owned by the joint venture.
(13) Market value shown represents the Account's interest after debt.
(14) Total renovation completed in 2001.
(15) For the average unit size and annual average rent per unit for each
residential property, see "Residential Properties" below.
(16) Property held in 75%/25% joint venture with Storage USA.
COMMERCIAL (NON-RESIDENTIAL) PROPERTIES
IN GENERAL. At December 31, 2003, the Account held 65 commercial
(non-residential) properties in its portfolio. Fourteen of these properties are
held through joint ventures, three of which are subject to mortgages. 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.
The Account's portfolio is well diversified by both property type, as
well as geographic location. The portfolio consists of: 35 office properties
containing approximately 10.6 million square feet located in 13 states and the
District of Columbia; 21 industrial properties containing 19.4 million square
feet located in 12 states; and 8 retail properties containing approximately 2.6
million square feet located in 5 states. In addition, the Account has a 75%
interest in a portfolio of storage facilities located throughout the United
States.
As of December 31, 2003, the overall occupancy rate of Account's
commercial real estate portfolio was 94% on a weighted average basis. Office
properties were 90% leased with 844 leases, industrial properties were 95%
leased with 166 leases, and retail properties were 94% leased with 518 leases.
No single tenant accounts for more than 3.74% of the total rentable area of the
Account's commercial properties.
MAJOR TENANTS: The following table lists the Account's major commercial
tenants based on the total space they occupy in the Account's properties.
21
PERCENTAGE OF TOTAL
RENTABLE AREA OF PERCENTAGE OF TOTAL RENTABLE
OCCUPIED ACCOUNT'S OFFICE AREA OF ACCOUNT'S NON-
MAJOR OFFICE TENANTS SQUARE FEET PROPERTIES RESIDENTIAL PROPERTIES
- ----------------------------------------------------------------------------------------------------------
Accenture 400,264 3.8% 1.2%
The Boston Company 361,623 3.4% 1.1%
Chicago Title & Trust 264,775 2.5% 0.8%
VanKampen 235,717 2.2% 0.7%
BISYS Fund Services 227,869 2.1% 0.7%
PHH Vehicle Management 199,563 1.9% 0.6%
Cadbury Adams 173,788 1.6% 0.5%
Nortel 141,342 1.3% 0.4%
Deloitte & Touche 136,580 1.3% 0.4%
Louis Dreyfuss 130,122 1.2% 0.4%
PERCENTAGE OF TOTAL
RENTABLE AREA OF PERCENTAGE OF TOTAL RENTABLE
OCCUPIED ACCOUNT'S RETAIL AREA OF ACCOUNT'S NON-
MAJOR RETAIL TENANTS SQUARE FEET PROPERTIES RESIDENTIAL PROPERTIES
- ----------------------------------------------------------------------------------------------------------
JC Penney 196,931 7.7% 0.6%
Proffits 162,501 6.3% 0.5%
Parisian 143,278 5.6% 0.4%
Saks Fifth Avenue 105,672 4.1% 0.3%
Kroger 104,674 4.1% 0.3%
Home Depot Expo Design 98,350 3.8% 0.3%
Regal Cinema 76,580 3.0% 0.2%
Jewel-Osco 62,230 2.4% 0.2%
Old Navy 57,076 2.2% 0.2%
Ralphs 52,040 2.0% 0.2%
PERCENTAGE OF TOTAL
RENTABLE AREA OF PERCENTAGE OF TOTAL RENTABLE
OCCUPIED ACCOUNT'S INDUSTRIAL AREA OF ACCOUNT'S NON-
MAJOR INDUSTRIAL TENANTS SQUARE FEET PROPERTIES RESIDENTIAL PROPERTIES
- ----------------------------------------------------------------------------------------------------------
Walmart 1,099,112 5.7% 3.4%
The Gap, Inc. 1,045,000 5.4% 3.2%
Hewlett-Packard Company 708,532 3.7% 2.2%
Honeywell 700,000 3.6% 2.2%
Standard Motor Products 671,172 3.5% 2.1%
Wickes Furniture 573,000 3.0% 1.8%
Meiko America 557,500 2.9% 1.7%
New Breed Transfer Corp 537,900 2.8% 1.7%
Carrier 500,000 2.6% 1.5%
UPS Worldwide 463,750 2.4% 1.4%
22
LEASE EXPIRATIONS: The following charts provide lease expiration
information for the Account's commercial properties, categorized by property
type. While many of the leases contain renewal options with varying terms, these
charts assume that none of the tenants exercise their renewal options.
OFFICE PROPERTIES
RENTABLE AREA PERCENTAGE OF TOTAL RENTABLE
SUBJECT TO AREA OF ACCOUNT'S
EXPIRING NON-RESIDENTIAL PROPERTIES
NUMBER OF LEASES LEASES REPRESENTED BY EXPIRING
YEAR OF LEASE EXPIRATION EXPIRING (SQ. FT.) LEASES
- -------------------------------------------------------------------------------------------------------
2004 152 1,254,716 11.8%
2005 143 1,323,445 12.5%
2006 120 1,174,349 11.1%
2007 119 867,070 8.2%
2008 97 1,243,620 11.8%
2009 and thereafter 213 3,219,438 30.4%
--- --------- -----
- -------------------------------------------------------------------------------------------------------
TOTAL 844 9,092,638 85.7%
- -------------------------------------------------------------------------------------------------------
RETAIL PROPERTIES
- -------------------------------------------------------------------------------------------------------
RENTABLE AREA PERCENTAGE OF TOTAL RENTABLE
SUBJECT TO AREA OF ACCOUNT'S
EXPIRING NON-RESIDENTIAL PROPERTIES
NUMBER OF LEASES LEASES REPRESENTED BY EXPIRING
YEAR OF LEASE EXPIRATION EXPIRING (SQ. FT.) LEASES
- -------------------------------------------------------------------------------------------------------
2004 53 92,360 3.6%
2005 76 226,734 8.8%
2006 75 149,781 5.8%
2007 52 120,498 4.7%
2008 32 294,488 11.5%
2009 and thereafter 230 1,547,391 60.2%
--- --------- -----
- -------------------------------------------------------------------------------------------------------
TOTAL 518 2,431,252 94.7%
- -------------------------------------------------------------------------------------------------------
23
INDUSTRIAL PROPERTIES
- -------------------------------------------------------------------------------------------------------
PERCENTAGE OF TOTAL RENTABLE
RENTABLE AREA AREA OF ACCOUNT'S
SUBJECT TO NON-RESIDENTIAL PROPERTIES
NUMBER OF LEASES EXPIRING LEASES REPRESENTED BY EXPIRING
YEAR OF LEASE EXPIRATION EXPIRING (SQ. FT.) LEASES
- -------------------------------------------------------------------------------------------------------
2004 27 2,251,036 11.6%
2005 36 3,229,331 16.7%
2006 33 2,313,602 12.0%
2007 16 1,850,189 9.6%
2008 32 4,103,716 21.2%
2009 and thereafter 22 4,274,900 22.1%
-- --------- -----
- -------------------------------------------------------------------------------------------------------
TOTAL 166 18,022,774 93.1%
- -------------------------------------------------------------------------------------------------------
RESIDENTIAL PROPERTIES
The Account's residential property portfolio currently consists of 22
first class or luxury multi-family garden apartment complexes, mid-rise and high
rise apartment buildings. The portfolio contains approximately 5,796 units
located in 11 states, with an overall occupancy rate of 94%. None of the
residential 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 additional information regarding the
residential properties in the Account's portfolio as of December 31, 2003.
AVG. RENT
NUMBER AVG. UNIT SIZE PER UNIT/
PROPERTY LOCATION OF UNITS (SQUARE FEET) PER MONTH
The Legacy at Westwood Apartments Los Angeles, CA 187 1,180 $3,842.00
Longwood Towers Brookline, MA 268 938 $2,245.00
Ashford Meadows Herndon, VA 440 1,050 $1,385.00
The Colorado New York, NY 254 622 $2,361.00
Larkspur Courts Larkspur, CA 248 1,001 $1,884.00
Regents Court Apartments San Diego, CA 251 886 $1,426.00
South Florida Apartment Portfolio Boca Raton, Plantation, FL 550 889 $ 990.00
Alexan Buckhead Atlanta, GA 231 990 $1,641.00
Doral Pointe Apartments Miami, FL 440 1,150 $1,136.00
The Lodge at Willow Creek Denver, CO 316 996 $1,197.00
Golfview Apartments Lake Mary, FL 277 1,134 $1,147.00
The Legends at Chase Oaks Plano, TX 346 972 $ 994.00
Lincoln Woods Apartments Lafayette Hill, PA 216 774 $1,247.00
Kenwood Mews Apartments Burbank, CA 141 942 $1,416.00
Monte Vista Littleton, CO 219 888 $1,022.00
24
Westcreek Apartments Westlake Village, CA 126 951 $1,661.00
Indian Creek Apartments Farmington Hills, MI 196 1,139 $1,021.00
Quiet Waters at Coquina Lakes Deerfield Beach, FL 200 1,048 $1,078.00
Royal St. George West Palm Beach, FL 224 870 $ 927.00
The Fairways of Carolina Margate, FL 208 1,026 $1,012.00
The Greens at Metrowest Apartments Orlando, FL 200 920 $ 886.00
Bent Tree Apartments Columbus, OH 256 928 $ 794.00
RECENT PROPERTY PURCHASES AND SALES
[TO COME IF APPLICABLE]
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 TRANSACTIONS MADE BY THE ACCOUNT AFTER THE DATE
OF THIS PROSPECTUS WILL BE DESCRIBED IN SUPPLEMENTS TO THE PROSPECTUS, AS
APPROPRIATE.
25
SELECTED FINANCIAL DATA
The following selected financial data should be considered in
conjunction with the Account's consolidated financial statements and notes
provided in this report.
YEAR ENDING YEAR ENDING YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ----
Investment income:
Real estate income, net:
Rental income...............$ 393,497,346 $287,419,001 $233,574,957 $180,751,733 $128,971,928 $ 77,852,934
-------------- ------------ ------------ ------------ ------------ ------------
Real estate property level
expenses and taxes:
Operating expenses........ 96,026,718 63,789,057 48,690,151 37,784,524 27,175,434 17,190,095
Real estate taxes......... 53,413,903 35,848,075 27,963,306 21,677,181 15,631,453 8,755,526
-------------- ------------ ------------ ------------ ------------ ------------
Total retal estate
property level expenses
and taxes.............. 149,440,621 99,637,132 76,653,457 59,461,705 42,806,887 25,945,621
-------------- ------------ ------------ ------------ ------------ ------------
Real estate income, net 244,056,725 187,781,869 156,921,500 121,290,028 86,165,041 51,907,313
Income from real estate
joint ventures.................. 19,492,494 14,125,306 2,392,594 756,133 -- --
Dividends and interest........... 19,461,931 26,437,901 33,687,343 31,334,291 24,932,733 23,943,728
-------------- ------------ ------------ ------------ ------------ ------------
Total investment income . 283,011,150 228,345,076 193,001,437 153,380,452 111,097,774 75,851,041
Expenses......................... 31,654,065 23,304,336 17,191,929 13,424,566 9,278,410 6,274,594
-------------- ------------ ------------ ------------ ------------ ------------
Investment income net..... 251,357,085 205,040,740 175,809,508 139,955,886 101,819,364 69,576,447
Net realized and unrealized
gain on investments............. 17,229,435 (106,424,480) (23,485,614) 54,147,449 9,834,743 7,864,659
-------------- ------------ ------------ ------------ ------------ ------------
Net increase in net assets
resulting from continuing
operations before minority
interest and discontinued 268,586,520 98,616,260 152,323,894 194,103,335 111,654,107 77,441,106
opereations Minority interest (6,655,183) (1,484,585) (811,789) -- 1,364,619 (3,487,991)
Discontinued operations.......... 41,641,549 19,110,363 17,706,880 11,339,359 2,925,041 2,658,547
Participant transactions......... 813,860,715 346,079,345 657,326,121 486,196,949 383,171,774 333,936,510
-------------- ------------ ------------ ------------ ------------ ------------
Net increase in net assets.......$1,117,433,601 $462,321,383 $826,545,106 $691,639,643 $499,115,541 $410,548,172
============== ============ ============ ============ ============ ============
DECEMBER 31,
2003 2002 2001 2000 1999 1998
---- ---- ---- ---- ---- ----
Total assets.....................$5,165,683,386 $3,870,532,278 $3,270,384,450 $2,423,100,402 $1,719,457,715 $1,229,603,431
Total liabilities and
minority interest............... 372,261,225 194,543,718 56,717,273 35,978,331 23,975,287 33,236,544
-------------- -------------- -------------- -------------- -------------- --------------
Total net assets................ $4,793,422,161 $3,675,988,560 $3,213,667,177 $2,387,122,071 $1,695,482,428 $1,196,366,887
============== ============== ============== ============== ============== ==============
Accumulation units outstanding 24,724,183 20,346,696 18,456,445 14,604,673 11,487,360 8,833,911
Accumulation unit value......... $186.94 $173.90 $168.16 $158.21 $142.97 $132.17
============== ============== ============== ============== ============== ==============
JULY 3, 1995
(COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
---- ---- ----
Investment income:
Real estate income, net:
Rental income............... $ 41,189,608 $ 9,504,481 $ 165,762
------------ ------------ ------------
Real estate property level
expenses and taxes:
Operating expenses........ 8,843,557 1,995,822 29,173
Real estate taxes......... 4,234,044 1,053,703 14,659
------------ ------------ ------------
Total retal estate
property level expenses
and taxes.............. 13,077,601 3,049,525 43,832
------------ ------------ ------------
Real estate income, net 28,112,007 6,454,956 121,930
Income from real estate
joint ventures.................. -- -- --
Dividends and interest........... 16,486,279 6,027,486 2,828,900
------------ ------------ ------------
Total investment income . 44,598,286 12,482,442 2,950,830
Expenses......................... 3,526,545 1,155,796 310,433
------------ ------------ ------------
Investment income net..... 41,071,741 11,326,646 2,640,397
Net realized and unrealized
gain on investments............. 18,147,053 3,330,539 35,603
------------ ------------ ------------
Net increase in net assets
resulting from continuing
operations before minority
interest and discontinued 59,218,794 14,657,185 2,676,000
opereations Minority interest (1,881,178) -- --
Discontinued operations.......... 2,773,784 1,125,730 --
Participant transactions......... 356,052,262 233,653,793 117,582,345
------------ ------------ ------------
Net increase in net assets....... $416,123,662 $249,436,708 $120,258,345
============ ============ ============
1997 1996 1995
---- ---- ----
Total assets..................... $815,760,825 $426,372,007 $143,177,421
Total liabilities and
minority interest............... 29,942,110 56,676,954 22,919,076
------------ ------------ ------------
Total net assets................ $785,818,715 $369,695,053 $120,258,345
============ ============ ============
Accumulation units outstanding 6,313,015 3,295,786 1,172,498
Accumulation unit value......... $122.30 $111.11 $102.57
============ ============ ============
26
QUARTERLY SELECTED FINANCIAL INFORMATION
The following is selected financial information for the Account for each full
quarter within the past two calendar years:
2002
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
Investment
income, net $ 44,171,299 $ 50,812,802 $ 51,683,669 $ 58,372,970
Net realized gain
(loss)
on investments 4,320,393 3,091,947 1,428,243 (1,914,498)
Net unrealized gain
(loss)
on investments (29,088,106) (22,640,922) (30,606,185) (31,015,352)
Minority interest (119,166) (521,681) 42,020 (885,758)
Discontinued operations 5,822,819 7,975,157 3,849,198 1,463,189
------------ ------------ ------------ ------------
Net increase in net
assets resulting
from operations $ 25,107,239 $ 38,717,303 $ 26,396,945 $ 26,020,551
============ ============ ============ ============
Total return 0.77% 1.14% 0.76% 0.74%
===== ===== ===== =====
2003
FOR THE THREE MONTHS ENDED
--------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
--------- -------- ------------- ------------
Investment
income, net $ 59,964,355 $ 61,367,758 $ 62,077,623 $ 67,947,349
Net realized gain
(loss)
on investments (396,673) (441,873) 40,568 8,490,244
Net unrealized gain
(loss)
on investments (8,597,738) (12,077,579) 17,190,244 13,022,242
Minority interest (2,688,475) 1,059,606 (2,893,330) (2,132,984)
Discontinued operations 3,275,420 18,080,818 34,686,260 (14,400,949)
------------ ------------ ------------ ------------
Net increase in net
assets resulting
from operations $ 51,556,889 $ 67,988,730 $111,101,365 $ 72,925,902
============ ============ ============ ============
Total return 1.38% 1.74% 2.71% 1.67%
===== ===== ===== =====
27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS SHOULD BE READ TOGETHER WITH OUR CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES CONTAINED IN THIS PROSPECTUS.
2003 OVERVIEW
As of December 31, 2003, the TIAA Real Estate Account had total net
assets in the amount of $4,793,422,161, a 30.40% increase over the 2002 year end
total net assets. The Account closed 19 transactions in 2003 in the total net
amount of $615.6 million. It purchased 12 properties: six office properties,
including three joint ventures, five industrial properties and one portfolio of
storage facilities for a total of $753.5 million. Additional transactions
included: the purchase of additional nominal interest in three existing joint
ventures (a total amount of $181 thousand), a commitment to purchase an interest
in a real estate-related fund ($25 million) and the expansion of an existing
industrial property to accommodate the growth on an existing tenant under long
term lease ($18.0 million). In 2003, the Account also sold two properties (one
office and one industrial) for a total of $187 million.
As of December 31, 2003, the Account owned a total of 87 real estate
properties, representing 84.26% of the Account's total investment portfolio.
This real estate portfolio includes 35 office properties (six of which are held
in joint ventures), 21 industrial properties (including four joint ventures), 22
apartment complexes, 8 retail properties (including three joint ventures, each
owning a regional mall, in which the Account owns a 50% partnership interest),
and a 75% joint venture partnership interest in a portfolio of storage
facilities.
The two charts below reflect the diversification of the Account's real
estate assets by region and property type as well as its ten largest holdings.
All information is based on the values of the properties as stated in the
consolidated financial statements as of December 31, 2003.
DIVERSIFICATION OF THE ACCOUNT'S REAL ESTATE ASSETS
EAST MIDWEST SOUTH WEST VARIOUS TOTAL
(26) (14) (24) (22) (1) (87)
OFFICE (35) 23.5% 9.9% 10.0% 7.5% 0 50.9%
INDUSTRIAL (21) 3.5% 2.5% 5.7% 7.2% 0 18.9%
RESIDENTIAL (22) 5.2% 0.7% 5.9% 6.7% 0 18.5%
RETAIL (8) 0.4% 0.3% 5.2% 1.7% 0 7.6%
OTHER (1)* 0.0% 0.0% 0.0% 0.0% 4.1% 4.1%
---- ---- ---- ---- ---- ----
TOTAL (87) 32.6% 13.4% 26.8% 23.1% 4.1% 100.0%
( ) Number of properties in parentheses.
* Represents a portfolio of storage facilities located in various regions.
28
VALUE % OF NET
PROPERTY NAME STATE PROPERTY TYPE (000,000) ASSETS
- --------------------------------------------------------------------------------------------------------------
Mellon Financial Center at One Boston Place MA Office $248.0(1) 5.17%
161 North Clark Street IL Office $209.1(2) 4.36%
780 Third Avenue NY Office $180.0 3.76%
701 Brickell FL Office $177.0 3.69%
Storage Portfolio I, LLC Various Other- $175.7(4) 3.67%
Commercial (3)
Ten & Twenty Westport Road CT Office $144.0 3.00%
Dallas Industrial Portfolio TX Industrial $138.0 2.88%
Ontario Industrial Portfolio CA Industrial $117.5 2.45%
Treat Towers CA Office $112.9(5) 2.36%
The Florida Mall FL Retail $ 99.3(6) 2.07%
- --------------------------------------------------------------------------------------------------------------
(1) This amount reflects the value of the property as stated in the
Consolidated Financial Statements, which includes minority interests. The
value of the Account's interest in the property is $124.6 million, which
represents 2.60% of the Account's Total Net Assets.
(2) This amount reflects the value of the property as stated in the
Consolidated Financial Statements, which includes minority interests. The
value of the Account's interest in the property is $156.8 million, which
represents 3.27% of the Account's Total Net Assets.
(3) This property is a portfolio of storage facilities.
(4) This amount represents the value of the property as stated in the
Consolidated Financial Statements, which includes minority interests. The
value of the Account's interest in the property is $131.8 million, which
represents 2.75% of the Account's Total Net Assets.
(5) This amount represents the value of the property as stated in the
Consolidated Financial Statements, which includes minority interests. The
value of the Account's interest in the property is $84.7 million, which
represents 1.77% of the Account's Total Net Assets.
(6) This property is held in an unconsolidated joint venture and is subject to
debt. The value reflects the Account's interest in the joint venture after
debt.
As of December 31, 2003, the Account also held investments in real
estate investment trusts (REITs), representing 5.24% of the portfolio,
commercial mortgage-backed securities (CMBS), representing 1.05% of the
portfolio, real estate limited partnerships, representing 0.83% of the
portfolio, and commercial paper and government bonds, representing 8.62% of the
portfolio.
REAL ESTATE MARKET OUTLOOK IN GENERAL
While the National Bureau of Economic Research (NBER) announced
mid-2003 that the recession was over, the U.S. economic recovery has been weak.
U.S. payroll employment did
29
not start to grow until late-2003, and job growth has been modest and generally
below economists' expectations. Because there was only minimal job growth,
commercial real estate markets remained sluggish through much of 2003.
Office vacancies averaged 16.8% as of the end of 2003, compared with
16.5% at year-end 2002. Vacancies in the nation's CBDs (central business
districts) averaged 13.9% versus 18.5% in the suburbs. The national vacancy rate
declined modestly in both the third and fourth quarters of 2003, which along
with anecdotal reports, suggests that office markets have stabilized.
Nonetheless, office space demand is lackluster as U.S. corporations are closely
watching costs and hiring very reluctantly. On a positive note, construction has
fallen sharply. Total construction was 40 million square feet in 2003 versus 70
million square feet in 2002. Sustained growth in U.S. payrolls combined with
modest construction would materially improve supply/demand fundamentals.
Industrial vacancies averaged 11.6% as of year-end 2003, compared with
11.0% at year-end 2002. Industrial vacancies have increased for twelve
consecutive quarters, though the rate of increase has slowed markedly of late.
Construction has also slowed significantly. As of year-end 2003, there was total
construction of roughly 73 million square feet in 2003 versus 98 million square
feet in 2002. Historically, there has been a positive correlation between growth
in the U.S. economy, as indicated by GDP growth, and warehouse space demand.
Despite eight consecutive quarters of GDP growth, industrial space demand has
remained slack, but continued growth in U.S. GDP would bode well for industrial
market prospects.
Apartment demand was lackluster in 2003 due to job losses and rising
unemployment during the first half of the year, significant new construction and
a booming single-family home market which pulled households out of rental
housing. According to the Census Bureau, rental vacancies rose to 10.2% as of
the third quarter of 2003 compared to 9.3% as of the third quarter of 2002.
Vacancies in institutional grade apartments averaged 6.5% as of the third
quarter of 2003 compared with 5.4% as of the third quarter of 2002. (Year-end
2003 data were not available at the time this was written). Notably, vacancies
in institutional grade apartments improved modestly during 2003 as the economic
recovery gained momentum and demand began to recover. Concessions, such as free
rent and free Internet access, are still necessary to attract and retain
tenants, but show signs of abating.
Despite lackluster economic conditions, retail space markets were
healthy through much of 2003. Consumer spending remained robust as households
benefited from personal income tax cuts, rebate checks for families with
children, and falling prices for apparel, electronics goods and other items.
Vacancies at regional malls owned by the largest REITs averaged 8.5% as of third
quarter 2003 compared with 9.0% at third quarter 2002. Vacancies in neighborhood
and community centers averaged 6.9% as of the end of 2003, versus 6.8% at
year-end 2002.
30
ECONOMIC OUTLOOK FOR 2004
Prospects for commercial real estate markets are linked to prospects
for the U.S. economy, which has shown indications that the economic recovery has
gained momentum. U.S. GDP has grown for eight consecutive quarters, initial
unemployment claims have fallen and The Conference Board's "U.S. leading index",
which is designed to provide an indication of economic conditions in the near
future, has grown at a 4.7% annual rate since March 2003. In addition,
employment in temporary help services, a precursor to full-time employment, has
grown by 166,000 since April 2003. Further, corporate profits have started to
increase, and profitability is often a precursor to new hiring and investment in
new offices, factories and equipment. Nonetheless, the strength of the economic
recovery is not predictable, and changes in real estate market conditions often
lag changes in economic conditions. Consequently, a sustained and prolonged
economic recovery may be necessary to generate material improvement in real
estate market conditions.
RESULTS OF OPERATIONS
When reviewing this discussion, it is important to note that when the
Account owns a controlling interest (over 50%) in a joint venture, consistent
with generally accepted accounting principles (GAAP), the Account's consolidated
financial statements and all financial data discussed in the report reflect 100%
of the market value of the joint venture's assets. The interests of the other
joint venture partners are reflected as minority interests in the Account's
consolidated financial statements. When the Account does not have a controlling
interest in a joint venture, then only the Account's net investment in the joint
venture is recorded by the Account.
Note also that all of the Account's properties are appraised and
revalued on a quarterly basis, in accordance with the valuation policies
described in Note 1 to the Consolidated Financial Statements. Until a property
is sold, these changes in property values are recorded as unrealized gains or
losses. Upon the sale of a property, the difference between the Account's then
current cost for the property (original purchase price plus the cost of any
capital improvements made) and the sale price is recorded as a realized gain or
loss on discontinued operations.
Note also that in accordance with the Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 144 (SFAS No. 144), the
income and gains from properties sold or held for sale during the periods
covered were removed from continuing operations in the accompanying consolidated
financial statements and were reclassified as discontinued operations. For more
details, see "Results from Discontinued Operations" below.
31
YEAR ENDED DECEMBER 31, 2003 COMPARED TO
YEAR ENDED DECEMBER 31, 2002
RESULTS FROM CONTINUING OPERATIONS
PERFORMANCE
The Account's total return was 7.50% for the year ended December 31,
2003 and 3.41% for 2002. The substantial increase in the Account's overall
performance on a year-to-year basis reflects the strong performance of the
Account's real estate properties and REIT holdings. The 2003 total return on the
Account's real estate holdings was significantly higher than the 2002 annual
total return. Many of the Account's real estate properties increased in value in
2003, as compared to the substantial declines in value experienced by the
Account's real estate assets in 2002, which enhanced its strong income returns.
This difference can be attributed to the strength of the institutional
investors' interest in real estate as an asset class, notwithstanding the
challenges to the underlying fundamentals posed by the overall economic
conditions. The strong performance of the Account's REIT holdings also added to
the total return.
INCOME AND EXPENSES
The Account's net investment income after deduction of all expenses was
22.6% higher for the year ended December 31, 2003 compared to the same period in
2002 primarily due to a 30.4% increase in total net assets, which included a
21.19% increase in the Account's real estate holdings, including joint ventures.
The Account's real estate holdings, including joint venture
investments, generated approximately 93% and 88% of the Account's total
investment income (before deducting Account level expenses) during 2003 and
2002, respectively. The remaining portion of the Account's total investment
income was generated by marketable securities investments.
Gross real estate rental income increased approximately 37% in the year
ended December 31, 2003 as compared to a 23% increase over the same period in
2002. This was primarily due to the increased number of properties owned by the
Account from 77 properties (including joint ventures) as of December 31, 2002 to
87 properties (including joint ventures) as of December 31, 2003. Income from
real estate joint ventures was $19,492,494 as of December 31, 2003 as compared
with $14,125,306 as of December 31, 2002. The increase in joint venture income
was due to the increase in number of joint ventures from 2002 to 2003, as well
as the positive effect of re-financing the debt on one of the Account's
leveraged properties. Interest income on the Account's marketable securities
investments decreased from $13,546,694 in 2002 to $7,221,765 in 2003 due to a
decline in short-term rates from 2002 to 2003. Dividend income on the Account's
REIT investments decreased from $12,891,207 for the year ended December 31,
2002, to $12,240,166 for the year ended December 31, 2003.
32
Total property level expenses for the year ended December 31, 2003 and
2002 were $149,440,621, and $99,637,132, respectively. In both years ended 2003
and 2002, 64% of the total expenses represented operating expenses and 36%
represented real estate taxes. The almost 50% increase in property level
expenses during 2003 reflected the increased number of properties in the
Account, as well as an increase in certain operating expenses including
insurance and security costs.
The Account also incurred expenses for the years ended December 31,
2003 and 2002 of $12,751,191 and $9,495,736 respectively, for investment
advisory services, $14,786,580 and $10,390,705 respectively, for administrative
and distribution services, and $4,116,294 and $3,417,895 respectively, for the
mortality, expense risk and liquidity guarantee charges. The overall 36%
increase in expenses is a result of the larger net asset base in the Account,
and the increased costs associated with managing and administering the Account.
NET REALIZED AND UNREALIZED GAINS AND LOSSES ON INVESTMENTS
Including the net gains and losses realized by the Account for
properties sold (see details under "Results from Discontinued Operations"), the
Account had a 161% increase in net assets resulting from operations
($303,572,866 in December 2003 as compared to $116,242,038 in December 2002).
The increase is due to the realization of substantial gains on the two
properties sold in 2003, as well as substantial realized and unrealized gains on
the Account's marketable securities and joint venture properties. The strong
2003 performance can also be attributed to the decrease in the magnitude of
unrealized losses on the Account's real estate holdings in 2003 as compared to
2002.
The Account had net realized gains of $32,598,548 on the sale of two
properties during the year ended December 31, 2003, as compared with $3,457,196
on the sale of two properties during 2002. The Account had unrealized gains on
its other real estate-related holdings of $29,401,727 during the year ended
December 31, 2003, as compared with losses of $5,781,360 during the same period
in 2002, which can be attributed primarily to the increase in value of three
regional malls in which the Account owns a joint venture interest. The decrease
in unrealized losses on the Account's real estate holdings can be attributed to
a decrease in the number of properties affected by declines in value during the
year ended December 31, 2003, as compared with the same period in 2002. The
Account's marketable securities for the year ended December 31, 2003 had net
realized and unrealized gains totaling $39,963,920 as compared with net realized
and unrealized losses of $6,195,855 for the year ended December 31, 2002. The
net gains on the Account's marketable securities for the year ended December 31,
2003 was due primarily to the strong performance of the REIT markets during the
period.
RESULTS FROM DISCONTINUED OPERATIONS
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-
33
LIVED ASSETS. The Account adopted SFAS No. 144 as of January 1, 2002. During
both the year ended December 31, 2003 and the year ended December 31, 2002, two
real estate properties were sold (four properties in total). In accordance with
SFAS No. 144, the investment income and realized gain for the years ended
December 31, 2003 and 2002 related to each of these properties was removed from
continuing operations in the accompanying consolidated financial statements and
was classified as discontinued operations. The income from the properties sold
in the year ended December 31, 2003, consisted of rental income of $14,215,497
less operating expenses of $3,502,961 and real estate taxes of $1,669,535,
resulting in net investment income of $9,043,001. The income from the properties
sold in the year ended December 31, 2003, together with the two properties sold
in the year ended December 31, 2002 consisted of rental income of $22,172,787
less operating expenses of $3,883,239 and real estate taxes of $2,636,381
resulting in net investment income of $15,653,167. At the time of sale, the
properties sold in 2003 had a cost of $154,626,452 and the proceeds of sale were
$187,225,000, resulting in a net realized gain of $32,598,548. The properties
sold in 2002 had a cost of $22,592,804 and the proceeds of sale were
$26,050,000, resulting in a net realized gain of $3,457,196.
YEAR ENDED DECEMBER 31, 2002 COMPARED TO
YEAR ENDED DECEMBER 31, 2001
RESULTS FROM CONTINUED OPERATIONS
PERFORMANCE
The Account's total net return was 3.41% for the year ended December
31, 2002 and 6.29% for 2001. The substantial decline in the Account's overall
performance on a year-to-year basis reflected the effects of the economic
recession, which began in early 2001, and persisted throughout 2002. The decline
in value of the real estate properties owned by the Account reflecting the
effects of the deteriorating market conditions was the primary reason for the
decline in its total return. The negative impact of the recessionary economy was
reflected in lower market rental rates, higher vacancies, and increased leasing
costs and tenant concessions. In 2002, the Account's real estate properties
continued to produce strong income returns, and at year end 2002, the
non-residential property portfolio was 92% occupied overall with only 10% of the
non-residential property portfolio's square footage up for renewal or re-leasing
in 2003.
The modest returns produced by the REIT markets in 2002, as well as the
low interest rates earned by its short-term holdings, also negatively affected
the Account's overall performance.
INCOME AND EXPENSES
The Account's net investment income after deduction of all expenses was
16.63% higher for the year ended December 31, 2002 compared to the same period
in 2001 primarily due to a 14.39% increase in total net assets and an 49.04%
increase in the Account's real estate holdings, including joint ventures.
34
The Account's real estate holdings, including joint venture
investments, generated approximately 88% and 83% of the Account's total
investment income (before deducting Account level expenses) during 2002 and
2001, respectively. The remaining portion of the Account's total investment
income was generated by marketable securities investments.
Gross real estate rental income increased approximately 23% in the year
ended December 31, 2002 over the same period in 2001. This was primarily due to
the increase in the number of properties owned by the Account from 65 properties
(including joint ventures) as of December 31, 2001 to 77 properties (including
joint ventures) as of December 31, 2002. Income from real estate joint ventures
increased by 490% for the same periods due to an increase in the number of joint
venture partnership interests owned by the Account in the year ended December
31, 2002. Interest income on the Account's marketable securities investments
decreased from $24,490,376 for 2001 to $13,546,694 for 2002 due to the decline
in short-term rates from 2001 to 2002 and the decrease in the amount of non-real
estate assets held by the Account. Dividend income on the Account's REIT
investments increased from $9,196,967 for the year ended December 31, 2001 to
$12,891,207 for the year ended December 31, 2002.
Total property level expenses for the year ended December 31, 2002 and
2001 were $99,637,132, and $76,653,457, respectively. In both years ended 2002
and 2001, 64% of the total expenses represented operating expenses and 36%
represented real estate taxes. The 30% increase in property level expenses
during 2002 reflected the increased number of properties in the Account, as well
as an increase in operating expenses.
The Account also incurred expenses for the years ended December 31,
2002 and 2001 of $9,495,736 and $5,896,729, respectively, for investment
advisory services, $10,390,705 and $8,470,496, respectively, for administrative
and distribution services, and $3,417,895 and $2,824,704, respectively, for the
mortality and expense risk charges and the liquidity guarantee charges. Such
expenses increased primarily as a result of the larger net asset base in the
Account and increased costs associated with managing and administering a larger
account. The expenses for investment advisory services for the year ended
December 31, 2001 also were substantially lower than those in 2002 since they
included adjustments related to fourth quarter 2000 expenses.
NET REALIZED AND UNREALIZED GAINS AND LOSSES ON INVESTMENTS
Including the net gains and losses realized by the Account for the
properties sold (see details under "Results from Discontinued Operations"), the
Account had a 31% decline in net assets resulting from operations ($116,242,038
in December 2002 vs. $169,218,985 in December 2001). The decrease was due to the
substantial unrealized losses on each of the Account's asset types. The
Account's real estate had net realized and unrealized losses of $94,447,265 in
2002 as compared to net losses of $30,720,187 in 2001. The Account's marketable
securities in the
35
year ended December 31, 2002 had net realized and unrealized losses totaling
$6,195,855 and net realized and unrealized gains of $5,231,736 for the year
ended December 31, 2001. The Account's investments in joint ventures had net
unrealized losses of $5,781,360 in 2002 as compared to net unrealized gains of
$2,002,837 in 2001 on its investments in other real estate-related investments.
RESULTS FROM DISCONTINUED OPERATIONS
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, ACCOUNTING FOR THE
IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS ("SFAS No. 144"). The Account
adopted SFAS No. 144 as of January 1, 2002. During the year ended December 31,
2002, the Account sold two real estate properties. In accordance with SFAS No.
144, the investment income and realized gain for the years ended December 31,
2002 and 2001 relating to those properties were removed from continuing
operations in the accompanying financial statements and classified as
discontinued operations. The income from the two properties sold in the year
ended December 31, 2002 for that year consisted of rental income of $643,564
less operating expenses of $68,031 and real estate taxes of $74,076, resulting
in net investment income of $501,457. The income from these two properties sold
in 2002 for the full year ended December 31, 2001 consisted of rental income of
$2,915,653 less operating expenses of $182,266 and real estate taxes of
$262,402, resulting in net investment income of $2,470,985. The income from the
properties sold in 2003 and 2002 combined for the full year ended December 31,
2001 consisted of rental income of $23,180,358 less operating expenses of
$3,766,328 and real estate taxes of $1,707,150 resulting in net investment
income of $17,706,880. At the time of sale, the properties had a cost of
$22,592,804 and the proceeds of sale were $26,050,000, resulting in a net
realized gain of $3,457,196.
LIQUIDITY AND CAPITAL RESOURCES
At year end 2003 and 2002, the Account's liquid assets (i.e., its
REITs, CMBSs, commercial paper, government securities and cash) had a value of
$753,971,810 and $271,568,803, respectively. The increase in the Account's
liquid assets was primarily due to the substantial net positive inflow of
transfers and premiums into the Account in 2003, when at the same time there
were fewer opportunities to purchase real estate meeting the Account's
investment criteria.
In 2003, the account received $515,435,665 in premiums and
$433,792,602 in net participant transfers from TIAA and CREF Accounts and
affiliated mutual funds, while for 2002 the Account received $395,464,695 in
premiums and $64,698,804 in net participants' transfers. Real estate properties
costing approximately $753.3 million and $1.1 billion were purchased during 2003
and 2002, respectively. In 2003, the Account also received approximately $187.2
million in proceeds from the sale of one office and one industrial property. The
Account's liquid assets, exclusive of the REITs, will continue to be available
to purchase additional suitable real estate properties and to meet expense needs
and redemption requests (i.e., cash withdrawals or
36
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, under certain conditions more fully described under
"Borrowing," on page ___, may borrow money and assume or obtain a mortgage on a
property -- i.e., to make leveraged real estate investments. Also, to meet any
short-term cash needs, the Account may obtain a line of credit whose terms may
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.
EFFECTS OF INFLATION AND INCREASING OPERATING EXPENSES
Inflation, along with increased insurance and security costs, may
increase property operating expenses in the future. We anticipate that these
increases in operating expenses 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.
CRITICAL ACCOUNTING POLICIES
THE CONSOLIDATED FINANCIAL STATEMENTS OF THE ACCOUNT ARE PREPARED IN
CONFORMITY WITH ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES.
In preparing the Account's consolidated financial statements,
management is required to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. Management bases its
estimates on historical experience and assumptions that are believed to be
reasonable under the circumstances -- the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates.
Management believes that the following policies related to the
valuation of the Account's assets reflected in the Account's consolidated
financial statements affect the significant judgments, estimates and assumptions
used in preparing its financial statements:
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 TIAA Board of Trustees. 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 judgment because the
37
actual market value of real estate can be determined only by negotiation between
the parties in a sales transaction. The Account's properties are initially
valued at their respective purchase prices (including acquisition costs).
Subsequently, independent appraisers value each real estate property at least
once a year. TIAA's appraisal staff performs a valuation 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 or appraisal.
The appraisals are performed in accordance with Uniform Standards of
Professional Appraisal Practices (USPAP), the real estate appraisal industry
standards created by The Appraisal Foundation. Real estate appraisals are
estimates of property values based on a professional's opinion.
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 REAL ESTATE JOINT VENTURES: Real estate joint ventures are
stated at the Account's equity in the net assets of the underlying joint venture
entities, which value their real estate holdings at fair value.
VALUATION OF MARKETABLE SECURITIES: Equity securities listed or traded
on any United States national securities exchange are valued at the last sale
price as of the close of the principal securities exchange on which such
securities are traded or, if there is no sale, at the mean of the last bid and
asked prices on such exchange. Short-term money market instruments are stated at
market value. Portfolio securities and 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.
FORWARD-LOOKING STATEMENTS
Some statements in this report which are not historical facts may be
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include statements about our expectations, beliefs,
intentions or strategies for the future, and the assumptions underlying these
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from
historical experience or management's present expectations.
Caution should be taken not to place undue reliance on
management's forward-looking statements, which represent management's views only
as of the date this report is filed. Neither management nor the Account
undertake any obligation to update publicly or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
38
VALUING THE ACCOUNT'S ASSETS
We value the Account's assets as of the close of each valuation day by
taking the sum of:
o the value of the Account's cash, cash equivalents, and
short-term and other debt instruments
o the value of the Account's other securities investments and
other assets o the value of the individual real properties and
other real estate-related investments owned by the Account
o an estimate of the net operating income accrued by the Account
from its properties and other real estate-related investments
and then reducing it by the Account's liabilities, including the daily
investment management fee and certain other expenses attributable to operating
the Account. See "Expense Deductions," page __.
VALUING REAL ESTATE 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.
39
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, within one year from the
initial funding by the Account, or the property is substantially leased,
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 REAL PROPERTY ENCUMBERED BY DEBT: In general, when we value an
Account property subject to a mortgage, the Account's net asset value will
include the value of the Account's interest in the property (with the property
valued as described above), less the face amount of the outstanding balance of
the debt. We can adjust the property valuation if we determine that the existing
debt could have a material affect on how much the Account would receive if it
were to sell the property, looking at such factors as whether the debt is
pre-payable, the remaining term on the debt, and then-current interest rates.
VALUING CONVENTIONAL MORTGAGES: Individual mortgage loans made by the
Account will be valued initially at their face amount. Thereafter, quarterly,
we'll value the Account's fixed interest mortgage loans by discounting payments
of principal and interest to their present value (using a rate at which
commercial lenders would make similar mortgage loans). We'll also use this
method for foreign mortgages with conventional terms. We can adjust the mortgage
value more frequently if circumstances require it. Floating variable rate
mortgages will generally be valued at their face amount, although we may adjust
these values as market conditions dictate.
VALUING PARTICIPATING MORTGAGES: Individual mortgages will initially be
valued at their face amount. Thereafter, quarterly, we'll estimate the values of
the participating mortgages by making various assumptions about occupancy rates,
rental rates, expense levels, and other things. 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.
40
Every year, we prepare a month-by-month estimate of the revenues and
expenses (estimated net operating income) for each of the Account's properties.
Each day, we add the appropriate fraction of the estimated net operating income
for the month to the Account's net asset value.
Every month, the Account receives a report of the actual operating
results for the prior month for each property (actual net operating income). We
then recognize the actual net operating income on the accounting records of the
Account and adjust the outstanding daily accrued receivable accordingly. As the
Account actually receives cash from a property, we'll adjust the daily accrued
receivable and other accounts appropriately.
ADJUSTMENTS: We can adjust the value of an investment if we believe
events or market conditions (such as a borrower's or tenant's default) have
affected how much the Account could get if it sold the investment. We may not
always be aware of each event that might require a valuation adjustment, and
because our evaluation is based on subjective factors, we may not in all cases
make adjustments where changing conditions could affect the value of an
investment.
The independent fiduciary will need to approve adjustments to any
valuation of one or more properties that
o is made within three months of the annual independent appraisal or
o results in an increase or decrease of:
o more than 6 percent of the value of any of the Account's
properties since the last independent annual appraisal
o more than 2 percent in the value of the Account since the
prior month or
o more than 4 percent in the value of the Account within any
quarter.
RIGHT TO CHANGE VALUATION METHODS: If we decide that a different
valuation method would reflect the value of a real estate-related investment
more accurately, we may use that method if the independent fiduciary consents.
Changes in TIAA's valuation methods could change the Account's net asset value
and change the values at which participants purchase or redeem Account
interests.
VALUING OTHER INVESTMENTS (INCLUDING CERTAIN REAL ESTATE-RELATED INVESTMENTS)
DEBT SECURITIES AND MONEY MARKET INSTRUMENTS: We value debt securities
(excluding money market instruments) for which market quotations are readily
available based on the most recent bid price or the equivalent quoted yield for
such securities (or those of comparable maturity, quality and type). We derive
these values utilizing an independent pricing service, except when we believe
the prices do not accurately reflect the security's fair value. We value money
market instruments with maturities of one year or less in the same manner as
debt securities, or derive them from a pricing matrix that has various types of
money
41
market instruments along one axis and various maturities along the other.
All debt securities may also be valued at fair value as determined in good faith
by the Investment Committee of the TIAA Board of Trustees.
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.
MORTGAGE-BACKED SECURITIES: We value mortgage-backed securities in the
same manner in which we value debt securities, as described above.
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 certain 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 Individual & Institutional Services,
LLC ("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 [SUBJECT TO CHANGE]:
PERCENT OF NET
TYPE OF EXPENSE DEDUCTION ASSETS ANNUALLY SERVICES PERFORMED
- ----------------------------------------------------------------------------------------------------------------
Investment Management 0.265% For TIAA's investment advice, portfolio accounting,
custodial services, and similar services, including
independent fiduciary and appraisal fees
- ----------------------------------------------------------------------------------------------------------------
42
- ----------------------------------------------------------------------------------------------------------------
Administration 0.280% For Services' administrative services, such as
allocating premiums and paying annuity income
- ----------------------------------------------------------------------------------------------------------------
Distribution 0.045% 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 [0.690]% 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 following 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.
EMPLOYER PLAN FEE WITHDRAWALS
Your employer may, in accordance with the terms of your plan, and with
TIAA's approval, withdraw amounts from your Real Estate Account accumulation
under your GRA, GSRA, Retirement Select or Retirement Select Plus contract to
pay fees associated with the administration of the plan. TIAA reserves the right
to suspend or reinstate its approval for a plan to make such withdrawals. The
amount and the effective date of an employer plan fee withdrawal will be in
accordance with the terms of your plan. TIAA will determine all values as of the
end of the effective date. An employer plan fee withdrawal cannot be revoked
after its effective date. Each employer plan fee withdrawal will be made on a
pro-rata basis from all your available TIAA and CREF accounts. An employer plan
fee withdrawal reduces the accumulation from which it is paid by the amount
withdrawn.
43
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, Retirement Select, Retirement
Select Plus or Keogh contracts. The Account is not available in California.
RA (RETIREMENT ANNUITY), GRA (GROUP RETIREMENT ANNUITY), AND
RETIREMENT SELECT CONTRACTS
RA, GRA, and Retirement Select contracts are used mainly for employee
retirement plans. RA contracts are issued directly to you. GRA and Retirement
Select contracts, which are group contracts, are issued through an agreement
between your employer and TIAA.
Depending on the terms of your plan, RA, GRA, and Retirement Select
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. Ask your employer for more information about these contracts.
SRA (SUPPLEMENTAL RETIREMENT ANNUITY), GSRA (GROUP
SUPPLEMENTAL RETIREMENT ANNUITY), AND RETIREMENT SELECT PLUS
CONTRACTS
These are for voluntary tax-deferred annuity (TDA) plans and 401(k)
plans. SRA contracts are issued directly to you. GSRA and Retirement Select Plus
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. (The dollar limits listed are for 2004; different dollar limits may
apply in future years.) 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
44
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. (The dollar limits listed are for 2004;
different dollar limits may apply in future years.) We can't issue you a joint
contract.
Classic and Roth IRAs may together be referred to as "IRAs" in this
prospectus.
GA (GROUP ANNUITY) 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.
ATRA (AFTER-TAX RETIREMENT ANNUITY)
The after-tax retirement annuities (ATRA) are individual non-qualified
deferred annuity contracts, issued to participants who are eligible and would
like to remit personal premiums under the contractual provisions of their RA
contract. To be eligible, you must have an active and premium-paying or paid up
RA contract. Note that the tax rules governing these non-qualified contracts
differ significantly from the treatment of qualified contracts. See "Taxes," on
page __ for more information.
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.
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If we receive premiums from your employer before your application or
enrollment form, we'll generally invest the money in the CREF Money Market
Account until we receive your form. (Some employer plans may require that we
send such premiums back to the employer.) We'll transfer the appropriate amount
from the CREF Money Market Account and credit it to the Real Estate Account as
of end of the business day we receive your completed form.
If the allocation instructions on your application or enrollment form
are incomplete, violate plan restrictions, or total more than 100 percent, we'll
invest your premiums in the CREF Money Market Account. If your allocation
instructions total less than 100 percent, we'll credit the percentage that is
not allocated to a specific account to the CREF Money Market Account. The
balance with be invested as you instructed. After we receive a complete and
correct application, we'll follow your allocation instructions for future
premiums. However, any amounts that we credited to the CREF Money Market Account
before we received correct instructions will be transferred to the Real Estate
Account only on request, and will be credited as of the business day we receive
that request.
TIAA doesn't restrict the amount or frequency of premiums to your RA,
GRA, SRA, GSRA Retirement Select, Retirement Select Plus 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.
Note that we cannot accept money orders or travelers checks. In
addition, we will not accept a third-party check where the relationship of the
payor to the account owner cannot be identified from the face of the check.
IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT
To help the government fight the funding of terrorism and money
laundering activities, Federal law requires all financial institutions,
including us, to obtain, verify and record information that identifies each
person who opens an account.
WHAT THIS MEANS FOR YOU: When you open an account, we will ask for your
name, address, date of birth, social security numbers and other information that
will allow us to identify you, such as your home telephone number. Until you
provide us with the information we need, we may not be able to open an account
or effect any transactions for you.
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CHOOSING AMONG INVESTMENT 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, the CREF variable investment
accounts, and, in some cases, certain mutual funds if the account or fund 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 (other than a Retirement Select or
Retirement Select Plus contract) up to 30 days after you first receive it,
unless we have begun making annuity payments from it. If you already had a TIAA
contract prior to investing in the Real Estate Account, you have no 30-day right
to cancel the contract. To cancel, mail or deliver the contract with a signed
Notice of Cancellation (available by contacting TIAA) to our home office. We'll
cancel the contract, then send the entire current accumulation to whomever sent
the premiums. You bear the investment risk during this period (although some
states require us to send back your entire premium without accounting for
investment results).
DETERMINING THE VALUE OF YOUR INTEREST IN THE ACCOUNT--ACCUMULATION UNITS
When you pay premiums or make transfers to the Real Estate Account, you
buy accumulation units. When you take a cash withdrawal, transfer from the
Account, or apply funds to begin annuity income, the number of your accumulation
units decrease. We calculate how many accumulation units to credit by dividing
the amount you applied to the Account by its accumulation unit value at the end
of the business day when we received your premium or transfer. To determine how
many accumulation units to subtract for cash withdrawals and transfers, we use
the accumulation unit value for the end of the business day when we receive your
transaction request and all required information and documents (unless you ask
for a later date).
The accumulation unit value reflects the Account's investment
experience (i.e., the real estate net operating income accrued, as well as
dividends, interest and other income accrued), realized and unrealized capital
gains and losses, as well as Account expense charges.
CALCULATING ACCUMULATION UNIT VALUES: We calculate the Account's
accumulation unit value at the end of each valuation day. To do that, we
multiply the previous day's value by the net investment factor for the Account.
The net investment factor is calculated as A divided by B, where A and B are
defined as:
A. The value of the Account's net assets at the end of the current
valuation period, less premiums received during the current
valuation period.
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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)
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. For any transfers to TIAA's traditional annuity, the crediting
rate will be the rate in effect at the close of business of the first day that
you participate in TIAA's traditional annuity, which is the next business day
after the effective date of the transfer.
To request a transfer or to withdraw cash:
o write to TIAA's home office at 730 Third Avenue, New York, NY
10017-3206
o call us at 800 842-2252 or
o for internal transfers, using the TIAA-CREF Web Center's
account access feature at www.tiaa-cref.org
You may be required to complete and return certain forms to effect
these transactions. We can suspend or terminate your ability to transact by
telephone, over the Internet, or by fax at any time, for any reason.
Before you transfer or withdraw cash, make sure you understand the
possible federal and other income tax consequences. See "Taxes," page __.
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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 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, GRA, and Retirement Select contracts are subject to
restrictions under the terms of those contracts. Amounts held under an ATRA
contract cannot be transferred to or from any retirement plan contract.
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, GRA, or Retirement Select 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), 401(a)/403(a) or governmental 457(b) retirement plan
to your qualified 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.
WITHDRAWING CASH
You may withdraw cash from your SRA, GSRA, Retirement Select Plus, 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, GRA or Retirement
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Select 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.
WITHDRAWALS TO PAY ADVISORY FEES
You can set up a program to have monies withdrawn directly from your
retirement plan or IRA accumulations to pay your financial advisor, if your
employer's plan allows. We reserve the right to determine the eligibility of
financial advisors for this type of fee reimbursement. You will be required to
complete and return certain forms to effect these withdrawals, including how and
from which accounts you want these monies to be withdrawn. Before you set up
this program, make sure you understand the possible tax consequences of these
withdrawals. See the discussion under "Taxes" below.
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
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investment opportunities at a particular time. Whenever reasonably possible, we
will notify you before we decide to restrict premiums and/or transfers. However,
because we may need to respond quickly to changing market conditions, we reserve
the right to stop accepting premiums and/or transfers at any time without prior
notice.
If we decide to stop accepting premiums into the Account, amounts that
would otherwise be allocated to the Account will be allocated to the CREF Money
Market Account instead, unless you give us other allocation instructions. We
will not transfer these amounts out of the CREF Money Market Account when the
restriction period is over, unless you request that we do so. However, we will
resume allocating premiums to the Account on the date we remove the
restrictions.
ADDITIONAL LIMITATIONS
Federal law requires us to obtain, verify and record information that
identifies each person who opens an account. Until we receive the information we
need, we may not be able to effect transactions for you. Furthermore, if we are
unable to verify your identity, or that of another person authorized to act on
your behalf, or if we believe that we have identified potentially criminal
activity, we reserve the right to take such action as we deem appropriate, which
may include closing your account.
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 TIAA or CREF account or any of the
TIAA-CREF mutual funds available under your plan (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.
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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 of the Internal Revenue Code, you generally must
begin receiving some payments from your contract shortly after you reach the
later of age 70 1/2 or you retire. For more information, see "Minimum Required
Distributions," on page __. Also, you can't begin a one-life annuity after you
reach age 90, nor may you begin a two-life annuity after either you or your
annuity partner reach age 90.
Your income payments may be paid out from the Real Estate Account
through a variety of income options. You can pick a different income option for
different portions of your accumulation, but once you've started payments you
usually can't change your income option or annuity partner for that payment
stream.
Usually income payments are monthly. You can choose quarterly,
semi-annual, and annual payments as well. (TIAA has the right to not make
payments at any interval that would cause the initial payment to be less than
$100.) We'll send your payments by mail to your home address or, on your
request, by mail or electronic funds transfer to your bank.
Your initial income payments are based on the value of your
accumulation on the last valuation day before the annuity starting date. Your
payments change after the initial payment based on the Account's investment
experience and the income change method you choose.
There are two income change methods for annuity payments: annual and
monthly. Under the annual income change method, payments from the Account change
each May 1, based on the net investment results during the prior year (April 1
through March 31). Under the monthly income change method, payments from the
Account change every month, based on the net investment results during the
previous month. For the formulas used to calculate the amount of annuity
payments, see page ____. 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,
52
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, Retirement Select, Retirement Select Plus, or
Keogh. Ordinarily you'll choose your income options shortly before you want
payments to begin, but you can make or change your choice any time before your
annuity starting date.
All Real Estate Account income options provide variable payments, and
the amount of income you receive depends in part on the investment experience of
the Account. The current options are:
o One-Life Annuity with or without Guaranteed Period: Pays
income as long as you live. If you opt for a guaranteed period
(10, 15 or 20 years) and you die before it's over, income
payments will continue to your beneficiary until the end of
the period. If you don't opt for a guaranteed period, all
payments end at your death--so that it's possible for you to
receive only one payment if you die less than a month after
payments start.
o Annuity for a Fixed Period: Pays income for any period you
choose from 5 to 30 years.
o Two-Life Annuities: Pays income to you as long as you live,
then continues at either the same or a reduced level for the
life of your annuity partner. There are three types of
two-life annuity options, all available with or without a
guaranteed period--Full Benefit to Survivor, Two-Thirds
Benefit to Survivor, and a Half-Benefit to Annuity Partner.
Under the Two-Thirds Benefit to Survivor option, payments to
you will be reduced upon the death of your annuity partner.
o Minimum Distribution Option ("MDO") Annuity: Generally
available only if you must begin annuity payments under the
Internal Revenue Code minimum distribution requirements. (Some
employer plans allow you to elect this option earlier--contact
TIAA for more information.) The option pays an amount designed
to fulfill the distribution requirements under federal tax
law. You must apply your entire accumulation under a contract
if you want to use the MDO annuity. It is
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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. This pay-out annuity is not
available under the Retirement Select or Retirement Select
Plus contracts. Instead, required minimum distributions will
be paid directly from these contracts pursuant to the terms of
your employer's plan.
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, GRA, or Retirement Select
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, GSRA, Retirement Select or Retirement Select Plus
contract, TIAA usually will assume you want the ONE-LIFE ANNUITY WITH 10-YEAR
GUARANTEED PERIOD if you're unmarried, paid from TIAA's traditional annuity. If
you're married, we may assume for you a SURVIVOR ANNUITY WITH HALF-BENEFIT TO
ANNUITY PARTNER WITH A 10-YEAR GUARANTEED PERIOD, with your spouse as your
annuity partner, paid from TIAA's traditional annuity. If you haven't picked an
income option when the annuity starting date arrives for your IRA, we may assume
you want the MINIMUM DISTRIBUTION OPTION annuity.
TRANSFERS DURING THE ANNUITY PERIOD
After you begin receiving annuity income, you can transfer all or part
of the future annuity income payable once each calendar quarter (i) from the
Real Estate Account into a "comparable annuity" payable from a CREF account or
TIAA's traditional annuity, or (ii) from a CREF account into a comparable
annuity payable from the Real Estate Account. Comparable annuities are those
which are payable under the same income option, and have the same first and
second annuitant, and remaining guaranteed period.
We'll process your transfer on the business day we receive your
request. You can also
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choose to have a transfer take effect at the close of any future 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 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
55
change the mortality assumptions used to determine the number of annuity units
payable for any future accumulations converted to provide annuity payments.
The number of annuity units payable under an income change method under
your contract will be reduced by the number of annuity units you transfer out of
that income change method under your contract. The number of annuity units
payable will be increased by any internal transfers you make to that income
change method under your contract.
VALUE OF ANNUITY UNITS: The Real Estate Account's annuity unit value is
calculated separately for each income change method for each business day and
for the last calendar day of each month. The annuity unit value for each income
change method is determined by updating the annuity unit value from the previous
valuation day to reflect the net investment performance of the Account for the
current valuation period relative to the 4 percent assumed investment return. In
general, your payments will increase if the performance of the Account is
greater than 4 percent and decrease if the value is less than 4 percent. The
value is further adjusted to take into account any changes expected to occur in
the future at revaluation either once a year or once a month, assuming the
Account will earn the 4 percent assumed investment return in the future.
The initial value of the annuity unit for a new annuitant is the value
determined as of the day before annuity payments start.
For participants under the annual income change method, the value of
the annuity unit for payments remains level until the following May 1. For those
who have already begun receiving annuity income as of March 31, the value of the
annuity unit for payments due on and after the next succeeding May 1 is equal to
the annuity unit value determined as of such March 31.
For participants under the monthly income change method, the value of
the annuity unit for payments changes on the payment valuation day of each month
for the payment due on the first of the following month.
TIAA reserves the right, subject to approval by the Board of Trustees,
to modify the manner in which the number and/or value of annuity units is
calculated in the future.
DEATH BENEFITS
AVAILABILITY; CHOOSING BENEFICIARIES
TIAA may pay death benefits if you or your annuity partner dies. 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.
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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.
PAYMENT OF DEATH BENEFIT
To authorize payment and pay a death benefit, we must have received all
necessary forms and documentation, including proof of death and the selection of
the method of payment.
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. If death occurs while your contract is in the
accumulation stage, in most cases we can pay the death benefit using the
TIAA-CREF Savings & Investment Plan. We won't do this if you preselected another
option or if the beneficiary elects another option. Some beneficiaries aren't
eligible for the TIAA-CREF Savings & Investment Plan. If your beneficiary isn't
eligible and doesn't specifically tell us to start paying death benefits within
a year of your death, we can start making payments to them over five years using
the fixed-period annuity method of payment.
PAYMENTS DURING THE ACCUMULATION PERIOD: Currently, the available
methods of payment for death benefits from funds in the accumulation period are:
o SINGLE-SUM PAYMENT, in which the entire death benefit is paid
to your beneficiary at once;
o ONE-LIFE ANNUITY WITH OR WITHOUT GUARANTEED PERIOD, in which
the death benefit is paid monthly for the life of the
beneficiary or through the guaranteed period;
o ANNUITY FOR A FIXED PERIOD OF 5 TO 30 YEARS (NOT AVAILABLE
UNDER RETIREMENT SELECT OR RETIREMENT SELECT PLUS);
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
57
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 (NOT AVAILABLE UNDER RETIREMENT SELECT OR
RETIREMENT SELECT PLUS);. 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.
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
58
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 $13,000 per year ($16,000 per year if you
are age 50 or older). Certain long-term employees may be able to defer up to
$15,000 per year in a 403(b) plan ($18,000 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 is $13,000
($16,000 if you are age 50 or older). 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.
Note that the dollar limits listed above are for 2004; different dollar
limits may apply in future years.
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 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.
59
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. On the other
hand, 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.
SPECIAL RULES FOR AFTER-TAX RETIREMENT ANNUITIES
IF YOU PAID PREMIUMS DIRECTLY TO AN RA AND THE PREMIUMS ARE NOT SUBJECT
TO YOUR EMPLOYER'S RETIREMENT PLAN, OR IF YOU HAVE BEEN ISSUED AN ATRA CONTRACT,
THE FOLLOWING GENERAL DISCUSSION DESCRIBES OUR UNDERSTANDING OF CURRENT FEDERAL
INCOME TAX LAW THAT APPLIES TO THESE ACCUMULATIONS. THIS DISCUSSION DOES NOT
APPLY TO PREMIUMS PAID ON YOUR BEHALF UNDER THE TERMS OF YOUR EMPLOYER'S
RETIREMENT PLAN. IT ALSO DOES NOT COVER EVERY SITUATION AND DOES NOT ADDRESS ALL
POSSIBLE CIRCUMSTANCES.
IN GENERAL. These annuities are generally not taxed until distributions
occur. When distributions occur, they are taxed as follows:
o Withdrawals, including withdrawals of the entire accumulation
under the contract, are generally taxed as ordinary income to
the extent that the contract's value is more than your
investment in the contract (I.E., what you have paid into it).
o Annuity payments are generally treated in part as taxable
ordinary income and in part as non-taxable recovery of your
investment in the contract until you recover all of your
investment in the contract. After that, annuity payments are
taxable in full as ordinary income.
REQUIRED DISTRIBUTIONS. In general, if you die after you start your
annuity payments but before the entire interest in the annuity contract has been
distributed, the remaining portion must be distributed at least as quickly as
under the method in effect on the date of your death. If you die before your
annuity payments begin, the entire interest in your annuity contract generally
60
must be distributed within five years after your death, or be used to provide
payments that begin within one year of your death and that will be made for the
life of your designated beneficiary or for a period not extending beyond the
life expectancy of your designated beneficiary. The "designated beneficiary"
refers to a natural person you designate and to whom ownership of the contract
passes because of your death. However, if the designated beneficiary is your
surviving spouse, your surviving spouse can continue the annuity contract as the
new owner.
DEATH BENEFIT PROCEEDS. Death benefit proceeds are taxed like
withdrawals of the entire accumulation in the contract if distributed in a
single sum and are taxed like annuity payments if distributed as annuity
payments. Your beneficiary may be required to take death benefit proceeds within
a certain time period.
PENALTY TAX ON CERTAIN DISTRIBUTIONS. You may have to pay a penalty tax
(10 percent of the amount treated as taxable income) on distributions you take
prior to age 59 1/2. There are some exceptions to this rule, however. You should
consult a tax adviser for information about those exceptions.
WITHHOLDING. Annuity distributions are generally subject to federal
income tax withholding but most recipients can usually choose not to have the
tax withheld.
CERTAIN DESIGNATIONS OR EXCHANGES. Designating an annuitant, payee or
other beneficiary, or exchanging a contract may have tax consequences that
should be discussed with a tax adviser before you engage in any of these
transactions.
MULTIPLE CONTRACTS. All non-qualified deferred annuity contracts issued
by us and certain of our affiliates to the same owner during a calendar year
must generally be treated as a single contract in determining when and how much
income is taxable and how much income is subject to the 10 percent penalty tax
(see above).
SPECIAL RULES FOR WITHDRAWALS TO PAY ADVISORY FEES
If you have arranged for us to pay advisory fees to your financial
advisor from your accumulations, those partial withdrawals generally will not be
treated as taxable distributions as long as:
o the payment is for expenses that are ordinary and necessary;
o the payment is made from a Section 401 or 403 retirement plan
or an IRA, and
o with respect to payments from retirement plans (not IRAs):
o your financial advisor's payment is only made from
the accumulations in your retirement plan, and not
directly by you or anyone else, under the agreement
with your financial advisor; and
o once advisory fees begin to be paid from your
retirement plan, you continue to pay those fees
solely from your plan and not from any other source.
61
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 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
accounts and funds available to you through TIAA-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
62
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 877 518-9161 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 877 518-9161, or
write us.
MISCELLANEOUS POLICIES
IF YOU'RE MARRIED: If you're married, you may be required by law or
your employer's plan to get advance written consent from your spouse before we
make certain transactions for you. If you're married at your annuity starting
date, you may also be required by law or your employer's plan to choose an
income option that provides survivor annuity income to your spouse, unless he or
she waives that right in writing. There are limited exceptions to the waiver
requirement.
TEXAS OPTIONAL RETIREMENT PROGRAM RESTRICTIONS: If you're in the Texas
Optional Retirement Program, you or your beneficiary can redeem some or all of
your accumulation only if you retire, die, or leave your job in the state's
public institutions of higher education.
ASSIGNING YOUR CONTRACT: Generally, neither you nor your beneficiaries
can assign your ownership of a TIAA retirement contract to anyone else.
OVERPAYMENT OF PREMIUMS: If your employer mistakenly sends more
premiums on your behalf than you're entitled to under your employer's retirement
plan or the Internal Revenue Code, we'll refund them to your employer as long as
we're requested to do so (in writing) before you start receiving annuity income.
Any time there's a question about premium refunds, TIAA will rely on information
from your employer. If you've withdrawn or transferred the amounts involved from
your accumulation, we won't refund them.
ERRORS OR OMISSIONS: We reserve the right to correct any errors or
omissions on any form, report, or statement that we send you.
PAYMENT TO AN ESTATE, GUARDIAN, TRUSTEE, ETC.: We reserve the right to
pay in one
63
sum the commuted value of any benefits due an estate, corporation, partnership,
trustee, or other entity not a natural person. Neither TIAA nor the Account will
be responsible for the conduct of any executor, trustee, guardian, or other
third party to whom payment is made.
BENEFITS BASED ON INCORRECT INFORMATION: If the amounts of benefits
provided under a contract were based on information that is incorrect, benefits
will be recalculated on the basis of the correct data. If the Account has
overpaid or underpaid, appropriate adjustments will be made.
PROOF OF SURVIVAL: We reserve the right to require satisfactory proof
that anyone named to receive benefits under a contract is living on the date
payment is due. If we have not received this proof after we request it in
writing, the Account will have the right to make reduced payments or to withhold
payments entirely until such proof is received.
DISTRIBUTOR
The annuity contracts are offered continuously by TIAA-CREF Individual
& Institutional Services, LLC (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 George
W. Madison, Executive Vice President and General Counsel of TIAA. Sutherland
Asbill & Brennan LLP, Washington, D.C., have
64
passed upon legal matters relating to the federal securities laws.
EXPERTS
Ernst & Young LLP, independent auditors, have audited the Account's and
TIAA's consolidated financial statements and schedule at December 31, 2003 and
2002, and for each of the three years in the period ended December 31, 2003 as
set forth in their reports. Friedman, Alpren & Green LLP, independent auditors,
have audited the (i) statement of revenues and certain expenses of Hutton Center
Drive for the year ended December 31, 2002; (ii) statement of revenues and
certain expenses of Treat Towers for the year ended December 31, 2002; (iii)
statement of revenues and certain expenses of Buckhead LLC for the year ended
December 31, 2002; (iv) statement of revenues and certain expenses of 161 North
Clark Street for the year ended December 31, 2002; and (v) statement of revenues
and certain expenses of Rainier Corporate Park for the year ended December 31,
2002. We've included these financial statements and schedule in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
and Friedman, Alpren & Green LLP's respective reports, given on the authority of
such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION
INFORMATION AVAILABLE AT THE SEC
The Account has filed with the SEC a registration statement under the
Securities Act of 1933, which contains this prospectus and additional
information related to the offering described in this prospectus. The Account
also files annual, quarterly, and current reports, along with other information,
with the SEC, as required by the Securities Exchange Act of 1934. You may read
and copy the full registration statement, and any reports and information filed
with the SEC for the Account, at the SEC's public reference room at 450 Fifth
Street, N.W., Room 1024, Washington, DC 20549. This information can also be
obtained through the SEC's website on the Internet (http://www.sec.gov).
OTHER REPORTS TO PARTICIPANTS
TIAA will mail to each participant in the Real Estate Account periodic
reports providing information relating to their accumulations in the Account,
including premiums paid, number and value of accumulations, and withdrawals or
transfers during the period, as well as such other information as may be
required by applicable law or regulations.
Further information may be obtained from TIAA at 730 Third Avenue, New
York, NY 10017-3206.
CUSTOMER COMPLAINTS
Customer complaints may be directed to our Participant Relations Unit,
P.O. Box 1259, Charlotte, NC 28201-1259, telephone 800-842-2776.
65
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 877 518-9161.
The financial statements of TIAA should be distinguished from the
consolidated financial statements of the 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 Account.
66
INDEX TO FINANCIAL STATEMENTS
PAGE
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TIAA REAL ESTATE ACCOUNT
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Report of Management Responsibility
Report of the Audit Committee
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
Report of Independent Auditors
Consolidated Statement of Investments
PROFORMA CONDENSED FINANCIAL STATEMENTS:
Proforma Condensed Statement of Assets and Liabilities
Proforma Condensed Statement of Operations
Notes to Proforma Condensed Financial Statements
PROPERTY FINANCIAL STATEMENTS:
HUTTON CENTER DRIVE
Independent Auditors' Report
Statement of Revenues and Certain Expenses
Notes to Statement of Revenues and Certain Expenses
TREAT TOWERS
Independent Auditors' Report
Statement of Revenues and Certain Expenses
Notes to Statement of Revenues and Certain Expenses
BUCKHEAD LLC
Independent Auditors' Report
Statement of Revenues and Certain Expenses
Notes to Statement of Revenues and Certain Expenses
161 NORTH CLARK STREET
Independent Auditors' Report
Statement of Revenues and Certain Expenses
Notes to Statement of Revenues and Certain Expenses
RAINIER CORPORATE PARK
Independent Auditors' Report
Statement of Revenues and Certain Expenses
F-1
Notes to Statement of Revenues and Certain Expenses
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
Condensed Unaudited Statutory-Basis Financial Statements
Supplemental Information to Condensed Unaudited Statutory-Basis
Financial Statements
[FINANCIALS TO BE FILED BY AMENDMENT]
F-2
APPENDIX A--MANAGEMENT OF TIAA
The Real Estate Account has no officers or directors. The Trustees and
principal executive officers of TIAA, their ages, and their principal
occupations during the last five years, are as follows:
TRUSTEES
ELIZABETH E. BAILEY, 65.
John C. Hower Professor of Public Policy and Management, Wharton School,
University of Pennsylvania. Director, CSX Corporation and Altria Group, Inc.
ROBERT C. CLARK, 60.
Harvard University Distinguished Service Professor and Austin Wakeman Scott
Professor of Law, Harvard Law School, Harvard University. Director, Collins &
Aikman Corporation and Time Warner Inc.
ESTELLE A. FISHBEIN, 69.
Vice President and General Counsel Emerita, Johns Hopkins University. Director,
Medical Centre Insurance Co. and MCIC Vermont, Inc.
MARJORIE FINE KNOWLES, 64.
Professor of Law, Georgia State University College of Law.
ROBERT M. O'NEIL, 69.
Professor of Law, University of Virginia and Director, Thomas Jefferson Center
for the Protection of Free Expression.
DONALD K. PETERSON, 54.
Chairman and Chief Executive Officer, Avaya Inc. Formerly, Executive Vice
President and Chief Financial Officer, Lucent Technologies. Director, Reynolds &
Reynolds Co.
LEONARD S. SIMON, 67.
Former Vice Chairman, Charter One Financial, Inc. Formerly, Chairman, President
and Chief Executive Officer, RCSB Financial, Inc. and Chairman and Chief
Executive Officer, Rochester Community Savings Bank. Director, Landmark
Technology Partners, Inc. and Integrated Nano-Technologies, LLC.
DAVID F. SWENSEN, 50.
Chief Investment Officer, Yale University. Director, Schroders plc.
A-1
RONALD L. THOMPSON, 54.
Chairman and Chief Executive Officer, Midwest Stamping Co. Director, Interstate
Bakeries and Ryerson Tull.
PAUL R. TREGURTHA, 68.
Chairman and Chief Executive Officer, Mormac Marine Group, Inc. and Moran
Transportation Company, Inc.; Vice Chairman, Interlake Steamship Company and
Lakes Shipping Company; Formerly, Chairman, Meridian Aggregates, L.P. Director,
FPL Group, Inc.
WILLIAM H. WALTRIP, 66.
Former Chairman, Technology Solutions Company. Formerly, Chairman and Chief
Executive Officer, Bausch & Lomb, Inc. Director, Charles River Laboratories,
Bausch & Lomb, Inc. and Thomas & Betts Corporation.
ROSALIE J. WOLF, 62.
Managing Partner, Botanica Capital Partners LLC. Formerly, Managing Director,
Offit Hall Capital Management LLC and its predecessor company, Laurel Management
Company LLC; earlier, Treasurer and Chief Investment Officer, The Rockefeller
Foundation. Director, North European Oil Royalty Trust.
OFFICER-TRUSTEES
HERBERT M. ALLISON, JR., 60.
Chairman, President and Chief Executive Officer, TIAA. President and Chief
Executive Officer, CREF. Formerly, President, Chief Operating Officer and Member
of the Board of Directors of Merrill Lynch & Co., Inc., 1997-1999 and President
and Chief Executive Officer of Alliance for LifeLong Learning, Inc., 1999 -2002.
Director, New York Stock Exchange.
OTHER OFFICERS
GARY CHINERY, 54.
Vice President and Treasurer, TIAA and CREF.
E. LAVERNE JONES, 55.
Vice President and Corporate Secretary, TIAA and CREF.
ELIZABETH A. MONRAD, 49.
Executive Vice President and Chief Financial Officer, TIAA and CREF
JOHN SOMERS, 60.
Executive Vice President, TIAA and CREF.
A-2
PORTFOLIO MANAGEMENT TEAM
JOSEPH LUIK, 52, Senior Managing Director - TIAA Mortgage and Real Estate
Division, TIAA.
THOMAS GARBUTT, 45, Group Managing Director - TIAA Real Estate Equities Group,
TIAA.
PHILIP J. MCANDREWS, 45, Managing Director - TIAA Real Estate Account, TIAA.
A-3
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, for
certain contracts, 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
II-1
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
SEC Registration Fees $ 161,542.50
Costs of printing and engraving $ 500,000*
Legal fees $ 10,000*
Accounting fees $ 10,000*
-----------
TOTAL $ 681,542.50*
- ---------------
* - Approximate
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Trustees, officers, and employees of TIAA may be indemnified against
liabilities and expenses incurred in such capacity pursuant to Article Six of
TIAA's bylaws (see Exhibit 3(B)). Article Six provides that, to the extent
permitted by law, TIAA will indemnify any person made or threatened to be made a
party to any action, suit or proceeding by reason of the fact that such person
is or was a trustee, officer, or employee of TIAA or, while a trustee, officer,
or employee of TIAA, served any other organization in any capacity at TIAA's
request. To the extent permitted by law, such indemnification could include
judgments, fines, amounts paid in settlement, and expenses, including attorney's
fees. TIAA has in effect an insurance policy that will indemnify its trustees,
officers, and employees for liabilities arising from certain forms of conduct.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to trustees, officers, or employees of TIAA,
pursuant to the foregoing provision or otherwise, TIAA has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in that Act and is therefore unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment of expenses incurred or paid by a trustee, officer, or employee
in the successful defense of any action, suit or proceeding) is asserted by a
trustee, officer, or employee in connection with the securities being
registered, TIAA will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in that Act and will be governed by the final adjudication of such
issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
None.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
(1) Distribution and Administrative Services Agreement by and
between TIAA and TIAA-CREF Individual & Institutional
Services, Inc. (as amended)(1) and the Amendment thereto *
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(3) (A) Charter of TIAA (as amended)(2)
(B) Bylaws of TIAA (as amended)(2)
(4) (A) Forms of RA, GRA, GSRA, SRA, IRA Real Estate Account Contract
Endorsements(3), Keogh Contract(1) and Retirement Select and
Retirement Select Plus Contracts*
(B) Forms of Income-Paying Contracts(3)
(5) Opinion and Consent of George W. Madison, Esquire*
(10)(A) Independent Fiduciary Agreement by and among TIAA, the
Registrant, and The Townsend Group(1) and Letter Agreement
renewing term(2)
(B) Custodial Services Agreement by and between TIAA and Morgan
Guaranty Trust Company of New York with respect to the Real
Estate Account (Agreement assigned to The Bank of New York,
January, 1996)(3)
(23)(A) Opinion and Consent of George W. Madison, Esquire (filed as
Exhibit 5)
(B) Consent of Sutherland Asbill & Brennan LLP*
(C) Consent of Ernst & Young LLP*
(D) Consent of Friedman, Alpren & Greene LLP*
- ---------------
(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 Registration Statement on Form S-1 filed April
29, 2003 (File No. 333-83964).
(3) - 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).
* - To be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULES
Schedule III -- Real Estate Owned
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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]
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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 10th day of March, 2004.
TIAA REAL ESTATE ACCOUNT
By: TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Herbert M. Allison, Jr.
------------------------------------------------
Herbert M. Allison, Jr.
Chairman, President and Chief Executive Officer
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/ Herbert M. Allison, Jr. Chairman, President and 3/10/04
- --------------------------- Chief Executive Officer
Herbert M. Allison, Jr. (Principal Executive Officer)
and Trustee
/s/ Elizabeth A. Monrad Executive Vice President 3/10/04
- --------------------------- (Principal Financial and
Elizabeth A. Monrad Accounting Officer)
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SIGNATURE OF TRUSTEE DATE SIGNATURE OF TRUSTEE DATE
- --------------------------- ---- ------------------- ----
/s/ Herbert M. Allison, Jr. 3/10/04 /s/ Leonard S. Simon 3/10/04
- --------------------------------- ------------------------------
Herbert M. Allison, Jr. Leonard S. Simon
/s/ Elizabeth E. Bailey 3/10/04 /s/ David F. Swensen 3/10/04
- --------------------------------- ------------------------------
Elizabeth E. Bailey David F. Swensen
/s/ Robert C. Clarke 3/10/04 /s/ Ronald L. Thompson 3/10/04
- --------------------------------- ------------------------------
Robert C. Clark Ronald L. Thompson
/s/ Estelle A. Fishbein 3/10/04 /s/ Paul R. Tregurtha 3/10/04
- --------------------------------- ------------------------------
Estelle A. Fishbein Paul R. Tregurtha
/s/ Marjorie Fine Knowles 3/10/04 /s/ William H. Waltrip 3/10/04
- --------------------------------- ------------------------------
Majorie Fine Knowles William H. Waltrip
/s/ Robert M. O'Neil 3/10/04 /s/ Rosalie J. Wolf 3/10/04
- --------------------------------- ------------------------------
Robert M. O'Neil Rosalie J. Wolf
- ---------------------------------
Donald K. Peterson
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