_______________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
TIAA REAL ESTATE ACCOUNT
(Exact name of registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation or organization)
(Not applicable)
(Primary Standard Industrial Classification Code Number)
(Not applicable)
(I.R.S. Employer Identification No.)
c/o Teachers Insurance and Annuity Association of America
730 Third Avenue
New York, New York 10017-3206
(212) 490-9000
(Address including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
Lisa Snow, Esquire
Teachers Insurance and Annuity Association of America
730 Third Avenue New York, New York 10017-3206
(212) 490-9000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
Steven B. Boehm, Esquire
Sutherland Asbill & Brennan LLP
1275 Pennsylvania Avenue, N.W.
Washington, D.C. 20004-2415
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of the registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: [X]
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] _______
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: [ ] _______
If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box: [ ] _______
Pursuant to Rule 429 under the Securities Act, the prospectus contained herein also relates to and constitutes a post-effective amendment to Securities Act registration statements 33-92990, 333-13477, 333-22809, 333-59778, 333-83964, 333-113602, and 333-121493.
PROSPECTUS
MAY 1, 2005
TIAA REAL ESTATE ACCOUNT
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 7.
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 0.580%.
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:
• RA and GRAs (Retirement and Group Retirement Annuities)
• Retirement Select and Retirement Select Plus Annuity
• SRAs (Supplemental Retirement Annuities)
• GSRAs (Group Supplemental Retirement Annuities)
• Retirement Choice and Retirement Choice Plus Annuity
• GAs (Group Annuities) and Institutionally-Owned GSRAs
• Classic and Roth IRAs (Individual Retirement Annuities) including SEP IRAs (Simplified Employee Pension Plans)
• Keoghs
• ATRAs (After-Tax Retirement Annuities)
Note that state regulatory approval may be pending for
certain of these contracts and they may not currently be available in your state.
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.
TABLE
OF
CONTENTS
About the Real Estate Account
and TIAA
Below
The
Account’s Investment Objective
and Strategy
1
Summary
of Account’s Expense
Deductions
1
About
the Account’s Investments —
In General
2
General
Investment and
Operating Policies
5
Risks
7
Establishing
and Managing
the Account — The Role of TIAA
12
Description
of Properties
16
Selected
Financial Data
28
Quarterly
Selected Financial
Information (Unaudited)
29
Management’s
Discussion and
Analysis of Financial Condition
and Results of Operations
30
Quantitative
and Qualitative
Disclosures About Market Risk
40
Valuing
the Account’s Assets
41
Expense
Deductions
44
The
Contracts
46
How
to Transfer and Withdraw
Your Money
50
Receiving
Annuity Income
54
Death
Benefits
59
Taxes
60
General
Matters
64
Distribution
66
State
Regulation
66
Legal
Matters
66
Experts
66
Additional Information
67
Financial
Statements
68
Additional
Developments
68
Index
to Financial Statements
70
Appendix
A — Management of TIAA
136
Appendix B
— Special Terms
138
Please see Appendix B for definitions of certain special terms used in this prospectus.
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.
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, 2004, TIAA’s general account had a mortgage and real property portfolio of approximately $26.0 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 3.2 million
people at over 15,000 institutions. As of December 31, 2004, TIAA’s assets were approximately $163.6 billion; the combined assets for TIAA and CREF totaled approximately $335.6 billion.
THE ACCOUNT’S INVESTMENT OBJECTIVE
AND STRATEGY
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 equity securities. 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.
SUMMARY OF ACCOUNT’S 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. The current
annual expense deductions are:
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Services are performed at cost by TIAA or subsidiaries of TIAA.
Since expenses are charged at cost, the expenses described are estimates for the
year based on projected expense and asset levels. Any differences between actual
and estimated expenses are adjusted quarterly. For more detailed information, see
“Expense Deductions” page 44.
ABOUT THE
ACCOUNT’S INVESTMENTS—IN GENERAL
DIRECT INVESTMENTS IN REAL ESTATE
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
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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 income 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:
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 taxable income 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
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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:
FOREIGN REAL ESTATE AND OTHER FOREIGN
INVESTMENTS
We will consider the special risks involved in foreign investing
before investing in foreign real estate and won’t invest unless our standards
are met.
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GENERAL
INVESTMENT AND OPERATING POLICIES
STANDARDS FOR REAL ESTATE INVESTMENTS
General Criteria for Buying Real Estate or Making Mortgage
Loans:
Before the Account purchases real estate or makes a mortgage loan, TIAA
will consider such factors as:
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).
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:
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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
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
8.
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.
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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
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.
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:
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General Risks of Selling Real Estate Investments:
Among
the risks of selling real estate investments are:
Risks of Borrowing:
Among the risks of borrowing money
and investing in a property subject to a mortgage are:
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.
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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 cleanup 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 Joint Ownership:
Investing in joint venture partnerships or other forms of joint property ownership may involve special risks.
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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:
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
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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:
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, 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 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:
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RISKS OF FOREIGN INVESTMENTS
Foreign investments present the following special risks:
NO OPPORTUNITY FOR PRIOR REVIEW OF
PURCHASE
You won’t have the opportunity to evaluate the economic
merit of a property purchase before the Account completes the purchase, so you will
need to rely solely on TIAA’s judgment and ability to select investments consistent
with the Account’s investment objective and policies.
ESTABLISHING AND MANAGING THE ACCOUNT
—
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,
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following
investment management procedures TIAA adopted for the Account. TIAA’s investment
management responsibilities include:
You don’t have the right to vote for TIAA Trustees
directly. See “Voting Rights” page 65. For information about the Trustees
and principal executive officers of TIAA, see Appendix A 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
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
For example, TIAA’s general account and the TIAA-CREF
Asset Management Core Property Fund LP, (the “Core Property Fund”)
managed by Advisors, may sometimes compete with the Real Estate Account in
the purchase or sale of
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investments. (Each of TIAA’s general accounts, the Real Estate
Account and the Core Property Fund, are herein referred to as an “account.”)
A special TIAA Allocation Committee will seek to resolve any conflict by considering
which account has the relative cash available as a percentage of the account’s
total gross value to make the purchase, the effect the purchase or sale will have
on the diversification of each account’s portfolio, the investment strategy
fit for a particular account, 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 and the Core Property Fund may compete for tenants with the Real
Estate 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 the Real Estate Account, the general account, and the Core Property Fund 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.
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:
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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:
TIAA pays the independent fiduciary directly. The investment management
charge paid to TIAA includes TIAA’s costs for retaining the independent fiduciary.
The independent fiduciary will receive less than 5 percent of its annual income
(including payment for its services to the Account) from TIAA.
When you decide as a participant or plan fiduciary to invest
in the Account, after TIAA has provided you with full and fair disclosure including
the disclosure in this prospectus, you are also acknowledging that you approve and
accept The Townsend Group or any successor to serve as the Account’s independent
fiduciary.
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DESCRIPTION OF PROPERTIES
THE PROPERTIES — IN GENERAL
In the table beginning on the next page you will find general
information about each of the Account’s portfolio properties as of December
31, 2004.
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Properties
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Properties
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COMMERCIAL (NON-RESIDENTIAL) PROPERTIES
The Account’s portfolio is well diversified by both
property type, as well as geographic location. The portfolio consists of: 42 office
properties containing approximately 16.5 million square feet located in 15 states
and the District of Columbia; 30 industrial properties containing 27.5 million square
feet located in 15 states, including a 60% interest in a portfolio of industrial
properties located throughout the United States; and 8 retail properties containing
approximately 2.8 million square feet located in 5 states and the District of Columbia.
In addition, the Account has a 75% interest in a portfolio of storage facilities
located throughout the United States containing approximately 2.2 million square
feet.
As of December 31, 2004, the overall occupancy rate of
Account’s commercial real estate portfolio was 91% on a weighted average basis.
Office properties were 90% leased with 1,350 leases, industrial properties were
93% leased with 365 leases, and retail properties were 97% leased with 537 leases.
No single tenant accounts for more than 2.3% 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 occupied as of December 31,
2004, in the Account’s properties.
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Lease Expirations:
The following charts provide lease expiration
information for the Account’s commercial properties, categorized by property
type as of December 31, 2004. While many of the leases contain renewal options with
varying terms, these charts assume that none of the tenants exercise their renewal
options.
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RESIDENTIAL PROPERTIES
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states, and is 92% leased overall. 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, 2004.
RECENT PROPERTY PURCHASES AND SALES
The following describes properties purchased or expected
to be purchased by the Account after December 31, 2004.
OFFICE PROPERTIES
99 High Street – Boston, MA
On April 27, 2005, the Account
purchased a 32-Story , Class A office building in Boston, Massachusetts,
subject to debt, for approximately $275.3 million. At closing the Account
assumed a mortgage loan on the property of approximately $185 million in
favor of Lehman Brothers Bank, FSB. 99 High Street, built in 1971 and renovated
in 1995 and 2000, contains 731,204 net rentable square feet and is
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92%
leased. The three largest tenants are KPMG International (167,883 square feet),
AIG (87,815 square feet), and AON Corporation (63,765 square feet). Rental rates
average $34.64 per square foot, which is on par with the current average market
rent for comparable properties. The property is in the Financial District office
submarket, which had approximately 30 million square feet with a vacancy rate of
13.8% at the time of purchase.
8270 Greensboro Drive – McLean, VA
On April 22, 2005, the Account purchased a
ten-Story , Class A office building in McLean, Virginia for approximately $60.5
million. 8270 Greensboro Drive , built in 2000, contains 157980 net rentable
square feet and is 100% leased. The three largest tenants are Wachovia Bank
(45,067 square feet), Williams Mullen Clark & Dobbins, PC (20,909 square
feet), and CB Richard Ellis Group, Inc. (16,107 square feet). Rental rates
average $34.68 per square foot, which is above the current average market
rent for comparable properties. The property is in the Tysons Corner office
submarket, which had approximately 25.5 million square feet with a vacancy
rate of 17.3% at the time of purchase.
INDUSTRIAL PROPERTIES
East North Central RA Industrial Portfolio
(fka RREEF America Industrial Portfolio – East North Central)
, located
in an industrial submarket Chicago, Illinois, was purchased on January 27, 2005
for approximately $18 million. This property consists of 2 buildings, built
in 1979, contains 237,092 rentable square feet and is 78% leased to 7 tenants.
The three largest tenants are ABS Graphics (69,889 square feet), Rollex Corp.
(39,200 square feet) and Robert Bosch Tool Corp. (25,980 square feet). Rental
rates average $3.99 per square foot, below the average market rent for comparable
properties. The properties are located in the Chicago industrial submarket,
which had approximately 1 Billion square feet with a vacancy rate of 12% at
the time of purchase.
RETAIL PROPERTIES
Suncrest Village Shopping Center – Orlando, FL
On April 29, 2005 the Account
purchased a neighborhood shopping center in Orlando, Florida for approximately
$15.6 million. The retail center, built in 1987, contains 93,358 square feet
of gross leaseable area. The Anchor tenants are Publix Supermarket (42,112
square feet) and CVS Pharmacy (10,500 square feet). The shopping center,
located in the University/Union Park submarket, is 99% leased.
The
following describes property sales by the Account since December 31, 2004. Keep
in mind that any changes in the valuation of the property since it was purchased
have been reflected in the Account’s daily unit value over the period the Account
held the property.
On January 31, 2005, the Account sold an
industrial property (part of the East North Central RA Industrial Portfolio), for
approximately $3.8 million.
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SELECTED FINANCIAL DATA
The following selected financial data should be considered
in conjunction with the Account’s financial statements and notes provided in
this prospectus. The Account restated its 2003 and 2002 consolidated financial statements
related to certain investments in joint ventures (see Financial Statements and Notes
thereto included in Item 8, Financial Statements and Supplementary Data). The columns
in the following table for the years ending before 2004 have been adjusted for this
change, but the restatement did not affect the Account’s total net assets,
accumulation unit value nor the Account’s net increase in net assets, as previously
presented in the following table.
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QUARTERLY
SELECTED FINANCIAL INFORMATION (UNAUDITED)
(a) Total return
is net of expenses (excluding real estate property level expenses).
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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 financial statements and notes contained in this prospectus.
2004 OVERVIEW
As of December 31, 2004, the Account had total net assets
in the amount of $7,245,549,986, a 51.16% increase over the 2003 year-end total
net assets. The Account closed 29 transactions in 2004. It purchased 21 properties:
nine office properties, including one joint venture, ten industrial properties,
including one joint venture, and two retail properties for a total of approximately
$2.5 billion. Additional transactions included the purchase of an additional 20%
joint venture interest (for a total of 100%) in an existing joint venture (a total
amount of $11.2 million), and a commitment to purchase interests in two real estate–related
funds totaling $65 million. In 2004, the Account also closed on the sale of five
properties: two retail properties for the approximate sales price of $15.8 million,
the sale of two office properties for the approximate sales price of $29.0 million
and the sale of one apartment property for the approximate sales price of $69.0
million.
As of December 31, 2004, the Account owned a total of 102
real estate properties, representing 86.06% of the Account’s total investment
portfolio (thirteen of which are held in joint ventures). The real estate portfolio
includes 42 office properties (seven of which are held in joint ventures), 30 industrial
properties (including two joint ventures), 21 apartment complexes, 8 retail properties
(including three joint ventures), and a 75% joint venture partnership interest in
a portfolio of storage facilities.
The following charts 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 financial statements as of December 31, 2004.
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As of December 31, 2004, the Account also held investments in
real estate limited partnerships, representing 0.40% of the portfolio, real estate
equity securities, representing 4.25% of the portfolio, commercial mortgage-backed
securities (CMBS), representing 0.54% of the portfolio, and commercial paper, representing
4.51% of the portfolio and government bonds, representing 4.24% of the portfolio.
Real Estate Market Outlook In General
Office market conditions improved during 2004. In the fourth
quarter of 2004, office market vacancies declined for the sixth consecutive quarter,
falling to 15.4% compared with 16.8% as of the fourth quarter of 2003. The positive
momentum has carried over into 2005 as the Federal Reserve’s January 2005 Beige
Book reported that “Commercial real estate conditions strengthened in most
districts in
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December and early January.” Construction has also been constrained.
During 2004, 36 million square feet were completed and another 44 million square
feet were under construction as of year-end 2004. By comparison, an average of 90
million square feet was complete annually during the 1999–2002 period. Ongoing
improvements in U.S. payrolls combined with modest construction should continue
to improve supply/demand fundamentals for the office markets.
In the fourth quarter of 2004, industrial market vacancies
declined for the third consecutive quarter, falling to 10.8% compared with 11.7%
as of the fourth quarter of 2003. Absorption, or the net change in occupied space,
totaled 175 million square feet in 2004, which was well above the 20 million square
feet absorbed in 2003. New construction of industrial space has also been moderate.
During 2004, 115 million square feet were completed, and another 110 million square
feet are expected to be built in 2005. By comparison, an average of 200 million
square feet was completed annually during the 1999–2002 period. Historically,
there has been a positive correlation between growth in the U.S. economy, as indicated
by GDP growth, and industrial space demand. The U.S. Gross Domestic Product has
now grown for twelve consecutive quarters, and continued growth would bode well
for industrial market prospects.
Apartment market conditions improved in 2004. As reported by M/PF
Research, vacancies in institutional-grade apartments declined to 6.4% as of fourth
quarter of 2004 and as compared to 7.4% as of fourth quarter of 2003. While concessions,
such as free Internet service, remained commonplace, effective rents increased 1.7%
nationally over the course of the year. The gains were broad-based, with effective
rents increasing in 43 of the 58 major metropolitan areas tracked by M/PF Research.
Sustained consumer spending during 2004 benefited
both the U.S. economy and retail markets. Reis, Inc. reported that vacancies in
regional shopping malls fell to 5.3% (the lowest level in three and a half years)
and rents increased by 0.8% during the fourth quarter of 2004. Vacancies in neighborhood
and community centers were 6.8% in the fourth quarter of 2004 compared with 6.9%
in the fourth quarter of 2003. Absorption during the fourth quarter totaled nine
million square feet, the highest in four years. In addition, rents increased 0.7%
during the fourth quarter and a total of 2.9% over the course of 2004. While the
Federal Reserve’s January 2005 Beige Book reported that retail sales in a number
of districts during the 2004 holiday season were above 2003 levels, there is some
uncertainty ahead for the retail sector as the results of these activities amongst
the major retailers could be reflected in large blocks of retail space becoming
available. In particular, there has been a surge in mergers and acquisition activity
among certain major retailers, including Federated Department Stores, Kmart and
Sears. The results of these activities among the major retailers could be reflected
in large blocks of retail space becoming available.
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Economic Outlook for 2005
Prospects for commercial real estate markets in 2005 appear promising
given the improvement in the U.S. economy during 2004. Many economists are projecting
further improvements in the economy in 2005 as well. One positive indicator for
the coming year is the increase in corporate profits, which along with corporations’
large cash positions and healthy balance sheets bode well for new hiring and investment
in new offices, factories and equipment. However, consumer spending, which accounts
for roughly two-thirds of U.S. economic activity, is expected to be more modest.
Consumers are expected to become more cautious about their spending because of relatively
high debt burdens, increases in energy prices, and a slowdown in home equity borrowing.
In addition, the effect of increasing interest rates may also have a dampening effect
on real estate market conditions. While prospects for 2005 on the whole are encouraging,
near-term fluctuations in economic activity are not predictable, and changes in
real estate market conditions often lag changes in economic conditions.
RESULTS OF OPERATIONS
Year
Ended
December
31
, 2004, Compared to
Year
Ended
December
31
, 2003
Performance
The Account’s total return was 12.57% for the year
ended December 31, 2004, and 7.50% for 2003 (net of Account expenses). 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 real estate–related
(real estate equity securities, CMBS and limited partnerships) investments.
The market value of the Account’s real estate portfolio increased substantially
in 2004, as did the value of its real estate equity securities holdings.
These increases in the real estate and real estate–related assets were
due to the significant amount of capital which flowed into the real estate
market from institutional investors as well as foreign investors increasing
the price of core real estate investments.
Income and Expenses
The Account’s net investment income after deduction
of all expenses was 23% higher for the year ended December 31, 2004, compared to
the same period in 2003. This increase was primarily due to a 51% increase in total
net assets, which included a 66% increase in the Account’s real estate holdings,
including joint ventures and limited partnerships, over the same period.
The Account’s real estate holdings, including joint
venture investments, generated approximately 88% and 93% of the Account’s total
investment income (before deducting Account level expenses) during 2004 and 2003,
respectively. The remaining portion of the Account’s total investment income
was generated by marketable securities investments.
Gross real estate rental income increased approximately
10% in the year ended December 31, 2004, as compared to the same period in 2003.
This increase was
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due to the increased number of properties owned by the Account. Income
from the real estate joint ventures was $57,275,242 for the year ending December
31, 2004, as compared with $31,989,569 for the year ending December 31, 2003. This
increase in joint venture income was due to an increase in leasing at certain retail
properties as well as the purchase of an additional joint venture interest in an
existing office property, and the addition of two joint venture investments in 2004.
Interest income on the Account’s marketable securities investments increased
from $7,221,765 in 2003 to $15,055,451 in 2004 due to the increase in the amount
of non-real estate assets held by the Account as well as a slight increase in short-term
rates from 2003 to 2004. Dividend income on the Account’s real estate equity
securities and limited partnership investments increased from $12,240,166 for the
year ended December 31, 2003, to $26,568,264 for the year ended December 31, 2004.
This increase was due to the strong performance of the real estate market reflecting
the increased inflow of capital into real estate–related investments.
Total property level expenses for the year ended December
31, 2004 and 2003 were $157,768,776, and $136,678,570, respectively. This 15% increase
in property level expenses reflected the increased number of real estate properties
owned by the Account from 2003 to 2004. In addition, during 2004, the Account incurred
interest expense of $830,361 related to the mortgages.
The Account also incurred expenses for the years ended
December 31, 2004 and 2003 of $14,393,388 and $12,751,191 respectively, for investment
advisory services, $16,372,446 and $14,786,580 respectively, for administrative
and distribution services and $5,962,591 and $4,116,294 respectively, for mortality,
expense risk and liquidity guarantee charges. The overall 16% 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
The Account had a 136% increase in net assets resulting
from operations ($303,572,866 in December 2003 as compared to $716,180,335 in December
2004). The increase is due to the substantial realized and unrealized gains on the
Account’s real estate and joint venture properties.
The Account had net realized and unrealized gains on investments
of $414,580,303 for the year ended December 31, 2004, as compared with net realized
and unrealized gains on investments of $58,837,371 for the year ended December 31,
2003. The increase in net realized and unrealized gains is primarily due to the
substantial net unrealized gain on the Account’s real estate properties of
$170,703,978 for the year ended December 31, 2004, as compared to net unrealized
losses for the year ended December 31, 2003, of $37,639,368. In addition, the Account
had an unrealized gain on its joint venture holdings of $161,584,369 for the year
ended December 31, 2004, as compared to unrealized gain of $23,914,271 for the year
ended December 31, 2003. The substantial net gains in the year ending December 31,
2004, are due to the increase in market value of its real estate portfolio, particularly
in the value of three regional malls in which the Account
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owns joint venture interests. The Account’s marketable securities
for the year ended December 31, 2004, had net realized and unrealized gains totaling
$68,464,524 as compared with net realized and unrealized gains of $39,963,920 for
the year ended December 31, 2003.
During 2004, the Account sold five properties. Proceeds of sale
were $113,765,000 and cost at the time of sale was $99,937,568, resulting in a realized
gain of $13,827,432. During 2003, the Account sold two properties. Proceeds of sale
were $187,225,000 and cost at the time of sale was $154,626,452, resulting in a
realized gain of $32,598,548.
Year Ended December 31,
2003, Compared to Year Ended December 31, 2002
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
real estate equity securities 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 real estate
equity secur ities holdings also added to the total return.
Income and Expenses
The Account’s net investment income after
deduction of all expenses was 12% higher for the year ended December 31, 2003,
compared to the same period in 2002 primarily due to a 30% increase in total
net assets, which included a 19% increase in the Account’s real estate
holdings, including joint ventures and limited partnerships.
The Account’s real estate holdings, including joint venture
investments, generated approximately 93% and 89% 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
20% in the year ended December 31, 2003, over the same period in 2002. This was
primarily due to the increased number of properties owned by the Account as of December
31, 2003, as compared to the properties owned as of December 31, 2002. Income from
real estate joint ventures was $31,989,569 for the year ended December 31, 2003,
as compared with $17,077,072 for the year ended December 31, 2002. The increase
in joint venture income was due to the increase in the number of joint ventures
from
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2002 to 2003. 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 real
estate equity securities investments decreased slightly from $12,891,207 for the
year ended December 31, 2002, to $12,240,166 for the year ended December 31, 2003.
Total property level expenses for the year ended December 31,
2003 and 2002 were $136,678,570 and $101,962,973, respectively. This 34% 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
The Account had a 161% increase in net increase in net
assets resulting from operations ($303,572,866 for 2003 as compared to $116,242,038
for 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 and unrealized
gains on investments of $58,837,371 for the year ended December 31, 2003, as compared
with net realized and unrealized losses on investments of $102,967,284 for the year
ended December 31, 2002. The increase in net realized and unrealized gains for the
Account in 2003 was a reflection of the improving economic market conditions. The
Account had unrealized gains on its joint venture holdings of $23,914,271 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 A ccount’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, were due primarily to the strong performance of the real estate equity
securities markets during the period.
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During 2003, the Account sold two properties. Proceeds of sale were
$187,225,000 and cost at time of sale was $154,626,452, resulting in a realized
gain of $32,598,548. During 2002, the Account sold two properties. Proceeds of sale
were $26,050,000 and cost at time of sale was $22,592,804, resulting in a realized
gain of $3,457,196.
LIQUIDITY AND CAPITAL RESOURCES
At year end 2004 and 2003, the Account’s liquid assets
(
i.e.
, its real estate equity securities, CMBSs, commercial paper, government
securities and cash) had a value of $1,045,733,841 and $753,971,810, respectively.
The increase in the Account’s liquid assets was primarily due to the net positive
inflow of transfers and premiums into the Account and an increase in the value of
its real estate equity securities holdings.
In 2004, the Account received $738,048,183 in premiums
and $1,188,465,203 in net participant transfers from TIAA, CREF Accounts and affiliated
mutual funds, while for 2003 the Account received $515,435,665 in premiums and $433,792,602
in net participants’ transfers. Real estate acquisitions totaling approximately
$2.5 billion and $753.3 million were made during 2004 and 2003, respectively. In
2004, the Account also received approximately $113.8 million in proceeds from the
sale of two office properties, two retail properties and one apartment property.
The Account’s liquid assets 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 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
in the Account’s prospectus, may borrow money and assume or obtain a mortgage
on a property —
i.e.
, 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 the 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
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CRITICAL ACCOUNTING POLICIES
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 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
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.
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Accounting for Investments:
Real estate transactions are accounted
for as of the date on which the purchase or sale transactions for the real estate
properties close (settlement date). Rent from real estate properties consists of
all amounts earned under tenant operating leases, including base rent, recoveries
of real estate taxes and other expenses and charges for miscellaneous services provided
to tenants. Rental income is recognized in accordance with the billing terms of
the lease agreements. The Account bears the direct expenses of the real estate properties
owned. These expenses include, but are not limited to, fees to local property management
companies, property taxes, utilities, maintenance, repairs, insurance and other
operating and administrative costs. An estimate of the net operating income earned
from each real estate property is accrued by the Account on a daily basis and such
estimates are adjusted as soon a s actual operating results are determined.
Income from joint ventures is recorded based on the Account’s
proportional interest in the income earned by the joint venture that has been distributed
from the joint venture to the Account.
Securities transactions are accounted for as of the date
the securities are purchased or sold (trade date). Interest income is recorded as
earned and includes accrual of discount and amortization of premium. Dividend income
is recorded on the ex-dividend date or as soon as the Account is informed of the
dividend. Realized gains and losses on securities transactions are accounted for
on the specific identification method.
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.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES
As of December 31, 2004, 13.54% of the Account’s
investments were in market risk sensitive instruments, comprised entirely of marketable
securities. These include real estate equity securities, commercial mortgage-backed
securities (CMBSs), and high-quality short-term debt instruments (
i.e.
, commercial
paper and government agency instruments). The Consolidated Statement of Investments
for the Account sets forth the terms of these instruments, along with their fair
value, as determined in accordance with procedures described in Note 1 to the Account’s
financial statements. Note that the Account does not currently invest in derivative
financial instruments.
The Account’s investments in marketable securities are subject
to the following general risks:
In addition, mortgage-backed securities are subject to prepayment
risk —
i.e.
, the risk that borrowers will repay the loans early. If
the underlying mortgage assets
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experience
greater than anticipated payments of principal, the Account could fail to recoup
some or all of its initial investment in these securities. 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.
VALUING THE ACCOUNT’S ASSETS
We value the Account’s assets as of the close of each
valuation day by taking the sum of:
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
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estate–related investment. We’ll estimate the value of
the note by applying a discount rate appropriate to then-current market conditions.
Development properties initially will be valued at the Account’s
cost, and the value will be adjusted as additional development costs are incurred.
Once a property receives a certificate of occupancy, 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). The outstanding balance of the debt will
be recorded as a liability. 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 prepayable, 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).
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Net
Operating Income:
The Account usually receives operating income from its investments
intermittently, not daily. In fairness to participants, we estimate the Account’s
net operating income rather than applying it when we actually receive it, and assume
that the Account has earned (accrued) a proportionate amount of that estimated amount
daily. You bear the risk that, until we adjust the estimates when we receive actual
income reports, the Account could be under- or over-valued.
Every year, we prepare a month-by-month estimate of the
revenues and expenses (estimated net operating income) for each of the Account’s
properties. Each day, we add the appropriate fraction of the estimated net operating
income for the month to the Account’s net asset value.
Every month, the Account receives a report of the actual
operating results for the prior month for each property (actual net operating income).
We then recognize the actual net operating income on the accounting records of the
Account and adjust the outstanding daily accrued receivable accordingly. As the
Account actually receives cash from a property, we’ll adjust the daily accrued
receivable and other accounts appropriately.
Adjustments:
We can adjust the value of an investment
if we believe events or market conditions (such as a borrower’s or tenant’s
default) have affected how much the Account could get if it sold the investment.
We may not always be
The independent fiduciary will need to approve adjustments
to any valuation of one or more properties that
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
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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 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.
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The
current annual expense deductions are:
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
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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.
THE CONTRACTS
RA (RETIREMENT ANNUITY), GRA (GROUP RETIREMENT
ANNUITY),
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.
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.
These are very similar in operation to the GRAs and GSRAs, respectively,
except that they are issued directly to your employer on your plan’s trustee.
Among other rights, the employer retains the right to transfer accumulations under
these contracts to alternate funding vehicles.
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CLASSIC
IRA AND ROTH 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 $4,000 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 $4,500. The combined limit for your contributions to a Classic
IRA and a Roth IRA for a single year is $4,000, or $4,500 if you are age 50 or older,
excluding rollovers. (The dollar limits listed are for 2005; different dollar limits
may apply in future years.) We can’t issue you a joint contract.
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 $4,000 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 $4,500. The combined limit for your contributions to a Classic IRA and a Roth
IRA for a single year is $4,000, or $4,500 if you are age 50 or older, excluding
rollovers. (The dollar limits listed are for 2005; different dollar limits may apply
in future years.) We can’t issue you a joint contract.
Your employer may offer SEP IRAs (Simplified Employee Retirement
Plans), which are subject to different rules.
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 including withdrawing completely from
the Account.
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
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Note that the tax rules governing these non-qualified contracts
differ significantly from the treatment of qualified contracts. See “Taxes,” on
page 60 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.
STATE REGULATORY APPROVAL
State regulatory approval may be pending for certain of
these contracts and they may not currently be available in your state.
STARTING OUT
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 or have a different default.) 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 (some employer plans may have a different default). 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 generally doesn’t currently restrict
the amount or frequency of premiums to your contract, 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 want to directly contribute personal premiums under the contractual provisions of your RA contract, you will be issued an ATRA contract. Premiums
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and
any earnings on the ATRA contract will not subject to your employer’s retirement
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 U.S. 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 number 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.
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.
THE RIGHT TO CANCEL YOUR CONTRACT
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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). A business day ends at 4:00 p.m. Eastern time or when trading closes
on the NYSE, if earlier.
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:
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:
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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,
or by the terms of your contract, as set forth below. 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:
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.
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.
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.
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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
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
).
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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
POSSIBLE RESTRICTIONS ON PREMIUMS
AND TRANSFERS TO THE ACCOUNT
From time to time we may stop accepting premiums for and/or
transfers
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.
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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, the accounts or funds
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. In addition, market timing can interfere
with efficient portfolio management and cause dilution, if timers are able to take
advantage of pricing inefficiencies. To discourage market-timing activity, transfers
from the Account to a CREF or TIAA account are limited to once every calendar quarter.
In addition, 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.
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 Distribution Requirements,” on page 61. 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
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after the initial payment based on the Account’s investment
experience and the income change method you choose.
ANNUITY STARTING DATE
Generally, you pick an annuity starting date when you first
apply for a TIAA contract but you can change this date at any time prior to the
day before that annuity starting date. Ordinarily, annuity payments begin on your
annuity starting date, provided we have received all documentation necessary for
the income option you’ve picked. If something’s missing, we’ll defer
your annuity starting date until we receive it. Your first annuity check may be
delayed while we process your choice of income options and calculate the amount
of your initial payment. Any premiums received within 70 days after payments begin
may be used to provide additional annuity income. Premiums received after 70 days
will remain in your accumulating annuity contract until you give us further instructions.
Ordinarily, your first annuity payment can be made on any business day between the
first and twentieth of any month.
INCOME OPTIONS
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:
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You must apply your entire accumulation under a contract if you
want to use the MDO annuity. It is possible that income under the MDO annuity will
cease during your lifetime. Prior to age 90, and subject to applicable plan and
legal restrictions, 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.
If you haven’t picked an income option when the annuity
starting date arrives for your contract, TIAA usually will assume you want the
one-life
annuity with 10-year guaranteed period
if you’re unmarried, subject to
the terms of your plan, 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
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TRANSFERS DURING THE ANNUITY PERIOD
After you begin receiving annuity income, you can transfer
all or part of the future annuity income payable once each calendar quarter (i)
from the Real Estate Account into a “comparable annuity” payable from
a CREF account or TIAA’s traditional annuity, or (ii) from a CREF account into
a comparable annuity payable from the Real Estate Account. Comparable annuities
are those which are payable under the same income option, and have the same first
and second annuitant, and remaining guaranteed period.
We’ll process your transfer on the business day we
receive your request. You can also choose to have a transfer take effect at the
close of any future business day. 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
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
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the Account accumulation to be applied to provide the annuity payments
by the product of the annuity unit value for that income change method and an annuity
factor. The annuity factor as of the annuity starting date is the value of an annuity
in the amount of $1.00 per month beginning on the first day such annuity units are
payable, and continuing for as long as such annuity units are payable.
The annuity factor will reflect interest assumed at the
effective annual rate of 4 percent, and the mortality assumptions for the person(s)
on whose life (lives) the annuity payments will be based. Mortality assumptions
will be based on the then-current settlement mortality schedules for this Account.
Annuitants bear no mortality risk under their contracts — actual mortality
experience will not reduce annuity payments after they have started. TIAA may change
the mortality assumptions used to determine the number of annuity units payable
for any future accumulations converted to provide annuity payments.
The number of annuity units payable under an income change
method under your contract will be reduced by the number of annuity units you transfer
out of that income change method under your contract. The number of annuity units
payable will be increased by any internal transfers you make to that income change
method under your contract.
Value of Annuity Units:
The Real Estate Account’s
annuity unit value is calculated separately for each income change method for each
business day and for the last calendar day of each month. The annuity unit value
for each income change method is determined by updating the annuity unit value from
the previous valuation day to reflect the net investment performance of the Account
for the current valuation period relative to the 4 percent assumed investment return.
In general, your payments will increase if the performance of the Account is greater
than 4 percent and decrease if the value is less than 4 percent. The value is further
adjusted to take into account any changes expected to occur in the future at revaluation
either once a year or once a month, assuming the Account will earn the 4 percent
assumed investment return in the future.
The initial value of the annuity unit for a new annuitant
is the value determined as of the day before annuity payments start.
For participants under the annual income change method,
the value of the annuity unit for payment remains level until the following May
1. For those who have already begun receiving annuity income as of March 31, the
value of the annuity unit for payments due on and after the next succeeding May
1 is equal to the annuity unit value determined as of such March 31.
For participants under the monthly income change method,
the value of the annuity unit for payments changes on the payment valuation day
of each month for the payment due on the first of the following month.
TIAA reserves the right, subject to approval by the Board
of Trustees, to modify the manner in which the number and/or value of annuity units
is calculated in the future.
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DEATH
BENEFITS
AVAILABILITY; CHOOSING BENEFICIARIES
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:
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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.
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TAXES IN GENERAL
The maximum contribution limit to a 457(b) non-qualified
deferred compensation plan for employees of state and local governments is $14,000
($18,000 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 2005;
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 govern mental 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 from qualified contracts 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
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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 requiring minimum distributions during your lifetime. You are responsible
for requesting distributions that comply with the minimum distribution rules.
WITHHOLDING ON DISTRIBUTIONS
If we pay 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 types of distributions that are not considered eligible
rollovers such as payments from IRAs, hardship 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:
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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 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.
Withholding.
Annuity distributions are generally subject
to federal income tax withholding but most recipients can usually choose not to
have the tax withheld.
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).
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POSSIBLE TAX LAW CHANGES
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 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
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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 sum the commuted value of any benefits due an estate, corporation, partnership, trustee, or other entity not a natural person. Neither TIAA nor the Account will be responsible for the conduct of any executor, trustee, guardian, or other third party to whom payment is made.
Benefits Based on Incorrect Information:
If the amounts of benefits provided under a contract were based on information that is incorrect, benefits will be recalculated on the basis of the correct data. If the
Account has overpaid or underpaid, appropriate adjustments will be made.
Proof of Survival:
We reserve the right to require
satisfactory proof that anyone named to receive benefits under a contract is living
on the date payment is due. If we have not received this proof after we request
it in writing, the Account will have the right to make reduced payments or to withhold
payments entirely until such proof is received.
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DISTRIBUTION
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. Their addresses are at 730 Third Avenue, New York,
NY 10017-3206. No commissions are paid for distributing the contracts.
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 passed upon legal matters relating to
the federal securities laws.
EXPERTS
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.
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. As of December
31, 2004, the Account owned a total of 102 real estate properties, representing
86.06% of the Account’s total investment portfolio. The Account also held investments
in real estate limited partnerships, representing 0.40% of the portfolio, real estate
equity securities, representing 4.25% of the portfolio, commercial mortgage-backed
securities (CMBS), representing 0.54% of the portfolio, and commercial paper, representing
4.51% of the portfolio and government bonds, representing 4.24% of the portfolio.
Type
of Expense Deduction
Assets Annually
Investment
Management
For
TIAA’s investment advice, po
rtfolio
accounting, custodial services, and similar services, including independent fiduciary
and ap
praisal fees
Administration
For
Services’ administrative services, such as allocating pre
miums
and paying annuity income
Distribution
For
Services’ expenses related to distributin
g
the annuity contracts
Mortality and Expense Risk
For
TIAA’s bearing certain mortality an
d
expense risks
Liquidity Guarantee
For
TIAA’s liquidity guarantee
Total Annual Expense D
eduction
For
total services to the Account
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.
•
renegotiating and restructuring the
terms of a mortgage loan
•
extending the maturity of any mortgage
loan made by the Account
•
consenting to a sale of the property
subject to a mortgage loan
•
financing the purchase of a property
by making a new mortgage loan in connection with the sale
•
selling them, or portions of them,
before maturity
•
U.S. government or government agency
securities
•
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.
•
Corporate debt or asset-backed securities
of U.S. or foreign entities, or debt securities of foreign governments or multi-national
organizations, but only if they’re investment-grade and rated in the top four
categories by a nationally recognized rating organization (or, if not rated, deemed
by TIAA to be of equal quality)
•
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
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.
•
the location, condition, and use
of the underlying property
•
its operating history, and its future
income-producing capacity
•
the quality, operating experience,
and creditworthiness of the borrower
OTHER REAL ESTATE–RELATED
POLICIES
•
The Account may borrow money when
it buys a property that is already subject to existing mortgage loans.
•
The Account may take out a mortgage on a property
with a joint venture partner.
•
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.
•
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.
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.
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.
•
The Account’s property values
or rental and occupancy rates could go down due to general economic conditions,
a weak market for real estate generally, changing supply and demand for certain
types of properties, and natural disasters or man-made events.
•
A property may be unable to attract
and retain tenants, which means that rental income would decline.
•
The Account could lose revenue if
tenants don’t pay rent, or if the Account is forced to terminate a lease for
nonpayment. Any disputes with tenants could also involve costly litigation.
•
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.
•
The sale price of an Account property
might differ from its estimated or appraised value, leading to losses or reduced
profits to the Account.
•
Because of the nature of real estate,
the Account might not be able to sell a property at a particular time for its full
value, particularly in a poor market. This might make it difficult to raise cash
quickly and also could lead to Account losses.
•
The Account may need to provide financing
if no cash buyers are available.
•
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.
•
If the Account obtains a mortgage
loan that involves a balloon payment, there is a risk that the Account may not be
able to make the lump sum principal payment due under the loan at the end of the
loan term, or otherwise obtain adequate refinancing. The Account then may be forced
to sell the property or other properties under unfavorable market conditions or
default on its mortgage.
•
If the Account takes out variable-rate
loans, the Account’s returns may be volatile when interest rates are volatile.
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
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:
•
In developing real estate, there may be delays or unexpected increases in the cost of property development and construction due to strikes, bad weather, material shortages, increases in material and labor costs, or other events.
•
Because external factors may have changed from when the project was originally conceived (
e.g.
, slower growth in local economy, higher interest rates, or overbuilding in the area), the property, if purchased when unleased, may not operate at the income and expense levels first projected or may not be developed in the way originally planned.
•
The seller or other party may not be able to carry out any agreement to provide certain minimum levels of income, or that agreement could expire, which could reduce operating income and lower returns.
•
The co-venturer may have interests or goals inconsistent with those of the Account.
•
If a co-venturer doesn’t follow the Account’s instructions or adhere to the Account’s policies, the jointly owned properties, and consequently the Account, might be exposed to greater liabilities than expected.
•
A co-venturer can make it harder for the Account to transfer its property interest, particularly if the co-venturer has the right to decide whether and when to sell the property.
•
The co-venturer may become insolvent or bankrupt, which could expose the Account to greater liabilities than expected.
•
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.
•
A deterioration in the financial
condition of tenants, or the bankruptcy or 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.
•
The borrower may not be able to make
a lump sum principal payment due under a mortgage loan at the end of the loan term,
unless it can refinance the mortgage loan with another lender.
•
If interest rates are volatile during
the loan period, the Account’s variable-rate mortgage loans could have lower
yields.
•
The participation element might generate
insufficient returns to make up for the higher interest rate the loan would have
obtained without the participation feature.
•
In very limited circumstances, a
court could possibly characterize the Account’s participation interest as a
partnership or joint venture with the borrower and the Account could lose the priority
of its security interest, or be liable for the borrower’s debts.
•
financial risk
— for
debt securities, the possibility that the issuer won’t be able to pay principal
and interest when due, and for common or preferred stock, the possibility that the
issuer’s current earnings will fall or that its overall financial soundness
will decline, reducing the security’s value.
•
market risk
— price volatility
due to changing conditions in the financial markets and, particularly for debt securities,
changes in overall interest rates.
•
interest rate volatility,
which may affect current income from an investment.
•
Foreign real estate markets may have
different liquidity and volatility attributes than U.S. markets.
•
The value of foreign investments
or rental income can go up or down from changes in currency rates, currency exchange
control regulations, possible expropriation or confiscatory taxation, political,
social, and economic developments, and foreign regulations.
•
The Account may (but is not required
to) seek to hedge its exposure to changes in currency rates, which could involve
extra costs. Hedging might not be successful.
•
It may be more difficult to obtain
and collect a judgment on foreign investments than on domestic ones.
THE ROLE OF TIAA
•
identifying, recommending and purchasing
appropriate real estate–related and other investments
•
providing all portfolio accounting,
custodial, and related services for the Account
•
arranging for others to provide certain
advisory or other management services to the Account’s joint ventures or other
investments
TIAA provides all services to the Account at cost.
For more about the charge for investment management services, see “Expense
Deductions” on page 44.
TIAA provides the Account with a liquidity
guarantee — TIAA ensures that the Account has funds available to meet participant
transfer or cash withdrawal requests. If the Account can’t fund participant
requests from the Account, TIAA’s general account will fund them by purchasing
Account accumulation units (liquidity units). TIAA guarantees that you can redeem
your accumulation units at their then current daily net asset value. Of course,
you can make a cash withdrawal only if allowed by the terms of your plan. The Account
pays TIAA for the liquidity guarantee through a daily deduction from net assets.
See “Expense Deductions,” page 44.
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
and investments managed by Teachers Advisors, Inc. (“Advisors”), an indirect,
wholly owned subsidiary of TIAA. It may therefore at times face various conflicts
of interest.
•
reviewing and approving the Account’s
investment guidelines and monitoring whether the Account’s investments comply
with those guidelines
•
reviewing and approving valuation
procedures for the Account’s properties.
•
approving adjustments to any property
valuations that change the value of the property or the Account as a whole above
or below certain prescribed
levels, or that are made within three months
of the annual independent appraisal
•
reviewing and approving how the Account
values accumulation and annuity units
•
approving the appointment of all
independent appraisers
•
reviewing the purchase and sale of
units by TIAA to ensure that the Account uses the correct unit values
•
requiring appraisals besides those
normally conducted, if the independent fiduciary believes that any of the properties
have changed materially, or that an additional appraisal is necessary to assure
the Account has correctly valued a property
•
calculating the percentage of total
accumulation units that TIAA’s ownership shouldn’t exceed (the trigger
point) and creating a method for changing the trigger point
•
approving any adjustment of TIAA’s
interest in the Account and requiring an adjustment if TIAA’s investment reaches
the trigger point
•
participating in any program to reduce
TIAA’s ownership in the Account or to facilitate winding down the Account,
including selecting properties for sale, providing sales guidelines, and approving
those sales that, in the independent fiduciary’s opinion, are desirable
A special subcommittee of the Investment Committee
of TIAA’s Board of Trustees appointed The Townsend Group as the independent
fiduciary, for a 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.
As of December 31, 2004, the Account owned
a total of 102 real estate properties, whose value on that date represented approximately 86.06% of the Account’s total investment portfolio (thirteen of which are held in joint ventures). This real estate portfolio includes 42 office properties (seven
of which are held in joint ventures), 30 industrial properties (including two joint ventures), 21 apartment complexes, 8 retail properties (including three joint
ventures), and a 75% unconsolidated joint venture partnership interest in a portfolio of storage facilities.
Rentable
Annual Avg
Year
Area
Percent
Base Rent Per
Property
Location
Year Built
Purchased
(Sq. ft.)
(1)
Leased
Leased Sq. Ft.
(2)
Market Value
(3)
OFFICE
PROPERTIES
1001 Pennsylvania
Ave
Washington, DC
1987
2004
802,390
99%
$33.26
$ 466,424,940
(4)
IDX Tower
Seattle, WA
2002
2004
845,533
95%
$34.51
$ 347,978,282
(4)
50 Fremont Street
San Francisco, CA
1983
2004
817,412
90%
$41.11
$ 323,264,602
(4)
Four Oaks Place
Houston, TX
1983
2004
1,762,616
90%
$21.61
$ 255,357,238
Colorado Center
(5)
Santa Monica, CA
1984
2004
1,082,952
89%
$25.16
$ 222,702,820
1900 K Street
Washington, DC
1996
2004
342,884
100%
$37.19
$ 219,453,706
780 Third Avenue
New York, NY
1984
1999
487,501
86%
$40.35
$ 197,000,000
701 Brickell
Miami, FL
1986
(6)
2002
677,667
91%
$25.83
$ 177,000,000
161 North Clark Street
(7
)
Chicago, IL
1992
2003
1,010,520
98%
$15.62
$ 157,282,972
Ten & Twenty
Westport Road
Wilton, CT
1974
(6)
; 2001
2001
538,840
100%
$26.67
$ 148,000,000
Mellon Financial Center at One
Boston Place
(8)
Boston, MA
1970
(6)
2002
785,415
92%
$31.65
$ 139,382,943
Treat Towers
(7)
Walnut Creek, CA
1999
2003
367,313
100%
$29.94
$ 88,524,364
Morris Corporate Center III
Parsippany, NJ
1990
2000
525,154
85%
$18.70
$ 82,300,000
Prominence
in Buckhead
(7)
Atlanta, GA
1999
2003
424,309
95%
$26.84
$ 80,618,771
88 Kearny Street
San Francisco, CA
1986
1999
228,470
75%
$31.54
$ 69,026,718
Oak Brook Regency
Towers
Oakbrook, IL
1977
(6)
2002
402,318
77%
$11.62
$ 68,400,000
Corporate Boulevard
Rockville, MD
1984–1989
2002
339,786
92%
$21.55
$ 65,038,710
Centerside
I
San Diego, CA
1982
2004
205,137
89%
$25.00
$ 65,037,900
1015 15th Street
Washington, DC
1978
(6)
2001
184,825
90%
$27.18
$ 59,000,134
Sawgrass Office
Portfolio
Sunrise, FL
1997–2000
1997; 1999–2000
344,009
92%
$12.45
$ 52,000,000
(1)
The square footage is an approximate
measure and is subject to periodic remeasurement.
(2)
Based on total contractual rent on
leases existing as of December 31, 2004. For those properties purchased in fourth
quarter of 2004, the rent is based on the existing leases as of the date of purchase.
(3)
Market value reflects the value determined
in accordance with the procedures described in the Account’s prospectus and
as stated in the Statement of Investments.
(4)
Market value shown represents the
Account’s interest gross of debt.
(5)
Property held in 50%/50% joint venture
with Equity Office Portfolio Trust.
(6)
Undergone extensive renovations since
original construction.
(7)
Each property held in a 75%/25% joint
venture with Equity Office Properties. Market value shown reflects the value of
the Account’s interest in the joint venture.
(8)
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. Market value shown
reflects the value of the Account’s interest in the joint venture.
Properties
| (continued)
Annual Avg.
Rentable
Base Rent
Year
Area
Percent
Per Leased
Property
Location
Year Built
Purchased
(Sq. ft.)
(1)
Leased
Sq. Ft.
(2)
Market Value
(3)
OFFICE
PROPERTIES
(continued)
West
Lake North Business Park
Westlake Village, CA
2000
2004
198,558
100%
$24.88
$ 50,021,000
Parkview Plaza
(9)
Oakbrook, IL
1990
1997
263,912
96%
$19.56
$ 48,700,000
The Farragut Building
Washington, DC
1962
(6)
2002
144,296
52%
$21.87
$ 46,500,000
One Virginia
Square
Arlington, VA
1999
2004
117,967
100%
$31.81
$ 42,500,000
Capitol Place
Sacramento, CA
1988
(6)
2003
151,803
93%
$26.04
$ 42,400,000
3 Hutton Centre
Santa Ana, CA
1985
(6)
2003
197,817
94%
$20.56
$ 41,106,333
The Pointe on Tampa Bay
Tampa, FL
1982
(6)
2002
249,215
91%
$20.48
$ 40,551,310
Monument Place
Fairfax, VA
1990
1999
221,538
92%
$21.13
$ 37,000,000
Maitland Promenade One
Maitland, FL
1999
2000
227,814
96%
$20.51
$ 36,053,639
BISYS Fund
Services Building
(10)
Eaton, OH
1995; 2002
1999; 2002
238,641
100%
$14.54
$ 34,751,940
Biltmore Commerce Center
Phoenix, AZ
1985
1999
259,792
94%
$18.84
$ 34,104,182
4200 West Cypress
Street
Tampa, FL
1989
2003
220,579
99%
$20.85
$ 33,900,000
Columbia Centre III
Rosemont, IL
1989
1997
238,696
69%
$14.93
$ 28,900,000
Fairgate at
Ballston
(9)
Arlington, VA
1988
1997
137,117
54%
$13.87
$ 28,500,017
Tysons Executive Plaza II
(11)
McLean, VA
1988
2000
259,614
88%
$19.76
$ 27,894,742
10 Waterview
Boulevard
Parsippany, NJ
1984
1999
209,553
64%
$14.00
$ 26,400,000
9 Hutton Centre
Santa Ana, CA
1990
2001
148,265
81%
$17.87
$ 23,169,449
Columbus Portfolio
259,626
77%
$ 7.72
$ 21,500,000
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
77%
—
Needham Corporate
Center
Needham, MA
1987
2001
138,684
100%
$14.38
$ 15,030,046
Five Centerpointe
(9)
Lake Oswego, OR
1988
1997
113,910
86%
$16.62
$ 14,500,000
Batterymarch
Park II
Quincy, MA
1986
2001
104,718
69%
$13.06
$ 10,700,000
371 Hoes Lane
Piscataway, NJ
1986
1997
136,084
78%
$ 9.44
$ 10,666,570
Subtotal—Office
Properties
$3,978,643,328
INDUSTRIAL
PROPERTIES
Ontario Industrial
Portfolio
3,584,769
100%
$ 3.58
$ 187,079,256
(4)
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
—
Harrell Street
Mira Loma, CA
1998
2004
886,052
—
Dallas Industrial
Portfolio
Dallas and
1997–2001
2000–2002
3,763,886
80%
$ 2.39
$ 138,500,000
(formerly
Parkwest Center)
Coppell, TX
Southern
California RA Industrial Portfolio
Los Angeles, CA
1982
2004
920,028
94%
$ 6.92
$ 89,097,299
Chicago Industrial Portfolio
Chicago and
1997–2000
1998;
1,452,974
90%
$ 3.40
$ 70,002,239
(consolidation
of Rockrun,
Joliet, IL
2000
Glen
Pointe and Woodcreek Business Parks)
IDI
National Portfolio
(12)
Various, U.S.
1999–2004
2004
3,655,671
89%
$ 2.38
$ 64,041,442
Cabot
Industrial Portfolio
Rancho
2000–2002
2000; 2001 ;
1,214,475
100%
$ 3.44
$ 60,600,000
Cucamonga, CA
2002; 2004
Northern
California RA Industrial Portfolio
Oakland, CA
1981
2004
741,456
94%
$ 5.20
$ 59,169,642
Rainier Corporate
Park
Fife, WA
1991–1997
2003
1,104,646
99%
$ 3.52
$ 56,035,878
(1)
The square footage is an approximate
measure and is subject to periodic remeasurement.
(2)
Based on total contractual rent on
leases existing as of December 31, 2004. For those properties purchased in fourth
quarter of 2004, the rent is based on the existing leases as of the date of purchase.
(3)
Market value reflects the value determined
in accordance with the procedures described in the Account’s prospectus and
as stated in the Statement of Investments.
(4)
Market value shown represents the
Account’s interest gross of debt.
(5)
Property held in 50%/50% joint venture
with Equity Office Portfolio Trust.
(6)
Undergone extensive renovations since
original construction.
(9)
Purchased through Light Street Partners,
L.P. (now 100% owned by the Account).
(10)
Property held in 96%/4% joint venture
with Georgetown BISYS Phase II LLC. Phase II was purchased in 2002. Market value
shown reflects the value of the Account’s interest in the joint venture.
(11)
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 joint venture.
Annual Avg.
Rentable
Base Rent
Year
Area
Percent
Per Leased
Property
Location
Year Built
Purchased
(Sq. ft.)
(1)
Leased
Sq. Ft.
(2)
Market Value
(3)
INDUSTRIAL
PROPERTIES
(continued)
IDI
Kentucky Portfolio (formerly, Parkwest Int’l)
1,437,022
100%
$ 3.40
$ 49,000,000
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
—
Memphis
CALEast Industrial Portfolio
Memphis, TN
1996–1997
2003
1,600,232
94%
$ 2.22
$ 47,400,000
Northpointe
Commerce Center
Fullerton, CA
1990–1994
2000
612,023
81%
$ 4.56
$ 46,000,000
Chicago
CALEast Industrial Portfolio
Chicago, IL
1974–1999
2003
834,549
96%
$ 3.47
$ 42,000,000
New
Jersey CALEast Industrial Portfolio
Cranbury, NJ
1982–1989
2003
807,773
100%
$ 4.39
$ 39,300,000
Atlanta
Industrial Portfolio
Lawrenceville, GA
1996–1999
2000
1,145,693
83%
$ 1.81
$ 37,750,840
South
River Road Industrial
Cranbury, NJ
1999
2001
626,071
100%
$ 4.68
$ 34,900,000
Northeast
RA Industrial Portfolio
Boston, MA
2000
2004
384,000
100%
$ 6.50
$ 33,110,903
Centre
Pointe and Valley View
Los Angeles County, CA
1965–1989
2004
307,685
97%
$ 4.50
$ 25,329,023
Summit
Distribution Center
Memphis, TN
2002
2003
708,532
100%
$ 2.52
$ 23,800,000
East
North Central RA Industrial Portfolio
Chicago, IL
1978
2004
375,664
82%
$ 3.99
$ 23,734,331
Konica
Photo Imaging Headquarters
Mahwah, NJ
1999
1999
168,000
100%
$10.61
$ 21,200,000
Northwest
RA Industrial Portfolio
Seattle, WA
1996
2004
312,321
100%
$ 4.54
$ 19,438,852
Eastgate
Distribution Center
San Diego, CA
1996
1997
200,000
100%
$ 6.68
$ 18,800,000
Mideast
RA Industrial Portfolio
Wilmington, DE
1989
2004
266,141
82%
$ 5.65
$ 16,543,121
UPS
Distribution Facility
Fernley, NV
1998
1998
256,000
100%
$ 4.07
$ 12,900,000
Landmark
at Salt Lake City Building #4
Salt Lake City, UT
2000
2000
328,508
100%
$ 3.57
$ 12,500,000
FEDEX
Distribution Facility
Crofton, MD
1998
1998
110,842
100%
$ 7.18
$ 8,200,000
Interstate
Crossing
Eagan, MN
1995
1996
131,380
89%
$ 4.63
$ 7,300,000
Mountain
RA Industrial Portfolio
Phoenix, AZ
1989
2004
136,704
100%
$ 3.46
$ 5,513,947
Butterfield
Industrial Park
El Paso, TX
1980–1981
1995
183,510
100%
$ 3.06
$ 4,600,000
River
Road Distribution Center
Fridley, MN
1995
1995
100,456
100%
$ 2.03
$ 4,600,000
Subtotal—Industrial
Properties
$1,258,446,773
RETAIL
PROPERTIES
The
Florida Mall
(13)
Orlando, FL
1986
(6)
2002
921,370
(14)
98%
$35.05
$ 162,632,565
West Town Mall
(13)
Knoxville, TN
1972
(6)
2002
684,777
(14)
98%
$19.16
$ 107,452,790
Mazza Gallerie
Washington, DC
1975
2004
293,935
94%
$35.85
$ 81,000,000
Westwood
Marketplace
Los Angeles, CA
1950
(15)
2002
202,201
100%
$26.97
$ 80,019,410
Miami International
Mall
(13)
Miami, FL
1982
(6)
2002
290,299
(14)
95%
$28.44
$ 61,577,256
The Market at Southpark
Littleton, CO
1988
2004
190,080
94%
$10.84
$ 33,522,400
Rolling Meadows
Rolling Meadows, IL
1957
(6)
1997
130,909
100%
$10.70
$ 15,750,000
Plantation Grove
Ocoee, FL
1995
1995
73,655
99%
$10.76
$ 11,200,000
Subtotal—Retail
Properties
$
553,154,421
Subtotal—Commercial
Properties
$5,790,244,522
RESIDENTIAL
PROPERTIES
(16)
The Legacy
at Westwood Apartments
Los Angeles, CA
2001
2002
NA
97%
NA
$ 90,750,000
Longwood Towers
Brookline, MA
1926
(6)
2002
NA
89%
NA
$ 82,500,000
Ashford Meadows Apartments
Herndon, VA
1998
2000
NA
91%
NA
$ 68,000,000
Larkspur Courts
Larkspur, CA
1991
1999
NA
96%
NA
$ 66,000,000
The Colorado
New York, NY
1987
1999
NA
98%
NA
$ 58,156,056
Regents Court
Apartments
San Diego, CA
2001
2002
NA
92%
NA
$ 56,700,000
South Florida Apartment Portfolio
Boca Raton and Plantation, FL
1986
2001
NA
96%
NA
$ 47,700,000
(1)
The square footage is an approximate
measure and is subject to periodic remeasurement.
(2)
Based on total contractual rent on
leases existing as of December 31, 2004. For those properties purchased in fourth
quarter of 2004, the rent is based on the existing leases as of the date of purchase.
(3)
Market value reflects the value determined
in accordance with the procedures described in the Account’s prospectus and
as stated in the Statement of Investments.
(6)
Undergone extensive renovations since
original construction.
(13)
Each property is held in a 50%/50%
joint venture with the Simon Property Group. Market value shown reflects the value
of the Account’s interest in the joint venture, net of debt.
(14)
Reflects the square footage owned
by the joint venture.
(15)
Total renovation completed in 2001.
(16)
For the average unit size and annual
average rent per unit for each residential property, see “Residential Properties”
below.
Annual Avg.
Rentable
Base Rent
Year
Area
Percent
Per Leased
Property
Location
Year Built
Purchased
(Sq. ft.)
(1)
Leased
Sq. Ft.
(2)
Market Value
(3)
RESIDENTIAl
PROPERTIES
(continued)
Alexan
Buckhead
Atlanta, GA
2002
2002
NA
97%
NA
$ 37,500,000
The Lodge at Willow Creek
Denver, CO
1997
1997
NA
87%
NA
$ 32,201,274
Lincoln Woods
Apartments
Lafayette Hill, PA
1991
1997
NA
90%
NA
$ 31,472,870
Golfview Apartments
Lake Mary, FL
1998
1998
NA
97%
NA
$ 28,543,437
Westcreek Apartments
Westlake Village, CA
1988
1997
NA
95%
NA
$ 28,161,865
Kenwood Mews Apartments
Burbank, CA
1991
2001
NA
99%
NA
$ 27,700,000
The Legends
at Chase Oaks
Plano, TX
1997
1998
NA
94%
NA
$ 27,051,851
Monte Vista
Littleton, CO
1995
1996
NA
97%
NA
$ 22,501,650
Royal St. George
W. Palm Beach, FL
1995
1996
NA
44%
NA
$ 19,400,000
Quiet Waters at Coquina Lakes
Deerfield Beach, FL
1995
2001
NA
97%
NA
$ 19,200,000
Indian Creek
Apartments
Farmington Hills, MI
1988
1998
NA
96%
NA
$ 18,825,000
The Fairways of Carolina
Margate, FL
1993
2001
NA
99%
NA
$ 18,100,000
The Greens
at Metrowest Apartments
Orlando, FL
1990
1995
NA
98%
NA
$ 14,623,330
Bent Tree Apartments
Columbus, OH
1987
1998
NA
91%
NA
$ 13,600,000
Subtotal—Residential
Properties
$
808,687,333
OTHER
COMMERCIAL PROPERTIES
Storage
Portfolio I
(17)
Various, U.S.
1972–1990
2003
2,226,549
78%
$12.64
$ 50,430,399
Total—All
Properties
$6,649,362,254
(1)
The square footage is an approximate measure
and is subject to periodic remeasurement.
(2)
Based on total contractual rent on
leases existing as of December 31, 2004. For those properties purchased in fourth
quarter of 2004, the rent is based on the existing leases as of the date of purchase.
(3)
Market value reflects the value determined
in accordance with the procedures described in the Account’s prospectus and
as stated in the Statement of Investments.
(17)
Property held in 75%/25% joint venture with
Storage USA. Market value shown reflects the value of the Account’s
interest in the joint venture, net of debt.
In General.
At December 31, 2004, the
Account held 81 commercial (non-residential) properties in its portfolio. Thirteen
of these properties are held through joint ventures, five 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.
Percentage of
Percentage of
Total Rentable
Total Rentable
Area of Account’s
Occupied
Area of Account’s
Non-Residential
Square Feet
Office Properties
Properties
MAJOR
OFFICE TENANTS
Deloitte & Touche
1.2%
Mellon Trust
of New England N.A.
(1)
1.1%
Crowell & Moring
0.8%
BHP Petroleum
0.7%
Accenture
0.7%
Chicago Title
& Trust
0.6%
Preston Gates & Ellis
0.6%
Van Kampen
Funds
0.6%
BISYS
0.5%
Pillsbury
0.5%
(1)
Mellon Trust of New England N.A.,
successor in interest to The Boston Company
Percentage of
Percentage of
Total Rentable
Total Rentable
Area of Account’s
Occupied
Area of Account’s
Non-Residential
Square Feet
Industrial Properties
Properties
MAJOR
INDUSTRIAL TENANTS
Walmart
2.6%
The Gap, Inc.
2.5%
Hewlett-Packard
1.7%
Kaz
1.7%
Wickes Furniture
1.4%
Meiko America
1.3%
New Breed Transfer Corp
1.3%
Carrier
1.2%
UPS Worldwide
1.1%
Levitz Furniture
1.1%
Percentage of
Percentage of
Total Rentable
Total Rentable
Area of Account’s
Occupied
Area of Account’s
Non-Residential
Square Feet
Retail Properties
Properties
MAJOR
RETAIL TENANTS
JC Penney
0.5%
Proffits
0.4%
Parisian
0.3%
Saks Fifth
Avenue
0.3%
Neiman Marcus
0.3%
Home Depot
Expo Design
0.2%
Regal Cinema
0.2%
King Soopers
0.2%
Jewel-Osco
0.1%
Old Navy
0.1%
Percentage of Total
Rentable Area of
Account’s Office
Properties Represented
Year of Lease Expiration
by Expiring Leases
OFFICE
PROPERTIES
2005
10.7%
2006
8.4%
2007
10.1%
2008
8.7%
2009
8.1%
2010 and thereafter
43.1%
Total
89.1%
Percentage of Total
Rentable Area of
Account’s Industrial
Properties Represented
Year of
Lease Expiration
by Expiring Leases
INDUSTRIAL
PROPERTIES
2005
10.4%
2006
16.3%
2007
8.3%
2008
20.3%
2009
13.5%
2010 and thereafter
20.5%
Total
89.3%
Percentage of Total
Rentable Area of
Account’s Retail
Properties Represented
Year of Lease Expiration
by Expiring Leases
RETAIL
PROPERTIES
2005
5.7%
2006
6.0%
2007
9.2%
2008
11.4%
2009
5.7%
2010 and thereafter
56.0%
Total
94.0%
The Account’s residential property portfolio
currently consists of 21 first-class or luxury multi-family garden apartment complexes,
mid-rise and high-rise apartment buildings. The portfolio contains approximately
5,355 units located in 11
Average
Avg. Rent
Number
Unit Size
Per Unit/
Property
Location
of Units
(Square Feet)
Per Month
The
Legacy at Westwood Apartments
Los Angeles, CA
187
1,181
$3,329.00
Longwood Towers
Brookline, MA
268
938
$2,277.00
Ashford Meadows
Herndon, VA
440
1,050
$1,400.00
The Colorado
New York, NY
256
622
$2,409.00
Larkspur Courts
Larkspur, CA
248
1,001
$1,818.00
Regents Court Apartments
San Diego, CA
251
886
$1,523.00
South Florida
Apartment Portfolio
Boca Raton and Plantation, FL
550
889
$ 992.00
Alexan Buckhead
Atlanta, GA
231
990
$1,393.00
The Lodge at
Willow Creek
Denver, CO
316
996
$1,024.00
Golfview Apartments
Lake Mary, FL
276
1,149
$1,139.00
The Legends
at Chase Oaks
Plano, TX
346
972
$1,082.00
Lincoln Woods Apartments
Lafayette Hill, PA
216
774
$1,247.00
Kenwood Mews
Apartments
Burbank, CA
141
942
$1,446.00
Monte Vista
Littleton, CO
219
888
$1,029.00
Westcreek Apartments
Westlake Village, CA
126
951
$1,733.00
Indian Creek Apartments
Farmington Hills, MI
196
1,139
$1,085.00
Quiet Waters
at Coquina Lakes
Deerfield Beach, FL
200
1,048
$1,085.00
Royal St. George
West Palm Beach, FL
224
870
$ 941.00
The Fairways
of Carolina
Margate, FL
208
1,026
$ 993.00
The Greens at Metrowest Apartments
Orlando, FL
200
920
$ 899.00
Bent Tree Apartments
Columbus, OH
256
928
$ 725.00
(a) Total return is net of expenses (excluding real estate property
level expenses).
The following selected financial data for each
full quarter of 2004 and 2003 are derived from the audited financial statements
of the Account for the years ended December 31, 2004 and 2003. The Account restated
its 2003 consolidated financial statements related to certain investments in joint
ventures (see Financial Statements and Notes thereto included in Item 8, Financial
Statements and Supplementary Data). The restatement did not affect any of the Account’s
2003 net data that was previously presented in the following table.
March 31
June 30
September 30
December 31
Investment
income, net
$60,427,326
$69,917,576
$81,063,054
$90,192,076
Net realized gain on
marketable
securities
13,957,043
6,937,958
12,050,272
28,258,158
Net unrealized
gain
on investments
25,237,864
41,478,561
175,720,751
110,939,696
Net
increase in net assets
resulting from operations
$99,622,233
$118,334,095
$268,834,077
$229,389,930
Total
return
2.01%
2.17%
4.48%
3.38%
March 31
June 30
September 30
December 31
Investment
income, net
$59,014,854
$63,177,083
$60,543,239
$62,000,339
Net realized gain (loss)
on
marketable securities
(1,169,146)
(441,873)
30,306,749
11,595,084
Net unrealized
gain (loss)
on investments
(6,288,819)
5,253,520
20,251,377
(669,521)
Net
increase in net assets
resulting from operations
$51,556,889
$67,988,730
$111,101,365
$72,925,902
Total
return
(
a)
1.38%
1.72%
2.62%
1.58%
(
)
Number of properties in parentheses.
*
Represents a portfolio of storage
facilities and a portfolio of industrial properties located in various regions across
the U.S.
**
Represents a portfolio of industrial
properties located in various regions across the U.S.
TOP
TEN REAL ESTATE HOLDINGS
Market
% of Total
Value
(1)
% of Total
Real Estate
Property
Name
State
Property Type
(000,000)
Investments
Portfolio
1001
Pennsylvania Avenue
DC
Office
$466.4
(2)
6.04%
7.01%
IDX Tower
WA
Office
$348.0
(3)
4.50%
5.23%
50 Fremont Street
CA
Office
$323.3
(4)
4.18%
4.86%
Four Oaks Place
TX
Office
$255.4
3.31%
3.84%
Colorado Center
CA
Office
$222.7
(5)
2.88%
3.35%
1900 K Street
DC
Office
$219.5
2.84%
3.30%
780 Third Avenue
NY
Office
$197.0
2.55%
2.96%
Ontario Industrial
Portfolio
CA
Industrial
$187.1
(6)
2.42%
2.81%
701 Brickell
FL
Office
$177.0
2.29%
2.66%
The Florida
Mall
FL
Retail
$162.6
(7)
2.10%
2.45%
(1)
Value as reported in the 12/31/04 Statement
of Investments.
(2)
This property is subject to debt.
The value of the Account’s interest less leverage is $256.4, representing 3.86%
of the Total Real Estate Portfolio and 3.32% of the Total Investments.
(3)
This property is subject to debt.
The value of the Account’s interest less leverage is $203.0, representing 3.05%
of the Total Real Estate Portfolio and 2.63% of the Total Investments.
(4)
This property is subject to debt.
The value of the Account’s interest less leverage is $188.3, representing 2.83%
of the Total Real Estate Portfolio and 2.44% of the Total Investments.
(5)
Value represents the Account’s
Joint Venture interest in the property.
(6)
This property is subject to debt. The value
of the Account’s interest less leverage is $177.6, representing
2.67% of the Total Real Estate Portfolio and 2.30% of the Total Investments.
(7)
Value represents the Account’s Joint Venture
interest net of debt.
Payroll employment grew by roughly 2.2 million
during 2004 with gains in all industry sectors. Key office-using sectors such as
financial services and professional and business services added 140,000 and 546,000
jobs, respectively. The only lagging sector was manufacturing which added 74,000
jobs during the year, but nearly all the gain occurred early in the year. The improvement
in the national economy was reflected in commercial real estate market conditions
as vacancies declined in all property sectors over the course of the year.
Inflation, along with increased insurance and
security costs, may increase property operating expenses in the future. These increases
in operating expenses are generally 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.
The financial statements of the Account
are prepared in conformity with accounting principles generally accepted in the
United States.
will sell in a competitive market under all conditions requisite
to a fair sale. Determination of fair value involves subjective judgment because
the 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 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.
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.
ABOUT MARKET RISK
The Account’s real estate and real estate–related
investments, which as of December 31, 2004, represented 86.46% of the Account’s
investments (not including real estate equity securities), expose the Account to
a variety of risks. These risks include, but are not limited to:
•
General Real Estate Risk — The
risk that 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,
and changing supply and demand for certain types of properties;
•
Appraisal Risk — The risk that
the sale price of an Account property (
i.e.
, the value that would be determined
by negotiations between independent parties) might differ substantially from its
estimated or appraised value, leading to losses or reduced profits to the Account
upon sale;
•
Risk Relating to Property Sales —
The risk that 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; and
•
Risks of Borrowing — The risk
that interest rate changes may impact Account returns if the Account takes out a
mortgage on a property or buys a property subject to a mortgage.
•
financial risk — for debt securities,
the possibility that the issuer won’t be able to pay principal and
interest when due, and for common or preferred stock, the possibility
that the issuer’s current earnings will fall or that its overall
financial soundness will decline, reducing the security’s value
•
market risk — price volatility due to
changing conditions in the financial markets and, particularly for debt
securities, changes in overall interest rates
•
interest rate volatility, which may affect
current income from an investment
In addition to these risks, real estate equity
securities and 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. For more information on the risks associated with all of the Account’s
investments, see the Account’s most recent prospectus.
•
the value of the Account’s cash,
cash equivalents, and short-term and other debt instruments
•
the value of the Account’s other
securities investments and other assets
•
the value of the individual real
properties and other real estate–related investments owned by the Account
•
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 44.
The Account may, at times, value properties
purchased together as a portfolio as a single asset, to the extent we believe that
the property will likely be sold as one portfolio. The value assigned to the portfolio
as a whole may be more or less than the valuation of each property individually.
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.
•
is made within three months of the
annual independent appraisal or
•
results in an increase or decrease
of:
•
more than 6 percent of the value
of any of the Account’s properties since the last independent annual appraisal
•
more than 2 percent in the value
of the Account since the prior month or
•
more than 4 percent in the value
of the Account within any quarter.
Right to Change Valuation Methods:
If we decide
that a different valuation method would reflect the value of a real estate–related
investment more accurately, we may use that method if the independent fiduciary
consents. Changes in TIAA’s valuation methods could change the Account’s
net asset value and change the values at which participants purchase or redeem Account
interests.
Percent of
Net Assets
Type of Expense Deduction
Annually
Services Performed
Investment
Management
0.195%
For TIAA’s investment advice,
portfolio accounting, custodial services, and similar services, including independent
fiduciary and appraisal fees
Administration
0.210%
For Services’ administrative
services, such as allocating premiums and paying annuity income
Distribution
0.065%
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
0.040%
For TIAA’s liquidity guarantee
Total
Annual Expense Deduction
0.580%
For total services to the Account
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 Retirement Select, Retirement Choice, Retirement
Choice Plus, or Retirement Select Plus contract, and, on a limited basis, under
your GA or GSRA 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
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, Retirement Choice, Retirement Choice Plus, or Keogh contracts. The
Account is not available in California.
AND RETIREMENT SELECT CONTRACTS
SRA (SUPPLEMENTAL RETIREMENT
ANNUITY), AND GSRA (GROUP SUPPLEMENTAL RETIREMENT
ANNUITY)
RETIREMENT SELECT/RETIREMENT
SELECT PLUS ANNUITIES AND RETIREMENT CHOICE RETIREMENT
CHOICE PLUS ANNUITIES
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.
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.
Generally, 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.
We will not be deemed to have received any
premiums sent to the addresses designated for remitting premiums until the third-party
service that administers the receipt of mail through those addresses has processed
the payment on our behalf.
You can change your allocation choices for
future premiums by writing to our home office
•
using the TIAA-CREF Web Center’s
account access feature at www.tiaa-cref.org or
•
calling our Automated Telephone Service
(24 hours a day) at 800 842-2252
You can cancel your contract (other than a
Retirement Select contract or Retirement Select Plus contract not issued in New
York) 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
A.
The value of the Account’s net
assets at the end of the current valuation period, less premiums received during
the current valuation period.
B.
The value of the Account’s net
assets at the end of the previous valuation period, plus the net effect of transactions
made at the start of the current valuation period.
•
from the Real Estate Account to a
CREF investment account, or TIAA’s traditional annuity
•
to the Real Estate Account from a
CREF investment account or TIAA’s traditional annuity (transfers from TIAA’s
traditional annuity under RA,
GRA, Retirement Select, or Retirement Choice contracts are subject to restrictions)
•
from the Real Estate Account to other
companies
•
to the Real Estate Account from other
companies/plans
•
by withdrawing cash
•
by setting up a program of automatic
withdrawals or transfers
•
write to TIAA’s home office
at 730 Third Avenue, New York, NY 10017-3206
•
call us at 800 842-2252 or
•
for internal transfers, using the
TIAA-CREF Web Center’s account access feature at www.tiaa-cref.org
Before you transfer or withdraw cash, make
sure you understand the possible federal and other income tax consequences. See
“Taxes,” page 60.
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, Retirement Select, or Retirement Choice contracts
can only be effected over a period of time (up to ten years) and may be subject
to other limitations, as specified in your contract. Amounts held under an ATRA
contract cannot be transferred to or from any retirement plan contract.
Under the Retirement Choice and Retirement
Choice Plus contracts, your employer could transfer monies from an Account and apply
it to another Account or investment option, subject to the terms of your plan, and
without your consent.
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, Retirement Choice, Retirement Choice Plus, or
Retirement 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.
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. 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.
into the Account. We might do so if, for example, we can’t find
enough appropriate real estate-related investment opportunities at a particular
time. Whenever reasonably possible, we will notify you before we decide to restrict
premiums and/or transfers. However, because we may need to respond quickly to changing
market conditions, we reserve the right to stop accepting premiums and/or transfers
at any time without prior notice.
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 58. The total value of your annuity payments may be more or less than your
total premiums.
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, Retirement Choice, Retirement Choice Plus or Keogh contract. 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.
•
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.
(The 15-year guaranteed period is not available under all contracts.)
•
Annuity for a Fixed Period: Pays
income for any period you choose from 5 to 30 years (2 to 30 years for RAs, GRAs,
and SRAs). (This option is not available under all contracts.)
•
Two-Life Annuities: Pays income to
you as long as you live, then continues at either the same or a reduced level for
the life of your annuity partner. There are three types of two-life annuity options,
all available with or without a guaranteed period — Full Benefit to Survivor,
Two-Thirds Benefit to Survivor, and a Half-Benefit to Annuity Partner. Under the
Two-Thirds Benefit to Survivor option, payments to you will be reduced upon the
death of your annuity partner.
•
Minimum Distribution Option (MDO)
Annuity: Generally available only if you must begin annuity payments under the Internal
Revenue Code minimum distribution requirements. (Some employer plans allow you to
elect this option earlier — contact TIAA for more information.) The option
pays an amount designed to fulfill the distribution requirements under federal tax
law. (The option is not available under all contracts.)
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
accumulation being converted to annuity income on the annuity starting date. (This
does not apply to IRAs.) 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 60.
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.
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.
TIAA may pay death benefits if you or your
annuity partner dies, which may be subject to the terms of your employer’s
plan. 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.
•
Single-Sum Payment,
in which the entire death benefit is paid to your beneficiary at once;
•
One-Life
Annuity with or without Guaranteed Period,
in which the death benefit is paid
monthly for the life of the beneficiary or through the guaranteed period;
•
Annuity
for a Fixed Period of 5 to 30 years (not available under Retirement Select or Retirement
Select Plus)
, in which the death benefit is paid for a fixed period;
•
Accumulation-Unit
Deposit Option,
which pays a lump sum at the end of a fixed period, ordinarily
two to five years, during which period the accumulation units deposited participate
in the Account’s investment experience (generally the death benefit value must
be at least $5,000); (This option is not available under all contracts) and
•
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.
During the accumulation period, Real Estate
Account premiums paid in before-tax dollars, employer contributions and earnings
attributable to these amounts are not taxed until they’re withdrawn. Annuity
payments, single-sum withdrawals, systematic withdrawals, and death benefits are
usually taxed as ordinary income. Premiums paid in after-tax dollars aren’t
taxable when withdrawn, but earnings attributable to these amounts are taxable.
Death benefits are usually also subject to federal estate and state estate or inheritance
taxation. Generally, transfers between qualified retirement plans are not taxed.
Generally, contributions you can make under an employer’s plan are limited
by federal tax law. Employee voluntary salary reduction contributions to 403(b)
and 401(k) plans are limited to $14,000 per year ($18,000 per year if you are age
50 or older). Certain long-term employees may be able to defer up to $17,000 per
year in a 403(b) plan ($21,000 per year if you are age 50 or older). Contributions
to Classic and Roth IRAs, other than rollover contributions, cannot generally exceed
$4,000 per year ($4,500 per year for taxpayers age 50 or older).
•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).
•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.
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 advisor for information
about those exceptions.
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 advisor before you engage in any
of these transactions.
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:
•
the payment is for expenses that are ordinary and necessary;
• the payment is made from a Section 401 or 403 retirement plan or an IRA, and
• with respect to payments from retirement plans (not IRAs):
• 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
• 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.
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 advisor with respect to
legislative developments and their effect on your contract.
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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.
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Further information may be obtained from TIAA at 730 Third
Avenue, New York, NY 10017-3206.
CUSTOMER COMPLAINTS
FINANCIAL STATEMENTS
The financial statements of the TIAA Real
Estate Account, financial statements of certain properties purchased by the Account
and condensed unaudited statutory-basis financial statements of TIAA follow. The
full audited statutory-basis 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 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.
ADDITIONAL DEVELOPMENTS
Mr. William H. Waltrip, a trustee of TIAA, and Professor
Stephen A. Ross, a trustee of the TIAA-CREF registered investment companies (the
“Funds”), resigned from their respective boards on November 30, 2004.
On August 1, 2003, the valuation practice,
a non-auditing practice of Ernst & Young LLP (“E&Y”), the independent
auditor to TIAA and the Funds, entered into an agreement with a company owned
by the two trustees among others, a majority of which was owned by Professor
Ross. The business relationship was created to develop intellectual property
and related services to value corporate stock options. The aggregate amount
paid by E&Y
to the company under this agreement was approximately $1.33 million of which
Professor Ross received, or will receive, approximately $335,000 (of which $60,000
represented reimbursement of expenses and $25,000 represented repayment of a
loan he made to the company). Mr. Waltrip indicated that he had not received any payment from the
company. The agreement and business activity thereunder was terminated on August
20, 2004, and a dissolution agreement was signed as of November 17, 2004.
On August 9, 2004, E&Y informed TIAA and the Funds that the
business relationship between E&Y and the company owned by the trustees was
not in accordance with the auditor independence standards of Regulation S-X and
the Public Company Accounting Oversight Board. E&Y also notified the SEC and
the Audit Committees of TIAA and the Funds of this business relationship. The Audit
Committees consist entirely of independent trustees having no business relationships
with TIAA, the Funds or E&Y.
The Audit Committees and the Boards of Trustees of TIAA and the Funds, and E&Y,
each determined that the trustees’ business relationship with E&Y did not
compromise E&Y’s
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independence from either TIAA or the Funds or the integrity or
objectivity of the respective audits for 2003 and 2004. This determination was based
on, among other things, the fact that the E&Y audit team was not aware of the
business relationship when they issued the 2003 audit opinions on the financial
statements of TIAA and the Funds and the business activity under the agreement was
ceased in 2004 upon identification of the matter. Professor Ross and Mr. Waltrip
had no other functions or responsibilities as Board members that would have caused
them to have direct dealings with the E&Y audit team. Professor Ross and Mr.
Waltrip were not members of the Audit Committees.
In November 2004, TIAA and the Funds initiated a request
for proposal process which was recently completed to seek accounting firms with
the requisite capacity and expertise to perform their respective 2005 audits. In
connection with this process, Professor Martin J. Gruber, the Chairman of the Funds,
informed the Boards of the Funds that in 1999, he entered into a one-year contract
to participate in an academic advisory program sponsored by a non-auditing practice
of E&Y. The purpose of the program was to organize conferences, develop publications,
and consult on engagements as an expert in his field. Professor Gruber advised the
Boards of the Funds that the program was ended before it was launched and the contract
expired in 2000.
Based on the facts described above, the Audit Committees
and the Boards of Trustees
of TIAA and the Funds, and E&Y, determined that Professor Gruber’s contract
did not impair the audit independence of E&Y’s audit work for TIAA-CREF
or the integrity or objectivity of the respective audits. But in keeping with TIAA-CREF’s
current standards of auditor independence, Professor Gruber resigned from the Boards
of the Funds. Nancy L. Jacob has been elected as Chairman of the Boards of the Funds.
On February 28, 2005, TIAA and the Funds determined and
E&Y agreed that the audit relationship between E&Y and TIAA, and the Funds
will cease. E&Y has substantially completed its audit work for TIAA and the Funds for their
respective 2004 audits.
At a meeting held on February 28, 2005, the Audit Committees of
TIAA and the Funds, along with the respective Boards of Trustees, approved the appointment
of PricewaterhouseCoopers LLP as the independent registered public accounting firm
for these entities for their 2005 audits effective upon completion of PricewaterhouseCoopers’
customary client acceptance procedures and execution of an engagement letter.
On December 6, 2004, the staff of the SEC informed
TIAA and the Funds that it is conducting an informal inquiry into the E&Y auditor
independence matter. TIAA and the Funds are fully cooperating with the SEC staff
in connection with the informal inquiry.
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TIAA REAL ESTATE ACCOUNT
Audited Financial Statements:
Proforma Condensed Financial Statements:
Property Financial Statements:
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
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Report of management responsibility
To
the Participants of the TIAA Real Estate Account:
The accompanying financial statements of the TIAA Real
Estate Account (“Account”) of Teachers Insurance and Annuity Association
of America (“TIAA”) are the responsibility of TIAA’s management.
They have been prepared in accordance with U.S. generally accepted accounting principles
and have been presented fairly and objectively in accordance with such principles.
TIAA has established and maintains a sound system of internal
controls and disclosure controls designed to provide reasonable assurance that assets
are properly safeguarded and transactions are properly executed in accordance with
management’s authorization, and to carry out the ongoing responsibilities of
management for reliable financial statements. In addition, TIAA’s internal
audit personnel provide a continuing review of the internal controls and operations
of the Account, and the chief audit executive regularly reports to the Committee
of the TIAA Board of Trustees.
The accompanying financial statements have been audited
by the independent registered public accounting firm of Ernst & Young LLP. To
maintain auditor independence and avoid any conflict of interest, it continues to
be the Account’s policy that any management advisory or consulting services
be obtained from a firm other than the external financial audit firm. The report
of the independent registered public accounting firm, which follows the statements
of investments, expresses an independent opinion on the fairness of presentation
of these financial statements.
The Audit Committee of the TIAA Board of Trustees, consisting
entirely of trustees who are not officers of TIAA, meets regularly with management,
representatives of Ernst & Young LLP and internal audit personnel to review
matters relating to financial reporting, internal controls and auditing. In addition
to the annual audit of the Account’s financial statements by the independent
registered public accounting firm, the New York State Insurance Department and other
state insurance departments perform periodic examinations of the Account’s
operations.
See note 1 of the financial statements and section 9A of
this form 10-K for disclosure relating to the Account’s restated accounting
for joint ventures.
Herbert M. Allison, Jr. Elizabeth
A. Monrad
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Report of the Audit committee
To
the Participants of the TIAA Real Estate Account:
The TIAA Audit Committee (“Committee”) oversees
the financial reporting process of the TIAA Real Estate Account (“Account”)
on behalf of TIAA’s Board of Trustees. The Committee operates in accordance
with a formal written charter (copies of which are available upon request) which
describes the Audit Committee’s responsibilities. All members of the Committee
are independent, as defined under the listing standards of the New York Stock Exchange.
Management has the primary responsibility for the Account’s
financial statements, development and maintenance of a strong system of internal
controls and disclosure controls, and compliance with applicable laws and regulations.
In fulfilling its oversight responsibilities, the Committee reviewed and approved
the audit plans of the internal auditing group and the independent auditing firm
in connection with their respective audits of the Account. The Committee also meets
regularly with the internal and independent registered public accounting firm, both
with and without management present, to discuss the results of their examinations,
their evaluation of internal controls, and the overall quality of financial reporting.
As required by its charter, the Committee will evaluate rotation of the external
financial audit firm whenever circumstances warrant, but in no event will the evaluation
be later than between their fifth and tenth years of service.
The Committee reviewed and discussed the accompanying audited
financial statements with management, including a discussion of the quality and
appropriateness of the accounting principles and financial reporting practices followed,
the reasonableness of significant judgments, and the clarity and completeness of
disclosures in the financial statements. The Committee has also discussed the audited
financial statements with Ernst & Young LLP, the independent registered public
accounting firm responsible for expressing an opinion on the conformity of these
audited financial statements with U.S. generally accepted accounting principles.
The discussion with Ernst & Young LLP focused on their
judgments concerning the quality and appropriateness of the accounting principles
and financial reporting practices followed by the Account, the clarity and completeness
of the financial statements and related disclosures, and other significant matters,
such as any significant changes in accounting policies, internal controls, management
judgments and estimates, and the nature of any uncertainties or unusual transactions.
In addition, the Committee discussed with Ernst & Young LLP the auditors’
independence from management and the Account, and has received a written disclosure
regarding such independence, as required by the Independence Standards Board.
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Real Estate Account
Report of the Audit committee
continued
Based on the review and discussions referred to above, the
Committee has approved the release of the accompanying audited financial
Rosalie J. Wolf, Audit Committee Chair
Leonard S.
Simon, Audit Committee Member
Paul R. Tregurtha,
Audit Committee Member
April
15, 2005
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Statements of assets and liabilities
|
TIAA Real Estate Account
Statements of operations
| TIAA
Real Estate Account
Statements of changes in net assets
|
TIAA Real Estate Account
Statements of cash flows
| TIAA
Real Estate Account
Notes to financial statements
|
TIAA Real Estate Account
Note
1—Significant Accounting Policies
The TIAA Real Estate Account (“Account”) is a
segregated investment account of Teachers Insurance and Annuity Association of America
(“TIAA”) and was established by resolution of TIAA’s Board of Trustees
on February 22, 1995, under the insurance laws of the State of New York, for the
purpose of funding variable annuity contracts issued by TIAA. The investment objective
of the Account is a favorable long-term rate of return primarily through rental
income and capital appreciation from real estate investments owned by the Account.
The Account holds real estate properties directly and through wholly owned subsidiaries.
The Account also holds interests in joint ventures and limited partnerships that
own real estate. The Account also invests in publicly traded securities and other
instruments to maintain adequate liquidity for operating expenses, capital expenditures
and to make benefit payments. The financial statements were prepared in accordance
with U.S. generally accepted accounting principles which may require the use of
estimates made by management. Actual results may vary from those estimates. The
following is a summary of the significant accounting policies of the Account.
Basis of Presentation:
The accompanying
financial statements include the Account and those subsidiaries wholly owned by
TIAA for the benefit of the Account. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Valuation of Real Estate Properties:
Investments in real estate properties are stated at fair value, as determined in
accordance with procedures approved by the Investment Committee of the TIAA Board
of Trustees and in accordance with the responsibilities of the Board as a whole;
accordingly, the Account does not record depreciation. Fair value for real estate
properties is defined as the most probable price for which a property will sell
in a competitive market under all conditions requisite to a fair sale. Determination
of fair value involves subjective judgement because the actual market value of real
estate can be determined only by negotiation between the parties in a sales transaction.
Real estate properties owned by the Account are initially valued at their respective
purchase prices (including acquisition costs). Subsequently, independent appraisers
value each real estate property at least once a year. The independent fiduciary,
The Townsend Group, must approve all independent appraisers used by the Account.
The independent fiduciary can also require additional appraisals if it believes
that a property’s value has changed materially or otherwise to assure that
the Account is valued correctly. TIAA’s appraisal staff performs a valuation
review of each real estate property on a quarterly basis and updates the property
value if it believes that the value of the property has changed since the previous
valuation review or appraisal. Real estate properties subject to a mortgage are
generally valued as described; however, the value of the property may be adjusted
if it is determined that the fair value of the outstanding debt could have a material
effect on the equity investment value of the property. The independent fiduciary
reviews and approves any such valuation adjustments which exceed certain prescribed
limits before such adjustments are recorded by the Account. The Account continues
to use the revised value to calculate the Account’s net asset value until the
next valuation review or appraisal.
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Notes to financial statements
continued
Valuation of Real Estate Joint Ventures:
Real estate joint ventures are stated at the Account’s equity in the net assets
of the underlying entities, which value their real estate holdings and mortgage
notes payable at fair value.
Valuation of Marketable Securities:
Equity securities listed or traded on any national market or 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. Debt securities, other than money market instruments,
are valued at the most recent bid price or the equivalent quoted yield for such
securities (or those of comparable maturity, quality and type). Money market instruments,
with maturities of one year or less, are valued in the same manner as debt securities
or derived from a pricing matrix that has various types of money market instruments
along one axis and various maturities along the other. 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 TIAA Board of Trustees and in accordance with the responsibilities
of the Board as a whole.
Accounting for Investments:
Real
estate transactions are accounted for as of the date on which the purchase or sale
transactions for the real estate properties close (settlement date). Rent from real
estate properties consists of all amounts earned under tenant operating leases,
including base rent, recoveries of real estate taxes and other expenses and charges
for miscellaneous services provided to tenants. Rental income is recognized in accordance
with the billing terms of the lease agreements. The Account bears the direct expenses
of the real estate properties owned. These expenses include, but are not limited
to, fees to local property management companies, property taxes, utilities, maintenance,
repairs, insurance and other operating and administrative costs. An estimate of
the net operating income earned from each real estate property is accrued by the
Account on a daily basis and such estimates are adjusted as soon as actual operating
results are determined.
Income from joint ventures is recorded based on the Accounts’
proportional interest in the income earned by the joint venture that has been distributed
from the joint venture to the Account.
Securities transactions are accounted for as of the date
the securities are purchased or sold (trade date). Interest income is recorded as
earned and includes accrual of discount and amortization of premium. Dividend income
is recorded on the ex-dividend date or as soon as the Account is informed of the
dividend. Realized gains and losses on securities transactions are accounted for
on the specific identification method.
Change in Accounting Policy:
Effective
January 1, 2003, the Account changed the method by which realized gains
and losses on securities transactions are calculated from the average cost
method to the specific identification method. This change was made in order
to conform more closely with industry standards. For the Account, the effect
of this change for the year ended December 31, 2003, was to increase net
realized gain by $391,221 and decrease net unrealized gain by $391,221.
There was no impact on investment income-net and no impact on the increase
in net assets resulting from operations or on total net assets.
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Notes to financial statements
continued
Federal Income Taxes:
Based on provisions
of the Internal Revenue Code, the Account is taxed as a segregated asset account
of TIAA. The Account should incur no material federal income tax attributable to
the net investment experience of the Account.
Restatement and Reclassifications:
In prior years’ financial statements, the Account had consolidated joint ventures
in which it held a majority financial interest and had joint control over significant
decisions with its minority partner. It was determined that such investments should
not have been consolidated because the Account did not have a majority of the voting
rights to control significant decisions. As a result, the Account has restated its
2003 and 2002 financial statements to conform to the 2004 treatment, which reflects
the Account’s equity in the net assets and operations of the underlying entities.
This restatement did not affect the Account’s total net assets, net asset value
per accumulation unit, net increase in net assets resulting from operations nor
the Account’s total return, as previously reported in the Account’s 2003
and 2002 financial statements, but did result in a reduction in (a) total assets
of approximately $299 million, (b) liabilities of $9 million, and (c) minority interest
of $290 million as of December 31, 2003. In addition, the Account changed the presentation
of operating results to eliminate discontinued operations reporting, which more
appropriately reflects the Account’s business activities. Other certain amounts
in the 2003 and 2002 financial statements have been reclassified to conform to the
2004 presentation.
Note 2—Management Agreements
Investment advisory services for the Account are provided
by TIAA employees, under the direction of TIAA’s Board of Trustees and its
Investment Committee, pursuant to investment management procedures adopted by TIAA
for the Account. TIAA’s investment management decisions for the Account are
also subject to review by the Account’s independent fiduciary. TIAA also provides
all portfolio accounting and related services for the Account.
The services performed by TIAA and Services are provided
at cost. TIAA and Services receive payments from the Account on a daily basis according
to formulas established each year with the objective of keeping the payments as
close as possible to the Account’s actual expenses. Any differences between
actual expenses and the amounts paid are adjusted quarterly.
TIAA also provides a liquidity guarantee to the Account, for a
fee, to ensure that sufficient funds are available to meet participant transfer
and cash withdrawal requests in the event that the Account’s cash flows and
liquid investments are insufficient to fund such requests. TIAA also receives a
fee for assuming certain mortality and expense risks.
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Notes
to financial statements
continued
Note 3—Real Estate Properties
Had the Account’s real estate properties that were
purchased during the years ended December 31, 2004 and 2003 been acquired at the
beginning of the year (January 1, 2003), rental income and real estate property
level expenses for the year ended December 31, 2003, would have increased by approximately
$341,466,000 (unaudited) and $158,647,000 (unaudited), respectively. Accordingly,
the total pro forma effect on the Account’s net investment income for the year
ended December 31, 2003, would have been an increase of approximately $182,819,000
(unaudited), if the real estate properties acquired during the year ended December
31, 2004 and 2003 had been acquired at the beginning of 2003.
Note 4—Leases
Certain leases provide for additional rental
amounts based upon the recovery of actual operating expenses in excess of specified
base amounts.
Note 5—Investment in Joint Ventures
The Account owns several real estate properties through
joint ventures and receives distributions and allocations of profits and losses
from the joint ventures based on the Account’s ownership interest percentages.
Several of these joint ventures have mortgage notes payable on the properties owned.
The Account’s allocated portion of the mortgage notes payable at December 31,
2004, is $345,136,785. The Accounts’ equity in the joint ventures at December
31, 2004 and 2003 was $1,257,893,004 and $888,244,865, respectively. A condensed
summary of the financial position and results of operations of the joint ventures
is shown below.
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Notes to financial statements
continued
Note 6—Mortgage Notes Payable
At December 31, 2004, the Account had mortgage notes payable
on four properties as follows:
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Notes
to financial statements
continued
Note 7—Condensed Financial Information
Selected condensed financial information for an Accumulation
Unit of the Account is presented below.
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Notes to financial statements
continued
Note 8—Accumulation Units
Changes in the number of Accumulation Units outstanding
were as follows:
Note 9—Commitments
During the normal course of business, the Account enters into discussions
and agreements to purchase or sell real estate properties. As of December 31,
2004, the Account had one outstanding commitment to purchase an industrial
property for approximately $18 million and another commitment to sell an industrial
property for approximately $3.5 million.
At December 31, 2004, the Account had commitments to invest
in three limited partnerships over the next three years totalling approximately
$51 million.
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SEE NOTES TO FINANCIAL STATEMENTS
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Report of Independent Registered Public Accounting Firm
To the Participants of the TIAA Real Estate Account and the Board
of Trustees of Teachers Insurance and Annuity Association of America:
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
As discussed in Note 1, the Account has restated its financial
statements relating to the accounting for its investments in majority-owned real
estate joint ventures and to change the presentation of its operating results.
Ernst & Young LLP, independent registered public accounting firm, with
respect to the Account, has audited the Account’s financial statements
at December 31, 2004 and 2003, and for each of the three years in the period
ended December 31, 2004, as set forth in their reports (which contains an explanatory
paragraph describing that the Account has restated its financial statements
relating to the accounting for its investments in majority-owned real estate
joint ventures and to change the presentation of its operating results). In addition,
with respect to TIAA, Ernst
& Young LLP has audited TIAA’s statutory-basis financial statements at December
31, 2004 and 2003, and for each of the three years in the period ended December
31, 2004, as set forth in their report (which contains an explanatory paragraph
describing that TIAA presents its financial statements in conformity with
accounting practices prescribed or permitted by the New York State Insurance
Department, which practices differ from U.S. generally accepted accounting principles
and that the effects of the variances between such bases
of
accounting on TIAA’s financial statements are not
reasonably determinable but are presumed to be material, as described in Note
2 to the TIAA statutory-basis financial statements). Friedman LLP, independent
auditors, have audited the (i) statement of revenues and certain expenses of
Four Oaks Place for the year ended December 31, 2003; (ii) statement of revenues
and certain expenses of 3111 Camino Del Rio North for the year ended December
31, 2003; (iii) statement of revenues and certain expenses of 30721 and 30699
Russell Ranch Road for the year ended December 31, 2003; (iv) statement of
revenues and certain expenses of 1900 K Street, NW, Washington DC for the year
ended September 30, 2004; (v) statement of revenues and certain expenses of
1001 Pennsylvania Ave., NW, Washington DC for the year ended September 30,
2004; (vi) statement of revenues and certain expenses of 50 Fremont Street,
San Francisco, CA for the year ended September 30, 2004; (vii) statement of
revenues and certain expenses of IDX Tower, Seattle, WA for the year ended
September 30, 2004; (viii) statement of revenues and certain expenses of the
IDI Industrial Portfolio Joint Venture the year ended December 31, 2003, (ix)
statement of revenues and certain expenses of 99 High Street, Boston, MA for
the year ended December 31, 2004; and (x) statement of revenues and certain
expenses of 8270 Greensboro Drive, Tysons Corner, VA for the year ended December
31, 2004. We’ve included these financial statements in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP’s, and Friedman LLP’s respective
reports, given on the authority of such firms as experts in accounting and
auditing.
Customer complaints may be directed to our
Participant Relations Unit, P.O. Box 1259, Charlotte, NC 28201-1259, telephone 800
842-2776.
TIAA and/or the Funds have taken steps to ensure
that their respective trustees will identify promptly any business relationships
that may bring the independence of the outside auditors into question. These steps
include revising their officers and trustees questionnaires, improving the questionnaire
review process, receiving quarterly auditor independence certifications, and enhancing
continuing education for all trustees regarding SEC matters.
INDEX TO FINANCIAL STATEMENTS
71
Report of Management Responsibility
72
Report of the Audit Committee
74
Statements of Assets and Liabilities
75
Statements of Operations
76
Statements of Changes in Net Assets
77
Statements of Cash Flows
78
Notes to Financial Statements
85
Statement of Investments
94
Report of Independent Registered
Public Accounting Firm
95
Proforma Condensed Statement of Assets
and Liabilities
96
Proforma Condensed Statement of Operations
97
Notes to Proforma Condensed Financial
Statements
98
3111 Camino del Rio North,
San Diego, CA
98
Independent Auditors’ Report
99
Statement of Revenues and Certain
Expenses
99
Notes to Statement of Revenues and
Certain Expenses
101
30721 and 30699 Russell Ranch Road, Westlake
Village, CA
101
Independent Auditors’ Report
102
Statement of Revenues and Certain
Expenses
102
Notes to Statement of Revenues and
Certain Expenses
104
Four Oaks Place, Houston, TX
104
Independent Auditors’ Report
105
Statement of Revenues and Certain
Expenses
105
Notes to Statement of Revenues and
Certain Expenses
107
1900 K Street, NW, Washington DC
107
Independent Auditors’ Report
108
Statement of Revenues and Certain
Expenses
108
Notes to Statement of Revenues and
Certain Expenses
110
1001 Pennsylvania Ave., NW, Washington DC
110
Independent Auditors’ Report
111
Statement of Revenues and Certain
Expenses
111
Notes to Statement of Revenues and
Certain Expenses
113
50 Fremont Street, San Francisco, CA
113
Independent Auditors’ Report
114
Statement of Revenues and Certain
Expenses
114
Notes to Statement of Revenues and
Certain Expenses
116
IDX Tower, 925 Fourth Avenue, Seattle, WA
116
Independent Auditors’ Report
117
Statement of Revenues and Certain
Expenses
117
Notes to Statement of Revenues and
Certain Expenses
119
JV with IDI—Industrial Portfolio
119
Independent Auditors’ Report
120
Statement of Revenues and Certain
Expenses
121
Notes to Statement of Revenues and
Certain Expenses
123
99 High Street, Boston, MA
123
Independent Auditors’ Report
124
Notes to Statement of Revenues and
Certain Expenses
126
Statement of Revenues and Certain
Expenses
127
8270 Greensboro
Drive, Tysons Corner, Virginia
127
Independent Auditors’ Report
128
Notes to Statement of Revenues and
Certain Expenses
130
Statement of Revenues and Certain
Expenses
131
Condensed Unaudited
Statutory–Basis Financial Statements
133
Supplemental Information
to Condensed Unaudited Statutory-Basis Financial
Statements
Chairman, President and Executive
Vice President and
Chief Executive Officer Chief
Financial Officer
Donald
K. Peterson, Audit Committee Member
David F. Swensen,
Audit Committee Member
December
31,
2004
2003
ASSETS
Restated
Investments, at
value:
Real
estate properties
(cost:
$5,315,565,355 and $3,189,651,612)
$5,391,469,250
$3,094,851,529
Real
estate joint ventures and limited partnerships
(cost:
$1,084,222,416 and $887,567,089)
1,288,715,399
930,475,703
Marketable
securities:
Real
estate related
(cost:
$326,109,979 and $295,835,312)
369,744,168
318,251,737
Other
(cost:
$676,124,265 and $435,725,426)
675,989,673
435,720,073
Total
investments
(cost:
$7,402,022,015 and $4,808,779,439)
7,725,918,490
4,779,299,042
Due from investment advisor
4,185,034
1,524,900
Other
113,876,400
86,265,785
TOTAL
ASSETS
7,843,979,924
4,867,089,727
LIABILITIES
Mortgage
notes payable (Note 6)
499,479,256
—
Amounts due
to bank
231,476
1,015,345
Accrued real estate property
level expenses
84,959,882
59,514,551
Security deposits
held
13,759,324
13,137,670
TOTAL
LIABILITIES
598,429,938
73,667,566
NET
ASSETS
Accumulation
Fund
7,015,717,162
4,621,918,975
Annuity
Fund
229,832,824
171,503,186
TOTAL
NET ASSETS
$7,245,549,986
$4,793,422,161
NUMBER
OF ACCUMULATION UNITS
OUTSTANDING
—Notes
7 and 8
33,337,597
24,724,183
NET
ASSET VALUE, PER ACCUMULATION UNIT
—Note 7
$ 210.44
$ 186.94
74
|
Prospectus
TIAA
Real Estate Account
Years
Ended December 31,
2004
2003
2002
INVESTMENT
INCOME
Restated
Restated
Real
estate income, net:
Rental
income
$397,198,276
$361,616,650
$300,961,658
Real
estate property level expenses and taxes:
Operating
expenses
100,991,997
87,238,469
64,373,269
Real
estate taxes
55,946,418
49,440,101
37,589,704
Interest
expense
830,361
—
—
Total
real estate property level expenses
157,768,776
136,678,570
101,962,973
Real
estate income, net
239,429,500
224,938,080
198,998,685
Income
from real estate joint ventures
57,275,242
31,989,569
17,077,072
Dividends
26,568,264
12,240,166
12,891,207
Interest
15,055,451
7,221,765
13,546,694
TOTAL
INCOME
338,328,457
276,389,580
242,513,658
EXPENSES—NOTE
2:
Investment
advisory charges
14,393,388
12,751,191
9,495,736
Administrative
and distribution charges
16,372,446
14,786,580
10,390,705
Mortality
and expense risk charges
4,093,858
2,916,880
2,430,240
Liquidity
guarantee charges
1,868,733
1,199,414
987,655
TOTAL
EXPENSES
36,728,425
31,654,065
23,304,336
INVESTMENT
INCOME, NET
301,600,032
244,735,515
219,209,322
REALIZED
AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Realized
gain on:
Real
estate properties
13,827,432
32,598,548
3,457,196
Marketable
securities
47,375,999
7,692,266
6,926,085
Total
realized gain on investments
61,203,431
40,290,814
10,383,281
Net
change in unrealized appreciation
(depreciation)
on:
Real
estate properties
170,703,978
(37,639,368)
(94,447,265)
Real
estate joint ventures and
limited
partnerships
161,584,369
23,914,271
(5,781,360)
Marketable
securities
21,088,525
32,271,654
(13,121,940)
Net
change in unrealized appreciation
(depreciation)
on investments
353,376,872
18,546,557
(113,350,565)
NET
REALIZED AND UNREALIZED
GAIN
(LOSS) ON INVESTMENTS
414,580,303
58,837,371
(102,967,284)
NET
INCREASE IN NET ASSETS
RESULTING
FROM OPERATIONS
$716,180,335
$303,572,886
$116,242,038
SEE NOTES TO
FINANCIAL STATEMENTS
Years
Ended December 31,
2004
2003
2002
FROM
OPERATIONS
Restated
Restated
Investment
income, net
$ 301,600,032
$ 244,735,515
$ 219,209,322
Net
realized gain on investments
61,203,431
40,290,814
10,383,281
Net
change in unrealized appreciation
(depreciation)
on investments
353,376,872
18,546,557
(113,350,565)
NET
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS
716,180,335
303,572,886
116,242,038
FROM
PARTICIPANT TRANSACTIONS
Premiums
738,048,183
515,435,665
395,464,695
Net
transfers from (to) TIAA
147,340,801
30,198,200
(158,282,438)
Net
transfers from CREF Accounts
1,041,124,402
403,594,402
222,981,242
Annuity
and other periodic payments
(30,761,316)
(22,213,682)
(18,024,403)
Withdrawals
and death benefits
(159,804,580)
(113,153,870)
(96,059,751)
NET
INCREASE IN NET ASSETS RESULTING
FROM
PARTICIPANT TRANSACTIONS
1,735,947,490
813,860,715
346,079,345
NET
INCREASE IN NET ASSETS
2,452,127,825
1,117,433,601
462,321,383
NET ASSETS
Beginning
of year
4,793,422,161
3,675,988,560
3,213,667,177
End
of year
$7,245,549,986
$4,793,422,161
$3,675,988,560
76
|
Prospectus
TIAA
Real Estate Account
Years
Ended December 31,
2004
2003
2002
Restated
Restated
CASH
FLOWS FROM OPERATING ACTIVITIES
Net
increase in net assets resulting
from
operations
$ 716,180,335
$ 303,572,886
$ 116,242,038
Adjustments
to reconcile net increase in
net
assets resulting from operations to
net
cash used in operating activities:
Purchases
of real estate properties
(1,690,454,136)
(326,513,028)
(787,775,872)
Capital
improvements on real
estate
properties
(37,811,864)
(26,697,465)
(15,639,940)
Proceeds
from sale of real estate properties
113,765,000
187,225,000
26,050,000
Decrease
(increase) in other investments
(648,107,782)
(958,290,679)
244,681,644
Increase
in other assets
(30,270,749)
(19,808,324)
(23,978,952)
Increase
(decrease) in amounts due from bank
(783,869)
1,015,345
—
Increase
in accrued real estate property
level
expenses
25,445,331
18,678,441
1,240,795
Increase
in security deposits held
621,654
1,419,425
2,950,569
Decrease
in other liabilities
—
—
(618,289)
Net
realized gain on real estate properties
(13,827,432)
(32,598,548)
(3,457,196)
Unrealized
(gain) loss on real estate properties
(170,703,978)
37,639,368
94,447,265
NET
CASH USED IN OPERATING ACTIVITIES
(1,735,947,490)
(814,357,579)
(345,857,938)
CASH
FLOWS FROM PARTICIPANT TRANSACTIONS
Premiums
738,048,183
515,435,665
395,464,695
Net
transfers from (to) TIAA
147,340,801
30,198,200
(158,282,438)
Net
transfers from CREF Accounts
1,041,124,402
403,594,402
222,981,242
Annuity
and other periodic payments
(30,761,316)
(22,213,682)
(18,024,403)
Withdrawals
and death benefits
(159,804,580)
(113,153,870)
(96,059,751)
NET
CASH PROVIDED BY
PARTICIPANT TRANSACTIONS
1,735,947,490
813,860,715
346,079,345
NET
INCREASE (DECREASE) IN CASH
—
(496,864)
221,407
CASH
Beginning
of year
—
496,864
275,457
End
of year
$ —
$ —
$ 496,864
Supplemental
disclosure: Cash paid for interest
$ 121,408
$ —
$ —
Non–cash
activity: Debt assumed upon
purchase of
real estate
$ 499,479,256
$ —
$ —
SEE NOTES TO
FINANCIAL STATEMENTS
Distribution and administrative services for
the Account are provided by TIAA-CREF Individual & Institutional Services, LLC
(“Services”) pursuant to a Distribution and Administrative Services Agreement
with the Account. Services, a wholly owned subsidiary of TIAA, is a registered broker-dealer
and member of the National Association of Securities Dealers, Inc.
Had the Account’s real estate properties
that were purchased during the year ended December 31, 2004, been acquired at the
beginning of the year (January 1, 2004), rental income and real estate property
level expenses for the year ended December 31, 2004, would have increased by approximately
$213,430,000 (unaudited) and $107,023,000 (unaudited), respectively. Accordingly,
the total pro forma effect on the Account’s net investment income for the year
ended December 31, 2004, would have been an increase of approximately $106,407,000
(unaudited), if the real estate properties acquired during the year ended December
31, 2004, had been acquired at the beginning of 2004.
The Account’s real estate properties are
leased to tenants under operating lease agreements which expire on various dates
through 2104. Aggregate minimum annual rentals for the properties owned, excluding
short-term residential and storage facility leases, are as follows:
Year
Ending December 31,
2005
$ 399,730,000
2006
366,340,000
2007
326,901,000
2008
283,956,000
2009
238,290,000
2010–2104
766,612,000
Total
$2,381,829,000
December 31, 2002
Restated
Assets
Real estates
properties, at value
$1,186,400,133
Other assets
24,058,148
Total
assets
$1,210,458,281
Liabilities
and Equity
Mortgages
notes payable
$ 385,456,582
Other liabilities
17,600,691
Total
liabilities
403,057,273
Equity
807,401,008
Total
liabilities and equity
$1,210,458,281
Year Ended
December 31, 2002
Restated
Operating
Revenues and Expenses
Revenues
$103,757,341
Expenses
58,777,363
Excess
of revenues over expenses
$44,979,978
Property
Interest Rate
Amount
Due
50
Fremont
August 21, 2013
Ontario Industrial Portfolio
May 1, 2011
IDX Tower
August 21, 2013
1001 Pennsylvania Ave
August 21, 2013
Total
*
Principal payments due monthly with
balloon payment of $8,127,115 due on May 1, 2011. Principal on mortgage notes payable
is due as follows:
2005
$ 173,361
2006
186,862
2007
201,415
2008
215,163
2009
233,858
Thereafter
498,468,597
Total
$499,479,256
2004
2003
2002
2001
2000
Restated
Restated
Per
Accumulation Unit data:
Rental
income
$14.225
$14.862
$14.530
Real
estate property level expenses
4.819
4.754
4.674
Real
estate income, net
9.406
10.108
9.856
Income
from real estate
joint
ventures
0.807
0.130
0.056
Dividends
and interest
1.249
1.950
2.329
Total
income
11.462
12.188
12.241
Expense
charges
(1)
1.101
0.995
0.998
Investment
income, net
10.361
11.193
11.243
Net realized and unrealized
gain
(loss) on investments
(4.621)
(1.239)
3.995
Net
increase in Accumulation
Unit Value
5.740
9.954
15.238
Accumulation Unit Value:
Beginning
of year
168.160
158.206
142.968
End
of year
$173.900
$168.160
$158.206
Total
return
3.41%
6.29%
10.66%
Expenses
(1)
0.67%
0.61%
0.67%
Investment
income, net
5.65%
6.81%
7.50%
Portfolio turnover rate:
Real
estate properties
0.93%
4.61%
3.87%
Securities
52.08%
40.62%
32.86%
Thousands of
Accumulation Units
outstanding at end of
year
20,347
18,456
14,605
(1)
Expense charges per Accumulation
Unit and the Ratio of Expenses to Average Net Assets exclude real estate property
level expenses. If the real estate property level expenses were included, the expense
charge per Accumulation Unit for the year ended December 31, 2004, would be $6.572
($7.255, $5.920, $5.749 and $5.672 for the years ended December 31, 2003, 2002,
2001 and 2000, respectively), and the Ratio of Expenses to Average Net Assets for
the year ended December 31, 2004, would be 3.33% (4.04%, 3.61%, 3.50% and 3.79%
for the years ended December 31, 2003, 2002, 2001 and 2000, respectively).
2004
2003
2002
Accumulation
Units:
Credited for
premiums
2,310,355
Credited (cancelled) for transfers,
net disbursements
and amounts
applied to the Annuity Fund
(420,104)
Outstanding:
Beginning
of year
18,456,445
End
of year
20,346,696
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
LOCATION/DESCRIPTION
REAL ESTATE PROPERTIES—69.78%
AND 64.76%
ARIZONA:
Biltmore Commerce
Center—Office building
$ 34,104,182
$ 28,639,089
Mountain RA Industrial Portfolio—Industrial
building
5,513,947
—
CALIFORNIA:
3 Hutton Centre Drive—Office
building
41,106,333
39,991,353
9 Hutton Centre—Office building
23,169,449
20,343,676
50 Fremont—Office building
323,264,602
(A)
—
88 Kearny Street—Office building
69,026,718
62,541,205
Capitol Place—Office building
42,400,000
38,805,345
Centerside I—Office building
65,037,900
—
Center Pointe and Valley View—Industrial
building
25,329,023
—
Eastgate Distribution Center—Industrial
building
18,800,000
16,600,000
Kenwood Mews—Apartments
27,700,000
22,700,000
Larkspur Courts—Apartments
66,000,000
55,000,000
The Legacy at Westwood—Apartments
90,750,000
84,400,000
Northern California RA Industrial
Portfolio—Industrial building
59,169,642
—
Northpoint Commerce Center—Industrial
building
46,000,000
41,800,000
Ontario Industrial Portfolio—Industrial
building
187,079,256
(A)
117,500,000
Regents Court—Apartments
56,700,000
49,600,000
Southern California RA Industrial
Portfolio—Industrial building
89,097,299
—
Westcreek—Apartments
28,161,865
22,000,000
West Lake North Business Park—Office
building
50,021,000
—
Westwood Marketplace—Shopping
center
80,019,410
74,000,000
COLORADO:
The Lodge at Willow
Creek—Apartments
32,201,274
31,698,947
The Market at Southpark—Shopping
center
33,522,400
—
Monte Vista—Apartments
22,501,650
20,600,000
CONNECTICUT:
Ten & Twenty Westport
Road—Office building
148,000,000
144,000,000
DELAWARE:
Mideast RA Industrial
Portfolio—Industrial building
16,543,121
—
FLORIDA:
701 Brickell—Office
building
177,000,000
177,009,565
4200 West Cypress Street—Office
building
33,900,000
32,824,935
Doral Pointe—Apartments
—
42,600,000
Golfview—Apartments.
28,543,437
27,750,000
The Fairways of Carolina—Apartments
18,100,000
18,000,000
The Greens at Metrowest—Apartments
14,623,330
14,000,000
Maitland Promenade One—Office
building
36,053,639
35,192,924
Plantation Grove—Shopping center
11,200,000
9,100,000
Pointe on Tampa Bay—Office building
40,551,310
42,100,000
Quiet Waters at Coquina Lakes—Apartments
19,200,000
18,800,000
Royal St. George—Apartments
19,400,000
17,700,000
Sawgrass Office Portfolio—Office
building
52,000,000
45,400,000
South Florida Apartment Portfolio—Apartments
47,700,000
46,700,000
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
LOCATION/DESCRIPTION
GEORGIA:
Alexan Buckhead—Apartments
$ 37,500,000
$ 41,000,000
Atlanta Industrial Portfolio—Industrial
building
37,750,840
37,300,000
ILLINOIS:
Chicago Caleast Industrial
Portfolio—Industrial building
42,000,000
40,232,195
Chicago Industrial Portfolio—Industrial
building
70,002,239
59,292,310
Columbia Center III—Office building
28,900,000
30,000,000
East North Central RA Industrial
Portfolio—Industrial building
23,734,331
—
Oak Brook Regency Towers—Office
building
68,400,000
67,300,000
Parkview Plaza—Office building
48,700,000
50,400,000
Rolling Meadows—Shopping center
15,750,000
13,550,000
KENTUCKY:
IDI Kentucky Portfolio—Industrial
building
49,000,000
52,000,000
MARYLAND:
Corporate Boulevard—Office
building
65,038,710
69,500,000
FEDEX Distribution Facility—Industrial
building
8,200,000
7,600,000
Longview Executive Park—Office
building
—
22,200,000
MASSACHUSETTS:
Batterymarch Park
II—Office building
10,700,000
10,000,000
Longwood Towers—Apartments
82,500,000
76,400,000
Needham Corporate Center—Office
building
15,030,046
12,544,934
Northeast RA Industrial Portfolio—Industrial
building
33,110,903
—
MICHIGAN:
Indian Creek—Apartments
18,825,000
17,700,000
MINNESOTA:
Interstate Crossing—Industrial
building
7,300,000
6,345,000
River Road Distribution Center—Industrial
building
4,600,000
4,150,000
NEVADA:
UPS Distribution Facility—Industrial
building
12,900,000
11,500,000
NEW
JERSEY:
10 Waterview Boulevard—Office
building
26,400,000
27,000,000
371 Hoes Lane—Office building
10,666,570
8,500,000
Konica Photo Imaging Headquarters—Industrial
building
21,200,000
18,500,000
Morris Corporate Center III—Office
building
82,300,000
90,000,000
NJ Caleast Industrial Portfolio—Industrial
building
39,300,000
39,843,924
South River Road Industrial—Industrial
building
34,900,000
31,000,000
NEW
YORK:
780 Third Avenue—Office
building
197,000,000
180,000,000
The Colorado—Apartments
58,156,056
54,008,059
NORTH
CAROLINA:
The Lynnwood Collection—Shopping
center
—
8,100,000
The Millbrock Collection—Shopping
center
—
7,000,000
OHIO:
Bent Tree—Apartments
13,600,000
13,000,000
Columbus Portfolio—Office building
21,500,000
22,000,000
Northmark Business Center I—Office
building
—
5,200,000
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
LOCATION/DESCRIPTION
OREGON:
Five Centerpointe—Office
building
$ 14,500,000
$ 13,850,797
PENNSYLVANIA:
Lincoln Woods—Apartments
31,472,870
26,704,000
TENNESSEE:
Memphis Caleast Industrial
Portfolio—Industrial building
47,400,000
43,036,559
Summit Distribution Center—Industrial
building
23,800,000
21,961,420
TEXAS:
Butterfield Industrial
Park—Industrial building
(B)
4,600,000
4,506,687
Dallas Industrial Portfolio—Industrial
building
138,500,000
138,000,000
Four Oaks Place—Office building
255,357,238
—
The Legends at Chase Oaks—Apartments
27,051,851
26,000,000
UTAH:
Landmark at Salt Lake
City (Building #4)—Industrial building
12,500,000
12,500,000
VIRGINIA:
Ashford Meadows—Apartments
68,000,000
62,000,000
Fairgate at Ballston—Office
building
28,500,017
28,400,000
Monument Place—Office building
37,000,000
33,334,338
One Virginia Square—Office building
42,500,000
—
WASHINGTON:
Northwest RA Industrial
Portfolio—Industrial building
19,438,852
—
Rainier Corporate Park—Industrial
building
56,035,878
53,994,267
IDX Tower—Office building
347,978,282(A)
—
WASHINGTON
DC:
1001 Pennsylvania
Avenue—Office building
466,424,940(A)
—
1015 15th Street—Office building
59,000,134
54,300,000
1900 K Street—Office building
219,453,706
—
Mazza Gallerie—Shopping center
81,000,000
—
The Farragut Building—Office
building
46,500,000
45,700,000
TOTAL
REAL ESTATE PROPERTIES
(Cost $5,315,565,355
and $3,189,651,612)
5,391,469,250
3,094,851,529
REAL
ESTATE JOINT VENTURES AND
LIMITED PARTNERSHIPS—16.68%
AND 19.47%
REAL
ESTATE JOINT VENTURES
(C)
—16.28% AND 18.59%
Bisys Crossings I,
LLC which owns
BISYS Fund Services Building—(96%
Account interest)
34,751,940
34,084,331
CA—Treat Towers LP which owns
Treat Towers (75% Account interest)
88,524,364
84,885,111
Teachers REA LLC which owns Cabot
Industrial Portfolio
(100% Account interest in 2004,
80% in 2003)
60,600,000
41,563,029
Colorado Center Limited Partnership
which owns
Colorado Center (50% Account interest)
222,702,820
—
Florida Mall Association, Ltd. which
owns
The Florida Mall (50% Account interest)
162,632,565
99,279,653
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
ISSUER, CURRENT RATE AND MATURITY DATE
COMMERCIAL MORTGAGE
BACKED SECURITIES—0.54% AND 1.11%
$10,000,000
$ —
Bear Stearns CMS 1.978% 05/14/16
$ 10,006,950
$ —
10,000,000
—
COMM 2004 HTL1 A1 2.643% 07/15/16
10,013,820
—
—
10,000,000
GSMS 2001 - Rock A2FL 1.530% 05/03/18
—
9,909,090
—
20,000,000
LBF 1.49% 1.543% 06/14/17
—
20,007,680
10,000,000
—
GSMS 2001-Rock A2FL 2.030% 05/03/18
10,070,610
—
10,000,000
—
MSDWC 2001 - 280 A2F 1.894% 02/03/11
9,915,150
—
—
10,000,000
MSDWC 2001 - 280 A2F 1.560% 02/03/11
—
9,797,770
—
8,429,804
Opryland Hotel Trust 1.630% 04/01/11
—
8,418,230
1,940,947
—
Trize 2001 - TZHA A3FL 2.130% 03/15/13
1,951,830
—
—
5,000,000
Trize 2001 - TZHA A3FL 1.533% 03/15/13
—
4,871,440
TOTAL
COMMERCIAL MORTGAGE BACKED SECURITIES
TOTAL
REAL ESTATE RELATED
OTHER—8.75%
AND 9.12%
COMMERCIAL
PAPER—4.51% AND 4.75%
25,000,000
—
American Honda Finance, Corp 2.280%
01/12/05
24,981,667
—
10,000,000
—
Beta Finance, Inc 1.890% 01/14/05
9,991,445
—
15,000,000
—
Beta Finance, Inc 1.970% 01/21/05
14,980,050
—
18,100,000
—
BMW US Capital Corp 2.280% 01/20/05
18,077,073
—
—
25,000,000
Canadian Imperial Bank of Commerce
1.060% 01/28/04
—
24,999,805
—
2,215,000
CC (USA), Inc 1.100% 02/10/04
—
2,212,351
13,000,000
—
CC (USA), Inc 1.940% 01/14/05
12,988,878
—
—
25,000,000
Ciesco LP 1.080% 02/13/04
—
24,967,917
3,100,000
—
Ciesco LP 2.180% 01/13/05
3,097,537
—
—
18,000,000
Corporate Asset Funding Corp, Inc
1.090% 01/14/04
—
17,992,720
25,000,000
—
Corporate Asset Funding Corp, Inc
2.330% 01/31/05
24,949,625
—
—
20,275,000
Delaware Funding Corp 1.080% 01/22/04
—
20,261,866
2,670,000
—
Fortune Brands 2.060% 01/11/05
2,668,205
—
—
9,800,000
Govco Incorporated 1.040% 02/23/04
—
9,784,418
—
15,000,000
Govco Incorporated 1.080% 02/26/04
—
14,974,825
15,000,000
—
Govco Incorporated 1.990% 01/10/05
14,990,833
—
10,000,000
—
Govco Incorporated 2.060% 01/21/05
9,986,700
—
—
10,000,000
Greyhawk Funding LLC 1.100% 01/20/04
—
9,994,111
25,000,000
—
Greyhawk Funding LLC 2.140% 02/01/05
24,948,000
—
10,750,000
—
Harley-Davidson Funding Corp 2.230%
02/14/05
10,718,556
—
15,000,000
—
Kitty Hawk Funding Corp 2.340% 01/26/05
14,975,300
—
9,565,000
—
Kitty Hawk Funding Corp 2.340% 01/24/05
9,550,461
—
—
25,000,000
Kitty Hawk Funding Corp 1.080% 01/05/04
—
24,996,458
—
1,300,000
New York Times Co 1.070% 02/17/04
—
1,298,163
10,000,000
—
Paccar Financial Corp 1.910% 01/24/05
9,984,800
—
—
14,535,000
Park Avenue Receivables Corp 1.080%
01/29/04
—
14,522,589
—
2,000,000
Private Export Funding Corporation
1.090% 02/19/04
—
1,997,056
10,000,000
—
Private Export Funding Corporation
1.960% 01/12/05
9,992,667
—
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
ISSUER, CURRENT RATE AND MATURITY DATE
$25,000,000
$ —
Rabobank USA Financial Corp 2.290%
02/02/05
$ 24,946,375
$ —
—
4,460,000
Receivables Capital Corp 1.050% 01/05/04
—
4,459,368
—
19,285,000
Receivables Capital Corp 1.070% of
01/20/04
—
19,273,643
23,135,000
—
Royal Bank of Canada 1.960% 01/18/05
23,108,626
—
16,430,000
—
Royal Bank of Scotland PLC 2.240%
02/03/05
16,393,690
—
2,000,000
—
Sherwin-Williams Co 2.240% 01/20/05
1,997,467
—
—
25,000,000
Sigma Finance Inc 1.090% 01/06/04
—
24,995,750
15,000,000
—
Sigma Finance Inc 2.070% 02/04/05
14,965,875
—
25,000,000
—
Toronto Dominion Bank 2.015% 03/10/05
24,977,213
—
—
10,000,000
UBS Finance, (Delaware) Inc 0.960%
01/02/04
—
9,999,433
25,000,000
—
UBS Finance, (Delaware) Inc 2.300%
01/06/05
24,990,500
—
TOTAL
COMMERCIAL PAPER
(Amortized
cost $348,329,276 and $226,733,744, respectively)
GOVERNMENT
AGENCIES—4.24% AND 4.37%
9,380,000
—
Federal Farm Credit Banks 1.780%
03/15/05
9,334,882
—
8,603,000
—
Federal Farm Credit Banks 1.220%
01/07/05
8,599,403
—
—
13,905,000
Federal Home Loan Mortgage Corp 1.020%
01/09/04
—
13,901,559
—
37,980,000
Federal Home Loan Mortgage Corp 1.020%
01/08/04
—
37,971,644
—
10,715,000
Federal Home Loan Mortgage Corp 1.020%
02/24/04
—
10,698,630
—
10,000,000
Federal Home Loan Mortgage Corp 1.020%
02/17/04
—
9,986,667
—
30,000,000
Federal National Mortgage Association
1.054% 01/07/04
—
29,994,458
—
50,000,000
Federal National Mortgage Association
1.010% 01/15/04
—
49,979,166
—
6,500,000
Federal National Mortgage Association
1.000% 01/05/04
—
6,499,142
—
50,000,000
Federal National Mortgage Association
1.050% 01/30/04
—
49,958,334
7,860,000
—
Federal Home Loan Banks 1.850% 04/21/05
7,798,928
—
18,000,000
—
Federal Home Loan Banks 2.140% 01/07/05
17,992,475
—
22,825,000
—
Federal Home Loan Banks 2.180% 01/21/05
22,795,841
—
20,700,000
—
Federal Home Loan Banks 2.190% 02/16/05
20,636,761
—
11,245,000
—
Federal Home Loan Banks 2.240% 01/26/05
11,227,214
—
8,510,000
—
Federal Home Loan Banks 1.935% 03/11/05
8,471,280
—
20,000,000
—
Federal Home Loan Mortgage Corp 2.000%
01/04/05
19,995,222
—
15,000,000
—
Federal Home Loan Mortgage Corp 1.875%
01/15/05
14,993,546
—
15,540,000
—
Federal Home Loan Mortgage Corp 2.265%
01/25/05
15,516,366
—
22,280,000
—
Federal National Mortgage Association
2.480% 04/29/05
22,094,408
—
50,000,000
—
Federal National Mortgage Association
2.250% 01/19/05
49,942,208
—
25,000,000
—
Federal National Mortgage Association
2.100% 01/13/05
24,980,590
—
31,925,000
—
Federal National Mortgage Association
1.140% 01/03/05
31,919,281
—
32,184,000
—
Federal National Mortgage Association
2.250% 01/05/05
32,174,390
—
9,270,000
—
Federal National Mortgage Association
2.270% 01/26/05
9,255,335
—
TOTAL
GOVERNMENT AGENCIES
Statement of investments
|
TIAA Real Estate Account
December 31, 2004 and 2003
TOTAL OTHER
(Cost $676,124,265
and $435,725,426)
$ 675,989,673
$ 435,720,073
TOTAL
MARKETABLE SECURITIES
(Cost
$1,002,234,244 and $731,560,738)
1,045,733,841
753,971,810
TOTAL INVESTMENTS—100.00%
(Cost
$7,402,022,015 and $4,808,779,439)
$7,725,918,490
$4,779,299,042
(A)
The market value reflects the Account’s
interest in the property gross of debt.
(B)
Leasehold interest only.
(C)
The market values reflect the value
of the Account’s interest in the joint ventures, net of any debt or joint venture
partner interests.
We have audited the accompanying statements
of assets and liabilities of the TIAA Real Estate Account (“Account”)
of Teachers Insurance and Annuity Association of America (“TIAA”), including
the Statements of Investments, as of December 31, 2004 and 2003, and the related
statements of operations, changes in net assets and cash flows for each of the three
years in the period ended December 31, 2004. These financial statements are the
responsibility of TIAA’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of the
Account at December 31, 2004 and 2003, and the results of its operations, changes
in its net assets and its cash flows for each of the three years in the period ended
December 31, 2004, in conformity with U.S. generally accepted accounting principles.
New York, New York
94
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TIAA
Real Estate Account
Proforma Condensed Statement of Assets and Liabilities (Unaudited)
TIAA Real Estate Account
December 31, 2004
TIAA Real Estate Account
Prospectus
|
95
Proforma Condensed Statement of Operations (Unaudited)
TIAA Real Estate Account
For the Year Ended December 31, 2004
96
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TIAA
Real Estate Account
Notes
to Proforma Condensed Financial Statements (Unaudited)
TIAA Real Estate Account
Note 1—Purpose
and Assumptions
As required by the Securities and Exchange Commission under
Regulation S-X Article
11-01(5), these
proforma condensed financial statements of the TIAA Real Estate Account (“Account”
)
have been prepared because the Account has made significant purchases of real estate
properties du
ring the period from
January 1, 2004 through the date of this prospectus. During
2004,
the
Account
purchased
21
properties:
nine
office
properties,
including
three consolidated
joint
ventures,
ten
industrial
properties
and
two retail
properties.
During the
period from January 1, 2005
through the date of this prospectus,
the Account
purchased
or
expects
to purchase
three
properties:
two
office
properties
(one
of
which
is
subject
to
leverage)
and
one
industrial
property.
Information
regarding
these
properties
is
included
under
“Recent
Property
Purchases
and
Sales”
on page
28.
/s/ Ernst & Young LLP
April
14, 2005
Historical
ASSETS
Real estate and
other real estate
related investments
$6,680,184,649
$350,830,000(a)
$7,031,014,649
Marketable
securities
1,045,733,841
—
1,045,733,841
Other
118,061,434
—
118,061,434
TOTAL ASSETS
7,843,979,924
350,830,000
8,194,809,924
Mortgage
notes payable
499,479,256
185,000,000(a)
684,479,256
Amounts
due to bank
231,476
—
231,476
Accrued
real estate property level
expenses
84,959,882
—
84,959,882
Security
deposits held
13,759,324
—
13,759,324
TOTAL LIABILITIES
598,429,938
185,000,000
783,429,938
NET
ASSETS
$7,245,549,986
165,830,000(a)
$7,411,379,986
Historical
Adjustments
Rental income
$397,198,276
$241,66
7,000
(b)
$638,86
5,276
Operating
expenses
100,991,997
54,144,000
(b)
155,135,997
Real estate
taxes
55,946,418
32,954,000
(b)
88,900,418
Interest expense
830,361
40,505,000
(b)
41,335,361
Total
real estate property
expenses
157,768,776
127,603,
000
285,37
1,776
Real
estate income, net
239,429,500
114,06
4,000
353,49
3,500
Income from
real estate joint ventures
57,275,242
—
57,275,242
Interest and dividends
41,623,715
—
41,623,715
TOTAL
INCOME
338,328,457
114,06
4,000
452,39
2,457
EXPENSES
36,728,425
3,909,000
(c)
40,637,425
INVESTMENT
INCOME,
NET
301,600,032
11
0,155,000
41
1,755,032
REALIZED
AND
UNREALIZED
GAINS
414,580,303
—
414,580,303
NET INCREASE IN
NET ASSETS RESULTING
FROM OPERATIONS
$716,180,335
$11
0,155,000
$82
6,335,335
Various assumptions have been made in order to prepare
these proforma condensed financial statements.
The proforma condensed statement of assets and liabilities has been prepared assuming
real estate properties purchased or
expected to
be purchased during the period from
January 1, 2005 through the date of this prospectus were purchased
as of December 31, 2004. The proforma
condensed statement of operations for the year
ended December
31, 2004 has been prepared assuming
all real estate properties purchased or expected
to be
purchased during the period from January
1, 2004 through the date of this prospectus
were purchased as of January 1, 2004.
Note 2—Proforma Adjustments
Proforma Condensed Statement of Assets and Liabilities:
Proforma Condensed Statement of Operations:
TIAA Real Estate Account
Prospectus
|
97
3111 Camino Del Rio North, San Diego, California
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of the property located at 3111 Camino Del Rio North, San Diego,
California (the “Property”), as described in Note 1, for the year ended
December 31, 2003. This financial statement is the responsibility of the property
owner’s management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Property’s revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Property for the year ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
November 24, 2004
98
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TIAA
Real Estate Account
3111 Camino del Rio North, San Diego, California
STATEMENT OF REVENUES AND CERTAIN
EXPENSES
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organizaton and Basis of Presentation
The Property, located at 3111 Camino Del Rio North, San
Diego, California, is also known as Centerside I. The building contains approximately
205,000 square feet of office space, and a parking lot. At April 30, 2004, the building
was approximately 89% leased to 27 tenants, of which 22%, or 6 tenants, are major
credit tenants. The largest tenant occupies approximately 32% of the space at an
annual rental of approximately $1,959,000. Certain tenants’ leases contain
provisions for additional rent based on increases in operating expenses and real
estate taxes over base period amounts.
The accompanying financial statement is presented in
conformity with Rule 3-14 of Securities and Exchange Commission Regulation
S-X. Accordingly, the financial statement is not representative of the actual
operations for the periods presented, as certain expenses, which may not
be comparable to the expenses expected to be incurred in the future operations
of the Property, have been excluded. Expenses excluded consist of interest,
depreciation and amortization, asset management fees, leasing expenses and
certain other expenses not directly related to the future operations of the
Property.
TIAA Real Estate Account
Prospectus
|
99
The statement of revenues and certain expenses for the four months
ended April 30, 2004, is unaudited. However, in the opinion of management, all adjustments
(consisting solely of normal recurring adjustments) necessary for the fair presentation
of this statement of revenues and certain expenses for the interim period on the
basis described above have been included. The results for such an interim period
are not necessarily indicative of the results for an entire year.
2 —Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statement in conformity
with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Escalation rents based
on payments for real estate taxes and operating expenses are estimated and accrued.
3 — Operating Leases
Office space in the Property is rented to tenants under
operating leases. Approximate minimum future rentals required under these leases
(including leases entered into from January 1, 2004 to April 30, 2004) are as follows:
4 — Related Party Transaction
100
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Prospectus
TIAA
Real Estate Account
30721
and 30699 Russell Ranch Road, Westlake Village, California
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of the properties located at 30721 and 30699 Russell Ranch
Road, Westlake Village, California (the “Properties”), as described in
Note 1, for the year ended December 31, 2003. This financial statement is the responsibility
of the property owner’s management. Our responsibility is to express an opinion
on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Properties’ revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Properties for the year ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
May 6, 2004
TIAA Real Estate Account
Prospectus
|
101
30721 and 30699 Russell Ranch Road, Westlake Village, California
STATEMENT OF REVENUES AND CERTAIN
EXPENSES
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organizaton and Basis of Presentation
The Properties, located at 30721 and 30699 Russell Ranch
Road, Westlake Village, California, are also known as Westlake North Business Park
II & III. The buildings contain approximately 199,000 square feet of office
space, and 4,300 square feet of parking space. At March 31, 2004, the buildings
are approximately 91% leased to 8 tenants, of which 84%, or 5 tenants, are major
credit tenants. The largest tenant occupies approximately 33% of the space at an
approximate annual rental of $1,840,000. Certain tenants’ leases contain provisions
for additional rent based on increases in operating expenses and real estate taxes
over base period amounts.
The accompanying financial statement is presented in
conformity with Rule 3-14 of Securities and Exchange Commission Regulation
S-X. Accordingly, the financial statement is not representative of the actual
operations for the periods presented, as certain expenses, which may not
be comparable to the expenses expected to be incurred in the future operations
of the Properties, have been excluded. Expenses excluded consist of interest,
depreciation and amortization, asset management fees, leasing expenses and
certain other expenses not directly related to the future operations of the
Properties.
102
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TIAA
Real Estate Account
adjustments (consisting solely of normal recurring adjustments) necessary
for the fair presentation of this statement of revenues and certain expenses for
the interim period on the basis described above, have been included. The results
for such an interim period are not necessarily indicative of the results for an
entire year.
2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of the financial statement in conformity
with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Escalation rents based
on payments for real estate taxes and operating expenses are estimated and accrued.
3 — Operating Leases
Office space in the Properties is rented to tenants under
operating leases. Approximate minimum future rentals required under these leases
(including leases entered into from January 1, 2004 to March 31, 2004) are as follows:
TIAA Real Estate Account
Prospectus
|
103
Four Oaks Place, Houston, Texas
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of Four Oaks Place - Houston, Texas (the “Property”),
as described in Note 1, for the year ended December 31, 2003. This financial statement
is the responsibility of the Property’s management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Property’s revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Property for the year ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
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TIAA
Real Estate Account
Four
Oaks Place — Houston, Texas
STATEMENT OF REVENUES AND CERTAIN
EXPENSES
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organizaton and Basis of Presentation
The Property, located in Houston, Texas, contains approximately
1.7 million square feet of commercial space in four high-rise office buildings and
approximately 25,000 square feet of retail space. In addition, land is currently
being rented under a ground lease. At July 31, 2004, the Property was approximately
85% leased.
The accompanying financial statement is presented in conformity
with Rule 3-14 of Securities and Exchange Commission Regulation S-X. Accordingly,
the financial statement is not representative of actual operations for the periods
presented, as certain expenses, which may not be comparable to the expenses expected
to be incurred in the future operations of the Property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization and certain other expenses
not directly related to the future operations of the Property.
TIAA Real Estate Account
Prospectus
|
105
presentation of this statement of revenues and certain expenses for
the interim period on the basis described above have been included. The results
for such an interim period are not necessarily indicative of the results for the
entire year.
2 — Summary of significant accounting policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Recoveries, based on
payments for real estate taxes and operating expenses, are estimated and accrued.
3 — Major Tenants
4 — Transactions with Related Parties
5 — Operating Leases
Space in the Property is rented to tenants under various
noncancelable operating leases. Approximate minimum future rents (including ground
rent) required under leases in effect at December 31, 2003 (and additional leases
entered into from January 1, 2004 through July 31, 2004) are as follows:
106
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TIAA
Real Estate Account
1900
K Street, NW — Washington, D.C.
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of 1900 K STREET, NW—WASHINGTON, D.C. (the “Property”),
as described in Note 1, for the year ended September 30, 2004. This financial statement
is the responsibility of the Property’s management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Property’s revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Property for the year ended September 30, 2004, in conformity with accounting
principles generally accepted in the United States of America.
November 24, 2004
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107
1900 K Street, NW — Washington, D.C.
STATEMENT OF REVENUES AND CERTAIN EXPENSES
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organizaton and Basis of Presentation
The Property, located in Washington, D.C., contains 331,477
square feet of commercial space, 5,962 square feet of retail space, and 5,445 square
feet of storage space. In addition, the building contains a three-level parking
garage. At September 30, 2004, the Property was 100% leased. The current owner of
the Property is National Office Partners Limited Partnership (“NOP”).
The accompanying financial statement is presented in conformity
with Rule
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2
— Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Recoveries, based on
payments for real estate taxes and operating expenses, are estimated and accrued.
3 — Major Tenants
Three tenants lease approximately 82% of the Property’s
square footage. Rent from these tenants represented approximately 80% of total revenues
for the year ended September 30, 2004.
4 — Transactions with Related Parties
The Property is managed by an affiliate of NOP, the owner
of the Property. Management fees and certain other expenses of approximately $567,000
and $21,000, respectively, were incurred for the year ended September 30, 2004.
5 — Operating Leases
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109
1001 Pennsylvania Avenue, NW — Washington, D.C.
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of 1001 PENNSYLVANIA AVENUE, NW—WASHINGTON, D.C. (the
“Property”), as described in Note 1, for the year ended September 30,
2004. This financial statement is the responsibility of the Property’s management.
Our responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Property’s revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Property for the year ended September 30, 2004, in conformity with accounting
principles generally accepted in the United States of America.
November 24, 2004
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Real Estate Account
1001
Pennsylvania Avenue, NW — Washington, D.C.
STATEMENT OF REVENUES AND CERTAIN EXPENSES
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organizaton and Basis of Presentation
The Property, located in Washington, D.C., contains 731,818
square feet of office space, 41,023 square feet of retail space and 29,549 square
feet of storage space. The current owner of the Property is Lincoln Square Corporation
(“LSC”). At September 30, 2004, the Property was approximately 99% leased.
The accompanying financial statement is presented in
conformity with Rule 3-14 of Securities and Exchange Commission Regulation
S-X. Accordingly, the financial statement is not representative of actual
operations for the period presented, as certain expenses, which may not be
comparable to the expenses expected to be incurred in the future operations
of the Property, have been excluded. Expenses excluded consist of interest,
depreciation and amortization and certain other expenses not directly related
to the future operations of the Property.
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2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Recoveries, based on
payments for real estate taxes and operating expenses, are estimated and accrued.
3 — Major Tenants
Four tenants lease approximately 93% of the Property’s
square footage. Rent from these tenants represented approximately 81% of total revenues
for the year ended September 30, 2004.
4 — Transactions with Related Parties
The Property is managed by an affiliate of LSC. Management
fees and certain other expenses of approximately $1,182,000 and $47,000, respectively,
were incurred for the year ended September 30, 2004.
5 — Operating Leases
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50
Fremont Street — San Francisco, California
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of 50 FREMONT STREET—SAN FRANCISCO, CALIFORNIA (the “Property”),
as described in Note 1, for the year ended September 30, 2004. This financial statement
is the responsibility of the Property’s management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Property’s revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Property for the year ended September 30, 2004, in conformity with accounting
principles generally accepted in the United States of America.
November 24, 2004
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50 Fremont Street—San Francisco, California
STATEMENT OF REVENUES AND CERTAIN EXPENSES
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organizaton and Basis of Presentation
The Property, located in San Francisco, California, contains
817,412 square feet of commercial space in a 42-story office building. The current
owner of the Property is National Office Partners Limited Partnership (“NOP”).
At September 30, 2004, the overall occupancy of the Property was approximately 90%.
The accompanying financial statement is presented in conformity
with Rule
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2
— Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Recoveries, based on
payments for real estate taxes and operating expenses, are estimated and accrued.
3 — Major Tenants
Two tenants lease approximately 34% and 27%, respectively,
of the Property’s square footage. Rent from these tenants represented approximately
40% and 29%, respectively, of total revenues for the year ended September 30, 2004.
4 — Transactions with Related Parties
The Property is managed by an affiliate of NOP, the owner
of the Property. Management fees and certain other expenses of approximately $830,000
and $50,000, respectively, were incurred for the year ended September 30, 2004.
5 — Operating Leases
Space in the Property is rented to tenants under various
noncancelable operating leases. Approximate minimum future rents required under
leases in effect at September 30, 2004, and additional leases entered into from
October 1, 2004 through November 23, 2004, are as follows:
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IDX Tower — 925 Fourth Avenue — Seattle, Washington
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of IDX TOWER — 925 FOURTH AVENUE — SEATTLE, WASHINGTON
(the “Property”), as described in Note 1, for the year ended September
30, 2004. This financial statement is the responsibility of the Property’s
management. Our responsibility is to express an opinion on this financial statement
based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Property’s revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Property for the year ended September 30, 2004, in conformity with accounting
principles generally accepted in the United States of America.
November 22, 2004
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Real Estate Account
IDX
Tower - 925 Fourth Avenue—Seattle, Washington
STATEMENT OF REVENUES AND CERTAIN EXPENSES
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organizaton and Basis of Presentation
The Property, located in Seattle, Washington, contains
845,533 square feet of office space. Construction of the building was completed
during 2002, and the first tenants moved in during January 2003. The current owner
of the Property is National Office Partners Limited Partnership (“NOP”).
At September 30, 2004, the overall occupancy of the Property was approximately 95%.
The accompanying financial statement is presented in conformity
with Rule 3-14 of Securities and Exchange Commission Regulation S-X. Accordingly,
the financial statement is not representative of actual operations for the period
presented, as certain expenses, which may not be comparable to the expenses expected
to be incurred in the future operations of the Property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization and certain other expenses
not directly related to the future operations of the Property.
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2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Recoveries, based on
payments for real estate taxes and operating expenses, are estimated and accrued.
3 — Major Tenants
Four tenants lease approximately 79% of the Property’s
square footage. Rent from these tenants represented approximately 83% of total revenues
for the year ended September 30, 2004.
4 — Transactions with Related Parties
The Property is managed by an affiliate of NOP, the owner
of the Property. Management fees and certain other expenses of approximately $705,000
and $52,000, respectively, were incurred for the year ended September 30, 2004.
5 — Operating Leases
Space in the Property is rented to tenants under various
noncancelable operating leases. Approximate minimum future rents required under
leases in effect at September 30, 2004, and additional leases entered into from
October 1, 2004 through November 22, 2004, are as follows:
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JV
with IDI — Industrial Portfolio
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of the properties included in JV With IDI - Industrial Portfolio
(the “Properties”), as described in Note 1, for the year ended December
31, 2003. This financial statement is the responsibility of the property owner’s
management. Our responsibility is to express an opinion on this financial statement
based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statement is free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Properties’ revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Properties for the year ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
November 9, 2004
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JV with IDI — Industrial Portfolio
STATEMENT OF REVENUES AND CERTAIN
EXPENSES
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NOTES
TO STATEMENT OF REVENUES AND CERTAIN EXPENSES
1 — Organizaton and Basis of Presentation
The JV With IDI - Industrial Portfolio includes 12 properties
that contain approximately 3.6 million square feet of office space. At September
30, 2004, the buildings are approximately 86% leased to 16 tenants under net lease
agreements. The buildings were developed by IDI and were completed as shown in the
schedule below. Operating expenses incurred during the first year after the building
obtained a certificate of occupancy have been capitalized until the building began
to charge rents.
The accompanying financial statement is
presented in conformity with Rule 3-14 of Securities and Exchange Commission
Regulation S-X. Accordingly, the financial statement is not representative
of the actual operations for the periods presented, as certain expenses,
which may not be comparable to the expenses expected to be incurred in the
future operations of the Properties, have been excluded. Expenses excluded
consist of interest, depreciation and amortization, asset management fees,
leasing expenses and certain other expenses not directly related to the future
operations of the Properties.
The statement of revenues and certain expenses for the
nine months ended September 30, 2004, is unaudited. However, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary for
the fair presentation of this statement of revenues and certain expenses for the
interim period on the basis described above have been included. The results for
such an interim period are not necessarily indicative of the results for an entire
year.
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2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Recoveries, based on
payments for real estate taxes and operating expenses, are estimated and accrued.
3 — Related Party Transaction
4 — Operating Leases
Office space in the Properties is rented to tenants under
noncancelable operating leases. Approximate minimum future rentals required under
these leases (including leases entered into from January 1, 2004 to September 30,
2004) are as follows:
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99
High Street — Boston, Massachusetts
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and
Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of the property located at 99 High Street in Boston, Massachusetts
(the “Property”), as described in Note 1, for the year ended December
31, 2004. This financial statement is the responsibility of the Property’s
management. Our responsibility is to express an opinion on this financial statement
based on our audit.
We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Property’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement of revenues and certain expenses
was prepared for the purpose of complying with Rule 3-14 of Securities and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a complete
presentation of the Property’s revenues and expenses.
In our opinion, the financial statement referred to above
presents fairly, in all material respects, the revenues and certain expenses of
the Property for the year ended December 31, 2004, in conformity with accounting
principles generally accepted in the United States of America.
April 12, 2005
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99 High Street
—
Boston, Massachusetts
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organization and Basis of Presentation
The Property, located at 99 High Street, Boston, Massachusetts,
contains 731,204 square feet of commercial office space in a 32-story office building.
The current owner of the Property is W/W High Street, L.L.C. At February 28, 2005,
the overall occupancy of the Property was approximately 92%.
The accompanying financial statement is presented in conformity
with Rule 3-14 of Securities and Exchange Commission Regulation S-X. Accordingly,
the financial statement is not representative of actual operations for the periods
presented, as certain expenses, which may not be comparable to the expenses expected
to be incurred in the future operations of the Property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization and certain other expenses
not directly related to the future operations of the Property.
The statement of revenues and certain expenses for the
two months ended February 28, 2005 is unaudited. However, in the opinion of management,
all adjustments (consisting solely of normal recurring adjustments) necessary for
the fair presentation of this statement of revenues and certain expenses for the
interim period on the basis described above have been included. The results for
such an interim period are not necessarily indicative of the results for the entire
year.
2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported
amounts of revenues and expenses during the reporting periods. Actual results could
differ from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent increases
is recognized on a straight-line basis over the lease term. Recoveries, based on
payments for real estate taxes and operating expenses, are estimated and accrued.
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99 High Street — Boston, Massachusetts
3 — Major Tenants
Three tenants lease approximately 44% of the Property’s
square footage. Rent from these tenants represented approximately 60% of total revenues
for the year ended December 31, 2004.
4 — Operating Leases
Space in the Property is rented to tenants under various
noncancelable operating leases. Approximate minimum future rents required under
leases in effect at December 31, 2004 (and additional leases entered into from January
1, 2005 through February 28, 2005) are as follows:
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99 High Street — Boston, Massachusetts
STATEMENT OF REVENUES AND CERTAIN
EXPENSES
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8270 Greensboro Drive — Tysons Corner, Virginia
INDEPENDENT AUDITORS’ REPORT
To the Management of Teachers Insurance and
Annuity Association
We have audited the accompanying statement of revenues
and certain expenses of the property locat
ed
at 8270 Greensboro Drive, Tysons Corner, Virginia (the “Property”), as
described in Note 1, for t
he year ended
December 31, 2004. This financial statement is the responsibility of the Property’s
m
anagement. Our responsibility is to
express an opinion on this financial statement based on our aud
it.
We conducted our audit in accordance with auditing standards
generally accepted in the United
States
of America. Those standards require that we plan and perform the audit to obtain
reasonable a
ssurance about whether the
financial statement is free of material misstatement. An audit includes
consideration
of internal control over financial reporting as a basis for designing audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the
effectiveness of the
Property’s internal control over financial reporting. Accordingly, we express
no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statement, assessing the accounting principles
used and significan
t estimates made
by management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
The accompanying statement
of revenues and certain expenses was prepared for the purpose of complying with
Rule 3-14 of Securi
ties and Exchange
Commission Regulation S-X and, as described in Note 1, is not intended to be a com
plete
presentation of the Property's revenues and expenses.
In our opinion, the financial statemen
t
referred to above presents fairly, in all material respects, the revenues and certain
expenses of
the Property for the year
ended December 31, 2004, in conformity with accounting principles generall
y
accepted in the United States of America.
April 12, 2005
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8270 Greensboro Drive — Tysons Corner, Virginia
NOTES TO STATEMENT OF REVENUES AND
CERTAIN EXPENSES
1 — Organization and Basis of Presentation
The Property, located in
Tysons
Corner, Virginia, contains approximately 158,000 square feet of commercial space.
At Februar
y 28, 2005, the Property was
100% leased to 12 tenants. The tenant leases contain provisions for ad
ditional
rent based on increases in operating expenses and real estate taxes over base period
amount
s.
The accompanying financial statement is presented in conformity
with Rule 3-14 of Securities a
nd Exchange
Commission Regulation S-X. Accordingly, the financial statement is not representative
o
f actual operations for the periods
presented, as certain expenses, which may not be comparable to t
he
expenses expected to be incurred in the future operations of the Property, have
been excluded. E
xpenses excluded consist
of interest, depreciation and amortization and certain other expenses not d
irectly
related to the future operations of the Property.
The statement of revenues and certain exp
enses
for the two months ended February 28, 2005 is unaudited. However, in the opinion
of manag
ement, all adjustments (consisting
solely of normal recurring adjustments) necessary for the fair pr
esentation
of this statement of revenues and certain expenses for the interim period on the
basis de
scribed above have been included.
The results for such an interim period are not necessarily indicat
ive
of the results for the entire year.
2 — Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in
conformity with accounting principles generally a
ccepted
in the United States of America requires management to make estimates and assumptions
that a
ffect the reported amounts of
revenues and expenses during the reporting periods. Actual results co
uld
differ from those estimates.
Revenue Recognition
Rental income from leases with scheduled rent
increases is recognized on a straight-line basis over the lease term. Recoveries,
based on payment
s for real estate taxes
and operating expenses, are estimated and accrued.
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8270 Greensboro Drive
—
Tysons
Corner, Virginia
3 — Major Tenants
Three tenants lease approximately 52%
of
the Property’s square footage. Rent from these tenants represented approximately
51% of total re
venues for the year ended
December 31, 2004 and for the two months ended February 28, 2005.
4 — Operating Leases
Space in the Property is rented to tenants under various
noncancelable operating lea
ses. Approximate
minimum future rents required under leases in effect at December 31, 2004 are as
fo
llows:
The current
owner
of the Property also owns the adjoining property, on which a sports and health club
(“S&H”) is
located. There
is an agreement with S&H providing for the use of 106 parking spaces in the
garage.
The S&H members pay one
dollar to park for up to three hours, and S&H pays the greater of 18% of t
he
annual costs to operate the garage or $25,000 increased by 3% a year. The parking
income is net
of the net revenue paid
to S&H of approximately $53,000 and $10,000 for the year ended December 31,
2004 and the two months ended February
28, 2005, respectively.
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8270 Greensboro Drive — Tysons Corner, Virginia
STATEMENT OF REVENUES AND CERTAIN
EXPENSES
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TEACHERS
INSURANCE AND ANNUITY
CONDENSED STATUTORY-BASIS FINANCIAL STATEMENTS INFORMATION
The following proforma adjustments were made
in pr
eparing the proforma condensed
financial statements to reflect the purpose described in Note 1.
(a)
To record the cost and related mortgage notes payable
of properties purchased during the period from
January 1, 2005 through the date of this prospectus, assuming
such properties were purchased on
December 31
, 2004 and
to record
the inflow of sufficient
cash from
participant transactions
to fund such purchases.
(b)
To record the rental income and real
estate property level exp
enses of the real
estate properties purchased during the period from
January 1, 2004 through the date of
this prospectus, assuming such properties were owned for the
year ended
December
31, 2004.
(c)
To record additional investment advisory charges
which would have been incurred during the period presented, assuming the
real estate properties purchased during the period from January 1, 2004 through
the date of this prospectus had been purchased as of January 1, 2004.
Friedman LLP
Year Ended
Four Months Ended
December 31, 2003
April 30, 2004
(In thousands)
(Audited)
(Unaudited)
REVENUES
Rental
income
$5,185
$1,695
Recoveries
343
120
Parking
213
85
Other
income
226
24
CERTAIN EXPENSES
Administrative
152
42
Operating
and maintenance
1,197
446
Management
fees
179
51
Insurance
116
42
Real estate
taxes
152
64
Excess of revenues
over certain expenses
The accompanying notes arean integral
part of this financial statement.
Year Ending December 31,
(In Thousands)
2004
$ 5,307
2005
5,099
2006
4,225
2007
3,258
2008
2,369
Thereafter
1,111
$21,369
Management fees are paid to the managing member
of the limited liability company which owns the Property. Fees are collected based
on 3% of rental revenues collected and were $179,182 for the year ended December
31, 2003, and $51,430 for the period ended April 30, 2004.
Friedman LLP
The statement of revenues and certain expenses
for the three months ended March 31, 2004, is unaudited. However, in the opinion
of management, all
Year Ending December 31,
(In Thousands)
2004
$ 3,810
2005
5,116
2006
4,915
2007
4,763
2008
3,293
Thereafter
1,810
$23,707
Friedman LLP
Seven Months
Year Ended
Ended
December 31, 2003
July 31, 2004
(In
thousands)
(Audited)
(Unaudited)
REVENUES
Rental
income
FASB
Statement No. 13 accrual
1,276
1,149
Recoveries
1,260
573
Parking
income
1,039
643
Other
income
188
145
CERTAIN
EXPENSES
Utilities
Repairs
and maintenance
5,554
3,148
General
and administrative
1,546
953
Marketing
and advertising
135
42
Management
fees
823
461
Real
estate taxes
5,823
3,230
Insurance
339
181
Bad
debt expense
1,048
436
Excess
of revenues over certain expenses
The accompanying notes are an integral part of this financial statement.
The statement of revenues and certain expenses
for the seven months ended July 31, 2004, is unaudited. However, in the opinion
of management, all adjustments (consisting solely of normal recurring adjustments)
necessary for the fair
Two tenants lease approximately 10% and 14%,
respectively, of the Property’s square footage. Rent from these tenants represented
approximately 12% and 16%, respectively, of total revenues for the year ended December
31, 2003, and approximately 11% and 18%, respectively, of total revenues for the
seven months ended July 31, 2004.
The Property is managed by an affiliate of
Lehndorff Four Oaks Place Joint Venture, the owner of the Property. Management fees
of approximately $823,000 and $461,000 were incurred for the year ended December
31, 2003, and the seven months ended July 31, 2004, respectively.
Year
Ending December 31,
2004
$30,513,000
2005
31,183,000
2006
29,326,000
2007
27,574,000
2008
25,695,000
Thereafter
69,432,000
$213,723,000
Friedman LLP
Year Ended
(In
thousands)
September 30,
2004
REVENUES
Rental
income
$12,108
FASB
Statement No. 13 accrual
705
Recoveries
5,319
Management
fees
530
Parking
income
580
Other
income
106
19,348
CERTAIN
EXPENSES
Salaries
and wages
424
Cleaning
587
Utilities
578
Repairs
and maintenance
378
Building
management services
1,056
Taxes
and insurance
3,004
Nonrecoverable
costs
42
6,069
Excess
of revenues over certain expenses
$13,279
The
accompanying notes are an integral part of this financial statement.
3-14 of Securities and Exchange Commission Regulation S-X. Accordingly,
the financial statement is not representative of actual operations for the period
presented, as certain expenses, which may not be comparable to the expenses expected
to be incurred in the future operations of the Property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization and certain other expenses
not directly related to the future operations of the Property.
Space in the Property is rented to tenants
under various noncancelable operating leases. Approximate minimum future rents required
under leases in effect at September 30, 2004, are as follows.
Year
Ending September 30,
2005
$12,124,000
2006
13,168,000
2007
10,825,000
2008
9,778,000
2009
9,922,000
Thereafter
18,241,000
$74,058,000
Friedman LLP
Year Ended
(In
thousands)
September 30,
2004
REVENUES
Rental
income
FASB
Statement No. 13 accrual
885
Recoveries
10,504
Management
fees
1,158
Parking
income
1,505
Other
income
518
CERTAIN
EXPENSES
Salaries
and wages
Cleaning
1,266
Utilities
940
Repairs
and maintenance
956
Building
management services
2,007
Taxes
and insurance
6,008
Nonrecoverable
costs
172
Excess
of revenues over certain expenses
The accompanying notes are an integral part of this financial statement.
Space in the Property is rented to tenants
under various noncancelable operating leases. Approximate minimum future rents required
under leases in effect at September 30, 2004, are as follows:
Year
Ending September 30,
2005
$ 25,149,000
2006
26,946,000
2007
27,624,000
2008
27,898,000
2009
28,261,000
Thereafter
118,980,000
$254,858,000
Friedman LLP
Year Ended
(In
thousands)
September 30,
2004
REVENUES
Rental
income
FASB
Statement No. 13 accrual
937
Recoveries
4,210
Parking
income
1,518
Other
income
337
CERTAIN EXPENSES
Salaries
and wages
Cleaning
1,828
Utilities
1,114
Repairs
and maintenance
920
Building
management services
1,884
Taxes
and insurance
3,716
Nonrecoverable
costs
719
Excess of revenues over certain expenses
The
accompanying notes are an integral part of this financial statement.
3-14 of Securities and Exchange Commission Regulation S-X. Accordingly,
the financial statement is not representative of actual operations for the period
presented, as certain expenses, which may not be comparable to the expenses expected
to be incurred in the future operations of the Property, have been excluded. Expenses
excluded consist of interest, depreciation and amortization and certain other expenses
not directly related to the future operations of the Property.
Year
Ending September 30,
2005
$24,842,000
2006
24,518,000
2007
23,849,000
2008
21,323,000
2009
20,876,000
Thereafter
96,297,000
$211,705,000
Friedman LLP
Year Ended
(In
thousands)
September 30,
2004
REVENUES
Rental
income
FASB
Statement No. 13 accrual
2,966
Recoveries
6,364
Parking
income
1,940
Other
income
49
CERTAIN
EXPENSES
Salaries
and wages
Cleaning
1,175
Utilities
610
Repairs
and maintenance
740
Building
management services
1,774
Taxes
and insurance
1,504
Nonrecoverable
costs
435
Excess of revenues over certain expenses
The accompanying notes are an integral part of this financial statement.
Year
Ending September 30,
2005
$ 18,691,000
2006
21,942,000
2007
23,071,000
2008
22,715,000
2009
23,425,000
Thereafter
108,528,000
$218,372,000
Friedman LLP
Year Ended
Nine Months Ended
December 31, 2003
September 30, 2004
(In thousands)
(Audited)
(Unaudited)
REVENUES
Rental
income
$2,661
$3,100
FASB Statement
No. 13 accrual
306
1,219
Recoveries
659
805
Miscellaneous
income
9
29
3,635
5,153
CERTAIN
EXPENSES
Operating
and maintenance
552
547
Management
fees
111
119
Insurance
169
196
Real estate
taxes
823
1,201
1,655
2,063
Less—Portion
capitalized
(362)
(496)
1,293
1,567
Excess
of revenues over certain expenses
$2,342
$3,586
Building
Location
Construction Completion Date
Airways
Distribution - Building C
Southhaven, Mississippi
August, 2003
Airways Distribution - Building
E
Southhaven, Mississippi
February, 2004
Bolingbrook
- International Truck
Bolingbrook, Illinois
January, 2004
Bolingbrook Corporate Center
Bolingbrook, Illinois
January 15, 2005 (projected)
Bolingbrook
Corporate Center III
Bolingbrook, Illinois
February, 2003
Chickasaw
Memphis, Tennessee
April, 2004
Miramar Business
Center B
Miramar, Florida
March, 2002
Prairie Point Inventory Facility
III
Naperville, Illinois
August, 1999
Rock Run VI
Will County, Illinois
December, 2002
Southpoint F
Forest Park, Georgia
August, 2001
Westfork A5
Lithia Springs, Georgia
July, 2001
Westfork C4
Lithia Springs, Georgia
January, 1999
The Properties are managed by an affiliate
of IDI, the owner of the Properties. Management fees of approximately $111,000 and
$119,000 were incurred for the year ended December 31, 2003, and the nine months
ended September 30, 2004, respectively.
Year
Ending December 31,
2004
$ 5,019,000
2005
9,353,000
2006
8,940,000
2007
8,468,000
2008
7,155,000
Thereafter
34,716,000
$73,651,000
Friedman LLP
Year
Ending December 31,
2005
$ 19,540,000
2006
19,593,000
2007
20,785,000
2008
18,599,000
2009
15,615,000
Thereafter
44,976,000
$139,108,000
Year Ended
Two Months Ended
December 31, 2004
February 28, 2005
(Audited)
(Unaudited)
REVENUES:
Rental
income
$21,676,111
$4,020,690
Free
rent income
(2,925,660)
(786,784)
FASB Statement
No. 13 accrual
3,326,340
747,147
Recoveries
1,553,775
318,770
Other
income
745,662
129,615
24,376,228
4,429,438
CERTAIN
EXPENSES:
General
and administrative
656,512
165,525
Management
fees
165,322
25,193
Utilities
2,053,490
426,883
Repairs
308,446
28,278
Maintenance
1,850,290
367,729
Taxes
4,977,874
867,452
Insurance
204,327
32,994
Nonreimbursement
expenses
231,214
32,234
10,447,475
1,946,288
Excess
of revenues over certain expenses
$13,928,753
$2,483,150
The
accompanying notes are an integral part of this financial statement.
Friedman LLP
Year
Ending December 31,
2005
$ 5,292,000
2006
4,902,000
2007
4,547,000
2008
3,953,000
2009
4,052,000
Thereafter
3,222,000
$25,968,000
5 — Related Party Transaction
Year Ended
Two Months Ended
December 31, 2004
February 28, 2005
(Audited)
(Unaudited)
REVENUES:
Rental
income
$5,375,642
$902,203
Recoveries
134,133
40,267
Parking
income
144,050
30,966
Lease
termination fees
127,419
—
Other
income
23,340
5,659
5,804,584
979,095
CERTAIN
EXPENSES:
Operating
expenses
793,631
166,848
Management
fees
126,609
21,906
Insurance
36,393
5,274
Real
estate taxes
411,779
93,667
Other
taxes and licenses
14,256
2,480
1,382,668
290,175
Excess
of revenues over certain expenses
$4,421,916
$688,920
The
accompanying notes are an integral part of this financial statement.
ASSOCIATION OF AMERICA
(The following condensed statutory-basis
financial statements information has been derived from audited statutory-basis
financial statements which are available upon request)
TIAA CONDENSED STATUTORY-BASIS BALANCE
SHEETS
Teachers Insurance and Annuity Association of America
continued
(in thousands)*
December 31,
2004
2003
ASSETS
Bonds
$114,776,422
$106,505,812
Mortgages
24,293,328
23,689,539
Real
estate
1,707,127
1,702,300
Preferred
stocks
1,287,644
924,754
Common
stocks
3,722,171
3,474,524
Other
long-term investments
5,647,871
4,862,515
Cash,
cash equivalents and short-term investments
447,444
1,082,871
Investment
income due and accrued
1,373,863
1,356,407
Separate
account assets
8,309,676
5,849,058
Deferred
federal income tax asset
1,024,409
893,245
Other
assets
974,399
905,744
TOTAL
ASSETS
$163,564,354
$151,246,769
LIABILITIES,
CAPITAL
AND CONTINGENCY RESERVES
Policy
and contract reserves
$131,211,568
$124,777,130
Dividends
declared for the following year
2,214,480
2,337,922
Asset
valuation reserve
2,743,549
2,288,501
Interest
maintenance reserve
805,961
610,882
Separate
account liabilities
8,309,676
5,849,058
Securities
lending collateral
3,544,223
2,985,776
Other
liabilities
3,557,497
2,156,038
TOTAL
LIABILITIES
152,386,954
141,005,307
Capital
(2,500 shares of $1,000 par value common
stock
issued and outstanding and $550,000
paid-in capital)
3,050
3,050
Contingency
Reserves:
For
investment losses, annuity and insurance mortality,
and
other risks
11,174,350
10,238,412
TOTAL
CAPITAL AND CONTINGENCY RESERVES
11,177,400
10,241,462
TOTAL
LIABILITIES, CAPITAL AND
CONTINGENCY RESERVES
$163,564,354
$151,246,769
*Except
par value of common stock and paid-in capital
SEE
SUPPLEMENTAL
INFORMATION TO
CONDENSED STATUTORY BASIS FINANCIAL STATEMENTS
TIAA CONDENSED STATUTORY-BASIS
STATEMENTS OF OPERATIONS
(in
thousands)
Teachers Insurance and Annuity Association of America
continued
SUPPLEMENTAL INFORMATION TO CONDENSED
Basis of Presentation:
Teachers Insurance and Annuity
Association of America's statutory-basis financial statements have been prepared
on the basis of statutory accounting practices prescribed or permitted by
the New York State Insurance Department; a comprehensive basis of accounting
that differs from U.S.
generally
accepted
accounting
principles.
Valuation of Investments:
Bonds and short-term investments
(debt securities with maturities of one year or less at the time of acquisition)
not in default are generally stated at amortized cost; preferred stocks in NAIC
designations 1, 2 and 3 are stated at amortized cost; preferred stocks at NAIC designations
4, 5 and 6 are carried at the lower of amortized cost or fair value; common stocks
at market value; and all other bond, short-term and preferred stock investments
at the lower of amortized cost or market value. For loan-backed bonds and structured
securities, the carrying value is determined using actual and anticipated cash flows
under the prospective method for interest-only securities, securities for which
other than temporary impairment had been recognized, or securities whose expected
future cashflows are lower than the expected cashflows at the time of acquisition.
The retrospective method is used for all other loan-backed and structured securities.
Anticipated prepayments are based on life-to-date prepayment speeds, using historical
cash flows and internal estimates. Mortgages are stated at amortized cost and directly-owned
real estate held for the production of income is carried at depreciated cost, less
encumbrances. Real estate held for sale is carried at the lower of depreciated cost
or fair value less encumbrances and estimated costs to sell. Investments in wholly-owned
subsidiaries, real estate limited partnerships and securities limited partnerships
are stated at TIAA's equity in the net admitted assets of the underlying entities.
Policy loans are stated at outstanding principal amounts. Separate account assets
are stated at market value. Seed money investments in the TIAA-CREF Mutual Funds,
TIAA-CREF Institutional Mutual Funds and TIAA-CREF Life Funds are stated at market
value. All investments are stated net of impairments which are considered to be
other than temporary, which are determined on an individual basis. Depreciation
of real estate investments is generally computed over a forty-year period on the
straight-line method.
For
the Years Ended December 31,
2004
2003
REVENUES
Insurance
and annuity premiums and other considerations
$9,482,218
$8,896,091
Annuity dividend additions
2,392,193
2,847,173
Net investment
income
9,454,011
9,456,775
TOTAL
REVENUES
$21,328,422
$21,200,039
EXPENSES
Policy
and contract benefits
$6,832,197
$6,128,748
Dividends
to policyholders
4,112,964
4,584,048
Increase in policy and contract
reserves
6,431,002
7,848,807
Operating
expenses
432,504
490,522
Transfers to separate accounts,
net
1,732,422
839,172
Other, net
121,006
(8,446)
TOTAL
EXPENSES
$19,662,095
$19,882,851
Income
before federal income tax and net realized
capital (losses)
$1,666,327
$1,317,188
Federal income tax expense
572,339
16,715
Net
realized capital (losses) less capital gains tax
,
after
transfers to the
interest maintanance reserve
(553,531)
(786,139)
NET
INCOME
$540,457
$514,334
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TIAA
Real Estate Account
STATUTORY-BASIS FINANCIAL STATEMENTS
Reclassifications:
TIAA financial statements
report asset classes and related income in the same categories as prescribed
for the NAIC Annual
Statement. Certain reclassifications have been made to prior year amounts in
order to conform to this presentation. The principal reclassifications related
to reporting net transfers and real estate. In prior years, transfers to
and from the College Retirement Equities Fund (“CREF”) were reported
net on the Statutory-Basis Statements of Operations. CREF transfers
have been reported as
premiums and benefits on these statements to be more consistent
with the Annual Statement presentation. In addition, this presentation reports
real estate activities conducted through subsidiaries and other entities as
affiliated equity, mortgages, or other long-term investments rather than as
real estate.
A
dditional
Asset Information
:
2004
2003
As
a percentage of total bond investments:
Below
investment grade bonds
7.0%
8.4%
As a percentage
of total mortgage investments:
Total
mortgage investments in California
20.8%
19.0%
Total mortgage
investments in office buildings
41.1%
43.3%
Total
mortgage investments in shopping centers
29.2%
26.4%
As a percentage
of total real estate investments:
Total
real estate investments in Florida
20.0%
20.4%
Total real estate investments
in office buildings
70.9%
71.7%
Derivative Instruments: TIAA has filed a Derivatives Use Plan with the New York State Insurance Department (the "Department"). This plan details TIAA's derivative policy objectives, strategies, controls, and restrictions. TIAA uses derivative instruments for hedging, income generation, and asset replication purposes. TIAA enters into derivatives directly with counterparties of high credit quality. At December 31, 2004 and 2003, TIAA held derivative contracts with a total notional value of approximately $4,266,759 and $4,032,520, respectively.
Policy and Contract Reserves:
Policy and contract reserves are determined in accordance with standard valuation
methods approved by the Department and are computed in accordance with standard
actuarial formulae. The reserves are based on assumptions for interest,
mortality and other risks insured and establish a sufficient provision for
all benefits guaranteed under policy and contract provisions. For retained
assets, an accumulation account issued from the proceeds of life insurance
policies, reserves held are equal to the total current account balances of
all account holders.
Federal
income
taxes:
By charter, TIAA is
a Stock Life Company that operates on a non-profit basis and was largely exempt
from federal income taxation under the Internal Revenue Code until 1998 when federal
legislation changed its taxable status.
TIAA’s 1998 and 1999 tax returns representing the
first years for which TIAA’s entire business operations were subject to federal
income taxation, have been audited by the Internal Revenue Service (“IRS”).
In April 2004, the IRS completed its audit and presented TIAA with a Revenue Agent
Report asserting certain adjustments to TIAA’s taxable income that would result
in additional tax due of $1.1 billion for the 1998 and 1999 tax years. These adjustments
would disallow the deductions for certain intangible assets and would adjust certain
of TIAA’s tax-basis annuity reserves.
TIAA’s management has filed a protest to the IRS’
adjustments and believes that its tax positions are supported by substantial authority.
Although the final resolution of the IRS’ asserted adjustments is uncertain,
management’s current best estimate of the probable loss from this dispute with
the IRS, given the current status of the tax claim, requires TIAA to establish a
contingent tax provision of $629 million as of December 31, 2004.
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,
are as follows:
TRUSTEES
136
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TIAA
Real Estate Account
OFFICER-TRUSTEES
OTHER OFFICERS
PORTFOLIO MANAGEMENT
TEAM
TIAA Real Estate Account
Prospectus
|
137
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.
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.
138
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TIAA
Real Estate Account
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.
TIAA Real Estate Account
Prospectus
|
139
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PART II
INFORMATION NOT REQUIRED IN A PROSPECTUS
Item 13.
Other Expenses of Issuance and Distribution
.
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.
1
- Previously filed and incorporated herein by reference to Post-Effective Amendment No. 6 to the Account's previous Registration Statement on Form S-1, filed April 26, 2000 (File No.
333-22809).
2
- Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account's previous Registration Statement on Form S-1 filed April 30, 1996 (File No.
33-92990).
3
- Previously filed and incorporated herein by reference to Post-Effective Amendment No. 2 to the Account's Registration Statement on Form S-1 filed April 29, 2003 (File No. 333-83964).
4
- Previously filed and incorporated herein by reference to Pre-Effective Amendment No. 1 to the Account's Registration Statement on Form S-1 filed April 29, 2004 (File No. 333-113602).
5
- Previously filed and incorporated herein by reference to Pre-Effective Amendment No. 1 to the Account's Registration Statement on Form S-1 filed December 21, 2004 (File No. 333-121493).
*
- Filed herewith.
(b)
Financial Statement Schedules
All Schedules have been omitted because they are not required under the related instructions or are inapplicable.
Item 17.
Undertakings
.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
(ii) 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.
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
INDEX OF AUDITED STATUTORY - BASIS FINANCIAL STATEMENTS
REPORT OF MANAGEMENT RESPONSIBILITY
March 31, 2005
The accompanying statutory-basis financial statements of Teachers Insurance and Annuity Association of America (“TIAA”) are the responsibility of management. They have been prepared on the basis of statutory
accounting principles, a comprehensive basis of accounting comprised of accounting principles prescribed or permitted by the New York State Insurance Department. The financial statements of TIAA have been presented fairly and objectively in
accordance with such statutory accounting principles.
TIAA has established and maintains an effective system of internal controls over financial reporting designed to provide reasonable assurance that assets are properly safeguarded, that transactions are properly
executed in accordance with management’s authorization, and to carry out the ongoing responsibilities of management for reliable financial statements. In addition, TIAA’s internal audit personnel provide a continuing review of the
internal controls and operations of TIAA, and the Vice President of Internal Audit regularly reports to the Audit Committee of the TIAA Board of Trustees.
The independent registered public accounting firm of Ernst & Young LLP has audited the accompanying statutory-basis financial statements of TIAA. To maintain auditor independence and avoid even the appearance of a
conflict of interest, it continues to be TIAA’s policy that any management advisory or consulting services are obtained from a firm other than the independent audit firm. The independent auditors’ report expresses an independent opinion
on the fairness of presentation of these statutory-basis financial statements.
The Audit Committee of the TIAA Board of Trustees, comprised entirely of independent, non-management trustees, meets regularly with management, representatives of Ernst & Young LLP and internal auditing personnel
to review matters relating to financial reporting, internal controls and auditing. In addition to the annual independent audit of the TIAA statutory-basis financial statements, the New York State Insurance Department and other state insurance
departments regularly examine the operations and financial statements of TIAA as part of their periodic corporate examinations.
2
REPORT OF THE AUDIT COMMITTEE
The Audit Committee (“Committee”) oversees the financial reporting process of Teachers Insurance and Annuity Association of America (“TIAA”) on behalf of TIAA’s Board of Trustees. The Committee
is a standing committee of the Board and operates in accordance with a formal written charter (copies are available upon request) that describes the Committee’s responsibilities.
Management has the primary responsibility for TIAA’s financial statements, the development and maintenance of an effective system of internal controls over financial reporting, operations, and compliance with
applicable laws and regulations. In fulfilling its oversight responsibilities, the Committee reviewed and approved the audit plans of the internal auditing group and the independent audit firm in connection with their respective audits. The
Committee also meets regularly with the internal and independent auditors, both with and without management present, to discuss the results of their examinations, their evaluation of internal controls, and the overall quality of financial reporting.
The Committee has direct responsibility for the appointment, compensation and oversight of the external financial audit firm. As required by its charter, the Committee will evaluate rotation of the external financial audit firm whenever
circumstances warrant, but in no event will the evaluation be later than the tenth year of service.
The Committee reviewed and discussed the accompanying audited statutory-basis financial statements with management, including a discussion of the quality and appropriateness of the accounting principles and financial
reporting practices followed, the reasonableness of significant judgments, and the clarity of disclosures in the statutory-basis financial statements. The Committee has also discussed the audited statutory-basis financial statements with Ernst
& Young LLP, the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of these audited statutory-basis financial statements with statutory accounting principles.
The discussion with Ernst & Young LLP focused on their judgments concerning the quality and appropriateness of the accounting principles and financial reporting practices followed by TIAA, the clarity of the
financial statements and related disclosures, and other significant matters, such as any significant changes in accounting policies, management judgments and estimates, and the nature of any uncertainties or unusual transactions. In addition, the
Committee discussed with Ernst & Young LLP the auditors’ independence from management, and TIAA has received a written disclosure regarding such independence, as required by the Independence Standards Board.
Based on the review and discussions referred to above, the Committee has approved the release of the accompanying audited statutory-basis financial statements for publication and filing with appropriate regulatory
authorities.
April 20, 2005
3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying statutory-basis balance sheets of Teachers Insurance and Annuity Association of America (“TIAA”) as of December 31, 2004 and 2003, and the related statutory-basis statements
of operations, changes in capital and contingency reserves, and cash flow for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of TIAA’s management. Our responsibility is to
express an opinion on these financial statements based on our audits.
As described in Note 2 to the financial statements, TIAA presents its financial statements in conformity with accounting practices prescribed or permitted by the New York State Insurance Department, which practices
differ from U.S. generally accepted accounting principles. The variances between such practices and U.S. generally accepted accounting principles are described in Note 2. The effects of these variances on TIAA’s
financial statements are not reasonably determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with U.S. generally accepted accounting principles, the financial position of TIAA at December 31, 2004 and 2003, or the results of its operations or its cash flow for each of the three years in the period ended December 31, 2004.
However, in our opinion, the statutory-basis financial statements referred to above present fairly, in all material respects, the financial position of TIAA at December 31, 2004 and 2003, and the results of its
operations and its cash flow for each of the three years in the period ended December 31, 2004 in conformity with accounting practices prescribed or permitted by the New York State Insurance Department.
As discussed in Note 2 to the financial statements, TIAA began to admit deferred federal income tax assets in 2002 in accordance with the Statement of Statutory Accounting Principles Number 10.
134
|
Prospectus
TIAA
Real Estate Account
At December 31, TIAA’s general account annuity reserves had
the following characteristics:
2004
2003
Amount
Percent
Amount
Percent
Subject to discretionary withdrawal:
At book value without adjustment
$ 22,974,084
17.6
%
$ 20,803,827
16.8
%
At market value
—
0.0
—
0.0
Not subject to discretionary withdrawal
107,770,373
82.4
103,308,481
83.2
Total annuity reserves and deposit liabilities
130,744,457
100.0
%
124,112,308
100.0
%
Reconciliation to total policy & contract
reserves shown on the balance sheet:
Reserves on other life policies & contracts
466,748
421,521
Reserves on accident & health policies
363
243,301
Total policy and contract reserves
$131,211,568
$124,777,130
Name
Age
Principal Occupations During Past
5 Years
Elizabeth
E. Bailey
66
John C. Hower Professor of Public
Policy and Management, Wharton School, University of Pennsylvania. Director, CSX
Corporation and Altria Group, Inc.
Robert C. Clark
61
Harvard University Distinguished
Service Professor and Austin Wakeman Scott Professor of Law, Harvard Law School,
Harvard University. Director, Collins & Aikman Corporation, Time Warner Inc.
and Omnicom Group.
Estelle A.
Fishbein
70
Vice President and General Counsel
Emerita, Johns Hopkins University.
Marjorie Fine Knowles
65
Professor of Law, Georgia State University
College of Law.
Robert M. O’Neil
70
Professor of Law, University of Virginia
and Director, Thomas Jefferson Center for the Protection of Free Expression.
Donald K. Peterson
55
Chairman and Chief Executive Officer,
Avaya Inc. Formerly, Executive Vice President and Chief Financial Officer, Lucent
Technologies. Director, Reynolds & Reynolds Co.
Sidney A. Ribeau
57
President, Bowling Green University.
Director, The Andersons, Convergys and Worthington Industries.
Leonard S. Simon
68
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
51
Chief Investment Officer, Yale University.
Ronald L. Thompson
55
Chairman and Chief Executive Officer,
Midwest Stamping and Manufacturing Company. Director, Interstate Bakeries and Ryerson
Tull, Inc.
Paul R. Tregurtha
69
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.
Rosalie J. Wolf
63
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 and Sanford C. Bernstein Fund, Inc.
Name
Age
Principal Occupations During Past
5 Years
Herbert
M. Allison, Jr.
61
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., 2000 –2002. Director, New York Stock Exchange
Name
Age
Principal Occupations During Past
5 Years
Gary
Chinery
55
Vice President and Treasurer, TIAA
and CREF.
E. Laverne Jones
56
Vice President and Corporate Secretary,
TIAA and CREF.
Elizabeth A.
Monrad
50
Executive Vice President and Chief
Financial Officer, TIAA and CREF.
John Somers
61
Head of Fixed Income and Real Estate
Investments, TIAA and CREF.
Name
Age
Principal Occupations During Past
5 Years
Thomas
Garbutt
46
Managing Director — Real Estate
Equities.
Philip J. McAndrews
46
Managing Director — Portfolio
Management.
Margaret A.
Brandwein
57
Managing Director — TIAA Real
Estate Account.
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.
Valuation Period
: The time from the
end of one valuation day to the end of the next.
SEC Registration Fees
$
706,200
Costs of printing and engraving
$
500,000
*
Legal fees
$
10,000
*
Accounting fees
$
10,000
*
TOTAL
$
1,206,200
(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
*
(i) To include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
DECEMBER 31, 2004
Page
Report of Management Responsibility
2
Report of the Audit Committee
3
Report of Independent Registered Public Accounting
Firm
4
Statutory - Basis Financial Statements:
Balance Sheets
5
Statements of Operations
6
Statements of Changes in Capital and Contingency Reserves
7
Statements of Cash Flow
8
Notes to Financial Statements
9
Teachers Insurance and Annuity
Association of America:
Herbert M. Allison,
Jr.
/s/ Herbert M. Allison, Jr.
Elizabeth A. Monrad
/s/ Elizabeth A. Monrad
Chief Financial Officer
Teachers Insurance and Annuity
Association of America:
Donald K. Peterson, Audit Committee Member
Leonard S. Simon, Audit Committee Member
David F. Swensen, Audit Committee Member
Paul R. Tregurtha, Audit Committee Member
Teachers Insurance and Annuity
Association of America:
/s/ Ernst & Young LLP
New York, New York
April 20, 2005
4
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
(dollars in thousands)*
| December 31, | ||||||
|
|
|
|||||
| 2004 |
|
|||||
|
|
|
|
|
|||
| ASSETS | ||||||
| Bonds |
$
|
114,776,422 |
$
|
106,505,812 | ||
| Mortgages | 24,293,328 | 23,689,539 | ||||
| Real estate | 1,707,127 | 1,702,300 | ||||
| Preferred stocks | 1,287,644 | 924,754 | ||||
| Common stocks | 3,722,171 | 3,474,524 | ||||
| Other long-term investments | 5,647,871 | 4,862,515 | ||||
| Cash, cash equivalents and short-term investments | 447,444 | 1,082,871 | ||||
| Investment income due and accrued | 1,373,863 | 1,356,407 | ||||
| Separate account assets | 8,309,676 | 5,849,058 | ||||
| Deferred federal income tax asset | 1,024,409 | 893,245 | ||||
| Other assets | 974,399 | 905,744 | ||||
|
|
|
|
|
|||
| TOTAL ASSETS |
$
|
163,564,354 |
$
|
151,246,769 | ||
|
|
|
|
|
|||
| LIABILITIES, CAPITAL AND CONTINGENCY RESERVES | ||||||
| Policy and contract reserves |
$
|
131,211,568 |
$
|
124,777,130 | ||
| Dividends declared for the following year | 2,214,480 | 2,337,922 | ||||
| Asset valuation reserve | 2,743,549 | 2,288,501 | ||||
| Interest maintenance reserve | 805,961 | 610,882 | ||||
| Separate account liabilities | 8,309,676 | 5,849,058 | ||||
| Securities lending collateral | 3,544,223 | 2,985,776 | ||||
| Other liabilities | 3,557,497 | 2,156,038 | ||||
|
|
|
|
|
|||
| TOTAL LIABILITIES | 152,386,954 | 141,005,307 | ||||
|
|
|
|
|
|||
| Capital (2,500 shares of $1,000 par value common stock | ||||||
| issued and outstanding and $550,000 paid-in capital) | 3,050 | 3,050 | ||||
| Contingency Reserves: | ||||||
| For investment losses, annuity and insurance mortality, | ||||||
| and other risks | 11,174,350 | 10,238,412 | ||||
|
|
|
|
|
|||
| TOTAL CAPITAL AND CONTINGENCY RESERVES | 11,177,400 | 10,241,462 | ||||
|
|
|
|
|
|||
|
TOTAL LIABILITIES, CAPITAL AND CONTINGENCY RESERVES
|
$
|
163,564,354 |
$
|
151,246,769 | ||
|
|
|
|
|
|||
* Except par value of common stock and paid-in capital
See notes to statutory - basis financial statements.
5
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
(dollars in thousands)
|
|
For the Years Ended December 31, | |||||||||||
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
||||
| REVENUES |
|
|
|
|||||||||
| Insurance and annuity premiums |
|
|
|
|||||||||
| and other considerations |
$
|
9,482,218 |
$
|
8,896,091 |
$
|
9,109,531 | ||||||
| Annuity dividend additions |
|
2,392,193 |
|
2,847,173 |
|
3,244,248 | ||||||
| Net investment income |
|
9,454,011 |
|
9,456,775 |
|
9,332,234 | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| TOTAL REVENUES |
$
|
21,328,422 |
$
|
21,200,039 |
$
|
21,686,013 | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| EXPENSES |
|
|
|
|||||||||
| Policy and contract benefits |
$
|
6,832,197 |
$
|
6,128,748 |
$
|
5,403,358 | ||||||
| Dividends to policyholders |
|
4,112,964 |
|
4,584,048 |
|
5,120,378 | ||||||
| Increase in policy and contract reserves |
|
6,431,002 |
|
7,848,807 |
|
9,495,679 | ||||||
| Operating expenses |
|
432,504 |
|
490,522 |
|
469,952 | ||||||
| Transfers to separate accounts, net |
|
1,732,422 |
|
839,172 |
|
309,186 | ||||||
| Other, net |
|
121,006 |
|
(8,446 | ) |
|
64,142 | |||||
|
|
|
|
|
|
|
|
|
|
||||
| TOTAL EXPENSES |
$
|
19,662,095 |
$
|
19,882,851 |
$
|
20,862,695 | ||||||
|
|
|
|
|
|
|
|
|
|
||||
|
Income before federal income taxes and net realized
|
|
|
|
|||||||||
| capital (losses) |
$
|
1,666,327 |
$
|
1,317,188 |
$
|
823,318 | ||||||
| Federal income tax expense (benefit) |
$
|
572,339 |
$
|
16,715 |
$
|
(20,855 | ) | |||||
|
Net realized capital (losses) less capital gains taxes,
|
|
|
|
|||||||||
| after transfers to the interest maintenance reserve |
|
(553,531 | ) |
|
(786,139 | ) |
|
(1,816,327 | ) | |||
|
|
|
|
|
|
|
|
|
|
||||
| NET INCOME (LOSS) |
$
|
540,457 |
$
|
514,334 |
$
|
(972,154 | ) | |||||
|
|
|
|
|
|
|
|
|
|
||||
See notes to statutory - basis financial statements .
6
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
(dollars in thousands)
See notes to statutory - basis financial statements.
7
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
STATUTORY - BASIS STATEMENTS OF CASH FLOW
(dollars in thousands)
| For the Years Ended December 31, | ||||||||||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
| CASH FROM OPERATIONS | ||||||||||||
| Insurance and annuity premiums and other considerations |
$
|
8,951,100 |
$
|
8,356,531 |
$
|
8,713,965 | ||||||
| Annuity dividend additions | 3,130,135 | 3,608,161 | 3,911,369 | |||||||||
| Net investment income | 10,168,402 | 9,301,083 | 9,072,530 | |||||||||
|
|
|
|
|
|
|
|
|
|
||||
| Total Receipts | 22,249,637 | 21,265,775 | 21,697,864 | |||||||||
| Policy and contract benefits | 6,830,347 | 6,089,641 | 5,412,664 | |||||||||
| Dividends paid to policyholders | 4,236,407 | 4,706,536 | 5,086,897 | |||||||||
| Operating expenses | 1,515,207 | 616,180 | 727,736 | |||||||||
| Federal income tax (benefit) expense | (67,802 | ) | 11,957 | (6,556 | ) | |||||||
| Net transfers to separate accounts | 1,727,260 | 841,985 | 304,993 | |||||||||
|
|
|
|
|
|
|
|
|
|
||||
| Total Disbursements | 14,241,419 | 12,266,299 | 11,525,734 | |||||||||
|
|
|
|
|
|
|
|
|
|
||||
| Net cash provided by operations | 8,008,218 | 8,999,476 | 10,172,130 | |||||||||
|
|
|
|
|
|
|
|
|
|
||||
| CASH FROM INVESTMENTS | ||||||||||||
|
Proceeds from long-term investments sold, matured, or repaid:
|
||||||||||||
| Bonds | 20,595,410 | 27,527,024 | 22,445,680 | |||||||||
| Stocks | 1,147,555 | 2,760,608 | 2,843,494 | |||||||||
| Mortgage loans and real estate | 4,056,032 | 3,831,679 | 2,226,724 | |||||||||
| Miscellaneous proceeds | 1,230,379 | 1,046,513 | 342,711 | |||||||||
| Cost of investments acquired: | ||||||||||||
| Bonds | 28,549,575 | 37,010,555 | 32,728,434 | |||||||||
| Stocks | 1,542,062 | 1,553,844 | 3,118,463 | |||||||||
| Mortgage loans and real estate | 4,698,788 | 3,539,578 | 4,258,212 | |||||||||
| Miscellaneous applications | 1,959,395 | 1,379,956 | 744,503 | |||||||||
|
|
|
|
|
|
|
|
|
|
||||
| Net cash used in investments | (9,720,444 | ) | (8,318,109 | ) | (12,991,003 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| CASH FROM FINANCING AND OTHER | ||||||||||||
| Net deposits on deposit-type contracts funds | (452 | ) | 3,253 | 36,515 | ||||||||
| Other cash provided (applied) | 1,077,251 | (1,389,622 | ) | 1,677,327 | ||||||||
|
|
|
|
|
|
|
|
|
|
||||
| Net cash provided by (used in) financing and other | 1,076,799 | (1,386,369 | ) | 1,713,842 | ||||||||
|
|
|
|
|
|
|
|
|
|
||||
| NET CHANGE IN CASH, CASH EQUIVALENTS AND | ||||||||||||
| SHORT-TERM INVESTMENTS | (635,427 | ) | (705,002 | ) | (1,105,031 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| CASH, CASH EQUIVALENTS AND SHORT-TERM | ||||||||||||
| INVESTMENTS, BEGINNING OF YEAR | 1,082,871 | 1,787,873 | 2,892,904 | |||||||||
|
|
|
|
|
|
|
|
|
|
||||
| CASH, CASH EQUIVALENTS AND SHORT-TERM | ||||||||||||
| INVESTMENTS, END OF YEAR |
$
|
447,444 |
$
|
1,082,871 |
$
|
1,787,873 | ||||||
|
|
|
|
|
|
|
|
|
|
||||
See notes to statutory - basis financial statements.
8
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
(dollars in thousands)
DECEMBER 31, 2004
Note 1 – Organization
Teachers Insurance and Annuity Association of America ("TIAA") was established as a legal reserve life insurance company under the insurance laws of the State of New York in 1918. Its primary purpose is to aid and strengthen nonprofit educational and research organizations, governmental entities and other nonprofit institutions by providing retirement and insurance benefits for their employees and their families and by counseling these organizations and their employees on benefit plans and other measures of economic security. TIAA has authorized and issued 2,500 shares of Class A common stock. All of the outstanding common stock of TIAA is collectively held by the TIAA Board of Overseers, a nonprofit corporation created to hold the stock of TIAA. By charter, TIAA operates without profit to its sole shareholder. As a result, all contingency reserves are held as special surplus funds solely to provide benefits in furtherance of TIAA’s charter. Unless approved by the New York State Insurance Department (the "Department"), dividends to the shareholder are limited by New York State Insurance Law to the lesser of ten percent of surplus as of the prior year end or the prior year’s net gain from operations, excluding realized gains. TIAA generally has not paid dividends to its shareholder and has no plans to do so in the current year.
Note 2 – Significant Accounting Policies
Basis of Presentation:
TIAA's statutory-basis financial statements have been prepared on the basis of statutory accounting principles prescribed or permitted by the Department, a comprehensive basis of accounting that differs from U.S. generally accepted accounting principles (“GAAP”). The Department requires insurance companies domiciled in the State of New York to prepare their statutory basis financial statements in accordance with the National Association of Insurance Commissioners’ (“NAIC”) Accounting Practices and Procedures Manual (“NAIC SAP”), subject to any deviation prescribed or permitted by the Department (“New York SAP”). The Department allowed New York domiciled insurance companies to admit deferred federal income tax (“DFIT”) assets for purposes of their statutory-basis financial statements for years ending on or after December 31, 2002, in accordance with Statement of Statutory Accounting Principles (“SSAP”) No. 10 – Income Taxes. The effect of the change in accounting principle for DFIT in 2002 increased capital and contingency reserves by $836,682.
9
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
(dollars in thousands)
Note 2 – Significant Accounting Policies – (continued)
The table below provides a reconciliation of TIAA’s net income (loss) and contingency reserves between NAIC SAP and the New York SAP annual statement filed with the Department. The primary differences arise because TIAA maintains more conservative reserves, as prescribed or permitted by New York SAP, under which annuity reserves are generally discounted on the basis of contractually guaranteed interest rates and mortality tables.
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
||||
| Net Income (Loss), New York SAP |
$
|
540,457 |
$
|
514,334 |
$
|
(972,154 | ) | |||
| Difference in Reserves for: |
|
|
|
|||||||
| Term Conversions |
|
687 |
|
535 |
|
6,429 | ||||
| Deferred and Payout Annuities issued after 2000 |
|
412,682 |
|
476,333 |
|
614,093 | ||||
|
|
|
|
|
|
|
|
||||
| Net Income (Loss), NAIC SAP |
$
|
953,826 |
$
|
991,202 |
$
|
(351,632 | ) | |||
|
|
|
|
|
|
|
|
||||
| Contingency Reserves, New York SAP |
$
|
11,174,350 |
$
|
10,238,412 |
$
|
9,283,641 | ||||
| Difference in Reserves for: |
|
|
|
|||||||
| Term Conversions |
|
7,966 |
|
7,279 |
|
6,744 | ||||
| Deferred and Payout Annuities issued after 2000 |
|
2,125,553 |
|
1,712,871 |
|
1,236,537 | ||||
|
|
|
|
|
|
|
|
||||
| Contingency Reserves, NAIC SAP |
$
|
13,307,869 |
$
|
11,958,562 |
$
|
10,526,922 | ||||
|
|
|
|
|
|
|
|
In 2004, TIAA adopted the statutory accounting guidance contained in SSAP No. 87, Capitalization Policy and INT 04-17: Impact of Medicare Modernization Act on Postretirement Benefits. These accounting changes were implemented as a change in accounting principle in order to conform to the provisions of the NAIC SAP, as adopted by the Department. These changes were effective as of 2004 and had no material effect on TIAA's financial statements. Note 11 contains additional information about the Medicare Modernization Act.
Subsequent to the filing of the 2002 New York SAP financial statements, TIAA made certain revisions, primarily relating to the estimates of other than temporary impairments for invested assets. Reconciliation of TIAA’s net income and contingency reserves between the New York SAP as originally filed and the corresponding amounts reported in the Audited Financial Statements for 2002 are shown below:
| Contingency | ||||||||
|
|
Reserves | |||||||
|
|
|
|
|
|
|
|||
| 2002 New York SAP – as filed |
$
|
(136,821 | ) |
$
|
9,668,539 | |||
| Adjustments to Invested Asset Valuations |
|
(334,898 | ) |
|
(334,898 | ) | ||
| Reclassification – Unrealized to Realized Capital Losses |
|
(450,435 | ) |
|
--- | |||
| Adjustments to Policy Reserves and Other Liabilities |
|
(50,000 | ) |
|
(50,000 | ) | ||
|
|
|
|
|
|
|
|||
| Audited Financial Statements |
$
|
(972,154 | ) |
$
|
9,283,641 | |||
|
|
|
|
|
|
|
10
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
(dollars in thousands)
Note 2 – Significant Accounting Policies – (continued)
U.S. Generally Accepted Accounting Principles: The Financial Accounting Standards Board ("FASB") requires that financial statements that are intended to be in conformity with GAAP follow all applicable authoritative accounting pronouncements. As a result, TIAA cannot refer to financial statements prepared in accordance with NAIC SAP as having been prepared in accordance with GAAP. The differences between GAAP and NAIC SAP would have a material effect on TIAA’s financial statements and the primary differences can be summarized as follows:
Under GAAP:
-
The formula-based asset valuation reserve (“AVR”) is eliminated as a reserve;
-
The interest maintenance reserve (“IMR”) is eliminated and realized gains and losses resulting from interest rate fluctuations are reported as a component of net income rather than being accumulated in and subsequently amortized out of the IMR;
-
Dividends on insurance policies and annuity contracts are accrued as the related earnings emerge from operations rather than being accrued in the year when they are declared;
-
There are no non-admitted assets;
-
Policy acquisition costs are deferred and amortized over the lives of the policies issued rather than being charged to operations as incurred. Policy and contract reserves are based on estimates of expected mortality, morbidity, persistency and interest rather than being based on statutory mortality, morbidity and interest requirements;
-
Investments in wholly-owned subsidiaries, other entities under the control of the parent, and certain variable interest entities are consolidated in the parent’s financial statements rather than being carried at the parent’s equity in the net assets of the subsidiaries;
-
Long-term bond investments considered to be “available for sale” are carried at fair value rather than at amortized cost;
-
State taxes are included in the computation of deferred taxes, a deferred tax asset is recorded for the amount of gross deferred tax assets expected to be realized in future years, and a valuation allowance is established for deferred tax assets not realizable, rather than being limited by quantitative limitations;
-
For purposes of calculating postretirement benefit obligations, active participants not currently vested would also be included in determining the liability;
-
Annuities that do not incorporate significant insurance risk are classified as investment contracts and are not accounted for as insurance contracts;
-
Derivatives are generally valued at fair value rather than being accounted for in a manner consistent with the hedged item;
-
Loan-backed and structured securities that are determined to have an other-than-temporary impairment are written down to fair value and not to the sum of undiscounted estimated future cash flows.
Management believes that the effects of these differences, while not determined, would significantly increase TIAA’s total contingency reserves under GAAP as of December 31, 2004.
Accounting Policies:
The preparation of TIAA's statutory-basis financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Actual results could differ from those estimates. The following is a summary of the significant accounting policies followed by TIAA:
11
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 2 – Significant Accounting Policies – (continued)
Investments: Publicly traded securities are accounted for as of the date the investments are purchased or sold (trade date). Other investments are recorded on the settlement date. Realized capital gains and losses on investment transactions are accounted for under the specific identification method. A realized loss is recorded when an impairment is considered to be other than temporary. An impairment in an investment is considered to have occurred if an event or change in circumstance indicates that the carrying value of the asset may not be recoverable or the receipt of contractual payments of principal and interest may not occur when scheduled. When an impairment has been determined to have occurred, the investment is carried at fair value except for loan-backed and structured securities, which are valued at an amount equal to the sum of their undiscounted expected future cash flows. Management considers all available evidence to evaluate the potential impairment of its investments. Unless evidence exists indicating a decline in the fair value of an investment below carrying value is temporary, a writedown is recognized as a realized loss.
Short-Term Investments: Short-term investments (debt securities with maturities of one year or less at the time of acquisition) not in default are stated at amortized cost. The interest method is used for amortizing short-term investments. Short-term investments in default are stated at the lower of amortized cost or fair value. Cash and cash equivalents includes cash on hand, amounts due from banks, and short term highly liquid investments with original maturity of three months or less.
Bonds: Bonds not backed by loans and not in default are stated at amortized cost. The interest method is used for amortizing bonds that are not backed by loans. Bonds not backed by loans that are in default are valued at the lower of amortized cost or fair value. For an other-than-temporary impairment, the cost basis of the bond is written down to its fair value and the amount of the write down is recognized as a realized loss.
Loan-Backed Bonds and Structured Securities : Loan-backed bonds and structured securities not in default are stated at amortized cost. The prospective approach is used in determining the carrying amount of interest only securities, securities for which an other-than-temporary impairment has been recognized or securities whose expected future cash flows are lower than the expected cash flows estimated at the time of acquisition. The retrospective approach is used to determine the carrying amount of all other loan-backed and structured securities. Estimated future cash flows and expected repayment periods are used in calculating amortization for loan-backed and structured securities. Loan-backed and structured securities in default are valued at the lower of amortized cost or undiscounted estimated future cash flows.
Common Stock: Unaffiliated common stocks are stated at fair value.
Preferred Stock : Preferred stocks of relatively high quality in NAIC designations 1, 2 and 3 are stated at amortized cost. Lower quality preferred stocks in NAIC designations 4, 5 and 6 are carried at the lower of amortized cost or fair value.
Mortgages : Mortgages are stated at amortized cost except that purchase money mortgages are stated at the lower of amortized cost or ninety percent of appraised value. A mortgage is evaluated for impairment when it is probable that the receipt of contractual payments of principal and interest may not occur when scheduled. If the impairment is considered to be temporary, a valuation reserve is established for the excess of the carrying value of the mortgage loan over its estimated fair value. Changes in valuation reserves for mortgage loans are included in net unrealized capital gains or losses. When an event occurs resulting in an impairment that is other than temporary, a direct write-down is recorded as a realized loss and a new cost basis is established.
Real Estate : Real estate occupied by TIAA and real estate held for the production of income are carried at depreciated cost, less encumbrances. Real estate held for sale is carried at the lower of depreciated cost or fair value, less encumbrances and estimated costs to sell. TIAA utilizes the straight-line method of depreciation on real estate. Depreciation is generally computed over a forty-year period. A real estate property may be considered impaired when events or circumstances indicate that the carrying value may not be recoverable. When TIAA determines that an investment in real estate is impaired, a direct write-down is made to reduce the carrying value of the property to its estimated fair value, net of encumbrances. Write-downs are recorded as a realized loss.
12
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Wholly-Owned Subsidiaries, Limited Partnerships and Limited Liability Companies : Investments in wholly-owned subsidiaries, limited partnerships and limited liability companies are stated at TIAA's equity in the net admitted assets of the underlying entities. An unrealized loss is deemed to be other than temporary when there is limited ability to recover the loss. A realized loss is recorded for other-than-temporary impairments.
Policy Loans and Separate Accounts : Policy loans are stated at outstanding principal amounts. Separate account assets and liabilities are stated at fair value.
Seed Money Investments: Seed money investments in the TIAA-CREF Mutual Funds (“Retail Funds”), TIAA-CREF Institutional Mutual Funds (“Institutional Funds”), and TIAA-CREF Life Funds, which are included in Common Stocks in the accompanying balance sheets, are stated at fair value.
Securities Lending: TIAA has a securities lending program whereby it loans securities to qualified brokers in exchange for cash collateral, generally at least equal to 102% of the fair value of the securities loaned. When securities are loaned, TIAA receives additional income on the collateral and continues to receive income on the securities loaned. TIAA may bear the risk of delay in recovery of, or loss of rights in, the securities loaned should a borrower of securities fail to return the securities in a timely manner. In order to minimize this risk, TIAA monitors the credit quality of its counterparties.
Foreign Currency Transactions and Translation : Investments denominated in foreign currencies and foreign currency contracts are valued in U.S. dollars, based on exchange rates at the end of the period. Investment transactions in foreign currencies are recorded at the exchange rates prevailing on the respective transaction dates. All other asset and liability accounts that are denominated in foreign currencies are adjusted to reflect exchange rates at the end of the period. Realized and unrealized gains and losses due to foreign exchange transactions and translation adjustments, are not separately reported but are collectively included in realized and unrealized capital gains and losses, respectively.
Derivative Instruments: TIAA has filed a Derivatives Use Plan with the Department. This plan details TIAA’s derivative policy objectives, strategies, controls and any restrictions placed on various derivative types. The plan also specifies the procedures and systems that TIAA has established to evaluate, monitor and report on the derivative portfolio in terms of valuation, hedge effectiveness and counterparty credit quality. TIAA uses derivative instruments for hedging, income generation, and asset replication purposes. Derivatives used by TIAA include foreign currency, interest rate and credit default swaps, foreign currency forwards and interest rate cap contracts. See Note 7.
Non-Admitted Assets : Certain investment balances and corresponding investment income due and accrued are designated as non-admitted assets in accordance with New York SAP, based on delinquencies, defaults, and other statutory criteria, and cannot be included in life insurance company balance sheets filed with the Department. Such investment-related non-admitted assets totaled $110,376 and $90,615 at December 31, 2004 and 2003, respectively. Income on bonds in default is not accrued and, therefore, is not included in the non-admitted totals. Certain non-investment assets, such as the DFIT asset, furniture and fixtures, and various receivables, are also designated as non-admitted assets. The non-admitted portion of the DFIT asset was $3,005,732 and $2,869,806 at December 31, 2004 and 2003, respectively. The other non-admitted assets were $216,657 and $242,661 at 2004 and 2003, respectively. Changes in such non-admitted assets are charged or credited directly to contingency reserves.
Furniture and Equipment : Electronic data processing equipment, software, furniture and equipment that qualify for capitalization are depreciated using the straight-line method over 3 years. Office alterations and leasehold tenant improvements that qualify for capitalization are depreciated over 5 years and the remaining life of the lease, respectively. Depreciation expenses charged to operations in 2004, 2003, and 2002 were $14,424, $29,258, and 18,521, respectively and included approximately $8,700 of accelerated depreciation on electronic data processing equipment in 2003. TIAA adopted higher capitalization thresholds, starting at $1,000, and more uniform amortization periods as a part of implementing statutory guidance effective in 2004.
13
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Premium Revenue: Life premiums are recognized as income over the premium-paying period of the related policies. Annuity considerations are recognized as revenue when received. Expenses incurred in connection with acquiring new insurance business are charged to operations as incurred.
Policy and Contract Reserves: TIAA offers a range of group and individual retirement annuities and individual life and other insurance products. Policy and contract reserves for such products are determined in accordance with standard valuation methods approved by the Department and are computed in accordance with standard actuarial formulae. The reserves established utilize assumptions for interest (at rates ranging from 1.50% to 6.80% and averaging approximately 3%), mortality and other risks insured. Such reserves establish a sufficient provision for all contractual benefits guaranteed under policy and contract provisions.
Dividends Declared for the Following Year: Dividends on insurance policies and pension annuity contracts in the payout phase are generally declared by the TIAA Board of Trustees ("Board") in October of each year, and such dividends are credited to policyholders in the following calendar year. Dividends on pension annuity contracts in the accumulation phase are generally declared by the Board in February of each year, and such dividends on the various existing vintages of pension annuity contracts in the accumulation phase are credited to policyholders during the ensuing twelve month period beginning March 1. Policyholder dividends are recorded as a component of net income.
Asset Valuation Reserve : The AVR, which covers all invested asset classes, is a reserve required by NAIC SAP to provide for potential future credit and equity losses. Reserve components of the AVR are maintained for bonds, stocks, mortgages, real estate, other invested assets and derivatives. Realized and unrealized credit and equity capital gains and losses, net of capital gains taxes, are credited to or charged against the related components of the AVR. Statutory formulae determine the required reserve components primarily based on factors applied to asset classes, and insurance companies may also establish additional reserves for any component; however, the ultimate balance cannot exceed the statutory maximum reserve for that component. Contributions and adjustments to the AVR are reported as transfers to or from contingency reserves. In 2002, an additional reserve was established in the amount of $276,291. No voluntary contributions were made in either 2003 or 2004.
Interest Maintenance Reserve: The IMR is a reserve required by NAIC SAP which accumulates realized interest rate-related capital gains and losses on sales of debt securities and mortgage loans, as defined by NAIC SAP. Such capital gains and losses are amortized out of the IMR, under the grouped method of amortization, as an adjustment to net investment income over the remaining lives of the assets sold.
Reclassifications: These financial statements report asset classes and related income in the same categories as prescribed for the NAIC annual statement. Certain reclassifications have been made to prior year amounts in order to conform to this presentation. The principal reclassifications related to reporting net transfers and real estate. In prior years, transfers to and from the College Retirement Equities Fund (“CREF”) were reported net on the Statements of Operations and Statements of Cash Flow. CREF transfers have been reported as premiums and benefits on these statements to be more consistent with the Annual Statement presentation. In 2004, 2003 and 2002, CREF net transfers were $1,477,560, $894,344 and $2,168,251. In addition, this presentation reports real estate activities conducted through subsidiaries and other entities as affiliated equity, mortgages, or other long-term investments rather than as real estate.
14
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
The disclosures below provide information grouped within the following asset categories: A) bonds, preferred and common stocks; B) mortgage loan investments; C) real estate investments; D) investment subsidiaries and affiliates; and E) other long term investments.
The amortized cost and estimated fair values, and unrealized gains and losses of long-term bonds, preferred stocks, and common stocks at December 31, 2004 and 2003, are shown below:
|
|
|
|
|
Gross |
|
||||||||
|
|
|
|
|
Unrealized |
|
Estimated | |||||||
|
|
Cost** |
|
|
|
Losses |
|
Fair Value | ||||||
|
|
|
|
|
|
|
|
|
|
|||||
| December 31, 2004 |
|
|
|
|
|||||||||
| U.S. Government |
$
|
1,326,342 |
$
|
83,358 |
$
|
(1,268 | ) |
$
|
1,408,432 | ||||
| All Other Governments |
|
1,002,193 |
|
105,639 |
|
(1,001 | ) |
|
1,106,831 | ||||
| States, Territories & Possessions |
|
964,357 |
|
199,877 |
|
(5,082 | ) |
|
1,159,152 | ||||
| Political Subdivisions of States, |
|
|
|
|
|||||||||
| Territories & Possessions |
|
18,319 |
|
4,252 |
|
--- |
|
22,571 | |||||
| Special Rev. & Special Assessment, |
|
|
|
|
|||||||||
| Non-guaranteed Agencies & Govt |
|
23,117,864 |
|
845,562 |
|
(164,457 | ) |
|
23,798,969 | ||||
| Public Utilities |
|
4,667,045 |
|
426,737 |
|
(17,476 | ) |
|
5,076,306 | ||||
| Industrial & Miscellaneous |
|
83,680,302 |
|
5,053,295 |
|
(627,095 | ) |
|
88,106,502 | ||||
|
|
|
|
|
|
|
|
|
|
|||||
| Total Bonds |
|
114,776,422 |
|
6,718,720 |
|
(816,379 | ) |
|
120,678,763 | ||||
| Preferred Stocks |
|
1,297,173 |
|
85,411 |
|
(24,681 | ) |
|
1,357,903 | ||||
| Common Stocks Unaffiliated |
|
301,777 |
|
110,757 |
|
(2,583 | ) |
|
409,951 | ||||
| Common Stocks Affiliated*** |
|
3,312,220 |
|
--- |
|
--- |
|
3,312,220 | |||||
|
|
|
|
|
|
|
|
|
|
|||||
| Total Bonds and Stocks |
$
|
119,687,592 |
$
|
6,914,888 |
$
|
(843,643 | ) |
$
|
125,758,837 | ||||
|
|
|
|
|
|
|
|
|
|
|||||
| December 31, 2003 |
|
|
|
|
|||||||||
| U.S. Government |
$
|
2,086,153 |
$
|
54,121 |
$
|
(59,787 | ) |
$
|
2,080,487 | ||||
| All Other Governments |
|
885,568 |
|
88,294 |
|
(1,576 | ) |
|
972,286 | ||||
| States, Territories & Possessions |
|
966,942 |
|
168,938 |
|
(11,101 | ) |
|
1,124,779 | ||||
| Political Subdivisions of States, |
|
|
|
|
|||||||||
| Territories & Possessions |
|
18,292 |
|
4,174 |
|
--- |
|
22,466 | |||||
| Special Rev. & Special Assessment, |
|
|
|
|
|||||||||
| Non-guaranteed Agencies & Govt |
|
21,156,415 |
|
869,013 |
|
(284,346 | ) |
|
21,741,082 | ||||
| Public Utilities |
|
4,663,739 |
|
410,987 |
|
(40,782 | ) |
|
5,033,944 | ||||
| Industrial & Miscellaneous |
|
76,728,703 |
|
4,945,216 |
|
(893,768 | ) |
|
80,780,151 | ||||
|
|
|
|
|
|
|
|
|
|
|||||
| Total Bonds |
|
106,505,812 |
|
6,540,743 |
|
(1,291,360 | ) |
|
111,755,195 | ||||
| Preferred Stocks |
|
928,302 |
|
61,717 |
|
(5,043 | ) |
|
984,976 | ||||
| Common Stocks Unaffiliated |
|
373,540 |
|
87,790 |
|
(28,270 | ) |
|
433,060 | ||||
| Common Stocks Affiliated*** |
|
3,041,464 |
|
--- |
|
--- |
|
3,041,464 | |||||
|
|
|
|
|
|
|
|
|
|
|||||
| Total Bonds and Stocks |
$
|
110,849,118 |
$
|
6,690,250 |
$
|
(1,324,673 | ) |
$
|
116,214,695 | ||||
|
|
|
|
|
|
|
|
|
|
|||||
|
**
|
Amortized
cost for bonds and original cost for stocks net of cumulative recorded
other-than-temporary impairments. At December 31, 2004 and 2003, preferred
stock non-admitted assets were $9,529
and $3,548, respectively.
|
|
|
|
|
***
|
Also reported in Note 3D Subsidiaries
and Affiliates.
|
15
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 3 – Investments – (continued)
Impairment Review Process
All securities are subjected to TIAA’s process for identifying other-than-temporary impairments. The impairment identification process utilizes, but is not limited to, a screening process based on declines in fair value of more than 20% over a six-month period. TIAA writes down securities that it deems to have an other-than-temporary impairment to fair value in the period the securities are deemed to be impaired, based on management's case-by-case evaluation of the decline in fair value and prospects for recovery. Management considers a wide range of factors in the impairment evaluation process, including, but not limited to, the following: (a) the extent to which and the length of time the fair value has been below amortized cost; (b) the financial condition and near-term prospects of the issuer; (c) whether the debtor is current on contractually obligated interest and principal payments; (d) the intent and ability of TIAA to retain the investment for a period of time sufficient to allow for any anticipated recovery in fair value or repayment; (e) information obtained from regulators and rating agencies; (f) the potential for impairments in an entire industry sector or sub-sector; and (g) the potential for impairments in certain economically-depressed geographic locations. Where an impairment is considered to be other than temporary, TIAA recognizes a write-down as an investment loss and adjusts the cost basis of the security accordingly. TIAA does not change the revised cost basis for subsequent recoveries in value. Once an impairment write-down has been recorded, TIAA continues to review the impaired security for appropriate valuation on an ongoing basis.
Unrealized Losses on Bonds, Preferred Stocks and Common Stocks
The gross unrealized losses and estimated fair values for securities by the length of time that individual securities had been in a continuous unrealized loss position for 2004 and 2003 are shown in the table below:
| Gross | Estimated | |||||||||
| December 31, 2004 | Unrealized | Fair | ||||||||
| Cost** | Loss | Value | ||||||||
|
|
|
|
|
|
|
|
||||
| Less than twelve months: | ||||||||||
| Bonds |
$
|
16,378,327 |
$
|
(349,835 | ) |
$
|
16,028,492 | |||
| Preferred Stocks | 217,793 | (24,182 | ) | 193,611 | ||||||
| Common Stocks | 55,944 | (1,614 | ) | 54,330 | ||||||
|
|
|
|
|
|
|
|
||||
| Total less than twelve months | 16,652,064 | (375,631 | ) | 16,276,433 | ||||||
|
|
|
|
|
|
|
|
||||
| Twelve months or more: | ||||||||||
| Bonds | 8,555,534 | (466,544 | ) | 8,088,990 | ||||||
| Preferred Stocks | 20,261 | (499 | ) | 19,762 | ||||||
| Common Stocks | 30,530 | (969 | ) | 29,561 | ||||||
|
|
|
|
|
|
|
|
||||
| Total twelve months or more | 8,606,325 | (468,012 | ) | 8,138,313 | ||||||
|
|
|
|
|
|
|
|
||||
| Total – All bonds, preferred & common stocks |
$
|
25,258,389 |
$
|
(843,643 | ) |
$
|
24,414,746 | |||
|
|
|
|
|
|
|
|
**Amortized cost for bonds and original cost for stocks net of cumulative reported other-than-temporary impairments.
16
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS
– (continued)
(dollars in thousands)
Note 3 – Investments – (continued)
|
|
|
Gross |
|
Estimated | ||||||
| December 31, 2003 |
|
|
Unrealized |
|
Fair | |||||
|
|
Cost** |
|
Loss |
|
Value | |||||
|
|
|
|
|
|
|
|
||||
| Less than twelve months: |
|
|
|
|||||||
| Bonds |
$
|
22,859,121 |
$
|
(1,027,782 | ) |
$
|
21,831,339 | |||
| Preferred Stocks |
|
20,918 |
|
(115 | ) |
|
20,803 | |||
| Common Stocks |
|
12,757 |
|
(487 | ) |
|
12,270 | |||
|
|
|
|
|
|
|
|
||||
| Total less than twelve months |
|
22,892,796 |
|
(1,028,384 | ) |
|
21,864,412 | |||
|
|
|
|
|
|
|
|
||||
| Twelve months or more: |
|
|
|
|||||||
| Bonds |
|
2,559,069 |
|
(263,578 | ) |
|
2,295,491 | |||
| Preferred Stocks |
|
79,904 |
|
(4,928 | ) |
|
74,976 | |||
| Common Stocks |
|
149,046 |
|
(27,783 | ) |
|
121,263 | |||
|
|
|
|
|
|
|
|
||||
| Total twelve months or more |
|
2,788,019 |
|
(296,289 | ) |
|
2,491,730 | |||
|
|
|
|
|
|
|
|
||||
| Total – All bonds, preferred & common stocks |
$
|
25,680,815 |
$
|
(1,324,673 | ) |
$
|
24,356,142 | |||
|
|
|
|
|
|
|
|
**Amortized cost for bonds and original cost for stocks net of cumulative recorded other-than-temporary impairments.
For 2004, the categories of securities where the estimated fair value declined and remained below cost for twelve months or greater were concentrated in asset-backed securities (33%), mortgage-backed securities (25%), manufacturing (9%), finance (9%), government (9%), and other securities (15%). The preceding percentages were calculated as a percentage of the gross unrealized loss. TIAA held 17 securities where each had a gross unrealized loss greater than $5 million at December 31, 2004. Ten of these securities represented 100% of the gross unrealized loss on securities where the estimated fair value declined and remained below cost by 20% or more for twelve months or greater. All ten securities were asset-backed securities and the estimated future cash flows supported the carrying value of each security. TIAA believes that the estimated fair values of the asset-backed securities were temporarily depressed as a result of unusually strong negative market reaction to this sector.
For 2003, the categories of securities for which the estimated fair value declined and remained below cost for twelve months or greater were concentrated in asset-backed securities (64%), common stocks (9%), retail & wholesale trade (5%), government (5%), manufacturing (4%), public utilities (4%), and other securities (9%). The preceding percentages were calculated as a percentage of the gross unrealized loss. TIAA held 15 securities where each had a gross unrealized loss greater than $5 million at December 31, 2003. Twelve of these securities represented 100% of the gross unrealized loss on securities where the estimated fair value declined and remained below cost by 20% or more for twelve months or greater. Ten were asset-backed securities and the estimated future cash flows supported the carrying value of each security. The remaining two securities were common stock. TIAA believes that the estimated fair values of the asset-backed securities were temporarily depressed as a result of unusually strong negative market reaction to this sector.
17
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 3 – Investments – (continued)
Scheduled Maturities for Bonds
The statutory carrying values and estimated fair values of long-term bond investments at December 31, 2004, by contractual maturity, are shown below:
| Carrying | Estimated | |||||
| Value | Fair Value | |||||
|
|
|
|
|
|||
| Due in one year or less |
$
|
1,786,319 |
$
|
1,806,863 | ||
| Due after one year through five years | 10,325,695 | 11,030,064 | ||||
| Due after five years through ten years | 20,899,038 | 22,326,930 | ||||
| Due after ten years | 27,553,879 | 29,735,505 | ||||
|
|
|
|
|
|||
| Subtotal | 60,564,931 | 64,899,362 | ||||
| Residential mortgage-backed securities | 27,796,371 | 28,498,284 | ||||
| Commercial mortgage-backed securities | 15,006,573 | 15,798,517 | ||||
| Asset-backed securities | 11,408,547 | 11,482,600 | ||||
|
|
|
|
|
|||
| Total |
$
|
114,776,422 |
$
|
120,678,763 | ||
|
|
|
|
|
|||
Bonds not due at a single maturity date have been included in the preceding table based on the year of final maturity. Actual maturities may differ from contractual maturities because borrowers may have the right to prepay obligations, although prepayment premiums may be applicable.
Included in the preceding table are long-term bonds in or near default with an original par amount of $2,496,222 that have been written down to a statutory carrying value of $674,450. The bonds are categorized based on contractual maturity as follows: $1,707 due in one year or less, $80,302 due after one year through five years, $82,075 due after five years through ten years, $54,826 due after ten years, $2,088 of residential mortgage-backed securities, $451,619 of asset-backed securities and $1,833 of commercial mortgage-backed securities.
At December 31, 2004 and 2003, 93.0% and 91.6%, respectively, of the long-term bond portfolio was comprised of investment grade securities. The carrying values of long-term bond investments were diversified by industry classification at December 31 as follows:
| 2004 | 2003 | |||||
|
|
|
|
|
|||
| Residential mortgage-backed securities | 24.2 | % | 24.8 | % | ||
| Commercial mortgage-backed securities | 13.1 | 12.4 | ||||
| Finance and financial services | 12.3 | 11.0 | ||||
| Manufacturing | 11.2 | 11.3 | ||||
| Asset-backed securities | 9.9 | 10.6 | ||||
| Public utilities | 5.7 | 5.9 | ||||
| Communications | 4.6 | 4.8 | ||||
| Government | 4.1 | 3.4 | ||||
| Oil and gas | 3.8 | 3.7 | ||||
| Retail and wholesale trade | 2.2 | 2.6 | ||||
| Real estate investment trusts | 2.3 | 2.4 | ||||
| Other | 6.6 | 7.1 | ||||
|
|
|
|
|
|||
| Total | 100.0 | % | 100.0 | % | ||
|
|
|
|
|
|||
18
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 3 – Investments – (continued)
Bond and Equity - Other Disclosures
During 2004 and 2003, TIAA acquired bonds and stocks through debt restructurings and other non-cash transactions aggregating $2,300,853 and $2,313,755, respectively. Debt securities of $7,049 and $6,661 at December 31, 2004 and 2003, respectively, were on deposit with governmental authorities or trustees, as required by law.
The carrying values and estimated fair values of securities loaned, and the associated cash collateral received were as follows:
| Carrying Value |
|
Cash Collateral | ||||||||
|
|
|
|
|
|
|
|||||
|
December
31,
2004
|
$
|
3,275,396 |
$
|
3,441,284 |
$
|
3,544,223 | ||||
|
December
31,
2003
|
$
|
2,729,251 |
$
|
2,833,478 |
$
|
2,985,776 | ||||
For the years ended December 31, 2004, 2003, and 2002, the income generated from securities lending was $8,751, $8,893 and $10,035, respectively. For the years ended December 31, 2004 and 2003, the carrying amount of bonds and stocks denominated in foreign currency was $2,362,382 and $2,015,602, respectively. Bonds that totaled $568,969 and $701,886 at December 31, 2004 and 2003, respectively, represent amounts due from related parties that are collateralized by real estate owned by TIAA investment subsidiaries and affiliates.
TIAA makes mortgage loans that are principally collateralized by commercial real estate. The maximum percentage of any one loan to the value of the security at the time of the loan, exclusive of insured, guaranteed or purchase money mortgages, was 80% for commercial loans. The coupon rates for commercial mortgage loans and mezzanine loans acquired during 2004 ranged from 4.06% to 8.78% and from 0.00% to 9.60%, respectively.
Mortgage Loan Impairment Review ProcessTIAA monitors the effects of current and expected market conditions and other factors on the collectibility of mortgage loans to identify and quantify any impairment in value. Any impairment is classified as either temporary, for which a recovery is anticipated, or other than temporary. Mortgage loans with impaired values at December 31, 2004 and 2003 have been written down to net realizable values, as shown in the table below. For impaired mortgages where the impairments were deemed to be temporary, an allowance for credit losses has been established, as indicated below:
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
| Investment in impaired mortgage loans, with temporary allowances | ||||||||||||
| for credit losses (at net carried value plus accrued interest) |
$
|
184,644 |
$
|
599,836 |
$
|
399,852 | ||||||
| Related temporary allowances for credit losses | (30,130 | ) | (132,393 | ) | (116,737 | ) | ||||||
| Investment in impaired mortgage loans, net of other-than-temporary | ||||||||||||
| impairment losses recognized | 357,595 | 1,015,637 | 45,998 | |||||||||
| Related write-downs for other-than-temporary impairments | (142,289 | ) | (132,754 | ) | (90,329 | ) | ||||||
| Average investments in impaired mortgage loans | 888,575 | 980,612 | 751,027 | |||||||||
| Interest income recognized on impaired mortgage loans during the | ||||||||||||
| period | 38,094 | 55,917 | 30,632 | |||||||||
| Interest income recognized on a cash basis during the period | 38,400 | 74,052 | 31,509 |
19
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
(dollars in thousands)
Note 3 – Investments – (continued)
The activity affecting the allowance for credit losses on mortgage loans was as follows:
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
| Balance at the beginning of the year |
$
|
132,393 |
$
|
116,737 | ||||
| Provisions for losses charged against contingency reserves |
|
54,508 |
|
93,394 | ||||
| Write-downs for other-than-temporary impaired assets charged against the allowance |
|
(132,100 | ) |
|
(30,639 | ) | ||
| Recoveries of amounts previously charged off |
|
(24,671 | ) |
|
(47,099 | ) | ||
|
|
|
|
|
|
|
|||
| Balance at the end of the year |
$
|
30,130 |
$
|
132,393 | ||||
|
|
|
|
|
|
|
At December 31, 2004 and 2003, the aggregate carrying values of mortgages with restructured or modified terms were $237,319 and $137,699, respectively. For the years ended December 31, 2004, 2003 and 2002, the investment income earned on such mortgages was $15,974, $6,415 and $26,281, respectively, which would have been approximately $21,733, $9,699 and $36,560, respectively, if they had performed in accordance with their original terms. During 2004, TIAA reduced the interest rate on outstanding loans as follows: $8,000 loan by 4.00%, $56,375 loan by 2.95% and $85,000 loan by 2.00% . When restructuring mortgage loans, TIAA generally requires participation features, yield maintenance stipulations, and/or the establishment of property-specific escrow accounts funded by the borrowers. With respect to impaired loans, TIAA accrues interest income to the extent it is deemed collectible. Due and accrued income on any mortgage in default for more than eighteen months is non-admitted. At December 31, 2004 and 2003, the carrying values of mortgages held with interest more than 180 days past due, excluding accrued interest, were $33,730 and $32,785, respectively. Total interest due on mortgages with interest more than 180 days past due was $10,106 and $6,058, respectively.
Mortgage Loan Diversification
At December 31, the carrying values of mortgage loan investments were diversified by property type and geographic region as follows :
| 2004 | 2003 | |||||
|
|
|
|
|
|||
| Property Type | ||||||
| Office buildings | 41.1 | % | 43.3 | % | ||
| Shopping centers | 29.2 | 26.4 | ||||
| Industrial buildings | 11.7 | 11.5 | ||||
| Mixed-use projects | 7.6 | 7.6 | ||||
| Apartments | 5.9 | 6.1 | ||||
| Hotel | 3.7 | 3.9 | ||||
| Other | 0.8 | 1.2 | ||||
|
|
|
|
|
|||
| Total | 100.0 | % | 100.0 | % | ||
|
|
|
|
|
|||
| 2004 | 2003 | |||||
|
|
|
|
|
|||
| Geographic Region | ||||||
| Pacific | 27.4 | % | 25.6 | % | ||
| South Atlantic | 23.5 | 22.1 | ||||
| North Central | 15.3 | 18.0 | ||||
| Middle Atlantic | 11.7 | 11.4 | ||||
| South Central | 8.5 | 8.1 | ||||
| Mountain | 6.8 | 6.6 | ||||
| New England | 4.5 | 6.7 | ||||
| Other | 2.3 | 1.5 | ||||
|
|
|
|
|
|||
| Total | 100.0 | % | 100.0 | % | ||
|
|
|
|
|
|||
20
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
At December 31, 2004 and 2003, approximately 20.8% and 19.0% of the mortgage portfolio, respectively, was invested in California and was included in the Pacific region shown above.
At December 31, 2004, contractual maturities for mortgage loans were as follows :
|
|
|||
|
|
|
||
| Due in one year or less |
$
|
1,228,318 | |
| Due after one year through five years |
|
9,971,461 | |
| Due after five years through ten years |
|
11,251,889 | |
| Due after ten years |
|
1,841,660 | |
|
|
|
||
| Total |
$
|
24,293,328 | |
|
|
|
Actual maturities may differ from contractual maturities because borrowers may have the right to prepay mortgage loans, although prepayment premiums may be applicable.
Mortgage Loan - Other Disclosures
Mortgages that totaled $570,812 and $515,480 at December 31, 2004 and 2003, respectively, represent the carrying value of amounts due from related parties that are collateralized by real estate owned by TIAA investment subsidiaries and affiliates.
For the years ended December 31, 2004 and 2003, the carrying value of mortgage loans denominated in foreign currency was $537,056 and $462,049 respectively.
TIAA makes investments in commercial real estate directly, through wholly-owned subsidiaries and through real estate limited partnerships. TIAA monitors the effects of current and expected market conditions and other factors on the realizability of real estate investments to identify and quantify any impairments in value. At December 31, 2004 and 2003, TIAA’s directly owned real estate investments of $1,707,127 and $1,702,300, respectively, were carried net of third party mortgage encumbrances, which totaled approximately $143,329 and $144,754, respectively.
At December 31, the carrying values of real estate investments were diversified by property type and geographic region as follows:
| 2004 | 2003 | |||||
|
|
|
|
|
|||
| Property Type | ||||||
| Office buildings | 70.9 | % | 71.7 | % | ||
| Mixed-use projects | 15.3 | 14.3 | ||||
| Industrial buildings | 8.9 | 8.8 | ||||
| Apartments | 3.3 | 3.3 | ||||
| Land held for future development | 1.5 | 1.4 | ||||
| Income-producing land underlying improved real estate | 0.1 | 0.4 | ||||
| Other | 0.0 | 0.1 | ||||
|
|
|
|
|
|||
| Total | 100.0 | % | 100.0 | % | ||
|
|
|
|
|
21
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
| 2004 | 2003 | |||||
|
|
|
|
|
|||
| Geographic Region | ||||||
| South Atlantic | 44.7 | % | 44.3 | % | ||
| North Central | 19.0 | 19.7 | ||||
| Middle Atlantic | 15.4 | 14.6 | ||||
| Pacific | 10.6 | 11.2 | ||||
| South Central | 8.3 | 8.3 | ||||
| Mountain | 2.0 | 1.9 | ||||
|
|
|
|
|
|||
| Total | 100.0 | % | 100.0 | % | ||
|
|
|
|
|
At December 31, 2004 and 2003, approximately 20.0% and 20.4% of the real estate portfolio, respectively, was invested in Florida and was included in the South Atlantic region shown above.
Real Estate - Other DisclosuresDepreciation expense on directly owned real estate investments for the years ended December 31, 2004, 2003 and 2002, was $52,219, $62,151 and $42,085, respectively; the amount of accumulated depreciation at December 31, 2004 and 2003 was $274,925 and $256,396, respectively.
During 2004 and 2003, TIAA did not acquire directly owned real estate via the assumption of debt or in satisfaction of debt.
TIAA’s investment subsidiaries and affiliates, which have been created for
legal or other business reasons, are primarily involved in real estate and securities
investment activities for TIAA. The larger investment subsidiaries and affiliates
are ND Properties, Inc, TIAA Realty, Inc, WRC Properties, Inc, and 485 Properties,
LLC. For the year-ended 2004, ND Properties, Inc. acquired and sold real estate
properties with a net carrying value of
$471,219 and recognized a gain of $22,000. TIAA’s share of net
carrying values of investment subsidiaries and affiliates at December 31, 2004
and 2003 was $4,488,029 and $4,240,849, respectively. To conform to
the NAIC Annual Statement presentation, the carrying value of these entities
is also reported in Note 3A as affiliated common stock or in Note 3E as other
long-term investments. Other-than-temporary impairments of investment subsidiaries
and affiliates for the years ended December 31, 2004 and 2003 were $65,403
and $84,118, respectively, and these amounts are included in the impairment
table in Note 4. Net income from investment subsidiaries and affiliates was $217,374, $206,227
and
$303,881 for the years ended December 31, 2004, 2003 and 2002, respectively.
As of December 31, 2004 and 2003, the net amount due from investment subsidiaries
and affiliates was $99,108 and $26,104,
respectively. For the years ended December 31, 2004 and 2003, TIAA’s net
capital contributions to investment subsidiaries and affiliates were $150,577
and ($255,318), respectively.
TIAA’s operating subsidiaries primarily consist of TIAA-CREF Enterprises, Inc., (“Enterprises”), TIAA-CREF Individual and Institutional Services LLC, TCT Holdings, Inc, TIAA Financial Services, LLC, (“TFS”), and TIAA-CREF Asset Management Commingled Funds Trust I (“TCAM”), which are wholly-owned subsidiaries of TIAA. Enterprises wholly owns TIAA-CREF Life Insurance Company, Inc. (“TIAA-CREF Life”), Teachers Advisors, Inc., (“Advisors”) Teachers Personal Investors Services (“TPIS”), and TIAA-CREF Tuition Financing, Inc (“TFI”). TFS owns TIAA Global Markets, Inc. (“TGM”) TIAA Advisory Services, LLC, and TIAA Realty Capital Management, LLC.
TIAA’s share of net carrying values of unconsolidated operating subsidiaries at December 31, 2004 and 2003 was $1,014,185 and $450,022, respectively. To conform with the NAIC Annual Statement presentation, the carrying value of these entities is also reported in Note 3A as affiliated common stock or in Note 3E as other long-term investments. Other-than-temporary impairments of operating subsidiaries for the years ended December 31, 2004 and 2003 were $11,217 and $53,646, respectively, and such amounts are included in the impairment table in Note 4. Net loss from operating subsidiaries was ($23,602), ($13,246) and ($51,858) for the years ended December 31, 2004, 2003 and 2002, respectively. TIAA had net amounts due from operating subsidiaries of $13,227 and $41,775, as of December 31, 2004 and 2003,
22
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
respectively. For the years ended December 31, 2004 and 2003, TIAA’s net
capital contributions to operating subsidiaries were $509,800 and $4,421,
respectively.
TIAA provides a $750,000 uncommitted and unsecured 364-day revolving line of credit to TGM. No principal or interest was outstanding as of December 31, 2004 and 2003. For the year ended December 31, 2004, there were no borrowings under this credit facility. In October 2004, TIAA extended a $100,000 committed and unsecured 364-day revolving line of credit to TIAA-CREF Asset Management Core Property Fund. In 2004, there were two drawdowns totaling $27,000. For the year ended December 31, 2004, outstanding principal plus accrued interest was $27,076.
Mutual Funds: As of December 31, 2004 and 2003, TIAA’s investments in affiliated mutual funds totaled approximately $440,284 and $556,244, respectively. These amounts are reported in the caption “Common Stocks” in the accompanying balance sheets.
The components of TIAA’s carrying value in other long-term investments at December 31, 2004 and 2003 was:
|
|
2004 |
|
2003 | |||
|
|
|
|
|
|||
| Unaffiliated Other Invested Assets |
$
|
2,364,881 |
$
|
1,955,844 | ||
| Affiliated Other Invested Assets |
|
2,630,278 |
|
2,205,651 | ||
| Other Assets |
|
652,712 |
|
701,020 | ||
|
|
|
|
|
|||
| Total other long-term investments |
$
|
5,647,871 |
$
|
4,862,515 | ||
|
|
|
|
|
Unaffiliated other invested assets are principally fund investments. Affiliated other invested assets are subsidiaries and affiliates reported in Note 3D. Other assets consist primarily of contract loans, securities receivables, and derivatives. Other-than-temporary impairments in other long-term investments for the years ended December 31, 2004 and 2003 were $427,726 and $117,767, and these amounts are included in the impairment table in Note 4. The increase in 2004’s other-than-temporary impairments resulted from refinements made to TIAA’s other-than-temporary impairment process.
For the years ended December 31, 2004 and 2003, other long-term investments denominated in foreign currency were $531,438 and $407,984, respectively.
The outstanding obligation for future investments at December 31, 2004, is shown below by asset category:
|
|
|
|
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|||||
| Bonds |
$
|
392,617 |
$
|
3,959 |
$
|
20,000 |
$
|
416,576 | ||||
| Mortgages |
|
1,152,232 |
|
291,127 |
|
--- |
|
1,443,359 | ||||
| Real estate |
|
26,228 |
|
1,525 |
|
1,422 |
|
29,175 | ||||
| Preferred stocks |
|
16,750 |
|
--- |
|
--- |
|
16,750 | ||||
| Common stocks |
|
271,609 |
|
296 |
|
--- |
|
271,905 | ||||
| Other long-term investments |
|
1,216,824 |
|
556,244 |
|
833,565 |
|
2,606,633 | ||||
|
|
|
|
|
|
|
|
|
|||||
| Total |
$
|
3,076,260 |
$
|
853,151 |
$
|
854,987 |
$
|
4,784,398 | ||||
|
|
|
|
|
|
|
|
|
The funding of bond commitments is contingent upon the continued favorable financial performance of the potential borrowers, and the funding of mortgage loan and real estate commitments are generally contingent upon the underlying properties meeting specified requirements, including construction, leasing and occupancy. Due to TIAA’s due diligence in closing mortgage commitments, there is a lag between commitment and closing. For other long–term investments, primarily fund investments, there are scheduled capital calls that extend into future years.
23
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
In addition to the amounts in the above table, TIAA is a limited partner in the Hines Development Fund Limited Partnership (the “Development Fund”) whose primary focus is the development and redevelopment of real estate projects in Western Europe. Each of the limited partners made a specified commitment to the fund; TIAA committed 130,000 Euros. The limited partners’ commitments are pledged as collateral to facilitate the financing of the activities of the fund by third parties through equity lines of credit. The limited partners do not anticipate funding their commitments but remain committed to do so should it become necessary for the Development Fund to make cash capital calls.
Note 4 – Investment Income and Capital Gains and Losses
Net Investment Income: The components of net investment income were as follows:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
||||
| Bonds |
$
|
7,160,478 |
$
|
7,203,936 |
$
|
6,966,602 | ||||||
| Mortgages |
|
1,795,660 |
|
1,845,018 |
|
1,776,484 | ||||||
| Real estate |
|
292,614 |
|
315,628 |
|
257,063 | ||||||
| Stocks |
|
269,400 |
|
278,116 |
|
371,266 | ||||||
| Other long-term investments |
|
214,280 |
|
159,192 |
|
183,074 | ||||||
| Cash, cash equivalents and short-term investments |
|
34,969 |
|
26,485 |
|
90,181 | ||||||
| Other |
|
2,692 |
|
2,062 |
|
12,551 | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| Total gross investment income |
|
9,770,093 |
|
9,830,437 |
|
9,657,221 | ||||||
| Less securities lending payments |
|
(47,949 | ) |
|
(45,861 | ) |
|
(68,081 | ) | |||
| Less investment expenses |
|
(440,081 | ) |
|
(426,282 | ) |
|
(344,160 | ) | |||
|
|
|
|
|
|
|
|
|
|
||||
| Net investment income before |
|
|
|
|||||||||
| amortization of net IMR gains |
|
9,282,063 |
|
9,358,294 |
|
9,244,980 | ||||||
| Plus amortization of net IMR gains |
|
171,948 |
|
98,481 |
|
87,254 | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| Net investment income |
$
|
9,454,011 |
$
|
9,456,775 |
$
|
9,332,234 | ||||||
|
|
|
|
|
|
|
|
|
|
||||
Future rental income expected to be received during the next five years under existing real estate leases (including subsidiaries and affiliates) in effect as of December 31, 2004 is $478,138 in 2005, $404,915 in 2006, $359,993 in 2007, $306,172 in 2008, and $283,930 in 2009.
Realized Capital Gains and Losses: The net realized capital gains (losses) on sales, redemptions and writedowns of investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
||||
| Bonds |
$
|
197,737 |
$
|
(427,953 | ) |
$
|
(1,133,887 | ) | ||||
| Mortgages |
|
(74,036 | ) |
|
(48,581 | ) |
|
(108,486 | ) | |||
| Real estate |
|
13,296 |
|
45,066 |
|
12,194 | ||||||
| Stocks |
|
159,305 |
|
28,623 |
|
(326,414 | ) | |||||
| Other long-term investments |
|
(484,890 | ) |
|
(104,181 | ) |
|
(70,755 | ) | |||
| Cash, cash equivalents and short-term investments |
|
2,084 |
|
19,670 |
|
687 | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| Total before capital gains taxes and transfers to the IMR |
|
(186,504 | ) |
|
(487,356 | ) |
|
(1,626,661 | ) | |||
| Transfers to IMR |
|
(367,027 | ) |
|
(298,783 | ) |
|
(189,666 | ) | |||
| Capital gains taxes |
|
--- |
|
--- |
|
--- | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| Net realized capital (losses) less capital gains taxes, after |
|
|
|
|||||||||
| transfers to the IMR |
$
|
(553,531 | ) |
$
|
(786,139 | ) |
$
|
(1,816,327 | ) | |||
|
|
|
|
|
|
|
|
|
|
24
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 4 – Investment Income and Capital Gains and Losses – (concluded)
Write-downs of investments resulting from impairments which were considered to be other than temporary and included in the preceding table as realized capital (losses) were as follows:
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
||||
|
Other-than-temporary impairments:
|
||||||||||||
| Bonds |
$
|
(276,646 | ) |
$
|
(802,609 | ) |
$
|
(1,196,548 | ) | |||
| Mortgages | (105,140 | ) | (76,072 | ) | (71,589 | ) | ||||||
| Real estate | (904 | ) | (13,507 | ) | --- | |||||||
| Stocks | (46,014 | ) | (172,480 | ) | (478,816 | ) | ||||||
| Other long-term investments | (427,726 | ) | (117,767 | ) | (91,872 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
||||
| Total |
$
|
(856,430 | ) |
$
|
(1,182,435 | ) |
$
|
(1,838,825 | ) | |||
|
|
|
|
|
|
|
|
|
|
During 2004, 2003 and 2002, TIAA recognized losses in the amount of $36,457, $18,683 and $61,477, respectively, on debt securities and mortgage loans whose terms were restructured. These amounts were included in the preceding table.
Proceeds from sales of long-term bond investments during 2004, 2003 and 2002 were $6,196,415, $8,507,669 and $8,622,312, respectively. Gross gains of $447,774, $555,660 and $359,785 and gross losses, excluding impairments considered to be other than temporary, of $41,421, $228,025 and $197,478 were realized on these sales during 2004, 2003 and 2002, respectively.
Unrealized Capital Gains and Losses: The net changes in unrealized capital gains (losses) on investments, resulting in a net increase (decrease) in the valuation of investments, were as follows:
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
||||
| Bonds |
$
|
170,362 |
$
|
328,184 |
$
|
473,622 | |||||
| Mortgages |
|
78,243 |
|
34 |
|
79,656 | |||||
| Real estate |
|
--- |
|
(1,910 | ) |
|
(1,732 | ) | |||
| Stocks |
|
73,633 |
|
354,184 |
|
149,938 | |||||
| Other long-term investments |
|
428,281 |
|
(268,059 | ) |
|
(351,035 | ) | |||
|
|
|
|
|
|
|
|
|
||||
| Total |
$
|
750,519 |
$
|
412,433 |
$
|
350,449 | |||||
|
|
|
|
|
|
|
|
|
||||
Note 5 – Securitizations
When TIAA sells bonds and mortgage loans in a securitization transaction, it may retain interest-only strips, one or more subordinated tranches, residual interest, or servicing rights, all of which are retained interests in the securitized receivables. TIAA’s ownership of the related retained interests may be held directly by TIAA or indirectly through an investment subsidiary. The retained interests are associated with Special Purpose Entities/Qualified Special Purpose Entities, (“SPEs/QSPEs”), that issue equity and debt which is non-recourse to TIAA. Fair value used to determine gain or loss on a securitization transaction is based on quoted market prices if available; however, quotes are generally not available for retained interests, so TIAA either obtains an estimated fair value from an independent pricing service or estimates fair value internally based on the present value of future expected cash flows using management’s best estimates of future credit losses, forward yield curves, and discount rates that are commensurate with the risks involved.
TIAA has not initiated any securitization transactions in which it sold assets held on its balance sheet into SPEs/QSPEs since 2002. Proceeds from the 2002 securitizations were $690,598. TIAA Advisory Services, LLC, a downstream subsidiary of TIAA, provides investment advisory services for most assets securitized by TIAA.
25
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 5 – Securitizations – (concluded)
The following table summarizes TIAA’s retained interests in securitized financial assets from transactions originated since 1999:
|
|
||||||||||||||||
|
|
||||||||||||||||
|
|
||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||
|
|
Type of Collateral |
|
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Mortgages |
$
|
320,856 |
$
|
338,885 |
$
|
(4,065 | ) | $ | (8,053 | ) | |||||
|
|
Bonds | 60,708 | 74,423 | (5,799 | ) | (11,410 | ) | |||||||||
|
|
Bonds | 340,588 | 385,968 | (5,329 | ) | (9,074 | ) | |||||||||
|
|
Bonds | 27,602 | 25,000 | (1,080 | ) | (2,075 | ) | |||||||||
The fair values of the retained interests on December 31, 2004 were determined either by independent pricing services or analysts employed by TIAA. The key assumptions applied discount rates based upon the current yield curve, spreads, and expected cash flows specific to the type of interest retained for each securitization. The sensitivity analysis includes an adverse change in each assumption used to determine fair value.
Note 6 – Disclosures About Fair Value of Financial Instruments
The estimated fair value amounts of financial instruments presented in the following tables were determined by TIAA using market information available as of December 31, 2004 and 2003 and appropriate valuation methodologies. However, considerable judgment is necessarily required to interpret market data in developing the estimates of fair value for financial instruments for which there are no available market value quotations. The estimates presented are not necessarily indicative of the amounts TIAA could have realized in a market exchange. The use of different market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
|
|
Carrying |
|
|
|||||
| December 31, 2004 |
|
Value |
|
|
||||
|
|
|
|
|
|
|
|||
| Assets |
|
|
||||||
| Bonds |
$
|
114,776,422 |
$
|
120,678,763 | ||||
| Mortgages |
|
24,293,328 |
|
25,829,646 | ||||
| Common stocks |
|
3,722,171 |
|
3,722,171 | ||||
| Preferred stocks |
|
1,287,644 |
|
1,357,903 | ||||
| Cash, cash equivalents and short-term investments |
|
447,444 |
|
447,444 | ||||
| Policy loans |
|
565,586 |
|
565,586 | ||||
| Seed money investments in mutual funds |
|
440,284 |
|
440,284 | ||||
| Liabilities |
|
|
||||||
| Teachers Personal Annuity-Fixed Account |
|
2,159,578 |
|
2,159,578 | ||||
| Derivative Financial Instruments |
|
(612,044 | ) |
|
(752,512 | ) | ||
| December 31, 2003 |
|
|
||||||
| Assets |
|
|
||||||
| Bonds |
$
|
106,505,812 |
$
|
111,755,195 | ||||
| Mortgages |
|
23,689,539 |
|
25,687,448 | ||||
| Common stocks |
|
3,474,524 |
|
3,474,524 | ||||
| Preferred stocks |
|
924,754 |
|
984,976 | ||||
| Cash, cash equivalents and short-term investments |
|
1,082,871 |
|
1,082,871 | ||||
| Policy loans |
|
504,369 |
|
504,369 | ||||
| Seed money investments in mutual funds |
|
556,244 |
|
556,244 | ||||
| Liabilities |
|
|
||||||
| Teachers Personal Annuity-Fixed Account |
|
2,124,746 |
|
2,124,746 | ||||
| Derivative Financial Instruments |
|
(455,952 | ) |
|
(464,411 | ) | ||
26
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 6 – Disclosures About Fair Value of Financial Instruments – (concluded)
Bonds: The fair values for publicly traded long-term bond investments were determined using quoted market prices. For privately placed long-term bond investments without a readily ascertainable market value, such values were determined with the assistance of an independent pricing service utilizing a discounted cash flow methodology based on coupon rates, maturity provisions and assigned credit ratings.
The aggregate carrying values and estimated fair values of publicly traded and privately placed bonds at December 31 were as follows:
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||
| Carrying | Estimated |
|
Estimated | |||||||||
| Value | Fair Value |
|
Fair Value | |||||||||
|
|
|
|
|
|
|
|
|
|||||
| Publicly traded bonds | $ |
80,655,521
|
$ |
84,751,847
|
$
|
72,956,570
|
$
|
76,688,352 | ||||
| Privately placed bonds |
34,120,901
|
35,926,916
|
|
33,549,242
|
|
35,066,843 | ||||||
|
|
|
|
|
|
|
|
|
|||||
| Total bonds | $ |
114,776,422
|
$ |
120,678,763
|
$
|
106,505,812
|
$
|
111,755,195 | ||||
|
|
|
|
|
|
|
|
|
|||||
Mortgages: The fair values of mortgages were generally determined with the assistance of an independent pricing service utilizing a discounted cash flow methodology based on coupon rates, maturity provisions and assigned credit ratings.
Common Stocks, Cash, Cash Equivalents, Short-Term Investments, Policy Loans, and Seed Money Investments: The carrying values were considered reasonable estimates of their fair values.
Preferred Stocks: The fair values of preferred stocks were determined using quoted market prices or valuations from the NAIC.
Teachers Personal Annuity - Fixed Account: The carrying values of the liabilities were considered reasonable estimates of their fair values.
Commitments to Extend Credit or Purchase Investments : TIAA generally does not charge commitment fees on these agreements, and the related interest rates reflect market levels at the time of the commitments.
Insurance and Annuity Contracts : TIAA's insurance and annuity contracts, other than the Teachers Personal Annuity - Fixed Account disclosed above, entail mortality risks and are, therefore, exempt from the fair value disclosure requirements related to financial instruments.
Derivative Financial Instruments: The fair values of interest rate cap contracts and credit default swap contracts are estimated by external parties and are reviewed internally for reasonableness based on anticipated interest rates, estimated future cashflows, and anticipated credit market conditions. The fair values of foreign currency swap and forward contracts and interest rate swap contracts are estimated internally based on estimated future cashflows, anticipated foreign exchange relationships and anticipated interest rates and such values are reviewed for reasonableness with estimates from TIAA's counterparties.
Note 7 – Derivative Financial InstrumentsTIAA uses derivative instruments for hedging, income generation, and asset replication purposes. TIAA does not engage in derivative financial instrument transactions for speculative purposes. TIAA enters into derivatives directly with counterparties of high credit quality (i.e., rated AA or better at the date of a transaction) and monitors counterparty credit quality on an ongoing basis. TIAA’s counterparty credit risk is limited to the net positive fair value of its derivative positions for each individual counterparty, unless otherwise described below.
27
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Foreign Currency Swap Contracts: TIAA enters into foreign currency swap contracts to exchange fixed and variable amounts of foreign currency at specified future dates and at specified rates (in U.S. dollars) to hedge against currency risks on investments denominated in foreign currencies. Foreign currency swap contracts are designated as cashflow hedges and changes in the value of the contracts related to foreign currency exchange rates are recognized at the end of the period as unrealized gains or losses. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value. At December 31, 2003, the net unrealized (loss) from a foreign currency swap contract that no longer qualified for hedge accounting treatment was ($6,715).
Foreign Currency Forward Contracts: TIAA enters into foreign currency forward contracts to exchange fixed amounts of foreign currency at specified future dates and at specified rates (in U.S. dollars) to hedge against currency risks on investments denominated in foreign currencies. Foreign currency forward contracts are designated as cashflow hedges and changes in the value of the contracts related to foreign currency exchange rates are recognized at the end of the period as unrealized gains or losses. A foreign exchange premium/(discount) is recorded at the time a contract is opened, based on the difference between the forward exchange rate and the spot rate. TIAA amortizes the foreign exchange premium/(discount) into investment income over the life of the forward contract or at the settlement date, if the forward contract is less than a year. At December 31, 2004, the net unrealized (loss) from foreign currency forward contracts that no longer qualified for hedge accounting treatment was ($28).
Interest Rate Swap Contracts: TIAA enters into interest rate swap contracts to hedge against the effect of interest rate fluctuations on certain variable interest rate bonds. These contracts are designated as cashflow hedges and allow TIAA to lock in a fixed interest rate and to transfer the risk of higher or lower interest rates. TIAA also enters into interest rate swap contracts to exchange the cash flows on certain fixed interest rate bonds into variable interest rate cash flows. These contracts qualify as fair value hedges and are entered into in connection with certain interest sensitive products. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty at each due date. Net payments received and net payments made under interest rate swap contracts are included in net investment income. Derivative instruments used in hedging transactions that do not meet or no longer meet the criteria of an effective hedge are accounted for at fair value.
Interest Rate Cap Contracts: TIAA purchases interest rate cap contracts to hedge against the risk of a rising interest rate environment as part of TIAA's asset and liability management program for certain interest sensitive products. Under the terms of the interest rate cap contracts, the selling entity makes payments to TIAA on a specified notional amount if an agreed-upon index exceeds a predetermined strike rate. Interest rate cap contracts are carried at fair value. Payments received under interest rate cap contracts are included in net investment income.
Credit Default Swap Contracts: As part of a strategy to replicate investment grade corporate bonds in conjunction with high quality host bonds, TIAA writes (sells) credit default swaps to earn a premium by essentially issuing “insurance” to the buyer of default protection. The carrying value of credit default swaps represents the unamortized premium received for selling the default protection, and the premium received is amortized into investment income over the life of the swap. TIAA has negligible counterparty credit risk with the buyer. TIAA also purchases credit default swaps to hedge against unexpected credit events on selective investments in the TIAA portfolio. These swap contracts qualify as fair value hedges and the premium payment to the counterparty is expensed.
28
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 7 – Derivative Financial Instruments – (concluded)
Note 8 – Separate Accounts
The TIAA Separate Account VA-1 ("VA-1") is a segregated investment account and was organized on February 16, 1994 under the insurance laws of the State of New York for the purpose of issuing and funding variable annuity contracts. VA-1 was registered with the Securities and Exchange Commission, (“the Commission”) effective November 1, 1994 as an open-end, diversified management investment company under the Investment Company Act of 1940. Currently, VA-1 consists of a single investment portfolio, the Stock Index Account (“SIA”). SIA was established on October 3, 1994 and invests in a diversified portfolio of equity securities selected to track the overall United States stock market.
The TIAA Real Estate Account ("REA") is a segregated investment account and was organized on February 22, 1995 under the insurance laws of the State of New York for the purpose of funding variable annuity contracts. REA was registered with the Commission under the Securities Act of 1933 effective October 2, 1995. REA's target is to invest between 70% and 95% of its assets directly in real estate or in real estate-related investments, with the remainder of its assets invested in publicly traded securities to maintain adequate liquidity.
Premiums, considerations or deposits received by TIAA’s separate accounts totaled $2,339,295, $1,401,307 and $1,167,011 for the years ending December 31, 2004, 2003 and 2002, respectively. Reserves for these separate accounts totaled $8,160,866 and $5,619,975 on December 31, 2004 and 2003, respectively.
Other than the guarantees disclosed in Note 15, TIAA does not make any guarantees to policyholders on its separate accounts. Both accounts offer full or partial withdrawal at market value with no surrender charges. The assets and liabilities of these accounts (which represent participant account values) are generally carried at fair value (directly held real estate is carried at appraised value).
29
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Under Cash Disbursement and Reimbursement Agreements, TIAA serves as the common pay-agent for its operating subsidiaries. In addition, under management agreements, TIAA provides investment advisory and administrative services for TIAA-CREF Life and administrative services to the TIAA-CREF Trust Company, FSB, and VA-1.
Services necessary for the operation of the College Retirement Equities Fund (“CREF”), a companion organization, are provided, at cost, by two subsidiaries of TIAA, TIAA-CREF Investment Management, LLC ("Investment Management") and TIAA-CREF Individual & Institutional Services, LLC ("Services"), which provide investment advisory, administrative and distribution services for CREF at an at-cost basis. Such services are provided in accordance with an Investment Management Services Agreement between CREF and Investment Management, and in accordance with a Principal Underwriting and Administrative Services Agreement between CREF and Services. The management fees collected under these agreements and the equivalent allocated expenses, which amounted to approximately $672,659, $599,963 and $568,327 in 2004, 2003 and 2002, respectively, are not included in the statements of operations and had no effect on TIAA's operations.
Advisors provides investment advisory services for VA-1, the Retail Funds, the Institutional Funds, the Life Funds and other separately managed portfolios in accordance with investment management agreements. TPIS and Services distribute variable annuity contracts for VA-1 as well as registered securities for the Retail Funds, the Institutional Funds, the TIAA-CREF Life separate accounts and TFI.
All services necessary for the operation of REA are provided, at cost, by TIAA and Services. TIAA provides investment management services for REA. Distribution and administrative services are provided in accordance with a Distribution and Administrative Services Agreement between REA and Services. TIAA and Services receive management fee payments from REA on a daily basis according to formulae established each year with the objective of keeping the management fees as close as possible to REA’s actual expenses. Any differences between actual expenses and daily charges are adjusted quarterly.
Note 10 – Federal Income TaxesBy charter, TIAA is a Stock Life Company that operates on a non-profit basis and through December 31, 1997, was exempt from federal income taxation under the Internal Revenue Code. Any non-pension income, however, was subject to federal income taxation as unrelated business income. Effective January 1, 1998, as a result of federal legislation, TIAA is no longer exempt from federal income taxation and is taxed as a stock life insurance company.
Beginning with 1998, TIAA has filed a consolidated federal income tax return with its subsidiary affiliates. The consolidated group has entered into a tax-sharing agreement that follows the current reimbursement method, whereby members of the group will generally be reimbursed for their losses on a pro-rata basis by other members of the group to the extent that they have taxable income, subject to limitations imposed under the Code. Amounts due to (receivable from) TIAA’s subsidiaries for federal income taxes were $7,760 and ($2,529) at December 31, 2004 and 2003, respectively.
TIAA reported a loss on its 2003 federal tax return and expects to report a tax loss for 2004 as a result of net operating losses primarily due to deductions for intangible assets and increases in policy and contract reserves. These reserve increases will reverse over time, thereby increasing TIAA’s taxable income in future years.
30
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
A reconciliation of TIAA’s statutory tax rate to its actual federal income tax rate was as follows:
|
|
||||||||||||
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
||||
| Net gain from operations |
$
|
1,666,327 |
$
|
1,317,188 |
$
|
823,318 | ||||||
| Statutory rate |
|
35 | % |
|
35 | % |
|
35 | % | |||
| Tax at statutory rate |
$
|
583,214 |
$
|
461,016 |
$
|
288,161 | ||||||
| Investment items |
|
(176,342 | ) |
|
(179,433 | ) |
|
(130,562 | ) | |||
| Consolidation and dividends from subsidiaries |
|
(89,076 | ) |
|
(39,888 | ) |
|
(49,676 | ) | |||
| Amortization of interest maintenance reserve |
|
(60,182 | ) |
|
(34,468 | ) |
|
(30,539 | ) | |||
| Adjustment to policyholder dividend liability |
|
(42,939 | ) |
|
(42,577 | ) |
|
10,827 | ||||
| Accrual of contingent tax provision |
|
629,376 |
|
--- |
|
--- | ||||||
| Net operating loss carryforward utilized |
|
(233,533 | ) |
|
(148,952 | ) |
|
(45,901 | ) | |||
| Other |
|
(38,179 | ) |
|
1,017 |
|
(63,165 | ) | ||||
|
|
|
|
|
|
|
|
|
|
||||
| Federal income tax expense (benefit) |
$
|
572,339 |
$
|
16,715 |
$
|
(20,855 | ) | |||||
|
|
|
|
|
|
|
|
|
|
||||
| Effective tax rate |
|
34.3 | % |
|
1.3 | % |
|
(2.5 | )% | |||
The components of TIAA’s net deferred tax asset were as follows:
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
||||
| Gross deferred tax assets |
$
|
4,031,308 |
$
|
3,780,742 |
$
|
250,566 | ||||||
| Gross deferred tax liabilities |
|
(1,167 | ) |
|
(17,691 | ) |
|
16,524 | ||||
| Deferred tax assets, non-admitted |
|
(3,005,732 | ) |
|
(2,869,806 | ) |
|
(135,926 | ) | |||
|
|
|
|
|
|
|
|
|
|
||||
| Net deferred tax asset, admitted |
$
|
1,024,409 |
$
|
893,245 |
$
|
131,164 | ||||||
|
|
|
|
|
|
|
|
|
|
TIAA’s gross deferred tax assets were primarily attributable to differences between tax basis and statutory basis reserves and the provision for policyholder dividends payable in the following year. Gross deferred tax liabilities were primarily due to investment income due and accrued. TIAA has no deferred tax liabilities that have not been recognized.
At December 31, 2004, TIAA's gross deferred tax asset of $4,031,308 did not include any benefit from Net Operating Loss (“NOL”) carryforwards. Consistent with prior years, however, TIAA's federal income tax return for 2004 will include a significant NOL carryforward as a result of tax deductions related to intangible assets. The NOL carryforward on TIAA’s 2004 federal income tax return is estimated to approximate $12.3 billion. These intangible asset tax deductions were not recognized as a benefit, because they were not eligible to be recorded for statutory financial statement purposes and, therefore, were not considered in TIAA ’ s gross deferred tax asset calculation. The Department concurred with this interpretation by TIAA. The NOL carryforward for tax purposes expires between 2013 and 2019. TIAA did not incur federal income taxes in the current or preceding years that would be available for recoupment in the event of future net losses.
TIAA’s 1998 and 1999 tax returns representing the first years for which TIAA’s entire business operations were subject to federal income taxation, have been audited by the Internal Revenue Service (“IRS”). In April 2004, the IRS completed its audit and presented TIAA with a Revenue Agent Report asserting certain adjustments to TIAA’s taxable income that would result in additional tax due of $1.1 billion for the 1998 and 1999 tax years. These adjustments would disallow the deductions for certain intangible assets and would adjust certain of TIAA’s tax-basis annuity reserves.
31
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Should the IRS fully prevail in connection with its proposed adjustments, and by applying the same rationale to tax years subsequent to 1999, additional tax and interest due for the tax years 1998-2004 would amount to approximately $2.6 billion, of which $668 million has already been accrued as of December 31, 2004. Of the $2.6 billion in potential taxes due, $2.3 billion would result from reserve deductions taken by TIAA in earlier years that the IRS would instead spread throughout the annuitants’ payout periods, resulting in timing differences. The remaining $300 million would cause a permanent adjustment to TIAA’s taxes. Should TIAA fully prevail, no tax will be due for 1998-2004, and TIAA’s NOL as of December 31, 2004 would be $2.9 billion, before consideration of intangible asset deductions, and $12.3 billion when intangible deductions are included.
TIAA’s management has filed a protest to the IRS’ adjustments and believes that its tax positions are supported by substantial authority. TIAA will continue to contest these adjustments through applicable IRS appeals and judicial procedures, as needed, and its management believes that it will ultimately prevail to a significant degree. Nonetheless, TIAA’s management believes that the circumstances surrounding the tax claim by the IRS meet the conditions that require TIAA to establish a loss contingency for federal income taxes covering the years 1998-2004.
Although the final resolution of the IRS’ asserted adjustments is uncertain, management’s current best estimate of the probable loss from this dispute with the IRS, given the current status of the tax claim, requires TIAA to establish a contingent tax provision of $629 million as of December 31, 2004. The establishment of this contingent tax provision resulted in a charge against TIAA’s 2004 operations and resulted in a total tax accrual as of December 31, 2004 of $668 million.
Note 11 – Pension Plan and Postretirement Benefits
TIAA maintains a qualified, noncontributory defined contribution pension plan covering substantially all employees. All employee pension plan liabilities are fully funded through retirement annuity contracts. Contributions are made semi-monthly to each participant's contract based on a percentage of salary, with the applicable percentage varying by attained age. All contributions are fully vested after five years of service. Forfeitures arising from terminations prior to vesting are used to reduce future employer contributions. The accompanying statements of operations include contributions to the pension plan of approximately $29,247, $36,061 and $35,063 in 2004, 2003 and 2002, respectively. This includes supplemental contributions made to company-owned annuity contracts under a non-qualified deferred compensation plan.
In addition to the pension plan, TIAA provides certain other postretirement life and health insurance benefits to eligible retired employees who meet prescribed age and service requirements. The status of this plan for retirees and eligible active employees is summarized below:
|
|
|
|||||||
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|||
| Benefit obligation at beginning of period |
$
|
80,675 |
$
|
64,490 | ||||
| Service cost |
|
3,348 |
|
4,221 | ||||
| Interest cost |
|
4,910 |
|
4,273 | ||||
| Actuarial losses |
|
13,743 |
|
1,570 | ||||
| Benefits paid |
|
(4,866 | ) |
|
(3,063 | ) | ||
| Special termination benefits |
|
15,255 |
|
9,184 | ||||
|
|
|
|
|
|
|
|||
| Benefit obligation at end of period |
$
|
113,065 |
$
|
80,675 | ||||
| Fair value of assets |
|
--- |
|
--- | ||||
| Funded status |
|
(113,065 | ) |
|
(80,675 | ) | ||
| Unrecognized initial transition obligation |
|
6,256 |
|
7,037 | ||||
| Unrecognized net (gain) or loss |
|
26,623 |
|
13,110 | ||||
|
|
|
|
|
|
|
|||
| Accrued postretirement benefit cost |
$
|
(80,186 | ) |
$
|
(60,528 | ) | ||
|
|
|
|
|
|
|
|||
32
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 11 – Pension Plan and Postretirement Benefits (continued)
TIAA is expecting to receive a 28% federal subsidy for plan prescription benefits arising from the Medicare Prescription Drug Act of 2003 (“The Act”). For the current reporting period, TIAA adopted accounting guidance under which the postretirement benefit obligation as of December 31, 2003 was remeasured retroactively from $92,668 to $80,675 as reported in the preceding table. The postretirement benefit obligation for non-vested employees was $53,621 at December 31, 2004 and $47,289 at December 31, 2003. TIAA allocates benefit expenses to certain subsidiaries based upon salaries. The cost of postretirement benefits reflected in the accompanying TIAA statements of operations was $4,108, $5,600 and $3,300 for 2004, 2003 and 2002, respectively. The cost of postretirement benefits for 2004 includes a $970 reduction arising from The Act subsidy. In addition to these postretirement benefits, the statements of operations also include special termination benefits related to a reduction in workforce of approximately $6,748, $4,551, and $0 for 2004, 2003 and 2002.
The net periodic postretirement cost for the years ended December 31, includes the following components:
|
|
|||||||||
|
|
|
|
|||||||
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
||||
| Components of net periodic cost | |||||||||
| Eligibility cost |
$
|
3,349 |
$
|
4,221 |
$
|
4,231 | |||
| Interest cost |
|
4,910 |
|
4,273 |
|
4,002 | |||
| Amortization of transition obligation |
|
781 |
|
781 |
|
781 | |||
| Amortization of net loss |
|
229 |
|
268 |
|
215 | |||
|
|
|
|
|
|
|
||||
| Net periodic cost |
$
|
9,269 |
$
|
9,543 |
$
|
9,229 | |||
|
|
|
|
|
|
|
||||
The assumptions at December 31 used by TIAA to calculate the benefit obligations as of that date and to determine the benefit cost in the year are as follows:
|
|
||||||
|
|
|
|||||
| 2004 | 2003 | |||||
|
|
|
|
|
|||
| Weighted-average assumptions | ||||||
| Discount rate | 5.75 | % | 6.25 | % | ||
| Rate of increase in compensation levels | 4.00 | % | 4.00 | % | ||
| Medical cost trend rates | 5.00 - 9.00 | % | 5.00 - 10.00 | % | ||
| Ultimate medical care cost trend rate after | ||||||
| a five year gradual decrease | 5.00 | % | 5.00 | % | ||
| Dental cost trend rate | 5.25 | % | 5.25 | % | ||
The assumed medical cost trend rates have a significant effect on the amounts reported. A one-percentage point increase and decrease in assumed medical cost trend rates would have the following effects:
|
|
|
|||
|
|
|
|||
|
|
|
|
||
|
|
|
|||
|
|
|
|
||
| One percentage point increase |
|
|||
| Increase in postretirement benefit obligation |
$
|
12,324 | ||
| Increase in eligibility and interest cost |
$
|
1,028 | ||
| One percentage point decrease |
|
|||
| (Decrease) in postretirement benefit obligation |
$
|
(9,204 | ) | |
| (Decrease) in eligibility and interest cost |
$
|
(769 | ) | |
33
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
Note 11 – Pension Plan and Postretirement Benefits – (concluded)
TIAA also maintains a non-qualified deferred compensation plan for non-employee trustees and members of the TIAA Board of Overseers. The plan provides an award equal to 50% of the annual stipend that is invested annually in company-owned annuity contracts. Payout of accumulations is normally made in a lump sum following the trustee’s or member’s separation from the Board.
Policy and contract reserves are determined in accordance with standard valuation methods approved by the Department and are computed in accordance with standard actuarial formulae. The reserves are based on assumptions for interest, mortality and other risks insured and establish a sufficient provision for all benefits guaranteed under policy and contract provisions.
General account policy and contract reserves as of December 31, are summarized as follows:
|
|
2004 |
|
|
|||
|
|
|
|
|
|||
| Life Insurance |
$
|
419,154 |
$
|
377,098 | ||
| Annuities |
|
130,208,824 |
|
123,570,392 | ||
| Active Life and Claim Reserves |
|
363 |
|
243,301 | ||
| Supplementary Contracts |
|
378,170 |
|
387,963 | ||
| Disability – Active and Disabled Lives |
|
47,594 |
|
44,424 | ||
| Other |
|
157,463 |
|
153,952 | ||
|
|
|
|
|
|||
| Total Policy and Contract Reserves |
$
|
131,211,568 |
$
|
124,777,130 | ||
|
|
|
|
|
|||
For annuities and supplementary contracts, policy and contract reserves are generally equal to the present value of guaranteed benefits. For most annuities, the present value calculation uses the guaranteed interest and mortality table or a more conservative basis and for most accumulating annuities the reserve thus calculated is equal to the account balance. For the Personal Annuity (“PA”), deferred annuity reserves in the general account are equal to the account balance plus the present value, at the maximum statutory valuation rate on an issue year basis, of excess interest guaranteed beyond the valuation date. In addition, a reserve is maintained in the general account for the PA’s Guaranteed Minimum Death Benefit (“GMDB”) provision. The reserve for the GMDB is calculated in accordance with Actuarial Guideline 34, Variable Annuity Minimum Guaranteed Death Benefit Reserves and New York State Regulation 151 and was approximately $384 and $815 at December 31, 2004 and December 31, 2003, respectively.
For retained assets, an accumulation account issued from the proceeds of life insurance policies, reserves held are equal to the total current account balances of all account holders.
In aggregate, the reserves established for all annuity and supplementary contracts utilize assumptions for interest at a weighted average rate of approximately 3%. Approximately 87% of annuity and supplementary contract reserves are based on the 1983 Table set back 9 or 10 years or the Annuity 2000 table set back 9, 10, or 12 years.
34
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
At December 31, TIAA’s general account annuity reserves had the following characteristics:
|
|
|
|||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||
| Amount | Percent | Amount | Percent | |||||||||
|
|
|
|
|
|
|
|
|
|||||
| Subject to discretionary withdrawal: | ||||||||||||
| At book value without adjustment |
$
|
22,974,084 | 17.6 | % |
$
|
20,803,827 | 16.8 | % | ||||
| At market value | --- | 0.0 | --- | 0.0 | ||||||||
| Not subject to discretionary withdrawal | 107,770,373 | 82.4 | 103,308,481 | 83.2 | ||||||||
|
|
|
|
|
|
|
|
|
|||||
| Total annuity reserves and deposit liabilities | 130,744,457 | 100.0 | % | 124,112,308 | 100.0 | % | ||||||
| Reconciliation to total policy & contract | ||||||||||||
|
reserves shown on the balance sheet:
|
||||||||||||
|
Reserves on other life
policies & contracts
|
466,748 | 421,521 | ||||||||||
|
Reserves on accident & health
policies
|
363 | 243,301 | ||||||||||
|
|
|
|
|
|||||||||
| Total policy and contract reserves |
$
|
131,211,568 |
$
|
124,777,130 | ||||||||
|
|
|
|
|
|||||||||
For Ordinary and Collective Life Insurance, reserves for all policies are calculated in accordance with New York State Insurance Regulation 147. Reserves for regular life insurance policies are computed by the Net Level Premium method for issues prior to January 1, 1990, and by the Commissioner's Reserve Valuation method for issues on and after such date. Annual renewable and five-year renewable term policies issued on or after January 1, 1994 use segmented reserves, where each segment is equal to the term period. The Cost of Living riders issued on and after January 1, 1994 also use segmented reserves, where each segment is equal to one year in length.
Reserves for the vast majority of permanent insurance policies, term insurance policies, and regular insurance policies use Commissioners' Standard Ordinary Mortality Tables with rates ranging from 2.25% to 6%. Term conversion reserves are based on TIAA term conversion mortality experience and 4.50% interest.
Liabilities for incurred but not reported life insurance claims and disability waiver of premium claims are based on historical experience and set equal to a percentage of paid claims. Reserves for amounts not yet due for incurred but not reported disability waiver of premium claims are a percentage of the total Active Lives Disability Waiver of Premium Reserve.
TIAA waives deduction of deferred fractional premiums upon death of the insured and returns any portion of the final premium beyond the date of death. Surrender values of approximately $141 and $143 in excess of the legally computed reserves were held as an additional reserve liability at December 31, 2004 and December 31, 2003, respectively. As of December 31, 2004 and December 31, 2003, TIAA had $1.35 billion and $1.23 billion, respectively, of insurance in force for which the gross premiums were less than the net premiums according to the standard of valuation set by the Department. Reserves to cover these insurance amounts totaled $6,262 and $6,551 at December 31, 2004 and December 31, 2003, respectively.
The Tabular Interest, Tabular Less Actual Reserve Released and Tabular Cost have all been determined by formulae prescribed by the NAIC.
For Immediate Annuities not involving life contingencies and Supplementary Contracts not involving life contingencies, for each valuation rate of interest, the tabular interest has been calculated as the product of the valuation rate times the mean liability for the year. For all other funds not involving life contingencies, tabular interest has been calculated as the total interest credited to such funds.
35
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
TIAA entered into an indemnity reinsurance agreement dated October 1, 2002 with Standard Insurance Company, (“Standard”) to reinsure on a 100% coinsurance basis all the liabilities associated with its group life and group disability blocks of business. The agreement was approved by the Department on September 30, 2002. At closing, Standard paid TIAA $75,000 as a ceding commission, and TIAA transferred cash equal to the liabilities of $723,100 to Standard. The ceding commission was recorded as an increase in contingency reserves, net of direct expenses of $8,100 associated with the transaction, pursuant to Statement of Statutory Accounting Principles (“SSAP”) #61 – Life, Deposit-Type and Accident and Health Reinsurance, SSAP #24 – Discontinued Operations and Extraordinary Items , and Appendix 791 – Life and Health Reinsurance Agreements . The net ceding commission of $66,900 will be amortized into income in subsequent periods.
In 2004, TIAA and TIAA-CREF Life entered into a series of agreements with Metropolitan Life Insurance Company (“MetLife”) including an administrative agreement for MetLife to service the long-term care business of TIAA and TIAA-CREF Life, an indemnity reinsurance agreement where TIAA and TIAA-CREF Life ceded to MetLife 100% of the long-term care liability and an assumption reinsurance agreement where, after appropriate filings in each jurisdiction, MetLife will begin, in 2005, the process of offering the TIAA and TIAA-CREF Life policyholders the option of transferring their policies from TIAA and TIAA-CREF Life to MetLife.
The company remains liable for reinsurance ceded if the reinsurer fails to meet its obligation on the business assumed. All reinsurance is placed with unaffiliated reinsurers. TIAA does not have reinsurance agreements in effect under which the reinsurer may unilaterally cancel the agreement. Amounts shown in the financial statements are reported net of the impact of reinsurance. The major lines in the accompanying financial statements that were reduced by the effect of these reinsurance agreements include:
|
|
|||||||||
|
|
|
||||||||
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
||||
| Insurance and annuity premiums |
$
|
336,910 |
$
|
160,688 |
$
|
768,180 | |||
| Policy and contract benefits | 119,724 | 140,151 | 54,697 | ||||||
| Increase in policy and contract reserves | 194,030 | 11,246 | 633,025 | ||||||
| Policy and contract reserves | 909,488 | 715,458 | 700,132 | ||||||
Note 14 – Commercial Paper/Liquidity Facility
TIAA began issuing commercial paper in May 1999 and currently has a maximum authorized program of $2,000,000. As of December 31, 2004 and 2003, TIAA had no outstanding obligations. TIAA maintains a $1,000,000 committed and unsecured 364-day revolving line of credit with a group of banks to support the commercial paper program. This liquidity facility has not been utilized.
Note 15 – Contingencies and GuaranteesSubsidiary and Affiliate Guarantees: TIAA guarantees the debt obligations of TGM. TGM’s aggregate debt obligations to third parties, including accrued interest, at December 31, 2004 were $2,288,034. The carrying value of TGM’s total assets at December 31, 2004 that can be used to satisfy TGM's obligations was $2,447,185.
36
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
TIAA has a financial support agreement with TIAA-CREF Life. Under this agreement, TIAA will provide support so that TIAA-CREF Life will have the greater of (a) capital and surplus of $250,000, (b) the amount of capital and surplus necessary to maintain TIAA-CREF Life’s capital and surplus at a level not less than 150% of the NAIC Risk Based Capital model or (c) such other amount as necessary to maintain TIAA-CREF Life's financial strength rating at least the same as TIAA’s rating at all times. This agreement is not an evidence of indebtedness or an obligation or liability of TIAA and does not provide any creditor of TIAA-CREF Life with recourse to TIAA. TIAA made no additional capital contributions to TIAA-CREF Life during 2004 under this agreement. TIAA-CREF Life maintains a $100,000 unsecured 364-day revolving line of credit arrangement with TIAA. As of December 31, 2004, $30,000 of this facility was maintained on a committed basis for which TIAA-CREF Life paid a commitment fee of 3 bps to TIAA on the undrawn amount. During 2004, there were eighteen drawdowns totaling $79,300 that were repaid by December 31, 2004. As of December 31, 2004, outstanding principal plus accrued interest was $0.
TIAA provides guarantees to the CREF accounts, for which it is compensated, for certain mortality and expense risks, pursuant to an Immediate Annuity Purchase Rate Guarantee Agreement. TIAA also provides a $1,000,000 uncommitted line of credit to CREF, the Retail Funds and the Institutional Funds. Loans under this revolving credit facility are for a maximum of 60 days and are made solely at the discretion of TIAA to fund shareholder redemption requests or other temporary or emergency needs of CREF and the Funds. It is the intent of TIAA, CREF and the Funds to use this facility as a supplemental liquidity facility, which would only be used after CREF and the Funds have exhausted the availability of the current $2,250,000 committed credit facility that is maintained with a group of banks.
Separate Account Guarantees: TIAA provides mortality and expense guarantees to VA-1, for which it is compensated. TIAA guarantees that, at death, the total death benefit payable from the fixed and variable accounts will be at least a return of total premiums paid less any previous withdrawals. TIAA also guarantees that expense charges to VA-1 participants will never rise above the maximum amount stipulated in the contract.
TIAA provides mortality, expense and liquidity guarantees to REA and is compensated for these guarantees. TIAA guarantees that once REA participants begin receiving lifetime annuity income benefits, monthly payments will never be reduced as a result of adverse mortality experience. TIAA also guarantees that expense charges to REA participants will never rise above the maximum amount stipulated in the contract. TIAA provides REA with a liquidity guarantee to ensure it has funds available to meet participant transfer or cash withdrawal requests. If REA cannot fund participant requests, TIAA’s general account will fund them by purchasing Accumulation Units in REA. TIAA guarantees that participants will be able to redeem their Accumulation Units at the then current daily Accumulation Unit Value.
Leases: The Company occupies leased office space in many locations under various long-term leases. At December 31, 2004, the future minimum lease payments are estimated as follows:
| Year |
|
||
|
|
|
|
|
| 2005 |
$
|
55,021 | |
| 2006 | 23,142 | ||
| 2007 | 22,869 | ||
| 2008 | 22,948 | ||
| 2009 | 12,876 | ||
| Thereafter | 27,363 | ||
|
|
|
||
|
$
|
164,219 | ||
|
|
|
||
37
TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF AMERICA
NOTES TO STATUTORY - BASIS FINANCIAL STATEMENTS – (continued)
(dollars in thousands)
The total amount of sublease rental income to be received in the future is $24,876. Leased space expense is allocated among TIAA and affiliated entities. Rental expense charged to TIAA for the years ended December 31, 2004, 2003 and 2002 was approximately $9,164, $10,272 and $10,199, respectively.
TIAA transferred title to land and building located at 485 Lexington Avenue and 750 Third Avenue, New York, New York on July 28, 2004. TIAA has leased and continues to operate the properties after closing pursuant to a Master Lease scheduled to expire on December 31, 2005. Due to TIAA’s continuing involvement in the operations of the buildings under the lease terms, TIAA deferred the recognition of gains from disposition of these properties until expiration of the lease under the deposit method of accounting. Net proceeds at the time of transfer were $468,765. As of December 31, 2004, the unrecognized gain for this transaction was $276,071. TIAA's lease obligation under the Master Lease and sublease rental income for the year ending December 31, 2005 is $32,462 and $13,452, respectively.
Other Contingencies and Guarantees:Under a risk sharing agreement with Deutsche Bank, in connection with a future securitization transaction, TIAA is obligated to bear the pricing risk of the underlying warehoused securities and associated hedges entered into by Deutsche Bank in the event that the proposed securitization transaction is not consummated. TIAA is entitled to earn the difference between the interest accrued on the warehoused securities during the warehousing period and the financing rate plus the carrying cost in connection with hedging transactions, known as the “portfolio carry.” At December 31, 2004, the potential net gain on the related securities was $517. TIAA was also entitled to a portfolio net carry amount of $1,087 as of December 31, 2004.
In the ordinary conduct of certain of its investment activities, TIAA provides standard indemnities covering a variety of potential exposures. For instance, TIAA provides indemnifications in connection with site access agreements relating to due diligence review for real estate acquisitions, and TIAA provides indemnification to underwriters in connection with the issuance of securities by or on behalf of TIAA or its subsidiaries. It is the opinion of TIAA’s management that such indemnities do not materially affect TIAA's financial position, results of operations or liquidity.
Other contingent liabilities arising from litigation and other matters over and above amounts already provided for in the financial statements or disclosed elsewhere in these notes are not considered material in relation to TIAA’s financial position or the results of its operations.
Note 16 – Subsequent EventsOn April 20, 2005, the TIAA $1,000,000 committed and unsecured 364-day revolving line of credit expired and was replaced by a 5 year committed and unsecured revolving line of credit that matures on April 20, 2010. This line of credit is arranged with a group of banks and will support the commercial paper program.
38
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 28th day of April, 2005.
| 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 Chief Executive | 4/28/05 | ||
|
|
Officer (Principal Executive Officer) and | |||
| Herbert M. Allison, Jr. | Trustee | |||
| /s/ Elizabeth A. Monrad | Executive Vice President (Principal | 4/28/05 | ||
|
|
Financial and Accounting Officer) | |||
| Elizabeth A. Monrad | ||||
| SIGNATURE OF TRUSTEE | DATE | SIGNATURE OF TRUSTEE |
DATE
|
||||
|
|
|||||||
| /s/ | Herbert M. Allison, Jr. | 4/28/05 |
|
||||
|
|
|
|
|
||||
| Herbert M. Allison, Jr. | Sidney A. Ribeau |
|
|||||
|
|
|||||||
| /s/ | Elizabeth E. Bailey | 4/28/05 | /s/ Leonard S. Simon |
4/28/05
|
|||
|
|
|
|
|
||||
| Elizabeth E. Bailey | Leonard S. Simon |
|
|||||
| /s/ | Robert C. Clark | 4/28/05 | /s/ David F. Swensen |
4/28/05
|
|||
|
|
|
|
|
||||
| Robert C. Clark | David F. Swensen |
|
|||||
| /s/ | Estelle A. Fishbein | 4/28/05 | /s/ Ronald L. Thompson |
4/28/05
|
|||
|
|
|
|
|
||||
| Estelle A. Fishbein | Ronald L. Thompson |
|
|||||
| /s/ | Marjorie Fine Knowles | 4/28/05 |
|
||||
|
|
|
|
|
||||
| Majorie Fine Knowles | Paul R. Tregurtha |
|
|||||
| /s/ | Robert M. O’Neil | 4/28/05 | /s/ Rosalie J. Wolf |
4/28/05
|
|||
|
|
|
|
|
||||
| Robert M. O’Neil | Rosalie J. Wolf |
|
|||||
|
|
|
|
|||||
| Donald K. Peterson |
|
||||||
Exhibit Index
| (1) | Amendment to Distribution and Administrative Services Agreement by and between TIAA and TIAA-CREF Individual & Institutional Services, Inc. | |
| (4) | Forms of Retirement Choice and Retirement Choice Plus Contracts | |
| (5) | Opinion and Consent of George W. Madison, Esquire | |
| (23) | (B) | Consent of Sutherland Asbill & Brennan LLP |
| (C) | Consent of Ernst & Young LLP | |
| (D) | Consent of Friedman LLP | |
